The issue with OP's calculator is, one has to enter an assumption for the rate of return after taxes and fees.
Also you can average 7% return in retirement, but you have a big market drop early in your retirement, you run out of money even if the market makes it up 10 years down the road. You can't spend an average.
I was trying to deal with the question of a safe spending rate based on historical returns.
Enter a stock/bond allocation, spending rate, couple of other assumptions, will show you, if you had retired using that gameplan in each year, 1928 up to the present, how long would it take to run out of money. And based on an actuarial life table, how likely you were to run out of money.
That should give some idea of how big a portfolio you need to have to spend the amount you want without running out of money. And then next step would be to figure out how much you need to save to get there.
If you hit the 'Visualize' button after running an initial simulation, you can drag some sliders around and see what happens...used Google's visualization API.
Maybe I'll take another crack at a proper design.
Well really, as soon as you hit retirement, your savings should NOT be in such a volatile place where you'll eventually go bankrupt. Sure, some of it still in stocks, but you should be moving over to less return/lower risk portfolio options even as you start nearing retirement age. (In fact, this should be a gradual change as you rebalance your portfolio every year. You are rebalancing, right?)
yes, assumes annual rebalancing, but static allocation eg. 60/40 stocks/bonds.
you're retiring for 30 years so you generally do better with a hefty allocation of stocks. try it, that's what the calculator is for :)
given an average return over your retirement, the order and volatility of returns has a significant impact on the amount it's safe to spend.
by choosing a less volatile portfolio you reduce risk allowing you to safely spend more, but you also reduce the return forcing you to spend less.
that's why I did the calculator, how to allocate and how much is safe to spend is not a question with an obvious answer.
there's a tradeoff between desire to spend as much as possible, on the one hand, and shortfall risk, on the other. interestingly, approaches that reduce equity allocation as you get older don't really improve the tradeoff much v. a static equity allocation.
http://blog.streeteye.com/calculator/
The issue with OP's calculator is, one has to enter an assumption for the rate of return after taxes and fees.
Also you can average 7% return in retirement, but you have a big market drop early in your retirement, you run out of money even if the market makes it up 10 years down the road. You can't spend an average.
I was trying to deal with the question of a safe spending rate based on historical returns.
Enter a stock/bond allocation, spending rate, couple of other assumptions, will show you, if you had retired using that gameplan in each year, 1928 up to the present, how long would it take to run out of money. And based on an actuarial life table, how likely you were to run out of money.
That should give some idea of how big a portfolio you need to have to spend the amount you want without running out of money. And then next step would be to figure out how much you need to save to get there.
If you hit the 'Visualize' button after running an initial simulation, you can drag some sliders around and see what happens...used Google's visualization API. Maybe I'll take another crack at a proper design.