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Make Your Own Retirement Spreadsheet — Part II
In the previous post, I suggested reasons why you might want to create your own financial planning spreadsheet, and described the nuts and bolts of setting one up. But there’s still the problem of choosing reasonable inputs and interpreting results in a way that gives you insight into your financial future — rather than leading you astray. In this post, I go over how to make the most effective use of your spreadsheet plan: how to handle inflation, what you might assume about investment rate of return, how to do sensitivity and what-if analyses, and how to check your results against other tools. Inflation — What to Do With It…
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Make Your Own Retirement Spreadsheet
In my last post, I encouraged those so inclined to create their own financial planning spreadsheets. However, I didn’t provide enough detail to allow the motivated reader to go and set one up. This post fills that gap, providing enough specifics to enable anyone who knows how to use a spreadsheet to map out her financial future on a home computer. If this sounds like something you might want to do, read on! Why Go to the Trouble? But, you may ask, why should you put the time and energy into making your own planning spreadsheet from scratch when there are plenty of powerful software programs out there that will…
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What the Heck is Monte Carlo Analysis?
In reading about personal finance, you may have come across references, often hushed and worshipful, to a mysterious thing called Monte Carlo analysis. Perhaps you wondered: What is it? Is it really the gold standard for financial planning? Are there any alternatives? If this sounds like you, read on! What is it? Monte Carlo analysis, developed by mathematician and nuclear scientist Stanislaw Ulam while working at Los Alamos in the 1940s, is an important tool for modeling a complex system when a key variable is unpredictable, but whose possible values can be described with a distribution (such as a bell curve). Monte Carlo essentially substitutes an entire probability distribution…
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Use Online Retirement Calculators to Check Your Work
Welcome back! If you’ve read my blog posts up to this point, you should have a pretty fair idea of your financial fitness for retirement: Do you (or will you) have enough money to retire (see this post); How should you manage your money once you stop working (see this post); When should you begin taking social security retirement benefits (see this post and this one); and How can you protect yourself from things that might go wrong (read this post)? You may have reassured yourself that you’re financially on track, or perhaps you’ve identified some weaknesses in your plan that need shoring up. But how do you know you…