Definition
Retirement planning integrates savings rate, investment returns, time horizon, Social Security, pension income, healthcare costs, and withdrawal strategy into a comprehensive plan. Key variables include the replacement ratio (percentage of pre-retirement income needed), savings rate, asset allocation glide path, and withdrawal strategy. Monte Carlo simulation provides probability-based projections.
lightbulb Example
A 40-year-old wants to retire at 65 with $80K/year income. Assuming 8% returns, 3% inflation, and Social Security covering $25K: needs $55K from portfolio × 25 (4% rule) = $1.375M. Required monthly savings: ~$2,200 at current savings of $200K.
verified_user Key Points
- Integrates savings, investments, income, and expenses
- Replace 70-80% of pre-retirement income
- 4% withdrawal rule determines portfolio target
- Monte Carlo reveals probability of success