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Old 03-23-2015, 10:30 PM   #21
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2.95% real based on "Cautious" spending using ESPlanner Monte Carlo. AA of 55/35/10.
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Old 03-23-2015, 11:43 PM   #22
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For what purpose am I making this guess?
Without making an estimate of your expected returns, how do you know if your AA can meet your long term goals?
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Old 03-24-2015, 03:39 AM   #23
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80/20 asset allocation. The 20% is mostly cash not bonds. On this AA I assume annual 5.25% return. Inflation is set at 2.75% thus

a real return of 2.5%.
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Old 03-24-2015, 03:42 AM   #24
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All my projections have always used a 1% real return. So far, I've been happily surprised every year.

Wow. That's sobering.

What withdraw rate and how long does the portfolio last at just 1 percent real return?
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Old 03-24-2015, 05:01 AM   #25
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My AA is 65/30/5 (lazy portfolio) and I plan using a 2% real return. I'd rather be pleasantly surprised with a good return year!


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Old 03-24-2015, 08:25 AM   #26
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I use 5% nominal, 2% real return, because it is a conservative estimate of past returns on a balanced portfolio, and lower returns are likely in the future.
+1, based on an 65/10/25 Stock/RE/Fixed portfolio

Actually, I forecast a negative 8.75% return in year 1, followed by four years of positive 8.75% (then repeated) and that provides a 5% nominal return over every five years. This prepares me for the next correction and (recently) allows my portfolio to happily exceed Year 1 expectations.
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Old 03-24-2015, 08:33 AM   #27
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Originally Posted by photoguy View Post
Without making an estimate of your expected returns, how do you know if your AA can meet your long term goals?
During accumulation phase, probably important.

I don't think it's necessary to look at expected returns in retirment (when withdrawing). For that we choose an AA that has good survival characteristics and that we can live with (i.e. Sleep at night)
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Old 03-24-2015, 08:37 AM   #28
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at current levels

stocks 5%
bonds 3%
inflation 1.5%
savings 1%
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Old 03-24-2015, 09:00 AM   #29
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Without making an estimate of your expected returns, how do you know if your AA can meet your long term goals?
oh, this is for personal reasons?

my "go forward" AA is 70/15/15 - should be 4-5% ish real rate of return

my "rollover" AA is 50/10/40 - should be 3-4% ish real ror
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Old 03-24-2015, 09:12 AM   #30
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I use a 2.5% real return.

I feel pretty confident about that number as over 1/3 of my return is made up of rental properties that are returning 10% and should be somewhat inflation protected as rents tend to rise with inflation.
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Old 03-24-2015, 10:03 AM   #31
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I'm planning with a hair over 4% real for a 70/20/10 portfolio, but hope for slightly more.
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Old 03-24-2015, 10:09 AM   #32
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I use a 2.5% real return.

I feel pretty confident about that number as over 1/3 of my return is made up of rental properties that are returning 10% and should be somewhat inflation protected as rents tend to rise with inflation.
You expect 2/3 of your portfolio to not even keep up with inflation? That strikes me as overly pessimistic.
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Old 03-24-2015, 10:32 AM   #33
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All my projections have always used a 1% real return. So far, I've been happily surprised every year.
+1
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Old 03-24-2015, 11:28 AM   #34
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My retirement spreadsheet assumes 4.4% nominal and 2.6% inflation, so 1.8% real. AA is in my signature. The 4.4% is based on Rick Ferri's 30-year asset class expectations matched to my portfolio (as best I can), plus a 1.5% haircut across the board. I expect we'll do much better than that. I use this spreadsheet for tax planning and withdrawal strategy what-if's, but I prefer FIRECalc and cFIREsim for estimating portfolio survival probability.
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Old 03-24-2015, 12:01 PM   #35
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Like Audrey, I don't pay as much attention to expected returns in retirement as I did during accumulation phase. In retirement I chose an AA that I can stick to no matter what.

Before I retired I was using 2% or 3% real return in my computations. That far underestimated my real return during the first five years of my retirement, but then with this boom market one might expect that to be the case.

Now that I am retired there is no point in computing portfolio growth; whatever it is, I'll have to work within that version of reality because I don't plan to work again. That said, it looks like possibly I might be fine even with 0% real return or a little less. In retirement I have not been spending every last cent that I could spend, not out of an excess of frugality but simply because I am happy with my present lifestyle and the way things are right now.

But then, I am glad that I have a little leeway because no major repairs or other financial hazards have occurred so far during the first five years of my retirement.
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Old 03-24-2015, 12:04 PM   #36
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4.4% nominal and 2.6% inflation, so 1.8% real.

The 4.4% is based on Rick Ferri's 30-year asset class expectations matched to my portfolio (as best I can), plus a 1.5% haircut across the board.

So a 45% buffer? 1.8% real vs 3.3% real is quite a difference !!!
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Old 03-24-2015, 12:24 PM   #37
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Hi palo,
My expected return depends on my mood at the time (from greedy to fearful and points between); just change the number on the ol' spreadsheet. Generally, I'm very conservative: the current number in the spreadsheet is 2.6%. Is that right? Who knows. Check this 2014 article for a variety of forecasts (scroll down): Expected returns: Estimates for your financial planning
Good luck!
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Old 03-24-2015, 12:27 PM   #38
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While working, I targeted 7% annual return for my retirement portfolio. Now I use 6%.

I don't use safe withdrawal rates for projections (nothing against them), instead a "target annual amount" based on a percentage of my salary, adjusted yearly for 3% inflation.
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Old 03-24-2015, 12:38 PM   #39
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So a 45% buffer? 1.8% real vs 3.3% real is quite a difference !!!
Here's the pertinent portion of my post that you omitted:

Quote:
Originally Posted by Cobra9777 View Post
I expect we'll do much better than that.
Again, for portfolio survival estimates, I prefer FIRECalc and cFIREsim. For tax planning and withdrawal strategy what-if's, I have to make an assumption, so I use 1.8% real. In practice, I usually test what-if's against a wide range of real returns, and I only tie to Ferri's data as an independent comparison point. But yeah, as I've said in other threads, once I've got a few more years of ER experience and start gaining confidence, I'll probably loosen the purse strings, as it looks like the kids are going to make out like bandits.
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Old 03-24-2015, 12:48 PM   #40
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... I don't pay as much attention to expected returns in retirement as I did during accumulation phase. ...Now that I am retired there is no point in computing portfolio growth; whatever it is, I'll have to work within that version of reality because I don't plan to work again. ... But then, I am glad that I have a little leeway because no major repairs or other financial hazards have occurred so far during the first five years of my retirement.
Hi W2R,
Maybe in your situation you don't need to pay attention to returns in retirement, but I think many do in order to keep pace with inflation. One doesn't need to work to watch expected returns: it's more a matter of allocation. Agree?

And, BTW, you're due for a major repair/financial hazard!
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