What rate of return are you using for retirement projections?

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TravelforFun
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Re: What rate of return are you using for retirement projections?

Post by TravelforFun » Wed Jul 11, 2018 11:23 pm

am wrote:
Sat Jul 07, 2018 9:44 am
Can someone post what returns are needed to support 4% and 5% + inflation adjustment yearly withdrawals? Thanks
Then the real return needs to be 4% and 5% for 4% and 5% annual withdrawal (SWR), respectively, in order for your money to last forever. I'm projecting 5% real return and my SWR will be 3%, and our kids love it.

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flyingaway
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Re: What rate of return are you using for retirement projections?

Post by flyingaway » Thu Jul 12, 2018 12:01 am

My portfolio is 70/30, I need 2% real to make it work. I am not sure I can get it for the future years, so I keep working to make my portfolio bigger.

emoore
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Re: What rate of return are you using for retirement projections?

Post by emoore » Thu Jul 12, 2018 12:05 am

I assume historical returns. About 7% real for stocks and 3% real for bonds. I don’t think there is better data for me to base my estimates in than the historical returns.

fennewaldaj
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Re: What rate of return are you using for retirement projections?

Post by fennewaldaj » Thu Jul 12, 2018 4:18 am

I made my spreadsheet to calculate everything from -6% real to 8% real for my 80% global stock 20 bond portfolio. I consider the most likely outcome to fall between 2%-5% real.

Carl53
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Re: What rate of return are you using for retirement projections?

Post by Carl53 » Thu Jul 12, 2018 5:36 am

I used 0% real, (3% inflation and 3% interest) when I set up my retirement spreadsheet in 2010. I have been pleasantly surprised.

JoeRetire
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Re: What rate of return are you using for retirement projections?

Post by JoeRetire » Thu Jul 12, 2018 5:52 am

ronhh wrote:
Sat Jul 07, 2018 9:05 am
My question: what rate of return do some of you use when you're looking at how long your nest egg will last?
I use a 5% real rate of return.

MathWizard
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Re: What rate of return are you using for retirement projections?

Post by MathWizard » Thu Jul 12, 2018 10:53 am

I use the the real return projections from portfolio solutions:

Code: Select all

https://portfoliosolutions.com/latest-learnings/blog/30-year-risk-and-return-forecast

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220volt
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Re: What rate of return are you using for retirement projections?

Post by 220volt » Thu Jul 12, 2018 11:07 am

Dave Ramsey said to use 12% so you can withdraw 8% safely. Whoo Hoo. I can retire right now. :sharebeer
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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corn18
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Re: What rate of return are you using for retirement projections?

Post by corn18 » Thu Jul 12, 2018 11:19 am

220volt wrote:
Thu Jul 12, 2018 11:07 am
Dave Ramsey said to use 12% so you can withdraw 8% safely. Whoo Hoo. I can retire right now. :sharebeer
Holy SWR Batman, I just updated my retirement spreadsheet with a 12% nominal return and 8% WR and I can retire now, too! Oh Happy Days! :moneybag :moneybag :moneybag

nomadgecko
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Re: What rate of return are you using for retirement projections?

Post by nomadgecko » Thu Jul 12, 2018 11:52 am

I assume real returns of 4% for stocks and 3% of for bonds.

MindBogler
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Re: What rate of return are you using for retirement projections?

Post by MindBogler » Thu Jul 12, 2018 12:30 pm

I assume ~5% real return on a 75/25 portfolio with a 15-20 year horizon. I see no reason to expect returns over this period to be abysmally low compared to the long term historic average, though I do believe they are likely to be lower for the upcoming 5-10 year period unless something changes dramatically.

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TheTimeLord
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Re: What rate of return are you using for retirement projections?

Post by TheTimeLord » Thu Jul 12, 2018 1:19 pm

flyingaway wrote:
Thu Jul 12, 2018 12:01 am
My portfolio is 70/30, I need 2% real to make it work. I am not sure I can get it for the future years, so I keep working to make my portfolio bigger.
You don't believe you can average 2% real over the next 30+ years?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: What rate of return are you using for retirement projections?

Post by KyleAAA » Thu Jul 12, 2018 1:44 pm

I'm using 4% real for a heavily tilted 70/30 portfolio. I plan to have so much money it won't matter if I end up getting 2%.

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Re: What rate of return are you using for retirement projections?

Post by Peter Foley » Thu Jul 12, 2018 2:16 pm

My retirement planning spreadsheet has two tabs. One tab is 4% real and the other is 7% real. I've used the same spreadsheet for a dozen years. I've never put much stock in the 7% tab. I chose to retire based on the projections from the 4% tab. That was in 2012 and I've been fortunate to have a good sequence of returns.

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cfs
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Re: What rate of return are you using for retirement projections?

Post by cfs » Thu Jul 12, 2018 3:00 pm

Good conversation. I am not as sophisticated as Mister Peter (above), I have a very simple spreadsheet and I am using 4-5% real. My projection is based on metaphysics, extrapolation, and my proprietary cfs guessing indicators. Good luck with your projections, y gracias por leer ~cfs~
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Re: What rate of return are you using for retirement projections?

Post by coffeecup333 » Thu Jul 12, 2018 4:14 pm

averagedude wrote:
Sat Jul 07, 2018 9:19 am
The projections i am using are somewhat conservative:
Stocks. 3.5% real return
Bonds. 0.5% real return
Cash. 0.0% real return

With your portfolio using these numbers will give you a 1.6% real return.
This is exactly the kind of calculations I was looking for. How do you get 1.6% as the real return from the projections above?

averagedude
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Re: What rate of return are you using for retirement projections?

Post by averagedude » Thu Jul 12, 2018 8:29 pm

coffeecup333 wrote:
Thu Jul 12, 2018 4:14 pm
averagedude wrote:
Sat Jul 07, 2018 9:19 am
The projections i am using are somewhat conservative:
Stocks. 3.5% real return
Bonds. 0.5% real return
Cash. 0.0% real return

With your portfolio using these numbers will give you a 1.6% real return.
This is exactly the kind of calculations I was looking for. How do you get 1.6% as the real return from the projections above?
The poster said he had 40% stocks, 40% bonds, and 20% cash.
3.5% ×40% stocks= 1.4
0.5%× 40% bonds= 0.2
0.0%× 20% cash= 0.0
Total 1.4+ 0.2= 1.6% real return

flyingaway
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Re: What rate of return are you using for retirement projections?

Post by flyingaway » Fri Jul 13, 2018 4:09 pm

TheTimeLord wrote:
Thu Jul 12, 2018 1:19 pm
flyingaway wrote:
Thu Jul 12, 2018 12:01 am
My portfolio is 70/30, I need 2% real to make it work. I am not sure I can get it for the future years, so I keep working to make my portfolio bigger.
You don't believe you can average 2% real over the next 30+ years?
At the current valuation level, no, I have no confidence.
The problem is that if the valuation comes down, the size of the portfolio becomes smaller.

runner540
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Re: What rate of return are you using for retirement projections?

Post by runner540 » Fri Jul 13, 2018 4:21 pm

I'll bite for this poll: 3% real for the next 60 years. Scientific - no!

This is for a portfolio that is mostly equities at global cap weight.

I'm quite sure the next 60 years will not look like 1958-2018, so I'm not going to undersave by expecting the same strong equity growth that some of the Boomers and older posters enjoyed.

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munemaker
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Re: What rate of return are you using for retirement projections?

Post by munemaker » Fri Jul 13, 2018 4:46 pm

I like the 10 year forecast of real returns by RESEARCH AFFILIATES:

Inflation: 2.3%
US Cash: -0.4%
Total Bond US: 0.8%
Corporate Bond US: 1.2%
TIPS: 1.0%
REIT: 0.8%
Equities - US Large: 0.4%
Equities - US Small: 0.7%
Equities - Emerging Markets: 2.6%
Equities - Global: 2.5%
Equities - EAFE: 4.6%
Bank Loans: 2.0%
60/40 USA: 0.7%

There's more, but that's the highlights. Not saying they are correct, but intuitively they make sense to me.

reference: https://interactive.researchaffiliates. ... terms=REAL

ebrasmus21
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Re: What rate of return are you using for retirement projections?

Post by ebrasmus21 » Fri Jul 13, 2018 4:55 pm

The is one of the most depressing threads I've seen on this board [which is saying something].

jalbert
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Re: What rate of return are you using for retirement projections?

Post by jalbert » Fri Jul 13, 2018 4:58 pm

ronhh wrote:
Sat Jul 07, 2018 9:05 am
I'm 56 years old, and have been planning diligently for an anticipated retirement at age 60. I use a 30-year retirement duration for my planning purposes (60 to 90 years of age). My question: what rate of return do some of you use when you're looking at how long your nest egg will last? I struggle a little with this (aside from the uncertainties of taxes, inflation, etc.)
-and-
ronhh wrote:
Sat Jul 07, 2018 9:12 am
And I should mention, from a portfolio allocation standpoint, I plan to be about 40% Vanguard Stock Index Fund(s); 40% Vanguard Bond Index Fund(s); and 20% cash and near cash (money market/CD's)
The uncertainty of inflation is exacerbated by holding 60% of your assets in nominal bonds and cash. A portfolio such as:

55% stock
20% intermediate nominal treasuries
20% intermediate TIPS
5% cash

Is likely less risky.
Index fund investor since 1987.

hesson11
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Re: What rate of return are you using for retirement projections?

Post by hesson11 » Fri Jul 13, 2018 6:18 pm

munemaker wrote:
Fri Jul 13, 2018 4:46 pm
I like the 10 year forecast of real returns by RESEARCH AFFILIATES:
I don't! Yikes. :D

Blueskies123
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Re: What rate of return are you using for retirement projections?

Post by Blueskies123 » Fri Jul 13, 2018 6:28 pm

With your portfolio using these numbers will give you a 1.6% real return.
[/quote]

This is exactly the kind of calculations I was looking for. How do you get 1.6% as the real return from the projections above?
[/quote]

The poster said he had 40% stocks, 40% bonds, and 20% cash.
3.5% ×40% stocks= 1.4
0.5%× 40% bonds= 0.2
0.0%× 20% cash= 0.0
Total 1.4+ 0.2= 1.6% real return
[/quote]
Sorry for nit picking but someone might make a mistake. You are projecting 1.6% on your stocks and bonds only. Your total return percent is something less on the total portfolio including cash. If I had the time I would do the calculation.

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Tycoon
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Re: What rate of return are you using for retirement projections?

Post by Tycoon » Fri Jul 13, 2018 6:41 pm

ebrasmus21 wrote:
Fri Jul 13, 2018 4:55 pm
The is one of the most depressing threads I've seen on this board [which is saying something].
Don't fret, everything is going to be all right. :beer
...I might be just beginning | I might be near the end. Enya | | C'est la vie

AlwaysWannaLearn
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Re: What rate of return are you using for retirement projections?

Post by AlwaysWannaLearn » Fri Jul 13, 2018 7:55 pm

jebmke wrote:
Sun Jul 08, 2018 8:53 am
TheTimeLord wrote:
Sun Jul 08, 2018 8:16 am
Personally, If I was 20 years from retirement I would choose my AA and glide path, put my head down and contribute what I could to my portfolio checking the value periodically.
This is essentially what we did. We established a saving and investment plan early and didn't deviate from that. I didn't even pay much attention to things until 2004; I ended up retiring in 2007 but the decision was not a financial one. The financial aspects were merely enabling. For many years we had such low visibility on the entire portfolio that it was meaningless to try to make projections.
Ohmigosh, THANK YOU jebmke and TimeLord!! Reading through this thread, I was starting to wonder if I had maybe "missed the memo" that I was "supposed" to be keeping these spreadsheets, with assumed rates of return, etc. all these years. :confused

Bottom line: I've never done any projections. I simply did as BH principles suggest in the accumulation phase - LBYM, save/invest per BH philosophy, check infrequently, keep on keeping' on...

True story: Retiring early had never been a goal for me. For reasons I won't bore anyone with, recently it became something I was considering and have now committed to, due in part to tax law changes and in large part to the wisdom I picked up over time from the BH community on this site. (THANK YOU!!) To illustrate just how clueless I was, and explicitly NOT to humble-brag: In my very first substantive post on this site posting the details of my situation and asking about tax allocation strategy (taxable/tax-deferred/tax-free), one kind poster asked me why I was worried about tax allocation strategy when my portfolio was at 70x current expenses. D'oh! :o

Candidly, I had no idea what s/he was referring to as far as multiple of expenses. (I've since learned from the very kind subsequent posters on that thread, btw.) Anyway, the only response I could muster at the time was: (oopsie) "Is that bad?" Seriously, I didn't know. I'm grateful to those here on the forum who helped open my eyes and never shamed me for not knowing what I didn't know.

OP, just do as TheTimeLord and jebmke suggest. You won't regret it.
You might have to go through some of what I described above, but this is one of those situations where cluelessness/ignorance actually played in my favor. The same might be true for you. Those are the GOOD problems to have.

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Re: What rate of return are you using for retirement projections?

Post by jalbert » Sat Jul 14, 2018 3:55 pm

Ohmigosh, THANK YOU jebmke and TimeLord!! Reading through this thread, I was starting to wonder if I had maybe "missed the memo" that I was "supposed" to be keeping these spreadsheets, with assumed rates of return, etc. all these years. 
You only need that if you are targeting a particular or approximate retirement year and want to see how close you are. If you have removed unnecessary expenses from your lifestyle, max out retirement savings to the full extent of slack in your budget, and invest as aggressively as is consistent with your tolerance and capacity for risk, then having spreadsheets to determine you will still work 5 or however many more years than you would like is a waste of time unless you use the information to take action to address it.
Index fund investor since 1987.

SQRT
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Re: What rate of return are you using for retirement projections?

Post by SQRT » Sat Jul 14, 2018 4:08 pm

Once retired there is much less reason to forecast returns. It’s sequence of return (SOR)risk that is the big issue. If you ignore SOR you dont need much of a return to last 30 years at 4% WR (1%real?). It’s hard to forecast SOR but foolish to ignore it though.

Much better to start off with a conservative WR then react to actual returns.
Last edited by SQRT on Sat Jul 14, 2018 4:56 pm, edited 1 time in total.

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OAG
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Re: What rate o;f return are you using for retirement projections?

Post by OAG » Sat Jul 14, 2018 4:17 pm

At basically age 78, now single, and at 41 times expenses I keep All Cash (CD/MM). I just hope CD rates beat "my personal inflation rate". Over the years it has and I do not see that changing. BTW and I really do not plan to live to age 100 much less 129.
OAG=Old Army Guy. Retired CW4 USA (US Army) in 1979.

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vitaflo
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Re: What rate of return are you using for retirement projections?

Post by vitaflo » Sat Jul 14, 2018 8:43 pm

4% real, but that doesn't mean much because we are so far ahead of our savings goals that we could get -1% real and still retire early.

ebrasmus21
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Re: What rate of return are you using for retirement projections?

Post by ebrasmus21 » Sat Jul 14, 2018 9:02 pm

Tycoon wrote:
Fri Jul 13, 2018 6:41 pm
ebrasmus21 wrote:
Fri Jul 13, 2018 4:55 pm
The is one of the most depressing threads I've seen on this board [which is saying something].
Don't fret, everything is going to be all right. :beer
I'll try not to worry; just hoping the pessimists are wrong :)

Sandi_k
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Re: What rate of return are you using for retirement projections?

Post by Sandi_k » Sun Jul 15, 2018 11:44 am

I assume 4% return, 2.5% inflation...so 1.5% real.

This is with a 60/40 allocation, plus cash/TIPS/bonds for the first ten years to fund the "gap" between retirement at age 60, and SocSec at age 70.

SQRT
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Re: What rate of return are you using for retirement projections?

Post by SQRT » Sun Jul 15, 2018 12:29 pm

How do your models deal with variability of return and sequence of return risk?

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Leif
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Re: What rate of return are you using for retirement projections?

Post by Leif » Sun Jul 15, 2018 1:05 pm

I use Mr. Bogle's projections for the next 10 years from the Bogleheads conference. From the October 2017 conference the projection.

Wiki - Historical and expected returns

Code: Select all

Ten-Year Expected Long Term Nominal Returns (2017)
Asset Class					Expected Nominal Return
U.S. Stocks (broad market)			4%
U.S. Bonds (broad market + moderate risk)	3.1%
I adjust for my AA and for the money market funds. I have more money market funds, so I use 2.5% for bonds + Money Market. I use the US Stocks for International as well. At 50/50 that is 4% * 0.5 + 2.5% * 0.5 = 3.3% nominal. I expect the next 10 years to be basically flat after inflation. Not great. But, at least I cannot complain about the last 10 years. Generally people project forward based on the recent past continuing in the same direction and speed. Not a good idea, IMO.
Last edited by Leif on Sun Jul 15, 2018 1:36 pm, edited 3 times in total.
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Re: What rate of return are you using for retirement projections?

Post by Blueskies123 » Sun Jul 15, 2018 1:25 pm

I left a similar post on another thread:

To me the most frightening aspect of this question is what expected returns all the pension funds are using for calculating current and future benefits. Most are in 7-8%. Can you imagine if all Bogleheads were counting on 7.5% stock returns for the next 30 years. I certainly am not.

https://www.wsj.com/articles/pension-fu ... 1525775400
https://www.nasra.org/returnassumptionsbrief

[link fixed by admin LadyGeek]

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1210sda
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Re: What rate of return are you using for retirement projections?

Post by 1210sda » Sun Jul 15, 2018 2:37 pm

SQRT wrote:
Sun Jul 15, 2018 12:29 pm
How do your models deal with variability of return and sequence of return risk?
What's the difference between them?

1210

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Re: What rate of return are you using for retirement projections?

Post by LadyGeek » Sun Jul 15, 2018 3:05 pm

Variability of return - A statistical measure of how much your return varies over the period of time. See the wiki: Variation of returns

Sequence of return risk - Over the long term, the market return will rise over time. However, it doesn't do that in a straight line. Over a short period of time, the market will zig and zag along the way. Sequence of return risk says that the market will tank when you need the money the most. Timing is important and you can't plan what the market will do in the future. You need to plan for the dips. See: Sequence Risk
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1210sda
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Re: What rate of return are you using for retirement projections?

Post by 1210sda » Sun Jul 15, 2018 5:50 pm

LadyGeek wrote:
Sun Jul 15, 2018 3:05 pm
Variability of return - A statistical measure of how much your return varies over the period of time. See the wiki: Variation of returns

Sequence of return risk - Over the long term, the market return will rise over time. However, it doesn't do that in a straight line. Over a short period of time, the market will zig and zag along the way. Sequence of return risk says that the market will tank when you need the money the most. Timing is important and you can't plan what the market will do in the future. You need to plan for the dips. See: Sequence Risk
Thank you.

Is there a way to quantify the drag of these risks? In particular, the sequence of returns.

1210

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Re: What rate of return are you using for retirement projections?

Post by JBTX » Sun Jul 15, 2018 5:50 pm

I use around 3.0% real for entire portfolio.

I suspect most people use the lowest number that safely still meets their objectives.

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Re: What rate of return are you using for retirement projections?

Post by LadyGeek » Sun Jul 15, 2018 6:24 pm

1210sda wrote:
Sun Jul 15, 2018 5:50 pm
Thank you.

Is there a way to quantify the drag of these risks? In particular, the sequence of returns.

1210
Portfolio drag can be quantified in terms of Variance drain (volatility drag), but that's not what you're asking.

I found this deep-dive article: Understanding Sequence Of Return Risk & Safe Withdrawal Rates, from kitces.com, but I don't have the experience to give you a good answer. I'll defer to others for guidance.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: What rate of return are you using for retirement projections?

Post by Sandi_k » Mon Jul 16, 2018 12:43 am

1210sda wrote:
Sun Jul 15, 2018 5:50 pm

Thank you.

Is there a way to quantify the drag of these risks? In particular, the sequence of returns.

1210
Search for LMP - Liability Matching Portfolio.

I am handling it by setting aside $50k per year, for 10 years, in TIPS and cash, from the original investment portfolio. Assuming $1.3M in that portfolio, $500k will be moved into TIPS and cash over the next seven years (we already have some set aside). Then $800k is the "investment portfolio" and $500k is the "spending portfolio" for those first 10 years, before SocSec kicks in.

At that point, the SoR risks are essentially eliminated for us. We'll have 4% drawdown of the remaining investments, plus 2 SocSec accounts (estimated at $50k per year), plus a pension.

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Re: What rate of return are you using for retirement projections?

Post by SQRT » Mon Jul 16, 2018 7:13 am

1210sda wrote:
Sun Jul 15, 2018 2:37 pm
SQRT wrote:
Sun Jul 15, 2018 12:29 pm
How do your models deal with variability of return and sequence of return risk?
What's the difference between them?

1210
Much the same. Variability is usually expressed as a statistical “Variance” number while sequence of return risk is a more general description of how big losses early in retirement can have a very negative effect on your portfolio sustainability.

My point was simply projecting a constant positive return over a long period, even if very low, will not capture this risk. For retirement portfolios this is probably the biggest risk and is why I don’t bother trying to forecast future returns. I’m retired 12 years and use a VW method for withdrawals.

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1210sda
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Re: What rate of return are you using for retirement projections?

Post by 1210sda » Mon Jul 16, 2018 7:49 am

Didn't Bengen's 4% SWR take into account SoR?

1210

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Re: What rate of return are you using for retirement projections?

Post by SQRT » Mon Jul 16, 2018 8:23 am

1210sda wrote:
Mon Jul 16, 2018 7:49 am
Didn't Bengen's 4% SWR take into account SoR?

1210
Yes. All historical calculators inherently take historical SOR risk into account. My issue is the forecast some people use of a constant or average real future return. These forecasts generally dont take SOR risk into account and are thus of very limited use, in my opinion. Again, more of an issue once retired, especially early in retirement.

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