A Retirement Planning Spreadsheet?

Is a retirement planning spreadsheet of any use? If you know how to do a spreadsheet analysis you will probably want to forecast your future using your own homemade spreadsheet. I tried to do that too!

If you are a trained and experienced financial planning expert, your homemade spreadsheet could eventually be very comprehensive and inclusive of all parameters. You could even download from the Internet a spreadsheet offered by an acknowledged expert. But my research showed that most, if not all, spreadsheets fall short of what's required of a comprehensive retirement planner in several categories.

Here are the most common deficiencies:

When planning during your pre-retirement years, your regular deposits benefit from cost averaging and you effectively get a higher return. During retirement, regular withdrawals reverse the benefit from cost averaging and effectively produce lower returns. Generally, retirees will get 1% pa lower return than in the pre-retirement phase.
The published returns on mutual funds and variable annuities are gross returns. You must subtract transaction or mutual fund costs. The average investor loses at least 1% pa of the return due to these costs.
Retirees use a much more conservative spread for their investments than people still in the work force. Your retirement planner should allow for this too.
Most retirement plans are tax deferred. That means that you don't get taxed on the amount of income received that is diverted to your retirement plan. Your savings also grow at a before-tax rate. Consequently you actually get a higher return on the amount invested. After retirement you get taxed on your withdrawals and the net return on that investment is thus much lower than in pre-retirement years.

Your retirement planning spreadsheet should also allow for the risks that retirees face:

What happens if I, or my spouse, live substantially longer?
What happens when inflation escalates during my retirement years?
What happens if the markets crash and my investment capital is reduced drastically?
What happens if I, or my spouse, need health care in excess to my health care provision?

On this website we review some retirement income calculators and planners. Before you spend a lot of time on your own spreadsheet, do some research and visit these discussions.

The best spreadsheet I could find was developed by Henry 'Bud' Hebeler. I use it myself. You can download it by visiting this page. The page opens in a new window.

Keep in mind that your spreadsheet, like all other calculators and planners, are merely tools for your edification. To allow you to eliminate uncertainty and to take control of your own retirement planning. To be informed and knowledgeable when you work with a qualified and experienced financial advisor.

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