And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

I bleed maroon said:

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And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

Just curious. What stock portfolio are you using that gets you a return that would weight out to 8% on a 50/50 blended portfolio?

northeastag said:

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I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

Just curious. What stock portfolio are you using that gets you a return that would weight out to 8% on a 50/50 blended portfolio?

---

Just to be clear, this is my assumption for a retirement portfolio, validated by past studies showing 8.22% for a 50/50 portfolio.

In my personal case, I am not currently at 50% bonds or bond-like equities (utilities, preferred stock, and now the YieldMax covered call ETFs), but more like 20%. However, that 20% has returned around 7% over the past 10 years, while my equities have returned in excess of 12%, so I'm comfortable with the 8% assumption going forward. For planning purposes, conservatively, I'm assuming 6% on bonds and 10% on equities, blending to 8% overall.

I bleed maroon said:

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northeastag said:

---

I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

Just curious. What stock portfolio are you using that gets you a return that would weight out to 8% on a 50/50 blended portfolio?

---

Just to be clear, this is my assumption for a retirement portfolio, validated by past studies showing 8.22% for a 50/50 portfolio.

In my personal case, I am not currently at 50% bonds or bond-like equities (utilities, preferred stock, and now the YieldMax covered call ETFs), but more like 20%. However, that 20% has returned around 7% over the past 10 years, while my equities have returned in excess of 12%, so I'm comfortable with the 8% assumption going forward. For planning purposes, conservatively, I'm assuming 6% on bonds and 10% on equities, blending to 8% overall.

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Conservatively 6% on bonds and 10% on equities? That's not a conservative assumption at all.

You have completely ignored volatility in your analysis, and what happens when you are withdrawing and the market drops 40% over an 18-36 month period. I hope it works out.

cjsag94 said:

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I bleed maroon said:

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northeastag said:

---

I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

Just curious. What stock portfolio are you using that gets you a return that would weight out to 8% on a 50/50 blended portfolio?

---

Just to be clear, this is my assumption for a retirement portfolio, validated by past studies showing 8.22% for a 50/50 portfolio.

In my personal case, I am not currently at 50% bonds or bond-like equities (utilities, preferred stock, and now the YieldMax covered call ETFs), but more like 20%. However, that 20% has returned around 7% over the past 10 years, while my equities have returned in excess of 12%, so I'm comfortable with the 8% assumption going forward. For planning purposes, conservatively, I'm assuming 6% on bonds and 10% on equities, blending to 8% overall.

---

Conservatively 6% on bonds and 10% on equities? That's not a conservative assumption at all.

You have completely ignored volatility in your analysis, and what happens when you are withdrawing and the market drops 40% over an 18-36 month period. I hope it works out.

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You're an argumentative sort, aren't you? :-D

The rates of return I use are slightly more conservative than actual back-tested results, so yes.

I AM NOT ignoring volatility AT ALL. The withdrawal rate of 4% covers the volatility in 99% of the Monte Carlo simulation scenarios.

cjsag94 said:

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The reason to use lower rates relative to long term averages is because the long term averages aren't straight line returns. As mentioned above, sequence of returns in conjunction with cash flows (i.e. contributions to your account) result in actual returns that are likely quite different than annual returns. If you start with a single lump sum and let it sit, then average return makes sense . Otherwise, you need to use a growth rate number that accounts for the other variables.

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I'll go ahead and disagree with this one as well, to see if I can get a rebuttal on my previous post.

You can pick whatever lower rate you want (I choose a slightly conservative adjustment to historical rates), but that still doesn't come close to protecting you when volatility or "sequencing of returns" occurs. The only way to do this is to manage your withdrawal rate, which is why most experts now use "Monte Carlo Simulation" which uses virtually all past scenarios, probability-adjusted, to determine if your portfolio will last.

The truth is obviously between the Dave Ramsey "safe to take out 8-10% a year" and the "stuff it under a mattress" crowd. I'm with you that simple averages are not adequate, but neither is an arbitrary reduction in expected rate of return.

For long term estimated retirement date, I use 7% for money and Zero for other assets, home etc.

I retired after 25 years at 47 to teach 12 more years in a community college. Do what you want to do with your life. I've got a self-managed 60/40 401K (12% in 23) and some other investments but inflation adjusted annuities have worked for me. Lots of annuity hate out there but they work well for the ancients in down market years. Need an income base that accounts for market volatility.

Username checks out.

I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

One of us is argumentative..that's for sure. All I said was 10% equity and 6% bond returns were not conservative, but rather closer to a scenario of lots of up without much down... and I hope that works out for you. So you want a rebuttal...

You mentioned you back tested 10 years. The last 10 years are not a good benchmark for the long-term and the result is largely ignoring volatility. Sticking with that, a BALANCED equity fund over that time averaged +/- 9% and bonds average roughly 2.5%. So, your 10 and 6% returns are not conservative. The S&P index did about 11% over the past 10 years, and 12.5% over the past 15, but it had a 10 year negative return from 2000-2010.

All of these numbers also require a fixed dollar amount at the beginning of the period with no additions or withdrawals in order to achieve those results. I don't the sophistication of the Monte Carlo tool you are using, but the higher the expected return, the higher the std dev that would need to be included in its trials (i.e. wider swings in the sequence of returns). Without adjusting the volatility, then of course, an 8% return with the same assumed volatility as a lower expected return, and only assuming a 4% w/d rate, then of course you will see 99%+ success.

I don't disagree with/argue any of your conclusions. Everything you have said is correct based on your choice of assumptions. However, this thread was a discussion about what return numbers to use for financial planning purposes, and I personally would not feel comfortable banking my future plan success using the numbers you presented.

I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

I know I'm overly conservative, but I do 5% rate of return and 2.5% inflation rate in my modeling. Still has me able to retire by 60 with the 4% rule and would rather be safe than sorry.

cjsag94 said:

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I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

One of us is argumentative..that's for sure. All I said was 10% equity and 6% bond returns were not conservative, but rather closer to a scenario of lots of up without much down... and I hope that works out for you. So you want a rebuttal...

You mentioned you back tested 10 years. The last 10 years are not a good benchmark for the long-term and the result is largely ignoring volatility. Sticking with that, a BALANCED equity fund over that time averaged +/- 9% and bonds average roughly 2.5%. So, your 10 and 6% returns are not conservative. The S&P index did about 11% over the past 10 years, and 12.5% over the past 15, but it had a 10 year negative return from 2000-2010.

All of these numbers also require a fixed dollar amount at the beginning of the period with no additions or withdrawals in order to achieve those results. I don't the sophistication of the Monte Carlo tool you are using, but the higher the expected return, the higher the std dev that would need to be included in its trials (i.e. wider swings in the sequence of returns). Without adjusting the volatility, then of course, an 8% return with the same assumed volatility as a lower expected return, and only assuming a 4% w/d rate, then of course you will see 99%+ success.

I don't disagree with/argue any of your conclusions. Everything you have said is correct based on your choice of assumptions. However, this thread was a discussion about what return numbers to use for financial planning purposes, and I personally would not feel comfortable banking my future plan success using the numbers you presented.

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I would add a bond back test back 40 years would also be misleading. Until the recent Fed tightening, we were in a 40 year bond bull market. Unless interest rates go seriously negative (I have read 2-4%), it is mathematically impossible to have the same risk adjusted returns on bonds over the next 40 years that we have had over the last 40 years.

cjsag94 said:

---

I bleed maroon said:

---

And my choices (neither right or wrong), for the record:

- Withdrawal rate of 4% (99%+ successful at achieving the stated objective of not running out of money in retirement)

- Rate of Return of 8% (back-tested 50/50 stock/bond portfolio, which I think is appropriate for most retirees, produces 8.22% over time. Note: I would use utilities and blue chip dividend stocks for part of the bond allocation, as bonds are not without risk, either).

- Inflation Rate of 3% (which makes your net return somewhere around 5%)

---

One of us is argumentative..that's for sure. All I said was 10% equity and 6% bond returns were not conservative, but rather closer to a scenario of lots of up without much down... and I hope that works out for you. So you want a rebuttal...

You mentioned you back tested 10 years. The last 10 years are not a good benchmark for the long-term and the result is largely ignoring volatility. Sticking with that, a BALANCED equity fund over that time averaged +/- 9% and bonds average roughly 2.5%. So, your 10 and 6% returns are not conservative. The S&P index did about 11% over the past 10 years, and 12.5% over the past 15, but it had a 10 year negative return from 2000-2010.

All of these numbers also require a fixed dollar amount at the beginning of the period with no additions or withdrawals in order to achieve those results. I don't the sophistication of the Monte Carlo tool you are using, but the higher the expected return, the higher the std dev that would need to be included in its trials (i.e. wider swings in the sequence of returns). Without adjusting the volatility, then of course, an 8% return with the same assumed volatility as a lower expected return, and only assuming a 4% w/d rate, then of course you will see 99%+ success.

I don't disagree with/argue any of your conclusions. Everything you have said is correct based on your choice of assumptions. However, this thread was a discussion about what return numbers to use for financial planning purposes, and I personally would not feel comfortable banking my future plan success using the numbers you presented.

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Thanks for the reply! Very helpful and constructive. Some thoughts:

"largely ignoring volatility" - incorrect. You are going back and forth between raw average returns and insisting on a "volatility haircut" on returns. I am saying that the past returns are the returns, and instead of an arbitrary haircut, instead use monte carlo simulations to handle the whole range of expected volatility, and adjust the withdrawal rate to deal with this very real risk that we both agree on.

If I understand you correctly, you agree with the Monte Carlo approach. There are very few right-or-wrong financial tools, but this one gets pretty close. The main drawback is that it's only backward-looking, but until someone finds a crystal ball or an Aladdin's lamp, we're stuck with it as a proxy. A lot of people insist that the 4% withdrawal rate is too conservative (and as I recall, the 5% withdrawal rate still "succeeds" 90-95% of the time, so it depends what confidence interval you're comfortable with.

All that said, for retirement planning, I stick with 10% equity return (based on the entire history of the market), and the 6% bond-like return (if it were truly bonds only, I'd lower it to 4-5%). I am a firm believer that 50% equities throughout retirement is not only not scary, but is essential to produce maximum risk-adjusted results.

Thanks for the feedback!

On my projection charts I use 5% to be safe.

Back to again suggest firecalc. You pick the time range (like 30 or 40 yrs ) and it runs every possible cycle based on a long historical stock and bond market return basis . You can also input a variety of different mixes of how you are invested. You also input a required spending in Retirement and it includes that with a variety of assumptions on how that changes over time.