Toronto-based engineer Ross Grant reached financial independence in his early 40s based on a simple and disciplined strategy of saving, investing and building a nest egg during his working career. His engineering background helped — he credits his success to meticulous planning using Excel spreadsheets, tracking his plan and revising and adjusting it over time.
Based on his experience, he has built a “What IF” Retirement Planner, which is essentially an Excel-based model for planning your retirement that sells for $19.95 (comes with a 30-day satisfaction guarantee) through the firstmillion4you website. On reading Mr. Grant’s story and learning about the planner in the March/April 2009 issue of Canadian Money Saver (you can read the article here), a reader asked me to test drive the product and write a review of it. In turn, I contacted Mr. Grant and he was kind enough to send me his Money Saver article and a copy of the Canadian version of the Planner.
The Planner is relatively straightforward to use: you key in data such as the inflation rate, the rate of return on investments, your age, when you would like to retire, your expected expenses in retirement, your current savings and future additions etc. Entering the initial information gives you an immediate estimate of how your nest egg will look like in future years. You can then refine your estimate by adding other income sources such as pensions, CPP and OAS benefits, rental income or part-time employment.
The results produced by any model are only as good as the input data: you need accurate estimates of spending in retirement and future savings to get an approximately correct estimate. You also need to have realistic expectations of future returns. For instance, if I assume a 6% return (and 2% inflation) for our own retirements, we need to keep saving. Instead, if I assume an 8% return, we could retire at age 55 without saving a penny from now on. To further complicate matters, the results are path-dependent because as you know, markets do not provide smooth average returns — they vary wildly from one year to the next and the sequence of returns has a significant influence on the end result.
Personally, I’ve done my rough retirement planning scenarios through a similar tool that comes bundled with Microsoft Money and I didn’t get that much extra value out of this planner. But if you’ve never done retirement planning or don’t have a copy of Microsoft Money, you will find this tool to be very helpful in a valuable exercise — taking the first steps to plan out your retirement.
[Note: I should point out that I have no financial interest in writing this post. I also thank reader Colin for the post idea and would love to hear any tips or post ideas you may have.
Update from Mr. Grant: “Also, from my experience I would recommend that you should not limit to a one-time exercise vs an ongoing process to get the real value out of planning and level setting to reality”.]
