Reran my numbers, running out of $$??

[tominboise]

I have a complicated spreadsheet (don't we all?) and reran our numbers yesterday, with the current inflation rate and rates of return. It looks like we have a risk of running out of $$ around 2054 (I will be 94 then, DW 92).

This assumes inflation stays constant over that time, as does our spending and rates of return, so not very realistic on any of those. We are at about a 4% withdraw rate currently, not on SS yet (waiting until age 70 for that, so 7.3 more years).

What are people using for inflation rate for predicting over a long period of time? What about average rate of return? (7% for the stocks, like history has proven?)

Current asset allocation is 58/34/8 (stocks/bonds/short term cash). Stocks are virtually all index funds and bonds are funds as well. We are diversified small to large cap, both domestic and international. We are down ~-18.5% this year.

 

[REWahoo]

What does FIRECalc say about how long your $ will last?

 

[COcheesehead]

Any method using straight line, constant values isn’t going to be accurate. Use FireCalc or the like.

 

[pb4uski]

For a long 30+ year time horizon FIRECalc is a better tool than a deterministic planner. For my deterministic plan in Quicken Lifetime Planner I use 7% nominal rate of return and a 3% inflation rate.

If your deterministic plan shows your money lasting to 94 and FIRECalc give you 95% or better success then I think you're fine.

If FIRECalc is less than 95% success the use the Investigate tab to solve for the spending level at 95% success.

 

[tominboise]

Firecalc says 100%, so I should be covered.

 

[Montecfo]

I use 3 percent real. I do not expect inflation to outstrip investment gains very often.

By forecasting multiple unlikely but negative trends over a long horizon you can needlessly scare yourself to death.

 

[USGrant1962]

7% is a reasonable long-term stock market return, though slightly higher than most current estimates. But that is real return, nominal returns are >10%. If you are taking inflation out of 7% returns you are double counting inflation.

And when you say inflation stays constant, what rate are you using? >7% inflation is not reasonable for a long-term forecast. Long term historical US inflation has been somewhere between 2.25% and 3.5% depending on what period you look at.

https://www.multpl.com/inflation
https://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp

Your issues point out the weaknesses of spreadsheet forecasts that project returns and inflation based on a subjective input. Both historical (FIRECalc) and Monte Carlo models better take into account future uncertainty.

 

[marko]

7% is a reasonable long-term stock market return, though slightly higher than most current estimates. But that is real return, nominal returns are >10%. If you are taking inflation out of 7% returns you are double counting inflation.
.

This is comforting. But where are you finding the 7% real return? (A question, not a challenge). "Past performance is not......etc, etc."

 

[latexman]

What are people using for inflation rate for predicting over a long period of time?

I use Bureau of Labor statistics, namely the Consumer Price Index. For 1990-2022 (32 years) the average year to year inflation was about 2.6%. 3% should be conservative. Look around on their website. You should be able to find the worst 32 year inflation rate the U.S has experienced between 1913 (when CPI started) and now.

 

[Sunset]

OP are you reducing your withdrawal rate of 4% once SS kicks in ?

Inflation of 3% or 3.5% seems more real for me, as older folks need more medical services which historically have risen faster than 2%. Also we need to hire more help, and with the future less workers, they know us fat cats can pay more so I expect more inflation there.

 

[G-Man]

This is comforting. But where are you finding the 7% real return? (A question, not a challenge). "Past performance is not......etc, etc."

I'm being very conversative and using 4.5% rate of return for stocks in the NewRetirement Planner+ tool. Using 3% for inflation. For SS COLA, I'm only using 1.25%. Probably should bump that up to 2.4%.

Here are some other assumptions as well:

 

[GravitySucks]

Before finding the retirement calculators I also had a spreadsheet.
Bad case spreadsheet has 3% inflation 6% nominal returns. Interestingly my sequence of return assumptions mirrors Fido planner's bad case - 2 consecutive bad years followed by a few sideways years.

Fido planner now shows me going broke at 90 after a year of nursing home cost. I rarely spend what I have in the planning so I'll worry about it in another 10 years.

 

[OldShooter]

I use Bureau of Labor statistics, namely the Consumer Price Index. For 1990-2022 (32 years) the average year to year inflation was about 2.6%.

Be very careful with this. That time interval clips off the 70s/80s high inflation. If, instead of 30 years you look at 50 years IIRC you get a number well over 4%.

 

[audreyh1]

Inflationdata.com also provides that info and long-term inflation was 3.10% from 1913 to 2020. You can see the inflation statistics by decade plus the very long-term inflation here: https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp

 

[flyingaway]

I have a complicated spreadsheet (don't we all?) and reran our numbers yesterday, with the current inflation rate and rates of return. It looks like we have a risk of running out of $$ around 2054 (I will be 94 then, DW 92).

This assumes inflation stays constant over that time, as does our spending and rates of return, so not very realistic on any of those. We are at about a 4% withdraw rate currently, not on SS yet (waiting until age 70 for that, so 7.3 more years).

What are people using for inflation rate for predicting over a long period of time? What about average rate of return? (7% for the stocks, like history has proven?)

Current asset allocation is 58/34/8 (stocks/bonds/short term cash). Stocks are virtually all index funds and bonds are funds as well. We are diversified small to large cap, both domestic and international. We are down ~-18.5% this year.

I don't have a spreadsheet. When FIRECal said that I am OK, I retired. I think I am still OK as my withdrawal rate is below 4%. Although I wish the market would go back to the all-time-high soon, I could not do anything about it. So I don't worry about it, especially something in the far future.

 

[G-Man]

I don't have a spreadsheet. When FIRECal said that I am OK, I retired. I think I am still OK as my withdrawal rate is below 4%. Although I wish the market would go back to the all-time-high soon, I could not do anything about it. So I don't worry about it, especially something in the far future.

Any other retirement planner you used to confirm you could retire?

 

[daylatedollarshort]

I wrote my own retirement planner spreadsheet with inflation and real returns as the main parameters. It works with 0% real returns (or more) from TIPS, plus SS (inflation adjusted) and pensions (mostly fixed).

 

[Midpack]

I have a complicated spreadsheet (don't we all?) and reran our numbers yesterday, with the current inflation rate and rates of return. It looks like we have a risk of running out of $$ around 2054 (I will be 94 then, DW 92).

If that's the case most if not all of us are going to have issues. And running out at 94/92 is about as soft a landing as imaginable in that you have 30+ years to make some adjustments.

I had to look at my calendar to make sure it wasn't 4/1...

 

[latexman]

Be very careful with this. That time interval clips off the 70s/80s high inflation. If, instead of 30 years you look at 50 years IIRC you get a number well over 4%.

OP is looking at a 32 year timeline. That was just the most convenient 32 year period that presented itself. Recall I said, "Look around on their website. You should be able to find the worst 32 year inflation rate the U.S has experienced between 1913 (when CPI started) and now", so, obviously, I was aware.

 

[FREE866]

If your WR is 4% now and in 7 years you're gonna start getting social security your WR is going to go down correct?


And remember SS is indexed to inflation so you're protected there agaisnt inflation. The larger % of your expenses covered by SS the better.

 

[tominboise]

OP are you reducing your withdrawal rate of 4% once SS kicks in ?

Inflation of 3% or 3.5% seems more real for me, as older folks need more medical services which historically have risen faster than 2%. Also we need to hire more help, and with the future less workers, they know us fat cats can pay more so I expect more inflation there.

If your WR is 4% now and in 7 years you're gonna start getting social security your WR is going to go down correct?


And remember SS is indexed to inflation so you're protected there agaisnt inflation. The larger % of your expenses covered by SS the better.

Yes, it drops by approximately half when SS kicks in.

 

[tominboise]

Inflationdata.com also provides that info and long-term inflation was 3.10% from 1913 to 2020. You can see the inflation statistics by decade plus the very long-term inflation here: https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp

Looking at that bar chart, there are 20 years (1970-1989) where inflation averaged 6.5%. So using 7% for a worst case assumption might not be that far off. But, another website with S&P 500 returns over the same period show an inflation adjusted return of 5.01%. So in recent history, meaning in the time most of us have been alive, the worst inflationary period still has positive gains, so that might be an appropriate number to use.

https://www.officialdata.org/us/stocks/s-p-500/1970?amount=100&endYear=1989

 

[FREE866]

Yes, it drops by approximately half when SS kicks in.

You're totally fine then....so really your WR rate is 4%, but only for 7 years!!


SS is huge for me too...I'm 56 now, my plan is to hold off till 70 to collect which at that point should cover ~80% of my spend...even more actually....

 

[G-Man]

You're totally fine then....


SS is huge for me too...I'm 56 now, my plan is to hold off till 70 to collect which at that point should cover ~80% of my spend...even more actually....

I'm 56 as well. Plan to collect SS at age 70 as well. At that time, SS will cover majority of our expenses as well.

What % are you using for an average SS COLA increase? Currently I'm only using 1.25%. Probably should be higher.

 

[FREE866]

I'm 56 as well. Plan to collect SS at age 70 as well. At that time, SS will cover majority of our expenses as well.

What % are you using for an average SS COLA increase? Currently I'm only using 1.25%. Probably should be higher.

Interesting question. I'm assuming no increase , but should probably assume more, but then again any SS COLA increase will be negated by proportional increase in my expenses.