DynaRetire: A Detail Step-by-Step Showcase Based On Sample

In this blog, we will use Martin’s story to demonstrate how the DynaRetire app works by helping him input his retirement data according to his expectations. The app will generate the result in the form of an Excel file. You may visit DynaRetire: Adaptive Retirement Planning With Real-Life Changes about the app features.

The Brief Scenario: Martin’s Retirement Plan

Martin is 45 and wants to plan for early retirement. Below are brief details:

• He and his employer continue to contribute to the pension fund, and Martin also saves extra in his investments specifically for retirement.
• Martin has rental income from his apartment that will continue after he retires. He expects the growth rate to be lower than his expenses inflation.
• Covering his current living expenses like food, transport, bills, and insurance. All these expenses have their inflation rate.
• Dreams of travelling the world and travel fewer afterwards and stop travelling upon 80.
• Paying off his housing loan until 60.
• Upgrading his insurance in a few years, and he expects to pay until 80.
• Changing his car every few years until a certain age.
• He expects some expenses to decrease as he ages.

Considering risk management, He also plans for high medical bills not covered by insurance, and higher health-related expenses. Additionally, he wants to manage the risks to his investments in case of market downturns.

Martin wants to know if he can retire with his ongoing contributions during his working years, his rental income, and his budget for various expenses at different life stages. He also wants to know how long his retirement savings will last.

All expense amounts are in today’s values. The app will calculate future amounts based on inflation for each year or age. It is however, the income amounts are future amounts, with what we expect to receive based on estimates or agreements, considering the age when we start.

Note: Some scenarios are for simulation purposes and may not apply to your situation.

The Information About Age, and Saving Information:

Age

This year is 2024. A 45-year-old person plans to retire early at 50.

Savings

Martin currently has a pension fund worth $1,000,000, which he expects to grow at a rate of 5.5%. However, he can only start withdrawing from this fund when he turns 55.

He also has $500,000 invested in the S&P 500. Instead of assuming a consistent return rate, he wants to see the impact of retiring during a poor market, using 1999 as the retirement year. Since the fund’s history is only available up to 2023, he assumes a return rate of 7% for the remaining years.

Dynamic Expenses Following Basic, Desire Lifestyle, and Risk Consideration

When planning for retirement expenses, he considers the following:

Travel Budget: Dream Of Global Travel

He dreams of travelling the world during the first two years of his retirement, planning to spend a total of $100,000 on global adventures. After that, he expects to spend about $10,000 a year on travel when he anticipates slowing down his travels and stopping when he turns 75. He expects these costs to rise with an inflation rate of 3%

Housing Loan Installment: To Be Settled Until Age 60

He currently has a housing loan, which requires him to pay $10,000 a year. This loan will continue until he turns 60, after which he will no longer have this expense.

Insurance: Upgrade After 10 Years With Inflation Consideration

Currently, he pays $4,000 a year for his insurance. However, as he approaches 56 (Note: For simulated purposes, he may consider upgrading now instead, while he is still healthy, avoid exclusion or reject possibility), he plans to upgrade his medical insurance to ensure it covers him until he turns 80. He realizes that the insurance he bought in his 20s may not be sufficient, especially considering the high inflation rates. He estimates this upgrade will cost an additional $3,000 per year. While uncertain if payments can cease at any age, he prefers to budget until age 80, which aligns with the coverage duration.

Medical Bills: Prepare For High Expenses In Later Years

Starting at age 70, he anticipates needing about $20,000 a year (in today’s money) for possible health-related expenses, e.g. medicines, follow-ups, physio visits, taking into account the possibility that insurance might not cover all expenses. He expects these costs to rise with an inflation rate of 8%. He does not plan for nursing home expenses (Note: he may consider this)

Car Replacement Every 7 Years

Starting at age 51, he plans to buy a new car every 7 years. Each time he buys a new car, it costs him an extra $60,000 beyond what he gets from selling his old car. When he turns 72, he expects to be his last car purchase. He doesn’t anticipate purchasing a car afterward. He projects that car prices rise with an inflation rate of 2%.

Food: Luxury Now, Simple Later

Currently, he spends about $20,000 a year on food, enjoying luxury dining occasionally. However, he anticipates that his lifestyle will become simpler as he ages. By the time he reaches 60, he plans to reduce his food budget to $15,000 a year. He also expects food prices to increase by about 6% annually due to inflation. If the market turns bad, he is prepared to reduce his food expenses to 80% of the original budget to minimize spending and more conservatively manage his finances.

Transport: More Driving Now, Less Later, Stop Afterward

Today. he spends about $4,000 a year on transport, covering costs such as petrol, insurance, parking, and maintenance. However, he expects these expenses to reduce to $3,000 a year after age 65, as he plans to drive less. By the time he reaches 80, he anticipates that he will stop driving altogether, eliminating these expenses. He expected these expenses to increase by about 4% annually due to inflation.

Other Expenses

He estimates that his annual expenses for bills, clothes, gadgets, repairs, and other miscellaneous items will be around $20,000. He assumes a general inflation rate of 3.5% for these expenses over the years.

Incomes¹

During his working years, he wants to ensure his contributions to his retirement fund are well-planned:

Pension Fund Contributions

He and his employer together contribute $36,000 a year to his pension fund. This amount is expected to grow at a rate of 2% per year, in line with his salary increases.

Index Fund Savings

Separately, he saves $20,000 a year in an index fund. He plans to increase this savings amount by 10% each year, leveraging his income growth beyond just the basics.

Rental Income

He earns $10,000 a year from rental income, which he invests in the same index fund. He expects this rental income to grow by 5% per year until he turns 55, after which he anticipates it will slow down to a 2% annual growth rate. He has no intention to sell this property yet.

Investment Risk Management: Minimum Spending, Load Balancing, Pause Selling, Asset Allocation

To manage investment risks, he has a contingency plan: if the personal history average history returns (since retired year) drop below 3% after retirement, he will switch to minimum spending. Additionally, he will avoid selling riskier investments during downturns to prevent losses, prioritizing risk management over growth.

In terms of asset allocation, he plans to maintain a 70% stock and 30% bond mix until age 60. Then, he will shift to a 60% stock and 40% bond mix. By the time he reaches 65, he plans to further adjust to a 50% stock and 50% bond allocation. He also intends to rebalance his portfolio annually to stay aligned with these goals.

By including these details, his plan will account for contributions, income growth, and risk management throughout his working years and into retirement.

How The App Generally Works:

There are four steps to consider when planning for retirement. The first and second steps are essential, while the third and fourth steps are optional. The first step focuses on basic info and savings, while the second step involves allocating your budget to various expenses. The third step pertains to preparing for retirement income or seeking support during retirement, and the fourth step addresses risk management related to investments. You can jump to any step without following the sequence.

At the bottom of the page, you’ll find the privacy statement and a few buttons. The left button allows you to go to the previous step, while the rightmost button takes you to the next step. The submit button indicates that your data is ready for submission to obtain your planning results. The submit button may appear at any step. The privacy statement assures you that this site doesn’t retain any data, including logging or cookies.

Interpret Result: Excel

After successful submission, the app will generate an Excel file and download it to the designated folder.

The purpose of this app is to generate an Excel file rather than displaying it on the screen. This allows you to keep it for reference without revisiting the app. You can use the numbers for further calculations or link them to your formulas. Additionally, if you want to leverage Excel capabilities for displaying forms, this approach is more useful than on-screen display.

Inside the Excel file, there are four sheets.

• Summary: The first sheet is a summary that displays the total fund balance, expenses, incomes, and profit and loss. It also shows the net balance for the year.
• Expenses: The second sheet will provide a detailed breakdown of individual expenses as they occur throughout the year and the total expenses for that year. In the case of an unfavourable market year, a user can configure expenses to switch to minimum spending. In that case, a comment in the column will indicate that the expense amount is based on minimum spending due to the unfavourable market conditions.
• Income: The third sheet will provide a detailed breakdown of individual income as it occurs throughout the year and the total income for that year.
• Funds Flow: The fourth screen illustrates the cash flow into and out of the fund. This movement can result from pension fund contributions (directed into the pension fund), additional savings (allocated to the investment fund), profit and loss, withdrawals for expenses (based on withdrawal eligibility and sequence), and rebalancing (which may involve transferring funds from Fund A to Fund B). If a year is marked as an unfavourable market year and there’s a pause in balancing from a risky fund to a safer fund, the rebalance column will display a comment indicating the pause.

Next Step

You may start planning your retirement life. You may visit my own story of how I plan for my retirement, How I Prepared for Early Retirement: A Personal Story. If you want to know how to invest your money into a fulfilling life rather than material, make your money work best for you. You may visit the blog Smart Spending: Where to Invest Your Money for Retirement?. Ultimately it is about how you allocate your money to do the best for you.

If you are ready, you may visit this site to start your retirement planning: