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What are Your Assumed Rates of Return?
11-25-2012, 02:38 PM
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#1
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Recycles dryer sheets
Join Date: Nov 2006
Posts: 428
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What are Your Assumed Rates of Return?
An interesting article that postulates that low interest rates are here to stay and the choices for future retirees will be to work longer, save more, or get by with less:
PIMCO | Viewpoints - What
My spreadsheet assumes a rate of return of -1% (if I keep up with inflation it would be zero). What rates are others using?
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11-25-2012, 02:52 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,877
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I'm figuring a 2% real return. I believe that's close to the century+ norm.
Wouldn't a negative real return mean we'd be better off cashing out investments and stuffing the mattress with Benjamins?
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11-25-2012, 02:53 PM
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#3
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Full time employment: Posting here.
Join Date: Sep 2011
Location: Bushnell
Posts: 607
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On a long term basis, I assume 6% total return for the broad indices, a little more for small caps and real estate.
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11-25-2012, 03:17 PM
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#4
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Recycles dryer sheets
Join Date: Jul 2008
Location: Sacramento area
Posts: 467
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I am "inflation+ 3%"
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11-25-2012, 03:37 PM
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#5
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Full time employment: Posting here.
Join Date: Jan 2012
Posts: 518
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Quote:
Originally Posted by truenorth418
On a long term basis, I assume 6% total return for the broad indices, a little more for small caps and real estate.
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Ditto. 6% minus inflation for the "real return"
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11-25-2012, 03:38 PM
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#6
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gone traveling
Join Date: Mar 2007
Posts: 559
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i use 2 percent
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11-25-2012, 03:42 PM
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#7
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
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When I was in the accumulation phase, I was assuming a gain of 5%; 3% inflation + 2% on my investments.
Now that I am retired, I just hope to tread water and see gains that approximately equal inflation.
In the past five years we have had a severe market crash, a housing crash, and a crisis in health care costs, all bad for retirees. The one calamity that hasn't happened lately is out of control inflation. So far, so good, but then maybe I am whistling in the dark. If my investments would keep pace with inflation then it would not be a problem, but if they fall too far behind it's back to the spreadsheets and LBYM for many of us.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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11-25-2012, 04:02 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Oct 2012
Location: Reno
Posts: 1,331
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I had run the plan in Quicken based on 8%. When changed to 7%, it runs out at year 35, although house and other assets remain. Some tweaks in spending or timing of retirement obviously remain.
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11-25-2012, 06:34 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 1,085
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My assumption is that I will keep up with inflation. Will probably do better, but I always want to make my assumptions conservative.
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11-25-2012, 06:50 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
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I dunno what to expect. Moved to our little ranch in SW Oregon in 1999 contemplating FI/ER which finally happened in 2002. Since our move, there has been the crash of 2000-2002, the Maxi crash of 2008, the real estate implosion, 9/11, the two wars, the gridlock in Washington, my back going out, drought, famine, pestilence, global warming, hurricanes. As that general said, enemy in front, enemy behind, enemy to the left, enemy to the right, condition optimal - attack!
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11-25-2012, 07:04 PM
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#11
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Recycles dryer sheets
Join Date: Nov 2006
Posts: 428
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Quote:
Originally Posted by GrayHare
Wouldn't a negative real return mean we'd be better off cashing out investments and stuffing the mattress with Benjamins?
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For example a 4% interest during 5% inflation would be a -1% return. In a mattress it would be -5%.
Of course that is very simplified, leaving out fun stuff like taxes.
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11-25-2012, 07:41 PM
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#13
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Recycles dryer sheets
Join Date: Jan 2007
Posts: 481
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I am assuming 5% return and 4% inflation. I think we are in good shape unless inflation goes up too high, as DH's pension is non-COLA.....which means we would have to start making up a more ground elsewhere to compensate, if that should happen. I have the option of making my pension COLA, which I will be doing.
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11-25-2012, 08:00 PM
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#14
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Recycles dryer sheets
Join Date: Dec 2010
Location: Tequesta
Posts: 323
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Assume 4% return, but have been doing much better the last 2 years. We don't have any debt, so I tend to ignore inflation, though I know it will be an issue down the road. Hopefully, my actual return will exceed 4% by enough to cover the inflation.
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11-25-2012, 09:42 PM
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#15
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Dryer sheet wannabe
Join Date: Feb 2005
Posts: 17
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With the current low bond yields and the uncertainty about future stock returns, I see how folks would expect low rates of return like 2%, or even lower. However, wouldn't buying a 30-year TIPS with a 2.75% coupon essentially give me a guaranteed 2.75%+inflation? Couldn't this be considered a floor rate of return? Am I missing something?
I understand TIPS phantom tax implications, especially during high inflation periods, but as a rate of return, that seems to be pretty good conservative strategy.
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11-25-2012, 09:58 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,877
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Are 30-year TIPS paying that high? I thought it was more like 0.5%.
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11-25-2012, 10:08 PM
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#17
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Dryer sheet wannabe
Join Date: Feb 2005
Posts: 17
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Yes, you're right...The most recent 30-year TIPS yield was 0.75%...The 2.75% is for a 30 year treasury bond.
Recent Note, Bond, and TIPS Auction Results
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11-26-2012, 03:21 AM
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#18
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,983
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Anything above 0 real is a bonus for me.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
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11-26-2012, 07:06 AM
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#19
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gone traveling
Join Date: Jul 2007
Posts: 333
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2.75% for me
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11-26-2012, 07:14 AM
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#20
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Full time employment: Posting here.
Join Date: Aug 2011
Location: Atlanta
Posts: 507
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Quote:
Originally Posted by David1961
My assumption is that I will keep up with inflation. Will probably do better, but I always want to make my assumptions conservative.
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That is also my assumption.
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