Originally Posted by palomalou
I have been running Firecalc rather often (it is always happy), but wanted to do i-orp because I could see different return possibilities. I ran it with 0% return and 2% return. I also cut back on part-time income expectations to 0-15K due to a sudden serious health issue (spouse can do at least 15K, and I don't plan to quit entirely, just cut back by 2/3). Is assuming 0-2% a conservative enough average return assumption?
I assume that you are talking about a 2% (or 0%) annual rate of return on your retirement savings. If you are, then 2% is beyond conservative and down right pessimistic. The Fed is targeting an inflation rate of 2.5% so a 2% rate of return is actually an annual savings loss of .5% (or 2.5% loss for a 0% return). If we are talking a 30 year retirement here then, with savings split across stocks and bonds in the conventional manner, studies show that a 5% or higher annual rate of return is not unreasonable.
ORP, at least, is a guideline generator and not an accounting program. It's guidelines are meant to give a full picture of retirement but decisions are relevant only to the forthcoming year. ORP is meant to be run at least annually to make mid course investment corrections.
Monte Carlo calculators, for the most part, assume asset returns as represented by some variation of the S&P 500. It is a rare financial advisor indeed that advocates investing all of your retirement savings in an S&P500 index fund. Most advisors will go for a more conservative, less volatile, strategy of investing in high dividend stocks and conservative bonds with portfolio returns well north of 2%.
Are you asking the right question? You seem to be asking "What is the likely hood that my savings will run out before I do?" A more practical problem statement is "How do I manage my retirement assets so as to maximize my after-tax, retirement spending?" You have lots of decisions to make up front, (e.g. when do you retire, start Soc Sec, stop working, etc.) and options during retirement (namely your retirement saving investment strategy and the scheduling of retirement saving distributions so as to minimize taxes). You make the upfront decisions. ORP offers guidance for the mid course adjustments.
If you are eligible for Social Security benefits then you have lifetime annuity income that provides longevity risk insurance, which makes your overall portfolio more conservative still.
Personally, I plan my spending so that I can take that occasional cruise rather living an austere lifestyle that benefits my heirs more than it does me. I plan to have no assets at the end of my planning horizon. (My last check, to the undertaker, will bounce.)