Category Archives: Personal Finance

How much money do you need to retire?

As mentioned before, we love browsing through the questions and answers on Quora. Every Quora session reveals financial success stories, inside views into jobs and companies, and some practical life advice.

One topic that comes up frequently is how much money one needs to stop working. That is a question that spreadsheets are well-suited to solve! Let’s build our Financial Freedom Spreadsheet Calculator.

Spreadsheet Inputs

  • Current Age – The older you are, the less time you’ll need your money to last.
  • How much money you have saved up – This pile of money is what will earn returns to support your lifestyle, since you won’t be working
  • The annual return on your investments – More risk, more return…
  • Your expenses – Retiring isn’t cheap! When you quit your job, you’ll have to find health and dental insurance, you’ll still have to pay taxes on your investment earnings, and your kids will still need to go to college (taking out student loans builds character?)… we also need to assume expense inflation. This site assumes the average annual expenditure is about $56,000, including taxes.

That’s pretty much it! Here’s our spreadsheet so far:

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Spreadsheet Logic

Most of our logic will follow our post, Personal Finance Made Easy (with Spreadsheet Modeling!). We’ll forecast our investment income, expenses, and the balance of our money saved for each year going forward in each column in our spreadsheet. First, we’ll set up year 1 pulling in the inputs from our assumptions cells. The investment income each year will equal the money saved (B15) times our assumed investment return (b7), with a fixed reference on the cell B7:

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Our net income is the investment income minus expenses, which we will add to our initial money saved balance to get the ending balance:

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Now for year 2, the current age will increase by 1, the beginning money saved for year 2 is the ending money saved from year 1, investment income will be the same formula, and expenses will increase by inflation:

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Now we can paste the formula from column C as far to the right as we need in order to simulate future years:

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(This guy probably needs to keep working…)

Now that we have a projection of how much money we’ll have at each year in the future, we can add in a couple cells to ask interesting questions of our spreadsheet, like: Will I have enough money to last until I am 100 years old? We can use an HLOOKUP() to look up how much money is saved at age 100:

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Finally, we can make use of a data table to see how much money we need to have saved at what age to stop working and cover expenses until we’re age 100:

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Looks like if we have about 2.5 million, we’re generally in the clear, or $2 million after age 40. I’m realizing now that this doesn’t include social security and future one time college expenses, and a progressive tax formula, but I’ll leave those updates as an exercise for the reader.

One more interesting data table – how does the ability to retire change with the assumed return on investments? We’ll assume the user is age 35.

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Every percent of extra return makes a huge difference on the resulting asset balance at age 100. While the 35 year old could return with $2.5 million at 4%, they’d have to keep working until $4 million if they were only earning 2%. This is the downside of the current low interest rate environment and why for some people it is better for stocks to go down than up!

You can access the Excel spreadsheet here: How much money do you need to retire? Financial Freedom Calculator

Is medical school “worth it”? An introduction to Internal Rate of Return (“IRR”)

Finance hiring is down, law school grads are having a tough time finding real law jobs, so what is an ambitious but risk averse college student to do with his or her life these days? Okay, right now the answer is computer science. Yes seriously, do computer science. But let’s pretend it is the year 2001 and the only other option respectable option is medical school. But doesn’t med school take a lot of time (4 years school plus 3-7 years residency/fellowship) and cost a lot of money? How can we figure out if going to med school and not earning doctor money until 7 years from now is worth it financially relative to just entering the workforce and working for those 7 years? Continue reading

How to analyze a nonprofit Form 990 with a spreadsheet

“The more you give, the more you get, that’s being alive” – The Money Song, Avenue Q

Charitable giving serves a valuable purpose  in  our society. It allows organizations in health, education, social services and others to provide benefits to people who otherwise couldn’t afford them. It allows people who have built up wealth to give back and make a difference. The federal government even subsidizes charitable giving by allowing donations to be deducted from income reported for taxes (effectively kicking in up to 39.6% of each donation). It’s a great system that is meant to fund those people and organizations in need. At least that is how it should be. Continue reading

Build a marriage tax penalty calculator spreadsheet

Summer and Fall are generally regarded as “Wedding season,” a time when love and celebration are in the air. December, on the other hand, could be regarded as “Should we get legally married for tax reasons before the end of the year” season, a slightly less romantic affair. Continue reading

Build a Spreadsheet to help you choose a healthcare plan

Will you save more with standard PPO or a high-deductible PPO Saver plan with a Health Savings Account?

It is currently Open Enrollment season at many workplaces, which is when employees choose their medical insurance and other benefits plans for the upcoming year. It’s also the time of year when people grumble “why is the US healthcare system so complicated” and just elect whatever plan they had in the prior year. Building a spreadsheet can help someone compare the costs and benefits of each of the plans under a variety of different assumptions about tax rate and healthcare expenditure. Continue reading

Do you want the stock market to go up or down?

At first glance, it sounds like an obvious question – surely it is better when stocks go up, right? From watching the ads on CNBC, it would seem that higher stock prices directly translate into more steak dinners and golf vacations while lower stock prices mean bringing your own peanut butter sandwiches to work (jelly is for bull markets). Continue reading

Personal Finance Made Easy (with Spreadsheet Modeling!)

Use a spreadsheet to help see the effects of three key personal finance tips: Earn more, spend less, invest wisely

A quick search for “personal finance” on Amazon.com will reveal a vast amount (100+ pages of results) of literature on this important topic.  We imagine that a fresh 22 year old college graduate could easily get overwhelmed by the chorus of advice and opinions.  For them, we offer this post on how to use a spreadsheet to forecast your financial future, and see how your decisions will affect your finances in future years.  Continue reading