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ROI for savings
Old 08-13-2014, 02:29 PM   #1
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ROI for savings

Many of us have our own spreadsheets that we use to estimate how soon we can retire, and how long our investments will last.

I've always heard that stocks have traditionally returned 10%. Do you use that ROI, or something else in your spreadsheet(s)?
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Old 08-13-2014, 02:49 PM   #2
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I do everything in constant dollars. I currently use 4% for equity and zero for bonds.
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Old 08-13-2014, 03:09 PM   #3
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I've always heard that stocks have traditionally returned 10%.
Probably better to use real (after inflation) return, which will be a lot lower.
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Old 08-13-2014, 03:33 PM   #4
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I hope for a real return of about 2.5% for my portfolio (50/50 portfolio, 5% real for stocks, 0% real for fixed income). This return would allow me to preserve my principal on an inflation-adjusted basis. But I think it may be tough to achieve.
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Old 08-13-2014, 03:37 PM   #5
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I use a 5.5 % ROI, but adjust my budget each year by 2% inflation, and 1.5% COLA on pension, SS, and other income streams.
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Old 08-13-2014, 09:56 PM   #6
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Quote:
Originally Posted by trapperjohn View Post
Many of us have our own spreadsheets that we use to estimate how soon we can retire, and how long our investments will last.

I've always heard that stocks have traditionally returned 10%. Do you use that ROI, or something else in your spreadsheet(s)?
The historical return for a 60/40 AA is ~8.9% (see https://personal.vanguard.com/us/ins...io-allocations). I apply a substantial haircut to be conservative and use 5.5%. I also use 3% inflation so a real return of 2.5%.
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Old 08-13-2014, 10:09 PM   #7
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I use 5% in any calculations/projections that I do.
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Old 08-13-2014, 10:32 PM   #8
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Doesn't matter what you 'use' - the market's not listening. And sequence of returns makes a big difference.

I prefer the historic function in something like FIRECalc. You get the historic returns/sequences and how they aligned with inflation. Like they say, " you can't make this stuff up ".

-ERD50
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Old 08-13-2014, 10:38 PM   #9
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I use 6% real for equities and 3% for inflation. Just slightly conservative. Most of my margin is in a required final portfolio value that is really large. The result is a withdrawal rate that is about 3% after all income sources come online.
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Old 08-13-2014, 10:41 PM   #10
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Doesn't matter what you 'use' - the market's not listening.-ERD50
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Old 08-14-2014, 12:32 AM   #11
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I also use 6%, with 3% for inflation, for what its worth. And to counteract the "wow" factor of looking out to age 95 and seeing big big $$$ in the pot, I have a column right next to that that is adjusted for the 3% inflation, to bring it back to todays dollar. The spreadsheet of course includes my little pension, future SS for DW & me, and GPO for DW.

I really don't do much with spreadsheets anymore, just once a year when I knock another year of life off of the top. In the early years of my Early-Early Retirement, the spreadsheets were important. But, knock on wood, I think I'm past most of the potholes now.

For me, of more value for years now is my cash/near cash (Cash, CD, SB, IB) predictor that I input new data into every 6 months. I created it in Excel using y = mx + b. Predicting using rolling 12 months and 18 months data, when would that kitty intercept 0. Fun things happen when the kitty increases in value (when negative slope goes positive). The big slope-changing factor was the last child graduating college
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Old 08-14-2014, 10:01 AM   #12
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In June 2012, Jack Bogle predicted nominal returns of 7% for equities and 3% for bonds, before costs, in the coming decade.
http://johncbogle.com/wordpress/wp-c...ty_6-13-12.pdf
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Old 08-14-2014, 10:34 AM   #13
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I take a different approach by determining the smallest return that will allow my plan to survive. So far, anything above 1% will keep me going to age 95. I use an inflation factor of 3% and anything with a COLA at 2%. I also ignore any local benefits (i.e., senior property tax exemption), as there's no guarantee we'll remain here.


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Old 08-14-2014, 10:41 AM   #14
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I constantly play with the numbers to see what will and won't work...what if inflation goes to 4% average...what if there is a big market crash early in retirement...that kind of thing. I use multiple calculators too to see what gives me different results. I think my fav is The Flexible Retirement Planner for MC based ones and Firecalc for historical based ones since they allow a lot of flexible input. I need lots of data to convince myself and my wife that we will be ok under all but the most dire circumstances.
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ROI for savings
Old 08-14-2014, 11:59 AM   #15
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ROI for savings

To be conservative I am planning 0% real return. But I expect about 7% real which will be nice for travel and other stuff.
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Old 08-14-2014, 12:06 PM   #16
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I've always heard that stocks have traditionally returned 10%. Do you use that ROI, or something else in your spreadsheet(s)?
I don't have a spreadsheet - I use online tools like Fidelity's RIP and firecalc. When I use them, I use muted (conservative) numbers. Something on the order of 4-5% for equities and 0-1% for bonds (real dollars).

Better to have too much money in retirement than not enough.
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Old 08-14-2014, 01:53 PM   #17
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I use a bracket of real returns (which nets out inflation) of just 1% to 2%
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Old 08-14-2014, 02:12 PM   #18
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Conservative portfolio, 0 - 1% real. Any higher returns than that will be gravy.
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Old 08-19-2014, 03:35 AM   #19
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I model three scenarios: Expected, Best Case, Worst Case.

Assumed real returns for equity / fixed income for those three are as follows:

Expected: 5.75% / 1.25%
Best: 8.50% / 2.50%
Worst: 2.50% / 0.50%

People on this board as a whole are extremely pessimistic IMO, but I'm still early in the accumulation phase and can afford to be wrong. Retirees, maybe not so much.

Here are historical (nominal) returns from NYU:

Historical Returns
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Old 08-19-2014, 05:12 AM   #20
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The historical return for a 60/40 AA is ~8.9% (see https://personal.vanguard.com/us/ins...io-allocations). I apply a substantial haircut to be conservative and use 5.5%. I also use 3% inflation so a real return of 2.5%.
For a 40 year retirement, that comes to a 4% WR.
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