Planning for small (realistic) returns

[nun]

At the same time, the return people can hope to earn on their assets has fallen, particularly for those who switch into bonds or annuities to guarantee a fixed income. The average yield on U.S. government, corporate and mortgage bonds stands at about 2.4%, while stock-market valuations suggest a long-term return of about 6%. At those levels of return, some 59% of people aged 56 to 62 will be at risk of not having enough money to cover basic living and health-care costs in retirement, estimates Mr. Van Derhei. If market returns are higher—8.9% for stocks and 6.3% for bonds—the picture isn't a lot better: The percentage at risk falls to about 47%.

Retirement articles on Yahoo's finance pages would be an endless source of amusement if only they weren't so scary.

 

[aaronc879]

I have a long way to go until retirement but i'm planning, for now, to save enough so that I can retire before 50 even if I only stay even with inflation for the rest of my life. I think anyone who's planning more than 3% above inflation for their overall portfolio should redo their planning.

 

[nun]

I plug in 3% inflation and 4% return

 

[traineeinvestor]

With a portfolio of mostly shares and property, my working assumption is that the net yield will be my real rate of return over the long term.

I have no idea whether this will be sufficiently accurate for the purposes of my retirement planning but I have to go with something or I will be turning up to the office for much longer than I wish to.

 

[harley]

If market returns are higher—8.9% for stocks and 6.3% for bonds—the picture isn't a lot better: The percentage at risk falls to about 47%.

I'd be so happy with these returns (assuming ~3% inflation) I'd be dancing in the street.

 

[Bikerdude]

My spreadsheet plan assumes 3% return and 2.5% inflation. Anything better than that is gravey.

 

[Telly]

I'd be so happy with these returns (assuming ~3% inflation) I'd be dancing in the street.

Same here! I'd be content with just a 3% real across the portfolio, but I'd be dancing with the above!

 

[traineeinvestor]

I'd be so happy with these returns (assuming ~3% inflation) I'd be dancing in the street.

You and me both but I don't see how the 6.3% for bonds could possibly happen over the longer term given that the yield to maturity for most non-investment grade bonds is already below this level.

If there are any investment grade bonds out there which have a YTM at or above this level I would be very interested in hearing about them.