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Old 09-18-2013, 02:00 AM   #21
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Not only asset allocation, but sub-asset allocation. (i.e, is your stock reflective of the overall market, or is it comprised of individual stocks?).

My allocation is 60% equities, 25% bonds, 15% cash. I figure a 4% return, because I can't imagine we'll see historic returns going forward over the next 20 years or so.
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Old 09-18-2013, 05:23 AM   #22
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I'm at 75% stocks, 25% bonds and use a 5% total return and a 3% assumed inflation rate in my planning spreadsheet. Each year I update the spreadsheet, changing the forecast total savings number for that year to the actual number. Each year I beat my forecast, which is a good thing.
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Old 09-18-2013, 06:27 AM   #23
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I use a blended rate of 7%.

That assumes 6% of my stock/bond portfolio, 1% on my short term cash and 9.46% on my portfolio of 10 rental properties (little over a third of my savings).

The nice thing about the rental properties is that this is a pretty locked in return rate.

I assume a long term inflation rate of 3.5% - hopefully on the conservative side.
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Old 09-18-2013, 07:07 AM   #24
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Originally Posted by Jsore13194 View Post
I figure a 4% return, because I can't imagine we'll see historic returns going forward over the next 20 years or so.
I can. With energy getting cheaper in the US, developing nations getting richer, new nano tech finally being realized, the next 20 years could look more like the 90's than the 00's.
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Old 09-18-2013, 09:59 AM   #25
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I'm a numbers kind of guy, so it may be a little surprising that I'm one of those who don't use any assumed rate of return at all. I figure that any projection is so full of questionable assumptions and guesswork as to be useless for planning purposes. Basically I decided to retire when my calculations indicated that we would be just fine in a worst case scenario, with "worst case" defined by available historical data. In other words, something similar to a Firecalc 100% success rate. Any actual returns that beat the worst case are just gravy that we can use at our discretion to either live a more lavish lifestyle or leave more to our heirs.
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Old 09-18-2013, 10:38 AM   #26
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8.4 % inflation included - that's the Vanguard historical number based on my portfolio mix using their website calculator.

I think I used 8 and 10% projected curves back in the 70's and 80's when I was saving , planning to retire at age 63 (2006). Layed off at 49 - I still hit my 1 mil target circa 2000 - mainly by saving early and often.

I haven't tryed to check what 'the market' did on average between 1970 and say 2010.

heh heh heh - Come Jan 2014 the IRS will make me offer I can't refuse via RMD.
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Old 09-18-2013, 10:54 AM   #27
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For almost 35 years now I have just used the average interest rate in my 7-10 CD Ladder (over which I really have little control over as it is what it is). I pretty much just ignore inflation since 2/3 of my retirement funds come from COLA'd Annuities (Mil Ret & SS). Prior to SS it was 50/50 (Mil Ret & Int). Simplicity.
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Old 09-18-2013, 11:08 AM   #28
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If you are using an MC simulation, that will have an assumed return rate (and whole probability distribution) built into it. I'm surprised they don't make that assumption explicit.
Thanks. This is true, it's based on the assets you put in and the spending level you set. Then the solution is a recommend spending level with probability distributions of sustaining that level of spending. It's definitely not a clear as it should be. Then again, ESP is not for those that want an answer that's easy to get at.
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Old 09-18-2013, 11:20 AM   #29
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I use FIRECalc with a portfolio composition (which unfortunately does not include non-US equities, that are half of my pot), so no ROI is assumed. It gives me SWRs with different degrees of success, which I use in my spreadsheets.

I do assume 3% inflation.

For comparisons between alternatives (for example, converting my IRA to Roth by the back door), I assume a constant 6% (Warren Buffet likes 6%, I hear) or 5%, depending on which gives the worst results, so 3% or 2% after inflation. I expect to do better over the next 25 years, but not planning on it.

As I am almost 100% equities, I do not use a number for bonds, etc. I do assume 2% annual growth for SS (I expect the Feds to cheat on the inflation adder), which will be significant for us.

As far as SWRs, I like 3.5%, but MRDs may force some juggling.
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Old 09-18-2013, 12:53 PM   #30
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I think I used 2.5% real return last time I looked at things -- but I think that was 2-3 years ago. I don't find much value in predicting the future. Eventually it becomes certain.
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Old 09-30-2013, 06:41 PM   #31
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I have been researching this same question as I have been working on updating my lifetime planner in quicken as a sanity check against Firecalc and my Financial Planners calculations. Clearly there is no consensus as I am seeing after inflation rates of 1% to almost 4%. This range of assumptions make a difference of 8 years or so in my plan. So as usual with most of these decisions, it is mostly up to the individual's risk tolerance. I think I am going with my original calc based on my weighted portfolio and historical market results from Schwab. 2.9% after inflation. This is based on 40% large cap, 35% mid cap, 10% international, 10% bonds and 5% cash. The plan is not to retire however until firecalc shows 95% success. The lifetime planner is simply easier for what if scenario's in my experience.
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Old 09-30-2013, 10:31 PM   #32
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I used Fidelity's RIP program for long-term scenarios, those beyond age 60. But getting to age 60 which is the more challenging and more important part of my ER plan, I actually project annual income by plugging in various annual dividends per share from my bond funds. I include in my spreadsheet reinvested surpluses into those bond funds as well as stock fund dividends and cap gain distributions. I do include for the stock mutual funds a small growth rate to handle unrealized cap gains. If my projected income falls below my projected expenses, then I subtract the shortfall from the principal of a bond fund. That I watch carefully in my spreadsheet.

I have general growth rates for my IRA whose value I do not include in my spreadsheet in the years prior to turning 60. The Fidelity RIP program has me in great shape once I can begin tapping into my "reinforcements" such as unfettered access to my IRA, my frozen company pension, and Social Security, so I am not really worried about that. Getting to age 60 intact is my main goal.
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Old 10-01-2013, 01:17 PM   #33
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Here's a paper that has some good numbers for real market returns:

"Optimal Portfolios for the Long Run", Blanchett, Finke, Pfau

Optimal Portfolios for the Long Run by David Blanchett, Michael S. Finke, Wade D. Pfau :: SSRN

Table 1 says from 1900 - 1912 the geometric average real US returns were: cash 0.9%, bonds 2.01%, stocks 6.26%

Interesting paper, though more applicable to the accumulation side since it isn't including withdrawals. It also looked at a Monte Carlo fix to account for reversion to the mean, and hence long-term results that better matches historical data.
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Old 10-01-2013, 03:08 PM   #34
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I take a different approach. I run multiple RORs to find the smallest return needed to ensure the plan will not run out of funds in the specified time period. So far, the portfolio will survive with a 1% return, so I think I'm good.
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Old 10-01-2013, 05:01 PM   #35
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I take a different approach. I run multiple RORs to find the smallest return needed to ensure the plan will not run out of funds in the specified time period. So far, the portfolio will survive with a 1% return, so I think I'm good.
Unless your money is under the mattress, you are good.
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Old 10-02-2013, 12:03 AM   #36
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I'm in the 5% absolute club as well.



Hooray 5%.
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