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Suggested growth rate for portfolio growth estimates?
Old 09-17-2013, 12:24 PM   #1
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Suggested growth rate for portfolio growth estimates?

This is probably the $64k question, and I did search the forum for the topic but didn't find much.

What do folks use for growth rate of retirement portfolio after retirement? What is conservative, liberal?

I have been feeling pretty good about using 4%, but think that 5%+ is reasonable?

I'm sure everyone has a quick answer here, so have at it...

Thanks...
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Old 09-17-2013, 12:56 PM   #2
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I use 4% above inflation, that way my estimates are already in inflated $
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Old 09-17-2013, 01:11 PM   #3
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https://personal.vanguard.com/pdf/s289.pdf

Depends on what you invest in. Also it is unpredictable over short period. Even 10 years is usually short period.

But over the long time it is always the same. People say "This time it is different". Well it is not.
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Old 09-17-2013, 01:20 PM   #4
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I think 7% is likely but I plan on 3% (then adjust for inflation from there)
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Old 09-17-2013, 01:25 PM   #5
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What are you trying to accomplish?
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Old 09-17-2013, 01:27 PM   #6
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I use 6% + inflation (I use 3% future inflation). That usually puts me at the top of the optimists here, though close to history.

Although assuming a low rate of growth is one way to be conservative, I try to stay conservative by keeping the withdrawal rate roughly within the spirit of the 4% (of starting value) rule and letting the portfolio grow to ridiculous heights.

Do not assume any constant rate of return for equities and plan withdrawals by that. The 4% rule for a 30 year retirement requires only about a 1.5% + inflation growth rate (for $0 left at the end). So your 4% growth rate (if you add inflation) might make it look like you could take out much more than the initial 4% SWR. You would then be susceptible to a bad sequence of returns early in retirement.
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Old 09-17-2013, 02:27 PM   #7
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I don't use a projected growth rate, I just periodically update my figures in FIRECALC and Fidelity's RIP and look at the range of projected outcomes.
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Old 09-17-2013, 03:11 PM   #8
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I don't use a projected growth rate, I just periodically update my figures in FIRECALC and Fidelity's RIP and look at the range of projected outcomes.
+1

Before quitting my job and in the first couple of years afterwards I did all kinds of projections and planning. None of it amounted to anything, real life just wouldn't cooperate and go along with the plan, so I finally got the message and stopped wasting my time. For me portfolio survival is more important than return so FIRECalc is enough.
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Old 09-17-2013, 03:28 PM   #9
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It obviously depends on your AA. This link has historical returns for various AAs.

The historical total return for a 60/40 portfolio is 8.7%. For my deterministic plan in Quicken Lifetime Planner, I use an investment return assumption of 5.5% which is the 8.7% less a 3.2% haircut to be conservative. Perhaps unduly conservative, but I sleep well at night.
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Old 09-17-2013, 03:37 PM   #10
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I'm kind of a scaredy-cat, so when I do projections I assume just 1% over inflation.

Note that this mindset gets me in both good and bad situations.

When I get too nervous about high paper gains, I tend to sell early and miss out on the really big profits.

OTOH, that has saved me a number of times (I'm one of the few I know who actually made money on Enron stock (about 16%) so I probably won't change.)
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Old 09-17-2013, 03:57 PM   #11
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Depends on your asset allocation. For example, if you believe stocks will return 6%, bonds 3%, cash/CD's 1% and you have a 60/30/10 mix that would give you roughly a 4.6% overall return
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Old 09-17-2013, 04:20 PM   #12
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Quote:
Originally Posted by braumeister View Post
I'm kind of a scaredy-cat, so when I do projections I assume just 1% over inflation.
+1

Since being on this board I've started to realize just how much of a scaredy-cat I am too...I guess there are worse things...
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Old 09-17-2013, 04:58 PM   #13
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+1

Before quitting my job and in the first couple of years afterwards I did all kinds of projections and planning. None of it amounted to anything, real life just wouldn't cooperate and go along with the plan, so I finally got the message and stopped wasting my time. For me portfolio survival is more important than return so FIRECalc is enough.
Find myself doing less and less as retirement rolls on. Making progress on getting a simpler and more conservative portfolio but still heavy on equities.

I use 5% growth rate for my projections.
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Old 09-17-2013, 05:06 PM   #14
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I use 5%. I started with 8% since that was the expected return (can't remember decimals) and subtracted average inflation.
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Old 09-17-2013, 05:15 PM   #15
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I assume 5% absolute, or 2% real. I like to play with sensitivity analysis in Excel to visualize the effects of volatility and sequence of returns. I figure that if I can survive those worst case scenarios I should avoid having to eat cat food.
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Old 09-17-2013, 05:24 PM   #16
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I am using close to 3%. This is the rate of my CDs and munis have been generating this year,
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Old 09-17-2013, 08:39 PM   #17
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What time frame are you thinking of covering: 10years, 20year, 50?

You could always use 1/PE10.
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Old 09-17-2013, 08:40 PM   #18
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Jim Otar suggests 3.4% return be used for worst case planning in the distribution phase. This is from "Unveiling the Retirement Myth", page 211. (Order this excellent book for only $6 as a pdf at: otar retirement calculator ) Only 10% of cases since 1900 were worse than this. The median case is 5.1% and the top 10% case is 6.5%. I take it these are nominal returns, to be used with 3% inflation, so nil real return in the worst case. This is for his suggested 35% S&P500, 65% fixed income AA and 4% withdrawal rate. These low rates compensate for the effects of poor sequence of returns and portfolio withdrawals relative to what a constant return scenario could provide.

The book seems very well researched and thought out. It has boosted my confidence that we are in good shape for FIRE. (We're well in the green zone.) Be warned though, he is quite pessimistic compared to most.
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Old 09-17-2013, 09:16 PM   #19
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I don't use an assumed return rate and rely on the Monte Carlo output from ESPlanner as my planning tool. Not for everyone, but I based my ER decision on it, so I'm sticking with it for better or worse, i.e. back to the working masses.
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Old 09-17-2013, 09:39 PM   #20
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Quote:
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I don't use an assumed return rate and rely on the Monte Carlo output from ESPlanner as my planning tool.
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.
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