Optimal Finance Daily - Financial Independence and Money Advice 3500: [Part 2] How to Model the Retirement Income Gap by Darrow Kirkpatrick of Can I Retire Yet
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Mar 23, 2026 A clear walk-through of present value analysis for converting future retirement income into today’s dollars. Short explanations of time value of money and how to sum present values to check readiness. Discussion of practical limits like inflation, returns, and sequence-of-returns risk. Suggestions for when to move from rough present-value checks to simulations, safe withdrawal rates, and cash-bucket strategies.
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Use Present Value To Compare Future Income Now
- Present value collapses future, uneven retirement income into one today-dollar number using the time value of money.
- Darrow Kirkpatrick explains you discount future pensions or Social Security to today to compare directly with current savings.
Add Present Values To See If You Can Retire
- Add current savings to the present values of expected future income and see if the total covers retirement spending under your safe withdrawal rule.
- Use financial calculators to compute present value for pensions and Social Security and sum to one retirement-assets number.
Focus Present Value On Big Future Cash Flows
- Present value analysis favors a rough-cut: model only major future cash flows like pensions or Social Security rather than every small event.
- Darrow notes this keeps the problem to just a few numbers for simplicity.