Most of us understand that the future is inherently unpredictable, yet many of us still desire an effective tool to assist us in making key financial and lifestyle decisions that will shape our future despite the uncertainties. The Pralana Retirement Calculator meets that desire with this design philosophy:
- Effective financial and retirement planning is not a one-time endeavor, so make the planning and analysis process as painless as possible for the user: Have the tool save the user’s data from one planning session to the next, make it easy to understand and use, and make it fast and interactive.
- There is high value in basing projections on detailed inputs rather than rough estimates despite uncertainties in future rates of inflation, rates of return, life expectancies, and so on: Enable the user to define key assumptions, income streams and expenses in as much or as little detail as desired. Never ask the user to specify how much he/she will need to live on as a percentage of pre-retirement income. Further, never ask the user to specify how much he/she plans to save. Rather, support detailed income and expense stream definition and apply this simple concept: for every year in the projection, assume that income minus expenses determines contributions to or withdrawals from savings, and then grow or shrink the savings balances in accordance with this and the user’s inflation and investment assumptions.
- Taxes need special treatment since they are a big lifetime expense and are commonly not a consistent percentage of a person’s income over time: Perform detailed federal, state and FICA tax calculations based on the user’s inputs and include these as another expense stream in making future projections.
- Since the future is inherently unpredictable, use multiple analysis techniques and generate a range of possible outcomes based on the user’s detailed inputs: Generate fixed rate projections and perform Monte Carlo simulations and history-based simulations, and then present all analysis results to the user in an easily-understood manner.
- To facilitate a decision-making process and sensitivity analyses, the tool should make it easy for the user to define and compare major alternatives as well as small variations: Support the detailed definition of three independent sets of inputs (scenarios) and present side-by-side analysis results to facilitate easy comparison. Then, provide supporting tabular outputs so the user can delve into the details and verify that the outputs make sense.
- A tool can facilitate some complex decisions, such as how to maximize our standard of living, determining how much life insurance we need and determining the right time to start collecting Social Security benefits: Provide special capabilities to perform consumption smoothing, make life insurance recommendations to maintain the living standard of the surviving spouse and optimize the Social Security start age for each marriage partner.
PRC contains no magic and need not be intimidating to anyone. Like any calculator, what it does is just math. It collects certain information from you, does the math, and then presents the results. What makes it unique is its organized structure and the level of detail it is capable of working with to avoid large errors associated with simplifying approximations. Additionally, PRC never gives you a single answer because there is no such thing. Our financial future contains a number of unknowable variables which can have dramatic effects on the size of our savings over a period of many years. Consequently, PRC is designed to address the uncertainties and, as a result, provides a range of possible outcomes based on your inputs. Armed with this information, you will be in the best position possible to make financial decisions.
PRC/Gold is structured to lead you through the planning process step by step, allowing you to focus on one specific area at a time, save your inputs, and then move to the next area. It goes WAY BEYOND simply providing data input rows where you can enter income and expenses with corresponding start and stop dates. Rather, it leads you through the process of defining your income and expenses systematically and is capable of dealing with nuances associated with specific items. One result of this is more pieces of data for you to collect and input; however, this is YOUR information and you can probably collect it with minimal difficulty. The result, though, is a much higher fidelity model of your financial future than could be achieved by using just high level inputs, as is the case with most other calculators.
Pralana Consulting LLC, Plano, TX
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PRALANA RETIREMENT CALCULATOR | The Mercedes-Benz of Retirement Calculators
ADVANCED PERSONAL FINANCIAL MODELING | MONTE CARLO & HISTORICAL ANALYSIS | INTERACTIVE WHAT-IF ANALYSIS