Retirement Scenarios

With sound financial planning, a nice retirement lifestyle can be had even when retiring early and with a moderate asset.

We used the free Retirement Planning Calculator offered by the FinCrafters mobile app for this analysis. This tool enables you to calculate how much you could withdraw in retirement based on your current income, savings and the value of your existing assets. You can also specify your expected growth rates for income, market return and inflation. All the dollar values are adjusted for inflation and expressed in real terms or in today’s dollar value.

The tool calculates the maximum retirement income that will sustain your nest egg until you turn 95. Or you can specify a different amount you prefer to withdraw during retirement and find out what legacy you will leave behind or the age when you will run out of money. This tool also provides insights regarding your human and financial capital. Human capital is your lifetime earning potential. It declines with age and reaches 0 when you retire. Financial capital is your investable asset or nest egg. You can find more information about this topic in “Human vs. Financial Capital.”

The calculator reports several other metrics such as your lifetime income, your retirement income expressed as a percent of your last paycheck, and the portion of your nest egg taken out each year for retirement. Your asset values at retirement age and age 95 are also reported.

The example illustrated by the calculator shows a 40-year old individual who makes $160K a year, saves 21% of the income, and has about ≈$0.5M in investable assets. His income profile grows at twice the inflation rate and the expected market return from investing his current assets and future savings is 7% CAGR. His income will have reached $223K when he retired at 62. He would thus make $4M over the rest of his working career.

This person will retire at 62 with a $3M nest egg, and be able to withdraw inflation-adjusted $136K (or 61% of his pre-retirement income) annually during his 33-year retirement period. Model halves the asset growth rate during retirement. He will have entirely depleted his assets by 95, by withdrawing 4.4% of it every year.

How much can be saved up for retirement?

Now let us modify the scenario to see how much one can save over their entire work life.

The table shows the asset value at retirement for four scenarios between low/high income individuals saving at normal/high rates. Asset values are in real terms and adjusted for inflation. Income quadruples over their 40-year work life both for low and high-income individuals. Using the Retirement Planning Calculator, the retirement nest egg ranges from $1-2M for low income individuals and from $2-4M for high income individuals.

How much can be spent during retirement?

Let us examine how retirement spending looks like with low, medium and high asset levels.

This is an analysis of the retirement years. Someone with a $1M (in real terms) nest egg would be able to sustain a retirement income of ≈$50K on an inflation-adjusted basis during a 30-35 year retirement. Their assets would have been completely spent down by age 95. Even when retiring early and with a medium nest egg, a decent retirement with $100K spending power can be had.

The scenarios described above are only the first order of approximation when it comes to retirement planning. Next steps involve figuring out an optimal way to allocate savings and assets to various tax buckets. You can read more about this topic in “A Framework for a Tax-Free Retirement.”

A video presentation of this blog is available at “How to Use FinCrafters Retirement Planning Calculator.”

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at!

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