## Archive for April 28th, 2012

### Simple Retirement Calculator

Saturday, April 28th, 2012

Sorry that I have not been posting much of late.  April is always rough for me.  Taxes play some role in April, because I get a certain amount of my tax data late, but the main reason stems from some charitable boards on which I serve, which meet in/near April.

One of the questions that came to me was how we could educate some of the workers to put away more of their income for retirement, because we don’t have a Defined Benefit plan.  After a little discussion, I said that I could give them good friendly advice.  As most committees go, when someone volunteers to solve a problem, discussion ends.

Now, what I have done is pretty simple, and violates one of my rules — I don’t believe in constant compound interest.  Markets don’t work that way, but for some perverse simplifying reason, retirement planning models do.

What I have done is create a model for retirement income, attempting to express it in terms that someone non-knowledgeable could understand.  You can download the Simple Retirement Calculator (free to download) that I created.

My base case assumes 3% inflation, pay keeps pace with inflation, and the real return on investing is 2% over inflation.  Other assumptions: one works for 45 years from age 25 to 70, and that the options for payout are limited to those that respect spouses and heirs.

So what can one 25 years old expect from saving over a 45 year period of time?

 Savings Rate Salary Replacement 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% J&S 100% Cash Refund 22.9% 27.5% 32.0% 36.6% 41.2% 45.8% 50.4% 54.9% 59.5% 64.1% 68.7% J&S 100% CR Indexed 15.1% 18.1% 21.1% 24.1% 27.1% 30.1% 33.1% 36.1% 39.1% 42.1% 45.2% 4% year 14.6% 17.6% 20.5% 23.4% 26.4% 29.3% 32.2% 35.2% 38.1% 41.0% 43.9% Accum Years Ending Pay 3.66 4.39 5.13 5.86 6.59 7.32 8.06 8.79 9.52 10.25 10.99

This table expresses what is needed in order to have effective income during retirement.  The average investor can’t control asset returns.

J&S 100% Cash Refund -> Spouse gets 100% after death of annuitant, heirs get a payment annuitants got less than the lump sum value at retirement.  Indexed benefits increase at the rate of the CPI.

With a 2%% real return, it takes a lot of saving to replace current income in retirement, even over 45 years. Note that the real return assumption has the largest impact on the results.

Much as I think DB plans are superior to DC plans for the average person, most companies in the present environment will not subsidize a DB plan to the degree that will allow a person to retire at the same level of purchasing power that they had while employed.

There are many ways that I could improve the results of this model, but the improvements would only be incremental.  The main point of this model indicates that most people do not save enough, if all of their retirement outcomes rely on a defined contributions plan.

Let me know what you think  in the comments below.  Thanks.

### Weekly Sorted Tweeets

Saturday, April 28th, 2012

Federal Reserve

• Long Term U.S. Credit Boom Chart http://t.co/Ywub8HQH By bailing out short-term credit cycles, the Fed created a big asset bubble \$\$ Apr 28, 2012
• Quantitative Deleting: The Fed’s \$400 Billion ‘Gift’ http://t.co/qavtYcQy Fed’s actions lower cost of funding the US Treasury’s deficit 4now Apr 26, 2012
• Bernanke Takes On Krugman’s Criticism Ignoring Own Advice http://t.co/AZ37nx1W Blind & Blinder \$\$ Apr 26, 2012
• I think Ben needs one too. Barkeep, make that a double for the the Fed Chairman! \$\$ RT @soooouuuuurrrrr: @AlephBlog I need a drink. Apr 25, 2012
• That’s all folks — the FOMC show is over!! \$\$ Apr 25, 2012
• Stocks loving Bernanke, who says he doesn’t act to please markets, but I think that he does, b/c he aims to reduces rates & spreads \$\$ Apr 25, 2012
• Good Qs on Labor force participation rate and the “bond bubble.” Bernanke obfuscates. Apr 25, 2012
• But the real canard here with the enhanced guidance is that the Fed is poor at forecasting & consistently drags toward current conditions \$\$ Apr 25, 2012
• When will Fed “transparency” finally be understood to not mean “increased reliability?” Apr 25, 2012
• Interesting that long Treasuries r rallying off of the FOMC second stmt after falling on the first. Not much difference between the 2. \$\$ Apr 25, 2012
• So, short-term inflation up, LT unch. ST Unemp down, LT unch. ST GDP up, 2013-4 down, LT unch. Tightening 6 mos closer than Jan, FF path up Apr 25, 2012
• Central tendencies and ranges of economic projections, PCE average change 2012-14 +0.22%, +.10%, +.09%, longer run 0% (natch) \$\$ Apr 25, 2012
• Central tendencies and ranges of economic projections, unemployment average change 2012-14 -0.40%, -.21%, -.08%, longer run -.01% \$\$ Apr 25, 2012
• Central tendencies and ranges of economic projections, GDP average change 2012-14 0.16%, -.08%, -.24%, longer run 0% \$\$ Apr 25, 2012
• The enhanced guidance of the FOMC is causing more confusion than enhancing understanding \$\$ Apr 25, 2012
• Overview of FOMC participants’ assessments of appropriate monetary policy; Appropriate Timing of Policy Firming 6 months sooner than Jan12 Apr 25, 2012
• Target Federal Funds Rate at Year-End average change 2012-2014, +.015%, +.044%, +.206%, long-run -.015% \$\$ Apr 25, 2012
• PDF isn’t as friendly as HTML… but that’s probably intentional on the part of the Fed. \$\$ Apr 25, 2012
• here they are, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents http://t.co/OzeYZbRa \$\$ Apr 25, 2012
• Clocks must be slow at the Fed’s website… Apr 25, 2012
• Bond/stock trading bots set loose within the next minute! Apr 25, 2012
• @bondscoop When the FOMC said they would do this, I said “Do they really get what they are setting themselves up for?” Tight coupling. Apr 25, 2012
• @bondscoop Thanks. I’ve got the ancillary data loaded into a spreadsheet to make a quick comparison Apr 25, 2012
• @bondscoop That’s not out yet, right? Apr 25, 2012
• Redacted Version of the April 2012 FOMC Statement http://t.co/wJbPNf5P Shaded up views on housing, inflation & global financial risk. \$\$ Apr 25, 2012
• Of course, that can only last so long as inflation stays low. Brian Wesbury thinks inflation might be rising http://t.co/YfLFURA3 \$\$ Apr 24, 2012
• Gundlach Says Fed Won’t Preemptively Raise Rates http://t.co/YTfjQ6Wj W/debt building up 1 thing saving us: interest rate collapsing \$\$ Apr 24, 2012
• There r historical accidents. The worst that we r dealing w/is Ben Bernanke as Fed Chairman with his mistaken views on the Great Depression! Apr 24, 2012
• Awash in money and piles of debt http://t.co/C9hbSWmf Up next: More QE, financial repression, inflation, deficit spending -> stagflation \$\$ Apr 23, 2012
• \$\$ Coming soon +1 RT @ReformedBroker: Hilsenrath: After-Hours Sell-Off in Netflix Pushes Fed Governors Toward to Further Easing… \$NFLX Apr 23, 2012

China

• Are these companies feeling the Chinese slowdown? http://t.co/bIO0m2vF Machinery companies: Volvo, ABB, \$CAT seeing China orders fall \$\$ Apr 26, 2012
• China Internet Crackdown Silences Another http://t.co/ukw0qzWg More closure of accts found 2b spreading “malicious political rumors.” \$\$ Apr 26, 2012
• Why Wukan Will Remain a One-off http://t.co/LO3tK7kT Optimistic piece shows when there is enough pressure in China, change can happen \$\$ Apr 26, 2012
• China Tire Demand Slows as Economy Decelerates, Bridgestone Says http://t.co/yUK3UEye Q is how much things slow for the Chinese economy \$\$ Apr 26, 2012
• China Escalates Crackdown On Internet Amid Scandal http://t.co/QblN4v3S China wants the internet 4 its economy, but not its politics \$\$ Apr 26, 2012
• China and Social Media Today vs. Japan bubble in 80s http://t.co/0uxQ40xV Vitaliy Katzenelson shares his reasoning on bubbles \$\$ Apr 26, 2012
• Why China’s Economic Policies Are a Failure: Andy Xie http://t.co/WZjILv4J Building redundant capacity, cronyism, recipe for disaster \$\$ Apr 25, 2012
• China Hidden Liabilities for Central Government Seen @ CNY10.94Trl http://t.co/gaqD4suu Opaque governments w/lots of debt can b trouble 2 \$\$ Apr 25, 2012
• Shide Group Mired in Financing Crisis, Massive Debt http://t.co/Iws3h9Ec Beware complex companies w/lots of debt. Default probs higher \$\$ Apr 25, 2012
• The Startling Plight of China’s Leftover Ladies http://t.co/WWK3en7R Leftover Chinese men r not good enuf 4 them, even w/sex ratio tilted \$\$ Apr 24, 2012
• Behind a Chinese City’s Growth, Heavy Debt http://t.co/6eKX3kJp Bo Xilai leaves behind a legacy of debt 4 taxpayers to fund \$\$ #surprise Apr 23, 2012
• Cities get a sinking feeling: report http://t.co/xQE2d46k If China’s cities aren’t careful about their water tables, they’re sunk \$\$ Apr 23, 2012
• Can China Reflate the Housing Market? http://t.co/rMtYHX0Y Maybe one more time, but eventually you can’t resuscitate a corpse \$\$ Apr 23, 2012
• US barnyards help China super-size food production http://t.co/38GkPJ0T China builds protein industry by purchasing live animals from US \$\$ Apr 23, 2012
• Beijing’s Cracked Consensus http://t.co/1Xep2j6s Don’t assume the fall of Bo Xilai 2b 2big; the CC Party still fights 4 the CC Party \$\$ Apr 23, 2012
• Farmers Retool to Feed China http://t.co/c0loHf82 Dairy processors make longer-lasting milk powder 2sell2 China. They like almonds 2 \$\$ Apr 23, 2012
• China May Finally Let Its People Move More Freely http://t.co/fiTQgY5c Of hukou: how China uses household registration 4 control purposes Apr 23, 2012
• The End of China’s One-Child Policy? http://t.co/dK7sUMTq China is getting old before it gets rich. Toxic combo. Watch wages rise. \$\$ Apr 23, 2012
• The China Rising Leaders Project http://t.co/QuKsr7w2 Very long piece giving very detailed info on next generation of China’s leaders \$\$ Apr 23, 2012
• China’s Biggest Banks Are Squeezed for Capital http://t.co/uveB69fJ Too much and overaggressive lending strains their balance sheets \$\$ Apr 24, 2012

Eurozone

• Spain’s current unemployment rate exceeds the US rate during the Great Depression http://t.co/bj86umZp Ugly chart: http://t.co/M6uchbAx \$\$ Apr 28, 2012
• Why Spain Won’t Reform http://t.co/aIuYUctZ Cultural argument that Madrid historically does not act on problems outside of Madrid \$\$ Apr 28, 2012
• Rising Italy-to-Spain Yields Keep Banks on Life Support http://t.co/kSdshke5 Many banks simply cannot refinance their maturing debt \$\$ Apr 25, 2012
• Continuing flow of capital out of Greece http://t.co/psvzWbJk E.g. Greek refineries r unable to obtain credit & rely on Iran for crude \$\$ Apr 25, 2012
• Spanish property crisis will require Ireland-style banking system recapitalization http://t.co/pDLNF2X7 But who has the money 2do it? \$\$ Apr 23, 2012
• Bundesbank’s Weidmann Says What No EU Politician Wants to Hear http://t.co/ecLHlLIJ EZone monetary policy loose; fiscal union negligible Apr 23, 2012
• Holland, Not Hollande, Is Europe’s Latest Worry http://t.co/AeQtOIVv If Dutch don’t care 4 austerity, little hope 4 rest of the EZone \$\$ Apr 23, 2012

Pensions

• How Retirement Benefits May Sink the States http://t.co/oIEsAWhh Companies emigrate 2 states where future tax pressures r lower \$\$ #bye Apr 28, 2012
• Point Man on Pensions http://t.co/DaXsdkgx PBGC director has experience in restructuring; serves him well negotiating w/dud companies Apr 23, 2012
• Tidbit in last article: FV of DB pension liabs for \$SWY > market cap. Actuarial profession goofed on DB plans valuations; ests r liberal \$\$ Apr 23, 2012
• The Multiheaded Pension Monster http://t.co/oBDNBZYN Multiemployer DB plans- not enough coverage: moral hazard, low PBGC guarantees \$\$ Apr 23, 2012

Energy

• Chevron sticks with oil. And it pays off. http://t.co/uUlsjbBK FD: + \$CVX | That said, buy & hold conventional NG could b good idea now \$\$ Apr 28, 2012
• Tough Talks Loom at Chesapeake http://t.co/OkMGyu8J Having a CEO who has differing interests from common shareholders is a risk \$CHK \$\$ Apr 28, 2012
• Saudi oil puzzle, continued http://t.co/z76fSKTZ Prices r high, but the Saudis keep stockpiling oil. Why? \$\$ #idunno #gouging #painfreak Apr 25, 2012

Information Issues

• Saudi Clerics Out-Tweet Liberals Forcing King to Balance http://t.co/A1TcHeSJ Don’t underestimate the influence of Wahhabi Islam. \$\$ Apr 26, 2012
• Google Stores, Syncs, Edits in the Cloud http://t.co/BrRSauno Walter Mossberg likes \$GOOG Drive, thinks \$MSFT Skydrive worth a try \$\$ Apr 25, 2012
• PGP Creator Phil Zimmermann Has a New Venture Called Silent Circle http://t.co/KNJQJ4X4 There’s also a promise of no backdoors 4 anyone \$\$ Apr 24, 2012
• A New Email Encryption App Your Network Admin Might Not Like http://t.co/7b967z7e Enlocked can encrypt email w/a click, could go viral \$\$ Apr 24, 2012
• Surveillance State evils http://t.co/BKkmM78J Don’t say anything that you don’t want the government 2 know. Repeal the Patriot Act! \$\$ Apr 23, 2012
• Astounding. Reprogram it \$\$ RT @AnnieLowrey: This essay awarded a perfect score by a robo-grader is just delightful. http://t.co/Vc1ORC8T Apr 23, 2012

Company Issues

• Heat Turned Up on Falcone http://t.co/zaiW1Jzu The deal w/the devil comes due for payment; Falcone faces checkmate or LS bankruptcy \$\$ Apr 28, 2012
• Woes at Law Firm Deepen http://t.co/to4dZbJY Dewey & LeBoeuf’s troubles w/debt & revenue shrinkage. Law does not work well 4 big biz \$\$ Apr 28, 2012
• Health Insurers to Give Back \$1.2 Billion, Goldman Says http://t.co/VX0V9sL9 health overhaul limits <20% premium for expenses & profit \$\$ Apr 26, 2012
• US Airways Said to Approach AMR Bondholders on Merger http://t.co/iArkC4nq The unsec bondholders r the economic equity of \$AAMRQ now \$LCC Apr 25, 2012
• Genworth Credibility Eroded as Australia Plan Shelved http://t.co/oyJJ4OCC I’ve almost always ben a sceptic on \$GNW. Toxic lines of biz \$\$ Apr 24, 2012
• Google Unveils Drive Storage Service http://t.co/5R1CAkR0 I use Microsoft Skydrive as a real time backup of my files. \$\$’ Apr 24, 2012
• MGIC Posts \$19.6 Million Loss as Borrowers Struggle on Loans http://t.co/fvoY6cZN Regulators should halt \$MTG’s ability 2 write new biz \$\$ Apr 23, 2012

Rest of the World

• Bubble Down Under? http://t.co/jk4UBFzA “Name a credit bubble built on a commodity bull market built on a bigger Chinese credit bubble?” Apr 26, 2012
• North Korea Poised to Rattle Region With Nuclear Blast http://t.co/MJmALgYi Will believe when it happens; NK always seems 2 get tech wrong Apr 26, 2012
• Swiss housing market inching towards bubble http://t.co/KCbYrs6x Makes me wonder when the Swiss Central Bank will break its Euro peg \$\$ Apr 24, 2012

Financial Markets

• Conference Notes http://t.co/VF5FIPOg On 4/13, Chicago Booth held its 7th Annual Distressed Investing & Restructuring Conference. \$\$ Apr 26, 2012
• No surprise when they only put 3.5% down \$\$ RT @pdacosta: Falling home prices drag new buyers under water http://t.co/bayZVELO Apr 26, 2012
• TARP Profit A Myth, Claims TARP Inspector General Christy Romero http://t.co/iv77kkne Q is related to foreclosure prevention aid & GSEs \$\$ Apr 26, 2012
• My Sister’s Pension Assets and Agency Problems by Jeremy Grantham http://t.co/ANDMdZae On the value of a non-constrained mandate \$\$ Apr 25, 2012
• Force Fed by Ben Inker of GMO, last 3 pgs of http://t.co/ANDMdZae Goes through the problems of Asset Allocation with yields so low \$\$ Apr 25, 2012
• Wall Street Promotes Junk Bonds as Europe Erupts http://t.co/5kIRG7Oi grabbing for yield — it’s the national pastime! \$\$ Apr 25, 2012
• US 10 Year Bond Yielding 0.5% http://t.co/Zrnj9zdL Japan scenario for the US? The 10Y at 0.5% seems farfetched, but everyone hates bonds \$\$ Apr 25, 2012
• REITs Spring an Unnerving Surprise http://t.co/qgStDii0 I’ve warned b4 on Private REITs http://t.co/liQr20vq More bad surprises coming \$\$ Apr 25, 2012
• So, if Egan-Jones did do ABS & governments, that would have been news to me. Surprising to see the SEC going after them \$\$ Apr 25, 2012
• Credit Rater Egan-Jones Lied, SEC Charges http://t.co/c1ym3feC Firm was known 4 its corporate bond ratings by a contingent claims model \$\$ Apr 25, 2012
• Who Gets the Equity Risk Premium? http://t.co/gqdPYexG LT holders, brokers, taxes, firms that issue & retire shares at inopportune times \$\$ Apr 24, 2012
• Commodities don’t provide “diversification” in a crisis http://t.co/7ue9vvjJ Commodities provided diversification when few did it; no more Apr 23, 2012

Catastrophe Bonds

• @merrillmatter If I ran a life insurance portfolio, a closed end fund, an open end HY fund, I would buy cat bonds, u need a balance sheet \$\$ Apr 24, 2012
• @merrillmatter With all the goofy ETFs issued, surely someone could create \$CATB, the Cat bond ETF. Would b very tough 2 source bonds 4 \$\$ Apr 23, 2012
• @merrillmatter That’s why many high yield funds buy them w/both hands. Also special hedge funds that tear Cat bonds apart 2 get the best \$\$ Apr 23, 2012

The Perils of Sitting

• On the sitting kills you piece, would like to get a copy. Est’d increase in death rate from 0.76% to 1.06%/yr. Big %, not so big absolute \$\$ Apr 23, 2012
• Confirmed: He Who Sits the Most Dies the Soonest http://t.co/aif1e8xX I found this article worrisome. I sit > half of my waking hours. \$\$ Apr 23, 2012

US Economy

• New Mad-Cow Discovery Stirs Fears http://t.co/DPm6aLzI This story will have legs, 4 2b exact. Beef will b down until scope clears \$\$ Apr 25, 2012
• On the Social Security 2012 Report to Congress http://t.co/RPG3qz1p Age <53 today can expect to get 75% of the value a baby boomer got \$\$ Apr 24, 2012
• Rosenberg: U.S. Clients View Canada as ’51st State’ http://t.co/EqVvLFpX Careful, w/rates so low, housing is looking bubbly & banks?? \$\$ Apr 24, 2012
• Fees and Anger Rise in California Water War http://t.co/9GjE5jwx Bad geography to get water to, unless you want to try desalinization. \$\$ Apr 24, 2012
• @moorehn Heidi, I was 1 of the 8 bloggers @ the 1st blogger summit at the Treasury, & not 1 of the noisier ones. I spoke twice in the 90mins Apr 24, 2012
• @moorehn So here is my Q4 Geithner: How do we get out of the entitlements crisis? We have promises equal to 4-5x GDP!? [Amid the deficit] \$\$ Apr 24, 2012
• Housing market no longer yours for a steal http://t.co/xb2E2JIy Low end res RE is not accepting lowball offers to buy as it used to \$\$ Apr 23, 2012
• You Won’t BELIEVE How Bearish Investors Are On Treasuries http://t.co/q9t2sZdE 2% bullish, 81% bearish in Barron’s poll. FD: + \$TLT \$\$ Apr 23, 2012

Miscellaneous

• US College Education Bubble, Planning for the Wrong Future http://t.co/BScEbQJI But many smaller job fields req college & pay well. \$\$ Apr 28, 2012
• Hong Kong Glued to ‘Bride Wannabes’ http://t.co/6p9RCs0X Reality TV aids lovelorn 30-something women, ending w/a mass marriage 4 some \$\$ Apr 26, 2012
• But really, with Agriculture doing so well in the US, isn’t it time to finally cut farm subsidies? And beef up (oops) USDA food safety? \$\$ Apr 25, 2012
• Government Keeps Picking Winners, Losers on the Farm http://t.co/PKiJBHIp Farmer complains healthy food gets less subsidy than unhealthy Apr 25, 2012

# Disclaimer

David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.