Definition of "Year"

[sambutler1947]

In the Planner's data table, is "Year" defined as a calendar year or 12 months from the current date? My current age is 63 & I plan to retire August 31, 2011. I want to enter my remaining pre-retirement income. If my annual calendar-year income is $100,000, what should I enter in the Misc Income cash flow input for ages 63 & 64 - $100K for each year or some sort of proration?

Thanks much. Wonderful tool - thanks for sharing it.

[jimr]

Thanks for the kind words about the planner. I'm glad you're finding it helpful.

In terms of how the simulation handles years, it's more precise to think of a year as "the 'next 12 months." That would probably be less confusing if I hadn't included references to the calendar year in some of the output tables to make them more user friendly. Internally, the simulation code doesn't know or care what the date is. It just iterates through "plan years" starting at 1 and ending at the end of the plan.

In real life, events can happen at the beginning, middle, or end of the year. In the simulation, events can only happen at the beginning or the end of the year. The way the simulation is coded, retirement happens at the beginning of the year, annual contributions and withdrawal are made at the beginning of the year, and portfolio growth happens at the end of the year. This lack of date precision usually isn't an issue because there are generally much larger estimation errors in a typical person's retirement plan.

Inside the simulation, retirement age is used for two things. First, the annual savings that you specify on the input form are stopped when you hit retirement age (the last contribution to the portfolio will be in the year before you hit retirement age). Second, retirement spending starts to get deducted from your portfolio in the year you hit retirement age.

If you want more precision around this, you could zero out the annual savings and retirement spending inputs on the main input sheet and instead use the additional inputs popup window to enter all the cash inflows and outflows of your plan. With this approach, you can specify one value for one range of years and a different value for another range of years. A range of years could be just a single year.

Hope that helps,

Jim

[sambutler1947]

Thanks for your prompt & helpful answer, Jim.