January 16, 2014

Estimating My Future Retirement Income Based on Age of Retirement

I wanted to estimate my expected retirement income if I retired at varying ages.   How would our income differ if I retired at 51 or 62 or 67?  The longer I wait to retire the higher income I can expect.   I'd like to retire early if possible but if working a bit longer will ensure us a better standard of living then it could be worth it.  

My figuring below is pretty rough and has a lot of assumptions built into it.   I don't know how well my investments will perform over the next 10-30 years nor do I know how our real estate assets will appreciate so I have to assume some conservative average figures.     I'm also assuming that we don't save extra amounts in retirement or otherwise above the minimal amounts we save now.   Right now I automatically get about 11% of my salary in my pension and 401k accounts between my contribution and my employers.  But we can and do save more cash in other ways in normal years so our actual retirement picture should potentially be better than the estimates here.

First I figured the annuity I'd get from my company's retirement pension account.   The pension website has a tool that will estimate pension benefits at various ages.   I figured the pension amount at given ages and then figured out how much of my salary that would represent as a %.  The results are :

Pension income:

age % income
51 11%
55 15%
60 21%
62 24%
65 29%
67 33%
70 41%

I then used the social security estimator to figure the amount of social security my wife and I would get assuming she gets 50% of my benefit.  I took that amount and figured out what % of income it would represent.  Those figures are :

Social Security Income:

age % income
62 26%
67 38%
70 47%

Lastly I figured out how much I might have in cash assets  between our IRA, 401k accounts and the net cash value of our rental assets.   For the retirement accounts I just projected over time with a generic assumption of 7% annual growth rate.    For the rentals I assumed I'd sell them all with 10% overhead, 20% taxes and pay off any outstanding mortgage balances.   For all real estate I assumed 3% annual growth in market value.     I then turned the cash assets into joint life annuity using payout rates estimated from immediateannuities.com

For years before age 62 I subtracted some of the cash on hand to pay 26% of our given income for the year to equate to the value of social security at age 62.

I did not figure the tax rate for our retirement income and the income figures are in pre-tax amounts.  However a good share of the income would be tax protected either by being social security or from Roth IRAs so our tax situation should be better post retirement in general.

I created a chart showing the income for different ages from 51 years to 70 years.

The figures above are in 2013 dollars.      The figures jump from 66 to 67 due to me only having estimates for a few years of social security.  If I had better granularity on the social security then the graph would be smoother.   

As you can see if I were to retire early at age 51 then we could expect an income a bit over $50k.   $50k a year is the target I had aimed for at retirement of age 50 back when I started this blog.   I picked age 51 since that is the first year I'd be officially eligible for my company's early retirement program so the soonest I could get a valid estimate for my pension benefit.  Then every extra year I work after that our projected retirement income just goes up steadily.   That is just common sense since we'll have more money saved and fewer retirement years to plan for.   On average the expected income goes up about 7% for each extra year I work.


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