"I am slowly coming to the conclusion that the RR Ratio is really not all that useful and simply using the expected Withdrawal Rate is a better signpost for the viability of the Retirement Plan."

We have found a number of the retirement calculators to be very helpful - prefer the TRP calculator, the extended IORP and the RPM for our use but there were others just as informative.

Most of them typically are near the 25X expenses dependent upon how you set a number for the variables and so is the RR Ratio which we played with for a while.

The rest is more or less a personal psychology issue more than a mathematical aid or accuracy issue in my opinion.

## Retirement Readiness Ratio (e.g. Funding Ratio)

### Re: Retirement Readiness Ratio (e.g. Funding Ratio)

It is fine to do it this but then it seems like you've mixed up real & nominal rates. In your original post you talked about using 4.5% for stocks and 1.8% for bonds. But those are real rates. Future cashflows should beWoodSpinner wrote: ↑Sun Dec 01, 2019 1:44 pmI think the difference is I amincreasingthe Cashflow by Inflation (per the 4% Rule).

*constant*, not increase, if you're using real rates. And virtually nobody is assuming 1%

*nominal*rates for stocks (which would imply -1% real rates, given inflation targeting of 2%).

If you're increasing cashflow by inflation then you should be looking at discount rates more like 8.5% for stocks and 4.8% for bonds, if using historical averages. Even pessimistic forecasts like Bogle say 6% for stocks and 3% for bonds, not 4.5% and 1.8%.

- WoodSpinner
**Posts:**902**Joined:**Mon Feb 27, 2017 1:15 pm

### Re: Retirement Readiness Ratio (e.g. Funding Ratio)

MEA CULPA...AlohaJoe wrote: ↑Sun Dec 01, 2019 9:03 pmIt is fine to do it this but then it seems like you've mixed up real & nominal rates. In your original post you talked about using 4.5% for stocks and 1.8% for bonds. But those are real rates. Future cashflows should beWoodSpinner wrote: ↑Sun Dec 01, 2019 1:44 pmI think the difference is I amincreasingthe Cashflow by Inflation (per the 4% Rule).constant, not increase, if you're using real rates. And virtually nobody is assuming 1%nominalrates for stocks (which would imply -1% real rates, given inflation targeting of 2%).

If you're increasing cashflow by inflation then you should be looking at discount rates more like 8.5% for stocks and 4.8% for bonds, if using historical averages. Even pessimistic forecasts like Bogle say 6% for stocks and 3% for bonds, not 4.5% and 1.8%.

You are correct. Will rework and republish.

WoodSpinner

- WoodSpinner
**Posts:**902**Joined:**Mon Feb 27, 2017 1:15 pm

### Re: Retirement Readiness Ratio (e.g. Funding Ratio)

*Updated charts and spreadsheet to eliminate inflation -- all values in REAL dollars*Link to Retirement Readiness Ratio - Upload Spreadsheet.

**30 Year Retirement**

**20 Year Retirement**

**30 Year 3% Withdrawal Rate**

Hopefully this provides a clearer picture of the calculations....

I am slowly coming to the conclusion that the RR Ratio is really not all that useful and simply using the expected Withdrawal Rate is a better signpost for the viability of the Retirement Plan.

OTOH some of this analysis could help you calculate the expected Withdrawal Ratio for your Retirement Plan -- which can be a bit tricky when you factor in lumpy expenses and changes to Income Streams.

Code: Select all

```
Withdrawal Ratio = (PV of Cashflow/Number of Years with Negative Cashflow)/Portfolio Value
```

WoodSpinner