Yup, to the very conflicted guy... Just beware not to use an actual symbol... That happened to me and I got penny stock returns, yowser
How about a Quicken tip. Have you ever wanted to see what kind of return you need (Average Annual Return - Not IRR/CAGR) to meet your retirement goals? Let us take a hypothetical GS11 sitting at $70K who wants to be collecting the same amount in retirement. Here are the assumptions:
- Current Gross Salary: $70,000
- Years of Service at retirement: 25 (He/She is quitting right now and living on the street for twenty years)
- Current Retirement Savings: $150,000
- Age: 45
This chap wants to bring in $70,000 at age 65 from Social Security, Pension, and TSP. How can you use Quicken to figure out the annual return necessary to meet those goals?
Well, start by selecting ‘Planning | Calculators | Retirement Calculator’
It defaults to ‘Annual Retirement Income’. You can use that and play with the return. The key fields are:
- Current Age: 45 (Default is 30. I’m always turning 30 so this is good, but not real accurate)
- Retirement Age: 65 (Default)
- Croaking Age: 85 (Maybe I should use Passing Age to be politically correct)
- Current Savings: $150,000 (Work the numbers, much worse than expected if chap is not dumb like me)
- Annual Yield: 8% (Default)
- Annual Contribution: We will get this number
- Inflation Rate: 3% (Defaults to 4%, but long term stats say 3%)
- Other Retirement Income:
- We will assume a pessimistic Social Security so: 75% of (1,300/month X 12) = $11,700
- Again we will assume a pessimistic Pension so: 75% of 30% of Current Salary = $15,750
- Total: $27,450. This goes into ‘Other Retirement Income’.
The results are rather awesome for our individual. Click on the ‘Annual Contribution’ radio button on the top and place $70K in ‘Annual Retirement Income After Taxes’ field (and make taxes 0% - because I just want Gross and who knows how high taxes will be with President Howard Dean… And, make certain to increase with inflation). All this chap has to invest is $5,600/year – or $215 per pay period to reach that goal at 8%. If this chap invests %4 of his salary to retirement he/she will make it at 8% (5% over inflation). That is, this chap is required to provide $190 toward retirement. To boot, that $190 will feel like $140 in a take home cut.
Playing with the annual return now gives you a means of changing risk and matching that to expected return and expected retirement income. For example, changing the ‘Annual Yield’ to 7% results in our chap being forced to contribute $10,000/year ($250 per pay period after match). That will feel like $190 per pay period in take home income.
So, a chap making $2,700 per pay period has to 'pay himself first' $250 and earn a whopping 7% a year (average) to bring home the same bacon as he/she did during his/her working life. And, that $250 will feel like $190 in after tax income to this chap.
As an aside, the 7% and 8% returns are BEFORE INFLATION – but the results incorporate the expected inflation. Now, one can use the Investing tab to set up an allocation. The resulting number in the ‘Allocation’ tab are AFTER INFLATION. Don’t ask me how I figured it out, it was a lot of research – trust me. Just add 3% to the expected return to match the Calculators expected return. Thus, a 7% expected return in the calculator requires an Allocation that returns 4% in the ‘Allocation’ Tab of the ‘Investment’ Tab. My rather conservative 25/0/32/17/26 allocation centers at an 8% average return. An example of an allocation returning 7% would be:
G: 45%
F: 0%
C: 25%
S: 10%
I: 20%
And, in a normal –non bond bubbly – market you do not even need 55% equities at age 45 to make the goal. The ‘F Fund’ doubles or triples ‘G Fund’ returns. I’m not using it because it is in a current market bubble. Dumb@ss market timing warning here - see my record in this years AutoTracker!!!
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