Life After Full-time Work Blog

Learn about preparing for life after full-time work through posts from Don's upcoming book.

#50 Variations On A Theme

Our exemplary couple decide that they want to play with the numbers, a little bit.


Remember that Alain and Amélie felt that they were no longer totally lost, but now knew where they were and felt that they owned a compass?  It was irresistible to probe further and draw the outline of a map; in other words, try to find out how far they were from relative safety, as they followed the compass in different directions.  And that meant using the PFR calculator with variations in their inputs, to get a feeling for what would be the effect of turning various dials (to use the language of Post 46,


Given that even their best estimate funded ratio was (at 103%) barely higher than 100%, they wanted to know what changes might give them a greater feeling of safety and comfort.

The first variation they tested was one they were told would probably make a big difference, even though they weren’t exactly thrilled at the prospect of having to put it into practice.  And that was to see how much the PFR increased if they were to retire at 70 instead of 65.

So they went back to the calculator and made the requisite changes.

  • They changed their years to retirement, from 25 to 30.
  • Since they would each be 70 at retirement, they went back to their longevity tables and discovered that their post-retirement years decreased. Instead of 27 and 32, they were now 22 and 27.
  • Postponing their Pillar 1 pension, their friend told them, would increase it from $30,000 to roughly $40,000 a year. (My note to you, the reader: when you make this estimate for yourself, be sure to reflect it in purchasing-power terms, not nominal terms.  For example, if the nominal increase for a five-year postponement is 40%, inflation at 3% a year would reduce it to about 34%. I’m not sure if the friend realized this, in making the $40,000 estimate.)

The changes in their PFR were stunning.

Their locked-in ratio increased from 70% to 92%. And their best estimate ratio increased from 103% to 142% – very comfortable.

How on earth did this happen?

Essentially, two things caused it.

One was that five additional years of saving and five additional years of investment returns increased their projected assets at retirement.

The other was that they needed less money to fund a retirement that would be five years shorter than initially projected.

Put them together, and the difference was enormous.

When they looked at the numbers more closely, they realized that it might not be essential to monetize their home. Without that illiquid asset, their best estimate PFR reached 98% – temptingly close to 100%, and certainly within the margin of error of all their approximations.  Memo to themselves: yes, really check on their budget and on their Pillar 1 pensions – suddenly these had become important focal points.

All of a sudden, delaying retirement until 70 no longer felt quite as unhappy a prospect.  In fact, they were surprised to find that a new perspective occurred to them.  If they had to monetize their home, it revealed itself as just another retirement investment.  But if they could stay in it forever, it gave them enormous emotional security — an important issue that their own parents were starting to struggle with.  The added five years of work could have a big emotional payoff, all the more so if they could look forward to 22+ years of living in it.

They resolved to re-calibrate their PFR every year from now on.


But wait – what if, instead, they increased their contributions?  That took them to a different calculator.

Now they went back to their initial inputs. They kept everything else unchanged (meaning those initial retirement-at-65 numbers), and tested how large their future annual savings needed to be, for their best estimate to reach 100%, excluding illiquid assets.

Answer: the current $9,200 annual savings needed to increase to $25,312.

Oh dear.  Not a chance.

What if they used the retirement-at-70 inputs instead? Then the $9,200 increased to $9,921. Oh, of course, that made sense. They were already at 98% if they saved $9,200, so it didn’t need much of an increase to get to 100%.

(And they realized that they were getting a feel for the numbers.)


Finally, what if they took more investment risk and hoped thereby to get a higher average return in the future?  Risky, yes – but this was now just for curiosity.

So they went to that calculator.

First, they tested what real returns would be required if they wanted to reach 100% without their home.  Yes, they realized this would be a pie-in-the-sky calculation, but at this point they were starting to become familiar with the calculator and playing with it had developed its own appeal.

Sure enough, the answer came back: 6.13% a year real before retirement, combined with 2.04% a year real after retirement. Not in this world.

How about getting to 100% using their illiquid assets too?  Presumably the required returns would not be far different from the 3.5% and 1% that they used in their very first calculations, because that got them to 103%.

Right.  The calculator said: 3.27% a year real before retirement, combined with 1.09% a year real after retirement.  Close enough. This simply confirmed that they were indeed starting to get a feel for the numbers.

That’s where they stopped, at least for the moment. There were really no further insights to be gained from playing with the calculator, until their investigations produced better inputs.  That’s when they would go back.

To their surprise, they were now eager (though still a bit afraid) to examine those inputs.  They hoped their investigations would lead to more comforting outputs.

Regardless, what a change!  This had become territory they could explore, rather than a map with “here be dragons” covering a part of it, the way maps sometimes showed unknown territory in centuries past.



Using all the possible calculators allows you to see which changes have a big impact and which ones a small impact, as well as which changes might be feasible and which really aren’t possible to implement.

Leave a Comment

I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

Leave your question or comment