Retirement Savings Calculator: Why When You Save Matters

We have already discussed the 4% rule for retirement withdrawals, for example here. We also know how we got to this rule. If we set up a theoretical US portfolio invested 60% in the stock index and 40% in bonds, and we rebalance annually, then this portfolio can support 4% withdrawals, adjusted for inflation, for 30 years. Similar results are obtained by historical backtesting of the portfolio and can be found in articles such as the Trinity study and Bengen's original research. They looked at the 30-year historical windows at their disposal and concluded that in the vast majority of them, the test portfolio would not be exhausted by the end of the 30 years they envisaged retirement to last.

In a previous post, we saw how sensitive a portfolio is to the starting year of retirement. For a portfolio similar to the above, if we assume we draw 5% yearly instead of 4%, then if we start in 1973, the portfolio fails after 21 years, while if we start in 1974, the same portfolio lasts for 30 years and still has more than $600K left. So, there are better and worse periods to retire. Generally speaking, retiring in the 1980s turned out much better than retiring in the 1960s.

The Mirror Problem: How Do We Get To Retirement?

We can think of retirement as a line. Until we get there we are savers, and after we cross it, we are spenders. We rarely discuss the saving part, the "accumulation" phase. How do we get to retirement with an adequate portfolio? We tend to think of the portfolio size as a given and only consider various strategies for drawing from it. But this is half the story. Saving is at least as important as spending and it can last just as long. Most importantly, a portfolio twice the size can provide double the income, no matter what the strategy. These obvious points get surprisingly little attention.

As W. Pfau (2011) states, "The focus of retirement planning should be on the savings rate rather than the withdrawal rate". It follows for him, and it follows for us too, that the same methodology used to historically test the portfolio in the decumulation phase can be used to investigate the accumulation phase. After all, markets and inflation affect saving portfolios too, not just retirement portfolios! So, the question becomes: in what way does timing affect the wealth-building years?

The answer turns out to be dramatic. The same disciplined savings behaviour, say $1,000 in real terms per month for 30 years, could have produced wildly different outcomes depending purely on when someone started. We're talking about possible differences of 400% or more in final portfolio values, all from identical contributions.

Testing Historical Accumulation Paths

Following this idea, we can envisage a saver who saves for 30 years before they retire. Let's assume they save $1,000 per month, adjusted for inflation, and they invest this money in a combination of a broad market index and bonds, just like the retirees. Let's also assume that they follow a 60/40 mix, annually rebalanced. What will they end up with after 30 years in real terms, in different historical periods?

Clearly, this depends on market performance and, since we care about real values, on inflation. Following the same methodology as with the retirement portfolios, the following chart shows the various paths that the portfolio value would have taken.

What immediately stands out is the dramatic spread of outcomes. Despite identical monthly contributions, savers who started in favourable periods ended up with portfolios much larger than those who started in unfavourable periods. Certain cohorts, particularly those accumulating through the 1980s and 1990s bull markets, experienced explosive growth in their final years, when their portfolios were at their largest and compound growth mattered most. Conversely, savers who hit the 1970s stagflation or the 2000s lost decade during their peak accumulation years saw their final balances constrained, despite years of disciplined saving.

The pattern reveals something crucial: unlike retirees, who fear crashes early in retirement, savers actually benefit from having their best returns occur late in the accumulation phase, when the portfolio is largest, and the returns have the most impact.

The Inverted Appearance of Sequence Risk

A technical note here: This chart is different from the retirement portfolio charts in that there are no withdrawals, only contributions. So, the portfolio accumulation performance of successive periods overlaps. As a result, we see a repeated pattern in the portfolio performance.

There is still a timing risk. The accumulated wealth depends strongly on the time at which the accumulation started. But the sequence risk is of a different type. It is advantageous for the saver to have the best performance occur when they have the largest portfolio, and this happens towards the end of the savings period. This is the opposite of retirement, where you need good returns early to avoid depleting your portfolio before it can recover.

Think of it this way:

• Retirees need strong returns in years 1-10 of retirement (when the portfolio is largest and poor performance hurts most)

• Savers need strong returns in years 20-30 of accumulation (when that portfolio is largest and strong returns result in high profits)

Timing Matters

The following chart shows the result of the savings phase depending on the starting year.

The variation here tells a powerful story. Savers who began their 30-year journey in 1969 ended up with $1.6M, while those who started in 1952 accumulated only $378K—a difference of $1.2M despite identical behaviour! The best times to start saving were between 1968 and 1978. These savers rode the 1980s-90s bull market during their peak earning years, while the most challenging were between 1945 and 1956 cohorts that faced stagflation or lost decades during which their portfolios were relatively large.

Starting from these observations, we can unlock a whole new way of understanding the portfolio accumulation process and strategy. Questions emerge: How do contribution patterns interact with market regimes? How about when we look at saving and retirement together? Also, what does "dollar-cost averaging" really mean when we look at history? What are the optimal saving strategies? I will address such and other questions in future posts using the analytics that this app offers.

What This Means for Your Savings Strategy

Understanding accumulation and its risks has practical implications for how you approach the wealth-building years.

Your timeline matters more than you think. The conventional wisdom says "just start early and stay consistent." That's right, but it's incomplete. Two people with identical savings rates and time horizons can end up with dramatically different outcomes based purely on the market environment they encounter. There is reason for realistic planning that accounts for the full range of possibilities.

Monitor your progress against history, not averages. Most savings calculators show you a single projected line based on assumed average returns. But as we've seen, averages hide enormous variation. A more honest approach is to see where your current trajectory would have landed across all historical periods, the range of possibilities you're actually exposed to. You may even have save with a view on where we are in the market cycle (more on this in a future post).

Your country and time period matter. The examples above use US data, but accumulation outcomes vary significantly across markets. UK savers in certain periods faced very different realities than their American counterparts. If you're saving in the UK, EU, or other markets, testing against the relevant historical record gives you a more accurate picture than defaulting to US assumptions.

Bellavia's Savings Calculator lets you do exactly this. Enter your current savings, time horizon, and planned contributions to see how your strategy would have performed across history. You can upload custom datasets for different countries, adjust your allocation over time, and set specific goals to track your probability of reaching them, all grounded in what actually happened rather than purely theoretical projections.

We will explore these questions more fully in future posts, including strategies that account for accumulation sequence risk and how to think about the transition from saving to spending.

Continue reading

• The 3% Rule for Savings
• Retirement Savings Formula: Why Standard Calculators Are Wrong
• When to Retire: How Market Timing Affects Your Savings