Join Early Retirement Today
View Poll Results: What pre-tax, real return do you assume in your own plans
0% or less 1 0.93%
1% 2 1.85%
2% 18 16.67%
3% 18 16.67%
4% 24 22.22%
5% 24 22.22%
6% 12 11.11%
7% or more 9 8.33%
Voters: 108. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
Poll:What return do you assume in your model
Old 01-28-2012, 09:55 AM   #1
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 10,137
Poll:What return do you assume in your model

Based on a request by Graniac in this thread What annual return would you be happy with? I thought it might be informative to take a poll to learn what rate of return on investments people use in their models. Please indicate the real return (i.e. above inflation) that you assume in your FIRE model. Because everyone's tax situation is different, it would be most useful for the number to be pre-tax. If you assume a change at some point, it may be helpful to indicate how and why in a comment.
__________________

__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-28-2012, 10:01 AM   #2
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,406
I assume equities will return 6% and fixed income 1% real return before tax.
__________________

__________________
MichaelB is offline   Reply With Quote
Old 01-28-2012, 10:04 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,672
My simple spreadsheet model has the following:

bond real return = 2.0%
stock real return = 7.5% for 2012
stock real return = 4.5% for 2013 and into future

I assumed higher stock returns this year because last year's was sub par. My return assumptions for stocks are set as variables so I can change them on a dime -- i.e. don't count on my numbers.
__________________
Lsbcal is offline   Reply With Quote
Old 01-28-2012, 10:06 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,959
Cut-n-paste from the other thread since I just answered there...

My plan is built on a real return of 2%. Asking about expected returns or expected inflation alone aren't very useful IMHO. I hope real returns are better and history would suggest they will be.

Another reason I use a low number is sequence of returns, maybe not mentioned here often enough. Once you begin to draw from your nest egg, sequence of returns is a far greater factor than during the accumulation years. The exact same long term real return, with different sequences of returns, can end with wildly different end of plan outcomes. Food for thought...YMMV


And being prepared for bad outcomes is what FIRECALC, 4% SWR, etc. are built on. Odds are the
actual outcome will be better if history holds. Seems like a good plan methodology.

What I plan on and what I expect are not the same. Never easy is it...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 01-28-2012, 10:10 AM   #5
Recycles dryer sheets
Grainiac's Avatar
 
Join Date: Aug 2010
Posts: 102
Quote:
Originally Posted by Gumby View Post
Based on a request by Graniac in this thread What annual return would you be happy with? I thought it might be informative to take a poll to learn what rate of return on investments people use in their models. Please indicate the real return (i.e. above inflation) that you assume in your FIRE model. Because everyone's tax situation is different, it would be most useful for the number to be pre-tax. If you assume a change at some point, it may be helpful to indicate how and why in a comment.

Wow! You ask and you shall receive. Thanks Gumby.
__________________
Grainiac is offline   Reply With Quote
Old 01-28-2012, 10:10 AM   #6
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,068
Since my model is FIRECalc, my rate of return is that of the worst 30 year period over the past 139 years. Not sure what that is, so I'm not sure how to respond to the poll.

"Hope for the best, plan for the worst"
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 01-28-2012, 10:20 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,855
I actually assign in my medium/long-term retirement spreadsheet a separate rate of return for each fund in my portfolio. I have 4 funds in my non-retirement portfolio and 2 in my IRA so it is not too unwieldy. for the purpose of answering the poll, I used as my assumed rate of return what I have assigned for the fund with the most money.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 01-28-2012, 10:26 AM   #8
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,128
I don't assume any particular rate of return because, like REWahoo, I use Firecalc as my main predictor of portfolio solvency. Because I'm in the very early stages of retirement/semi-retirement (still not sure which) I use a WR that gives me a 100% success rate when run over several different time periods (I use at least a 30 year and a 40 year time period). I'm 48 years old, don't have a lot of money, and am a bit paranoid (Aaah, what were those noises?!)

However, Grainiac's question asked what rate of return I'd be happy with. Well, I'd be really happy with 15%

You did ask
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is online now   Reply With Quote
Old 01-28-2012, 10:35 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,388
Quote:
Originally Posted by Lsbcal View Post
I assumed higher stock returns this year because last year's was sub par. My return assumptions for stocks are set as variables so I can change them on a dime -- i.e. don't count on my numbers.
Reversion to the mean, heh heh heh... I was about to brag about my return YTD in 2012, but afraid of offending the market god, heh heh heh...

Quote:
Originally Posted by REWahoo View Post
Since my model is FIRECalc, my rate of return is that of the worst 30 year period over the past 139 years. Not sure what that is, so I'm not sure how to respond to the poll.

"Hope for the best, plan for the worst"
OMG! With your (S?)WR, you might have to go back to work when you are in your 80s.

I'd rather work now to build up more buffer while I still can, in my late 50s.

Just joking, of course.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-28-2012, 10:43 AM   #10
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,068
Quote:
Originally Posted by NW-Bound View Post
OMG! With your (S?)WR, you might have to go back to work when you are in your 80s.
I look on the bright side - I'm only 15 years away from being in my 80's so my odds of running out of money before running out of me lessen with each passing year.

Quote:
I'd rather work now to build up more buffer while I still can, in my late 50s.
Sounds good to me - since I'm not the one working any more.
Quote:
Originally Posted by NW-Bound View Post

Just joking, of course.
Of course. Me, too.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 01-28-2012, 11:45 AM   #11
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
I don't assume any particular rate of return either.

Let's say I assume a real rate of return of 5% for my model. Unless there is a way for me to get a guaranteed 5% real (and there is none I can think of at this time), my model will have to be constantly adjusted to reflect actual real returns. So why assume a real rate of return in the first place? I see my plan as a work in progress and we'll see where it takes us.
__________________
FIREd is offline   Reply With Quote
Old 01-28-2012, 11:53 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,388
Quote:
Originally Posted by REWahoo View Post
"Hope for the best, plan for the worst"
But of course!

In my case, let's see...

Worst case: Boondocking in the 25' MH, living off SS. MH already paid for, parked in driveway. Checked. SS, let them bring on means testing (what means?). Checked.

Best case: Hmm... This one is a bit tougher. MH has cargo carrying capacity of 2,600 lbs. Subtract out 1,600 lbs for real cargo, that leaves 1,000 lbs to hide Krugerrands. At the price of $1,600/oz, that's $25.6M that would fit! No problem!
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-28-2012, 11:59 AM   #13
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,128
Quote:
Originally Posted by NW-Bound View Post
But of course!

In my case, let's see...

Worst case: Boondocking in the 25' MH, living off SS. MH already paid for, parked in driveway. Checked. SS, let them bring on means testing (what means?). Checked.

Best case: Hmm... This one is a bit tougher. MH has cargo carrying capacity of 2600 lbs. Subtract out 1,600 lbs for real cargo, that leaves 1,000 lbs to hide Krugerrands. At the price of $1,600/oz, that's $25.6M that would fit! No problem!
Both the worst and best case scenarios involve an MH. Now that's forward planning
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is online now   Reply With Quote
Old 01-28-2012, 12:00 PM   #14
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,823
I generally assumed 3.5% yield over inflation for very rough projections when I was in the accumulation phase. I don't do projections much if at all any more, though, since it'e not like I'm going to un-retire and since my withdrawal rate is pretty low.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 01-28-2012, 12:03 PM   #15
Recycles dryer sheets
Grainiac's Avatar
 
Join Date: Aug 2010
Posts: 102
Quote:
Originally Posted by REWahoo View Post
I look on the bright side - I'm only 15 years away from being in my 80's so my odds of running out of money before running out of me lessen with each passing year.
Good point! One can also reduce the odds of running out of money by drinking lots of beer and gaining 10 lbs per year. I'm using both strategies.
__________________
Grainiac is offline   Reply With Quote
Old 01-28-2012, 12:04 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Quote:
Originally Posted by REWahoo View Post
Since my model is FIRECalc, my rate of return is that of the worst 30 year period over the past 139 years. Not sure what that is, so I'm not sure how to respond to the poll.

"Hope for the best, plan for the worst"
I agree with your technique! Assuming an annual return is likely to lead to huge discrepancies due to the importance of "sequence of returns."

You might assume 6% equity and 2% fixed, for example, and have that turn out to be an very close estimate for a 30 year period. Yet, you may never have a single year, or you may have very few years, close to those numbers. At best only the average will work out. The difference between having higher returns early on vs. low returns early on is huge even though both situations may result in the same average returns over time.

The same is true for inflation assumptions.

I use tools like FireCalc and Monte Carlo simulators to get a possible range of results with probabilities and accept that the likely outcome over time will be wild fluctuations in my FIRE portfolio performance vs any plans or expectations. It's just the way it is folks. You have to accept variability and limited control to play this game, otherwise you're just kidding yourself.

Through approximately six years of FIRE, the "wild fluctuations" assumption has certainly been right on! The recession lows where I bottomed out down 30% or so were something my models showed as possible but not probable. Still, something I needed to be prepared to deal with. My "simple spreadsheet" model where I used 2% real return was so far off, it was only entertaining to look at. At the recession bottom, the "simple speadsheet" showed me being up from my starting point and I was actually 30% + down.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 01-28-2012, 12:30 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,388
Quote:
Originally Posted by Major Tom View Post
Both the worst and best case scenarios involve an MH. Now that's forward planning
Remember when you took those math classes, how often they said "that reduces the problem to one that has already been solved"?

Seriously, I was suggesting that when one looks at what is truly life-essential, we should feel so lucky to be living in a developed country.

That of course does not keep me from wanting more, but that's because I am scroogey! A guy's got to be honest with himself, ya know?
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-28-2012, 12:32 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,959
Quote:
Originally Posted by youbet View Post
You might assume 6% equity and 2% fixed, for example, and have that turn out to be an very close estimate for a 30 year period. Yet, you may never have a single year, or you may have very few years, close to those numbers. At best only the average will work out. The difference between having higher returns early on vs. low returns early on is huge even though both situations may result in the same average returns over time.
Agreed, aka 'sequence of returns'
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 01-28-2012, 12:44 PM   #19
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,076
I've never planned on a particular ROI, just plugged the numbers in FIRECALC, FIDO Income Planner and Financial Engines and looked at the probabilities of success.

Thinking about it now that I am distribution phase, I would be happy with a real return of 2%, although I recognize that the sequence of the gains and losses is a lot more important than it was during the contribution phase.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is online now   Reply With Quote
Old 01-28-2012, 04:35 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,672
In my comments above I forgot to include the results of a detailed model that I've used with our investment approach. The results for 1969 to present were very good indeed (1.045 => 4.5% compound annual return):




So in summary after 4% spending would still get a real 4.5% return. We'll see.
__________________

__________________
Lsbcal is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What annual return would you be happy with? Wrirya FIRE and Money 28 01-30-2012 11:20 AM
In FIRECalc, why does CSP provide better result than % of Remaining Portfolio Model? nico08 FIRE and Money 0 10-26-2011 12:35 PM
Income investing and total return investing. clifp FIRE and Money 18 09-03-2011 10:17 AM
A 7% annual return? Dr.Crusher FIRE and Money 35 07-29-2011 12:37 PM

 

 
All times are GMT -6. The time now is 02:08 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.