Excellent Retirement Drawdown Calculator, Factors in Social Security and Pension

This calculator is fantastic. It takes care of a really hard part, which is factoring in years between "early" retirement, and time you start receiving Social Security and/or a pension. Also factors in inflation. For what it's worth, my investment rate of return assumptions are:

• Middle/Mildly Optimistic: 7% return, 2% inflation
• Moderately Conservative: 6% return, 2% inflation

Very important note--this assumes 100% equities. If you take a route that involves less market risk and lower volatility, you will likely have substantially lower inflation-adjusted returns. It also assumes that your savings are tax-sheltered; either retirement accounts (fully tax sheltered) or long-term investments (mostly tax-sheltered).

Assumed returns are over the very long term, mind you. Any time horizon under 10 years may well be less predictable (not that there are any guarantees of predictability--this is a build-your-own annuity). Also, as I write this (Feb 2021) the market has been so strong for so long, that I make a near-term adjustment. I assume zero market returns for the next 4 years. That could come either as a near-term correction, and then a return to more normal returns; or it could come as 4 years of stagnation. (DISCLAIMERS: these are just my own uninformed guesses that I bake into my model. Nothing magic about 4 years, either, just my guess/model.)

So to use the calculator, you need to have an idea of how much income you need/want in retirement, and also how much pension and Social Security income you will have (the latter can be looked up online). For instance, here is a model run using some nice round numbers:

This model is for someone who retires today at age 60, and waits until they are 67 to begin drawing Social Security. Here are the results (some intervening years omitted for brevity):

They will run out of money in 20 years, at age 80. 

A crucial aspect of the model is that it factors in inflation. This is absolutely essential. Even with the very low inflation we have been experiencing for many years now, over a decadal timescale inflation  has a huge impact. (Again, the model is only going to be good as your wild guess on inflation, but that is much, much better than ignoring inflation.)

Also crucial to remember: the calculator does not factor in income tax. So that $7000 monthly income could translate to more like $5400 post-federal and state income taxes.

For modeling how much savings you will have at point of retirement, there is another calculator in the family. As for determining your budget, that's an exercise for the reader, but I will offer a few things to consider:

• Don't forget, since you don't pay Social Security taxes from retirement income, your monthly income need is effectively ~7.5% smaller.
• Likewise, in retirement you obviously no longer need to save for retirement, so that is another chunk of your monthly budget to the good.
• If you have significant after-tax savings, the tax rate will be lower. In the case of Roth, tax rate is zero. In the case of regular, non-retirement-account savings, the LTCG is 15%, instead of your 22-24% federal income tax bracket (though I wouldn't be shocked to see that differential eliminated in the future).

Finally, a limitation of the model is that it doesn't factor in cost of health insurance, prior to being Medicare-eligible. And we all know that can be well into double-digits. It also doesn't factor in when you are done paying off a mortgage, which would also be very helpful.