Real Return Poll

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

What Percent Real Return are you using to Plan for your Retirement?

Less than 0%
14
9%
1%
12
8%
2%
36
24%
3%
36
24%
More than 3%
52
35%
 
Total votes: 150

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HomerJ
Posts: 11942
Joined: Fri Jun 06, 2008 12:50 pm

Re: Real Return Poll

Post by HomerJ » Sat Mar 31, 2012 8:46 pm

Cut-Throat wrote:
Noobvestor wrote: Are you serious? Japan didn't teach you not to invest in only one country, the US (or wherever you live) included? :roll: :D
So, you've never heard of a Global Recession?
There's never been a global recession that returned 0% real for 30+ years... I guess it could happen, but planning for it?

This is all recency basis... 12 bad years, and you guys really think it's LIKELY to continue FOREVER. Pathetic.

hazlitt777
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Location: Wisconsin

Re: Real Return Poll

Post by hazlitt777 » Sat Mar 31, 2012 9:03 pm

I'm hoping for a 3-4% real return. If I try to save more based on a 2% return, it would be an unacceptable change in my lifestyle today. So what will happen will happen.

I am concerned like nisiprius about the high inflation rate in healthcare. I personally "worry" that it will get only worse because of current trends and policies. If it does, then I would need a lot more than a 4% return if my health goes south.

terminer
Posts: 64
Joined: Tue Sep 01, 2009 3:26 pm

Re: Real Return Poll

Post by terminer » Sun Apr 01, 2012 6:20 am

rrosenkoetter wrote:
This is all recency basis... 12 bad years, and you guys really think it's LIKELY to continue FOREVER. Pathetic.
Rather than calling people pathetic, have a look at the Dimson study:
"To counteract this dependency on projections of the US experience, we examine the histories of other countries. We find only three non-US equity markets (with a fourth on the borderline) that never experienced a shortfall in real returns over a 20-year period. The worst 20-year real returns of 11 countries were negative. Historically, in 6 of the 16 countries, investors would need to have waited more than 50 years to be assured of a positive return"

Now of course history won't repeat itself, and we all hope the coming years won't see events similar to those that caused some of the periods of negative returns in that study, but to say that the reason people assume low real returns is all recency bias is simply not true. And it's certainly not "pathetic" to plan your finances on that basis.

John.

ThatGuy
Posts: 862
Joined: Fri Feb 05, 2010 9:00 am

Re: Real Return Poll

Post by ThatGuy » Sun Apr 01, 2012 8:25 am

Boglenaut wrote:You need an "other" category.

I don't assume any value... just save as fast as we can.
Agreed. I can't predict the future with any degree of certainty, but I would think our real return will easily be higher than 3%.

However, in our retirement plans I make no calculations for when we can retire. I'm far enough away in years that there is ZERO predictive value in pinning a specific year on retirement. I have my spreadsheet set up to calculate both 4% of the value of all tax-advantaged accounts, and 5% of the brokerage accounts. When I'm59.5+ and 4% of everything covers our yearly expenses, I'll retire. If I somehow get 5% of the taxable account to cover yearly expenses before 59.5, I'll retire early. Tax-advantaged accounts + social security later on will carry me to the grave. Anything else is too uncertain to care about.
Work is the curse of the drinking class - Oscar Wilde

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Noobvestor
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Re: Real Return Poll

Post by Noobvestor » Sun Apr 01, 2012 1:19 pm

johng wrote:
rrosenkoetter wrote:
This is all recency basis... 12 bad years, and you guys really think it's LIKELY to continue FOREVER. Pathetic.
Rather than calling people pathetic, have a look at the Dimson study:
"To counteract this dependency on projections of the US experience, we examine the histories of other countries. We find only three non-US equity markets (with a fourth on the borderline) that never experienced a shortfall in real returns over a 20-year period. The worst 20-year real returns of 11 countries were negative. Historically, in 6 of the 16 countries, investors would need to have waited more than 50 years to be assured of a positive return"

Now of course history won't repeat itself, and we all hope the coming years won't see events similar to those that caused some of the periods of negative returns in that study, but to say that the reason people assume low real returns is all recency bias is simply not true. And it's certainly not "pathetic" to plan your finances on that basis.

John.
Red herring. How does evaluating other national markets *in isolation* (per your quote) have any relevance to investing globally (i.e. across all national markets). Substitute various sectors for 'countries' in this scenario and I'm sure you'd get similar results: long periods of underperformance of some sectors - but that doesn't mean we can't eliminate some of that long-term-underperformance risk by diversifying across all sectors, does it?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Tuxx
Posts: 863
Joined: Tue Mar 30, 2010 1:19 am

Re: Real Return Poll

Post by Tuxx » Sun Apr 01, 2012 1:24 pm

Using 0%.

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GregLee
Posts: 1748
Joined: Wed Oct 27, 2010 3:54 pm
Location: Waimanalo, HI

Re: Real Return Poll

Post by GregLee » Sun Apr 01, 2012 1:35 pm

Less than 0%, here. I'm optimistic about market returns, and I think 3% real return is perfectly reasonable. But I'm not planning on it, because my pension + SS will probably keep up with my expenses. My portfolio is for a rainy day (LTC, hyperinflation, ...), and if I lose it all, I shall just have to pray for fair weather.
Greg, retired 8/10.

Tuxx
Posts: 863
Joined: Tue Mar 30, 2010 1:19 am

Re: Real Return Poll

Post by Tuxx » Sun Apr 01, 2012 1:37 pm

GregLee wrote:Less than 0%, here. I'm optimistic about market returns, and I think 3% real return is perfectly reasonable. But I'm not planning on it, because my pension + SS will probably keep up with my expenses. My portfolio is for a rainy day (LTC, hyperinflation, ...), and if I lose it all, I shall just have to pray for fair weather.
Changing to chain weighted CPI will make your less than 0%, optimistic.

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ofcmetz
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Location: Louisiana

Re: Real Return Poll

Post by ofcmetz » Sun Apr 01, 2012 1:57 pm

3% real return in my plans. We plan on working for another 25 years or so just in case.....
Never underestimate the power of the force of low cost index funds.

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Cut-Throat
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Real Return Poll

Post by Cut-Throat » Sun Apr 01, 2012 7:24 pm

ThatGuy wrote: Agreed. I can't predict the future with any degree of certainty, but I would think our real return will easily be higher than 3%.

However, in our retirement plans I make no calculations for when we can retire. I'm far enough away in years that there is ZERO predictive value in pinning a specific year on retirement. I have my spreadsheet set up to calculate both 4% of the value of all tax-advantaged accounts, and 5% of the brokerage accounts. When I'm59.5+ and 4% of everything covers our yearly expenses, I'll retire. If I somehow get 5% of the taxable account to cover yearly expenses before 59.5, I'll retire early. Tax-advantaged accounts + social security later on will carry me to the grave. Anything else is too uncertain to care about.
Sounds like you are planning on a return..... "4% of the value of all tax-advantaged accounts" and "5% of the value of all tax-advantaged accounts"

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Random Musings
Posts: 5317
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Location: Pennsylvania

Re: Real Return Poll

Post by Random Musings » Mon Apr 02, 2012 3:27 pm

I'll tell you when that point of time in my life occurs. Who knows what TIP rates will be then, let alone if the equity markets having seriously distorted Shiller PE's.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

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FabLab
Posts: 1127
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Re: Real Return Poll

Post by FabLab » Mon Apr 02, 2012 5:29 pm

Tuxx wrote:Using 0%.
I suppose if I were pinned against the wall, this would be the number chosen. But, really, I have never planned on building a portfolio based on assumptions of real return. This underscores my conviction that, over the long term, my efforts should be focused on savings and control of investments costs. And, so far, so good.
The fundamental things apply as time goes by -- Herman Hupfeld

sschullo
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Re: Real Return Poll

Post by sschullo » Mon Apr 02, 2012 5:39 pm

I use the overall 7.2% return on a 30/70 portfolio which is published on Vanguard Model Portfolio. I am guessing that with todays inflation and taxes, a real return of 2% is doable.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

ThatGuy
Posts: 862
Joined: Fri Feb 05, 2010 9:00 am

Re: Real Return Poll

Post by ThatGuy » Mon Apr 02, 2012 6:01 pm

Cut-Throat wrote:Sounds like you are planning on a return..... "4% of the value of all tax-advantaged accounts" and "5% of the value of all tax-advantaged accounts"
Why would I invest in something if I didn't expect a return of some sort? :confused
Work is the curse of the drinking class - Oscar Wilde

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Cut-Throat
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Real Return Poll

Post by Cut-Throat » Tue Apr 03, 2012 8:24 am

ThatGuy wrote:
Cut-Throat wrote:Sounds like you are planning on a return..... "4% of the value of all tax-advantaged accounts" and "5% of the value of all tax-advantaged accounts"
Why would I invest in something if I didn't expect a return of some sort? :confused
I don't know. The post was about planning and you agreed with someone that said they weren't planning.

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Sbashore
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Location: Goodyear, AZ

Re: Real Return Poll

Post by Sbashore » Wed Apr 04, 2012 10:33 am

I'm retired and hold a 50/50 equity/fixed portfolio. I compute my maximum allowable distribution as my portfolio interest/dividend income plus 2%. That puts it at roughly 4.5% presently. If my average actual distributions ever exceed my allowable distributions I revert to spending interest/dividends only until the situation corrects itself. I could exceed my allowable distributions by either overspending in a given period or my portfolio value declines.
Steve | Semper Fi

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FlyHi
Posts: 169
Joined: Thu Mar 24, 2011 11:32 am

Re: Real Return Poll

Post by FlyHi » Wed Apr 04, 2012 12:16 pm

I say 5% but I really am only concerned that I don't lose money on my investments. . I am 73, retired and living off of my pensions & SS. I am single living with a partner in a house that is paid for.The only hig expense I anticipate would be a car in about 10 years. Since that will probably be my last one I intended to buy one that I really want rather than one that is practical and I will pay cash for it. I don't have an expensive life style so my living expenses are low. Last year my living expenses exceded my plan by $2,000 only because one of my sons was out of work aa nd neded some assistance. I have a large emergency fund but as my CDs come due I put most of the money into I Bonds, short term bond fund or Wellesley. So without any unforseen calamities I feel that I have more than enough money to last for the rest of my life.
“If you want to feel rich, just count the things you have that money can't buy”

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