The Helpful Flaw in My Retirement Calculations

So after writing and calculating my potential retirement for the last six years I have managed to evaluate a lot of the factors and modify them over the years.  Yet I purposely have always kept a flaw in my assumptions.  I never assume I get a raise above inflation, which while being a conservative thing to assume it is the biggest driver on why my retirement estimates keep drifting to a shorter and shorter time frame.

When I first did my calculations I estimated I would in fact be short some cash to hit freedom 45, but over the years that number drifted lower until recently it hovering between age 41 to 42 depending on the method used.  The single biggest reason why that number kept getting shorter wasn’t my excellent investment skills, but rather I kept getting better raises that my plan required.  Since I didn’t spend that money, it just added to my savings and my pile of money just grew faster.

As an example, here are the Consumer Price Index increases in Saskatchewan since 2006.

  • 2006 – 2.0%
  • 2007 – 2.2%
  • 2008 – 2.3%
  • 2009 – 0.3%
  • 2010 – 1.8%
  • 2011 – 2.9%
  • 2012 – 1.5%

Total CPI increase was 11.5%. Meanwhile my actually increases on my employment income was 17.7% for the same period (which includes me voluntarily working less for 2.5 years and taking a $20,000/year pay cut from 2006 to 2007). If you just count the 2007 to 2012 period it was a 55% increase.

So if you take the lower increase I still outpaced my inflation target by 6.2%, and all of that extra after tax money when straight to savings or paying down debt.  Either case, it helped move my plan along faster than any of my predictions.  I suspect if I actually altered my assumption to to even a modest growth in salary I could like aim for freedom 40.

How do you keep your retirement calculations conservative?  What flaws do you keep in even if they really aren’t that reasonable?

3 thoughts on “The Helpful Flaw in My Retirement Calculations”

  1. I look at what is in my accounts and I don’t add any interest. What I have put in to the work pension, my RRSP mutual fund and the individual stocks in my TFSA are what I have.

    I don’t count on gains in the future when planning because you just never know. I also plan for a very small amount from the government pension plans because I don’t know how much will still be available for me in ten years when I retire.

  2. I do that too–my intentional flaws are that I assume my husband and I will both live to 100. It’s probably not likely that either one of us will get to 100, but in any case, one of us will experience a drop in expenses when the other one goes first.

    Also, I assume we’ll still be living in the same house. A few decades from now, I’m sure we’ll downsize to a more senior-friendly house.

    And I use high expectations for inflation and low expectations for earnings. All giving me what I hope is a reasonable zone of safety.

  3. ha – I guess it’s more widespread than I had thought!

    My personal ones are assuming a return of 2% above inflation as well as the same inflation-only salary increases. And of course, zero state pension for the later years 😉

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