# Silly and Misleading Retirement Calculators

## By Mr. Money Mustache

## Thu, 21 Apr 2011 18:34:53 +0000

I think the main reason people seem amazed at the idea of retiring at age 30, 40, or even 50 is the lack of real information on early retirement in general.

If you type “retirement calculator” into a search engine these days, and enter some basic stats about yourself, you will find some very strange assumptions that are guiding you to think you need an absolute shitload of money to retire.

For example, I was once working through such a guide in a magazine from Northern Trust, a bank that caters to the wealthy. It went something like this:

“Consider your goals for retirement. What life events do you need to be prepared for? The following table lists average costs.”

- children’s and grandchildren’s university education ($100,000 per child)
- children’s and grandchildren’s weddings ($25,000)
- assisted care facilities ($100,000 per year)
- medical costs
- funeral arrangements ($25,000)
- trust funds for loved ones
- estate and legacy planning
- charitable foundations

Wow.. looks like you are well into the millions before you even get to buy yourself some groceries!

Another retirement calculator on the CNN website has various parts to fill out and drop-down boxes pre-filled with handy values…

… like a desired retirement age of 65 and “living expenses” of 70% of your maximum pre-retirement income which persist for the rest of your life (!)

That drop-down box with the 70% did not even offer a value lower than 40%.

This “percentage of income” concept is one of the most anti-Mustachian flaws of conventional financial planning. If you make $200,000 per year just before retiring, does this experience corrupt you so much that you need $140,000 per year for the rest of your life? And if so, how is it that the majority of households manage to live on less than half that amount, and some magical people even feel they are living like kings on a merely comfortable income, like 40 grand?

This goes back to the ideas of the “Get what you need” posting I made recently. And that is, why not go for maximum happiness rather than maximum consumption? I propose that maximum happiness is achieved at a spending level where you live in a comfortable space, eat healthy foods and get to do lots of active and stimulating things with friends. That doesn’t have to cost $140,000 per year, or even $50,000 for most of us.

The other assumption they push on people is a very low rate of savings – they assume you will put less than the $16,500 annual limit on 401K contributions, and don’t say much about what to do if you save more than that (which the high-income person mentioned a few paragraphs ago could certainly do).

So, these banks and mutual fund companies will continue to tell you that you need millions of dollars to retire, because it benefits them for you to invest your money with them. Luckily, it’s a harmless bit of tomfoolery, since the saving benefits you as well. But the disservice they do is in scaring people out of dreaming to save faster, or to think about much shorter time horizons like 10 years, instead of just plain old “Age 65”.

So I’ll give you a quick retirement calculator of my own: a typical adult couple with no kids (or whose children are grown) can live very comfortably on $40,000 per year in retirement. My own family lives very comfortably with one child on somewhere in the $27,000 range.

You can shoot higher or lower depending on what level of luxury you want to pursue ($20-80k is a good absolute maximum sane range).. but if you don’t want to calculate everything out, just go for $40k and figure out how to make your savings produce that for you. For a single person, it might be difficult to slice it in half because you lose some benefits from sharing a house and car. But you can come close.

Two quick early retirement budgets:

- An early retiree couple lives on $30k per year, earning 5k of that combined in part-time luxurious post-retirement careers. The remaining 25k per year is generated by their savings:
  $625,000 of total savings are required to generate this amount of passive income using the 4% rule.
- An Early Retiree Single person lives on $25k, earning $10k in his or her mini-career. $15k per year is required from the savings, which calls for a nest egg of about $375k.

I’m working on some much more detailed and exciting sample budgets using real numbers from my own spending experiences before and after retirement. A recent reader posting suggested creating some “square one” plans that tell various hypothetical people in different walks of life exactly what to do to get to a nice retirement partytime in 10 years. Sounds good to me!

But they’re not done yet because the Call of the Canyons has sounded and the MMM family is off for some desert adventures and camping for a few days. You wouldn’t want a fake financial superhero who tells you how great it is to be free, but then sits at home all day as a slave to his blog, would you?? No.