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?