Bucket Strategy Calculator for Retirement and Other goals
This write-up describes a calculator that combines a set of factors to assess the feasibility of achieving financial freedom early in life. In a typical retirement - say at or after 55 years - an individual would have completed most of the goals - home, children education, etc. The only, or definitely the biggest, goal would be that of retirement corpus
In an early retirement scenario, say 45 years, many of the other goals would be unmet. The corpus will have to address these goals as well as retirement needs. Considering the long years in retirement, the withdrawal strategy has to be sophisticated. Hence this tool - A calculator to apply bucket strategy to major goals as well as retirement.
I developed this for my personal situation. My first child would be in 12th standard in the year that I plan to achieve financial freedom. (I may choose to retire at that time, continue working or take a different career - that does not change the goal of financial freedom.) My second child is 3 years later in education. So in the first 12 years of 'retirement', I would have many large expenses related to my children. I have already built a corpus that is sufficient for their college education and either higher education or marriage. My retirement corpus (along with rental income) seems sufficient to follow the typical income drawdown strategy.
I wanted to push further if I can meet all the goals, and throw in expensive vacations. This calculator helps me assess that.
In recent years, I have begun to use the calculators at freefincal.com for all my financial plans. For this scenario I had to combine two calculators and add some customization. The original blog posts have detailed, useful information on the calculators. Please look up the references first.
0. The calculators always start with the inputs for retirement planning. For any person earning income, this is always Goal # 1.
1. I took the goal planner sheets from 2012. (
https://freefincal.com/goal-planners-2/)
One of the sheets has the template for staggering education expenses into many years. To this I also added a table to capture some non-recurring expenditure like vehicle, vacation, etc. The sheet can be used standalone for detailed calculations for education goals. For the purpose of retirement, the most relevant information is the corpus required for a particular year. (Connection to BHP: The goals also include regular car purchases!)
2. I then merged this into the bucket strategy simulator for retirement. (
https://freefincal.com/the-even-lowe...nt-calculator/) In fact the new calculator is an attempt to validate the assertion at the end of the first paragraph: The reduction could be higher for early retirement.
3. I had to modify some of the formulae in the sheet to pick amounts for all the goals. These modifications are marked in light blue fill. More than 90% of the information in the sheet is retained from the original version.
4. I created a new sheet that captures yearly outflows under various heads - Education, Retirement, others, etc. This is the last sheet in the file. Since the calculator is for all goals, there could be large variations in yearly expenses.
5. I extended the buckets to a total of 11 years. If each bucket is for 5 years, then the calculator can be used for a period upto 55 years from now. I also modified the relevant cells to pick the expense amount for that year from the cashflow sheet.
6. When the calculations from the buckets are plugged back, the Retirement_Inputs sheet gives a clear idea of the net corpus required, and the monthly investments required to achieve that corpus. If this monthly investment can be met, then it is feasible to achieve early financial freedom.
7. The last sheet seeks to provide an overview of the corpus required and where it can be invested. If you have sufficient corpus to get 4 or more ticks, you can consider that you are at the Financial Freedom threshold.
This sheet (attached to this post) is by no means easy to use. While I welcome suggestions to make this simpler, I can definitely answer questions/clarifications from people who want to use this sheet.