Originally Posted by Katiek
When you use FireCalc, do you use the "historic market" returns for your portfolio - just adjusting for the percentage you hold in stocks? Or do you put in customized expected returns for stocks and bonds?
I hadn't realized they had the customized return option, and now I'm wondering if I'm being too optimistic by using the market returns and if I should adjust them down due to the historically low interest rates?
How do you handle it?
Historic returns are not necessarily more optimistic than an estimate based on a fixed return. The historical returns include periods where the stock market was awful. In fact, you must use historical returns or monte carlo analysis to get a feel for the way sequence of returns risk could affect your retirement plan.
Typically I will use different modeling methods (including a fixed return) to get a better feel for the risk associated with other assumptions in my plan.