When should I retire Is my retirement plan

When should I retire? Is my retirement plan on track? By Daniel R Wessels January 2012 DRW Investment Research

I’m 55 years old and serious about my retirement plan…

Conventional retirement planning… Accumulating capital DRW Investment Research …”In the last ten years before retirement I will double my retirement wealth”…

Conventional retirement planning… Drawing down during retirement DRW Investment Research

Assuming constant returns… But the reality is… Firer & Staunton, DRW Investment Research

“I’m 55 years old and planning to retire ten years from now (age 65)” • Will I have enough retirement capital? • Should I retire then or continue working, if possible? But, What do we know about retirement values ten years before retirement?

I’m afraid, not much… • The tale of two retirees…starting at the same level of retirement wealth ten years prior to retirement, but ending very differently

If you think that is cruel, wait for this one… • And another two retirees…same portfolios, same income, same contributions, but different decades and real returns!

If my retirement value ten years from now is not really predictable… • How can I then plan today for a successful retirement? • When should I retire, given what I know today?

If not assuming future returns, what can we do? • Backtesting my retirement plan and values today against historical return data and not assuming constant returns… • Identify worst-case scenario for each assumption… • No guarantees, but relative comfort that one is planning for bad return patches going forward…

My situation today (age 55)… Given what I accumulated in retirement wealth thus far plus certain assumptions about income needs at retirement, longevity, etc… Salary/income R 500, 000 Net contribution rate towards retirement fund 12% or R 60, 000 p. a. Retirement wealth R 4, 000 Wealth multiple 8 times Retirement age 65 Expected replacement rate at retirement 75% or R 375, 000 in today’s terms Expected post-retirement period 25 years or until age 90

How did situations with these type of assumptions played out in the past? What would have been the maximum retirement age or safe retirement age required to ensure the post-retirement sustainability of my plan?

Safe Retirement Age influenced by… • Post-retirement period (longevity) – for how long must my retirement plan be sustainable after retirement? -15 years, 20 years, 35 years, etc. • Savings rates – how much must I save for the rest of my working career? • Investment portfolio – how much risky assets (equities) to include in my portfolio? • Replacement rates – how much of my salary prior to retirement I want to replace with postretirement income?

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