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Suggested growth rate for portfolio growth estimates?
09-17-2013, 11:24 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Posts: 1,018
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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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09-17-2013, 11:56 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 1,691
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I use 4% above inflation, that way my estimates are already in inflated $
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09-17-2013, 12:11 PM
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#3
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gone traveling
Join Date: Sep 2013
Posts: 1,248
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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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09-17-2013, 12:20 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,660
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I think 7% is likely but I plan on 3% (then adjust for inflation from there)
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09-17-2013, 12:25 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,519
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What are you trying to accomplish?
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09-17-2013, 12:27 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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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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09-17-2013, 01:27 PM
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#7
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,126
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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.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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09-17-2013, 02:11 PM
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#8
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,714
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Quote:
Originally Posted by Alan
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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+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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09-17-2013, 02:28 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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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.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-17-2013, 02:37 PM
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#10
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Moderator
Join Date: Feb 2010
Location: Flyover country
Posts: 25,357
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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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09-17-2013, 02:57 PM
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#11
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Recycles dryer sheets
Join Date: Oct 2009
Posts: 246
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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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09-17-2013, 03:20 PM
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#12
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Full time employment: Posting here.
Join Date: May 2013
Posts: 727
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Quote:
Originally Posted by braumeister
I'm kind of a scaredy-cat, so when I do projections I assume just 1% over inflation.
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+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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09-17-2013, 03:58 PM
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#13
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Thinks s/he gets paid by the post
Join Date: May 2008
Location: Cooksburg,PA
Posts: 1,873
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Quote:
Originally Posted by MichaelB
+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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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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Free to canoe
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09-17-2013, 04:06 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,720
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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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09-17-2013, 04:15 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
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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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09-17-2013, 04:24 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
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I am using close to 3%. This is the rate of my CDs and munis have been generating this year,
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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09-17-2013, 07:39 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,301
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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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09-17-2013, 07:40 PM
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#18
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Recycles dryer sheets
Join Date: Dec 2012
Posts: 94
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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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09-17-2013, 08:16 PM
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#19
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Full time employment: Posting here.
Join Date: Jan 2008
Posts: 759
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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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09-17-2013, 08:39 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,301
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Quote:
Originally Posted by NanoSour
I don't use an assumed return rate and rely on the Monte Carlo output from ESPlanner as my planning tool.
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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.
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