When Can I Retire? (Part 4 – Putting It All Together)

Today is an exciting milestone in the “When Can I Retire” series – Part 4, “Putting It All Together”. Today, we’ll focus on putting your Spending & Income Plans together, to see when you’ll be able to declare your Financial Independence and start your retirement lifestyle if you so desire.

If you’ve not been motivated enough by the series thus far to attempt to calculate your own retirement date via the process I’ve outlined, I strongly encourage you to, at a minimum, run a detailed online calculator (I’ll have a future article on this topic) before making the decision on your retirement date.  If you’re unwilling to take that step, then sign up with a Certified Financial Planner and pay them to run the numbers for you – it’s simply too important to understand your financial situation before finalizing your retirement date!

Even if you’re already retired, I encourage you to “run the numbers” using the same process as outlined here to insure you’re not withdrawing more than 3 or 4% of your investment portfolio per year, which will help you to have the confidence that your funds should be sufficient to sustain you through your lifetime (I’ll have a future post on an annual “alignment” process I’m planning on using in retirement).

To start, a reminder of the outline for this series (with hyperlinks to each article):

When Can I Retire – Outline:

  1. Spending Plan Estimating your post-retirement spending requirements
  2. Retirement Income Plan – How much income you can assume from your resources?
  3. Contingency PlanHave you modified your Step 1 + 2 Plans to recognize risk?
  4. Putting It All Together – The Retirement Cash Flow Model

At this point, you should have a detailed spending and income plan, by year, adjusted for risks identified in Step 3.  You may want to run various “scenarios” to show the impact of relevant risks identified in your Contingency Plan.  For the sake of simplicity, today’s article will only work with a single scenario, but the process would be the same regardless of the number of scenarios you’d like to model for your personal situation.

The Spending Plan:

The first step in compiling your Retirement Cash Flow Model is to revisit your spending plan.  For simplicity, in my personal model I created a new sheet in my Excel file to put the spending and income streams together into one view.  Therefore, in a new tab you’d have a summary line of total spending (including taxes), as follows.  Note that ficticious figures are used for all examples:

Spending Plan Summary

You’ll note a slight modification from my original suggestion in Article 1.  Here, I’ve broken the total spending categories into “Essential” and “Optional”.  You may want to consider this approach, which helps in recognizing what spending (optional) you’d be willing to forgo in the event of market downturns or if some of the risks identified in The Contingency Plan come to fruition.  I’d suggest you break down each of your major spending categories into these two components, then use totals for your Cash Flow Model, as illustrated above.

Also, in a future post I’ll work through how you should continue this series until your projected death (I’ve used Age 95 in my personal model, with the assumption modeled in of my death at 92, with my spouse continuing to live 3 years beyond that).  You may also have to make some revisions to your spending estimates as you transition into your retirement year.  For now, your post-retirement spending assumptions should be used in each year.

The Income Plan:

After you’ve created a new page with links to your spending, create a similar link below the Spending Detail (on your Retirement Cash Flow Model page), linking to the total income lines in your Retirement Income Plan developed in the second article.  You’ll see below I’ve created a link to both the “4% Withdrawal Rate” and “3% Withdrawal Rate” totals from the Retirement Income Plan (Article 2) to compare:

retirement income
Note the income derived in 2016 is determined from your 12/31/15 investment balance (your prior year’s ending balance will determine the amount of withdrawal you can make in the following year). Also, note the “Fixed Sources” continues to increase.  This reflects the reality that your Social Security benefit will continue to grow until the point at which you claim these benefits and begin drawing.  Once we’ve finalized your targeted retirement date, you’ll have to decide if you’ll begin drawing social security immediately, or defer.  If you can “bridge” to the latest possible date via drawing from your investment accounts, your Social Security benefit will continue to increase ~8% for every year you defer.  You can get these figures from the Social Security website, and your model should be revised according to your best estimates of when you’ll claim benefits.

When Can I Retire?

At this point, you’re able to determine a preliminary target date for your retirement!  By simply subtracting your spending needs from your income potential, you can clearly identify the year in which your spending needs will be covered by a 3-4% withdrawal rate:


In this example, I’ve highlighted in red those years in which retirement isn’t feasible, yellow where it’s possible, and green where it’s reasonable.

You can see the difference between the assumed 3% vs. 4% withdrawal rate.  You should also note this includes total spending (both “Essential” and “Optional”).  Therefore, in this example it’s safe to assume retirement by mid-2019.  If you’re a more cautious type and would prefer to build in a safety cushion for contingencies, 2020 should be targeted as the retirement date.

It should be noted this analysis only answers the question of “When Can I Retire”.  Before finalizing your decision, a cash flow model should be completed for all future years up to your longest realistic lifespan.  That includes a bit more complexity, as the model needs to incorporate withdrawals from your investment accounts as you fund your lifestyle, which will reduce the future income generation of your portfolio.

Due to length, I’ll stop at this point with this series.  I will refer back to this series when I write a future article in the next few weeks addressing how to model the years after which you’ve retired, which is necessary to insure your portfolio can continue to provide the necessary income throughout your life.

I should also caution:  this is only one tool used to estimate potential retirement dates.  Due to article length, it’s also not complete in that I’ve not yet addressed the Cash Flow throughout retirement, which must be completed before finalizing your decision on retirement.  However, it does identify the year in which a 3-4% withdrawal rate from your investment portfolio should be sufficient to cover your spending needs, which is the guideline most widely held as the earliest date at which you should consider retirement.  This is a critical piece of information as you seek to answer for yourself the date at which you should consider retirement.

In my own planning, I’ve completed a full Cash Flow model through Age 95, including modified spending through retirement as our lifestyle will inevitably change.  I’ve also run several online calculators, and had a professional Certified Financial Planner model my situation through his proprietary Monte Carlo analysis.  Fortunately, all techniques came up with the same approximate time frame for when I can retire, so I’ve gained confidence in the techniques I developed on my own, and which I’ve now shared in part with you (minus the upcoming article on Cash Flow modeling through your retirement years).

Hopefully, this series has been beneficial, and at this point (assuming you’ve followed all of the steps outlined), you should be able to answer for yourself:

When Can I Retire?


  1. Hi Fritz – thanks so much for this series (I’ve just read all 4 in a row). I’ve also done estimated cash flow till age 100 – glad to know I’m not the only geek out there. I did it because we have an investment property and couldn’t do the basic retirement calculator. I wonder if you don’t mind me asking a few questions: 1. I’m wondering how to classify my investment property income because historically it has been more reliable and stable than our retirement funds returns, so in thinking maybe the investment property income could cover necessities? What are your thoughts on this?
    2. What assumptions do you use for major renovations for your own home, if any? Eg replace bathroom every x years
    3. I’m thinking of one way to reduce sequence and returns risk is to have a moderate ‘essentials only’ bucket of say 3% (or our investment property income as above) and then depending on the return for the previous year, then it is ‘safe’ to spend on ‘extras’ for the next year eg on travel etc. Any thoughts on this approach?
    Thanks again for sharing your expertise and real life experience

    1. TPE, thanks for joining my team! Sounds like we have a lot in common. As for your questions: 1) Assuming you have reliable rent income, I would tend to count this as a similar asset class to bonds. As such, it’d be logical to count it toward your necessities, tho you may want to build in a bit of a buffer for any unanticipated home expenses (no renter for a few months, new furnace, etc). 2) I have a detailed spreadsheet on major assumptions for renovations, too detailed to list here. Perhaps I’ll write a future blog on the topic to show how I calculated my monthly “reserve” amount. 3) I agree with your conservative approach of assuming 3% withdrawal and insure you can cover “needs”, use only “good return” years to add extra for “wants”. Just make sure you can truly flex your spending to insure you don’t overwithdrawal on “needs”. Great question, thanks for your interest!

  2. Hi
    Thanks for replying. I like your comparison to bonds and yes I have a buffer (having experienced it once already even when it was vacant for only a week we lost rent and had to pay for advertising again, and used the chance to repaint – have learnt from experience). Good advice about the overwithdrawal on needs, they can creep up on you.
    Thanks again it is great to get a 2nd opinion from someone who has treaded my path already.

  3. Fritz,
    Could you please explain your formula of Investment Withdrawals in your Retirement Cash Flow Model? I’m a bit lost on the 2nd portion of the formula. E.g. I’m looking at the Cell E23 on Scenario 1 and it shows =(E27-E21-E20-E22)+(E27*($D$8+0.02)). What’s the meaning (E27*($D$8+0.02))? It deals with Fed rate and then is 0.02 for state or local tax by any chance? Well, I’m actually I’m guessing it’s the inflation rate…? What does the whole formula imply?

    Also, is Assumed Investment Return a blended return to account for a mix of stock/bond AA portfolio including negative returns in some years? Is it real or does your spreadsheet calculate nominal returns and incorporates the 2% Inflation rates in the formulas? I like the layout of your spreadsheet, but I’d like to understand the meaning of the formulas as I’d love to do it in Excel.


    PS. as you use one kind of inflation, are you of opinion that your personal inflation will always equal to the gov’t calculation inflation? Since you show inflation, would this mean that spreadsheet calculates in the future dollars? I always understand retirement planning in ‘today’s dollars’ but perhaps inflation rate helps to keep everything in the perspective that money is not static. It’s not easy for my mind because I’m having difficulty how to use my today’s spending when I play on your retirement cash flow model and the retirement date is at least 5-7 years away. Should I adjust my today’s spending of $60K by say yearly 2-3% inflation to before I plug it in your spreadsheet (1st year retirement spending)? Or should I use today’s $60k figure as my pretend 1st year retirement spending?

  4. Fritz,

    My question if regards to the 4% withdrawal strategy. My take on it is that you provide for a lifetime of earnings while not using the principal. In your opinion is there any change to this strategy if you don’t have any heirs? My wife and I have no children to leave any money to.

    1. Scott, my understanding is that the 4% strategy assumes that there will be nothing left for heirs. It’s very possible there will be money left, depending on how the market performs, but it’s not recommended to spend more than 4%. If the markets underperform, the 4% should get you through a lifetime of spending, but there (theoretically) would be nothing left for heirs.

  5. I respectfully disagree. The goal is to earn greater than 4% on your money, more like 7-8% and live off of 4%.
    In the end the principal remains. Presumably for your heirs which comes back to my original question. Do we really need to follow the 4% rule if we have no children?

    1. Nothing wrong with respectful disagreement, that’s why it’s called Personal Finance! I hope to earn 7-8%, but I am concerned with the current valuations and the historical reality that returns tend to revert to the mean after periods of long bull markets. Even without children, the risk of running out of money before you die is one of the biggest fears for retirees. Plan for the worse, hope for the best, hence my more conservative approach. Thanks for stopping by.

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