I am looking at a 30 year horizon and the difference between 6% and 10% is just wild. What return would you use for a 30 year horizon and why?
What rate of return are you assuming in your market projections?
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Last: 1 yr ago by halfastros81
Depends but assuming this is for retirement? I always go conservative with 6-7% because if I'm going to be surprised I'd rather it be on the 10% side than the 6% side if you follow. Can never have too much but would suck to run out.
Per Dave Ramsey, use 12%.
Yes, sorry. These are for retirement funds.
Ha. Horrible. His calculator online still says 10-12%.
Honestly, I think the biggest part is not to get caught up in the roller coaster. With a 30yr horizon the wild swings at times are great buying ops but as your window narrows it would be easy to get nervous about every 500 pt drop. Have a plan you're comfy with, try to increase contributions as you go along, and let the market work. It's a wonderful thing when we allow it to work.
Best of luck... keep it simple and only invest in **** you understand.
Best of luck... keep it simple and only invest in **** you understand.
6% is probably the right approach - like others have said, you'd rather be pleasantly surprised when you end up with more than expected rather than disappointed in your return.
He doesn't understand what a geometric mean is.aggiefan2002 said:
Ha. Horrible. His calculator online still says 10-12%.
He states on his show that it is a long-term gain. A quick google shows that the average annual return of the DJIA is 10.97% since inception.aggiefan2002 said:
Ha. Horrible. His calculator online still says 10-12%.
He gets a lot of smack but his average clientele comes to him with negative net worth. His rules and ideas are simple and easy to understand.
With a 30 year horizon, the worst thirty year time frame since 1926 of S&P 500 is right at 8.0% that seems plenty conservative return to use when attempting to calculate goals.
So your advice to retirees is to be 100% in equities and therefore they can sustain a safe rate of withdraw of 8%?Dill-Ag13 said:He states on his show that it is a long-term gain. A quick google shows that the average annual return of the DJIA is 10.97% since inception.aggiefan2002 said:
Ha. Horrible. His calculator online still says 10-12%.
He gets a lot of smack but his average clientele comes to him with negative net worth. His rules and ideas are simple and easy to understand.
I love Dave for his good advice of being disciplined about not living beyond your means and getting people out of crippling debt. I think he undeservedly gets a bad rap for that sometimes. But he deserves the "smack" he received for giving reckless retirement planning advice.
https://www.thinkadvisor.com/2023/11/13/supernerds-unite-against-dave-ramseys-8-safe-withdrawal-rate-guidance/
I use new retirement which is a great tool, IMO.
I have an optimistic rate of 10% and pessimistic rate of 5% pre-retirement and 5% & 3% set post retirement for the majority of my portfolio. I have a couple of accounts that I use some different numbers based what is in them. I use averages for my modeling, but it also includes both optimistic and pessimistic scenarios.
I have an optimistic rate of 10% and pessimistic rate of 5% pre-retirement and 5% & 3% set post retirement for the majority of my portfolio. I have a couple of accounts that I use some different numbers based what is in them. I use averages for my modeling, but it also includes both optimistic and pessimistic scenarios.
History says about 10% over 30 years even if you slide the scale around which 30 years, or go into 10 year increments
So I go with 7-8% and consider it inflation adjusted
So I go with 7-8% and consider it inflation adjusted
I use 7% for my simple modeling
I use a sliding scale depending on what your time horizon is.
For 30 years I would use 9% for year 1-15, 8% for 16-20, 7% for 21-25, and 6% for 26-30.
Once I you within 10-15 years of retirement you should get more conservative but when you are further than that you have time to recover so you can swing for the fences and let compounding growth work in your favor.
I consider these numbers inflation adjusted so you will be projecting in "today's dollars".
For 30 years I would use 9% for year 1-15, 8% for 16-20, 7% for 21-25, and 6% for 26-30.
Once I you within 10-15 years of retirement you should get more conservative but when you are further than that you have time to recover so you can swing for the fences and let compounding growth work in your favor.
I consider these numbers inflation adjusted so you will be projecting in "today's dollars".
P.H. Dexippus said:So your advice to retirees is to be 100% in equities and therefore they can sustain a safe rate of withdraw of 8%?Dill-Ag13 said:He states on his show that it is a long-term gain. A quick google shows that the average annual return of the DJIA is 10.97% since inception.aggiefan2002 said:
Ha. Horrible. His calculator online still says 10-12%.
He gets a lot of smack but his average clientele comes to him with negative net worth. His rules and ideas are simple and easy to understand.
I love Dave for his good advice of being disciplined about not living beyond your means and getting people out of crippling debt. I think he undeservedly gets a bad rap for that sometimes. But he deserves the "smack" he received for giving reckless retirement planning advice.
https://www.thinkadvisor.com/2023/11/13/supernerds-unite-against-dave-ramseys-8-safe-withdrawal-rate-guidance/
I don't see where in my post I gave any advice. Just informing the source of the 10-12%.
billydean05 said:
With a 30 year horizon, the worst thirty year time frame since 1926 of S&P 500 is right at 8.0% that seems plenty conservative return to use when attempting to calculate goals.
With this kind of history, it's interesting to me that most financial advisors tell people to get a lot more conservative as they get older. I understand if the market drops and recovery comes from a smaller number that affects your overall portfolio. But why not just keep all of your money in a total market index or an S&P fund for a 30 year horizon and if you get 5 to 6% your great, and if you manage to get 7%, you're gonna have even more money. I understand past performance doesn't guarantee future results but that history is pretty solid.
It would be interesting to see modeling based on going more conservative, such as a bond component, or a portion in an annuity, or just what the thoughts would be behind that? The difference between 5% return and 7% return over a 30 year period in retirement is massive just looking at some online calculators.
I have been using 5 and 6 % return in retirement for mine.
If you go into retirement with 100% S&P 500 and it drops 30% your first year in retirement you would be forced to sell some of it to live on for that first year and miss the recovery on those funds. If instead you had 30 treasuries/CD and 70% s&p 500 you could live off the treasuries during a down year and rebalance into the dip.
I.e. if you had $1.5 mill going into retirement planning to spend $50k a year and the market drops 30% you would be down to $1.0 mill after that drop and selling 50k to live on. Then if the market immediately recovers 43% you would be sitting at 1.43 million going into year two. So your first year of retirement set your portfolio back 70k even though you only spent 50k.
I.e. if you had $1.5 mill going into retirement planning to spend $50k a year and the market drops 30% you would be down to $1.0 mill after that drop and selling 50k to live on. Then if the market immediately recovers 43% you would be sitting at 1.43 million going into year two. So your first year of retirement set your portfolio back 70k even though you only spent 50k.
This is a good point. Sequence of returns has a huge impact on portfolio performance/longevity once you start taking distributions.
permabull said:
If you go into retirement with 100% S&P 500 and it drops 30% your first year in retirement you would be forced to sell some of it to live on for that first year and miss the recovery on those funds. If instead you had 30 treasuries/CD and 70% s&p 500 you could live off the treasuries during a down year and rebalance into the dip.
I.e. if you had $1.5 mill going into retirement planning to spend $50k a year and the market drops 30% you would be down to $1.0 mill after that drop and selling 50k to live on. Then if the market immediately recovers 43% you would be sitting at 1.43 million going into year two. So your first year of retirement set your portfolio back 70k even though you only spent 50k.
Understood, thanks.
If you've never done so take a look at the free online modeler called firecalc. It gives you a range to expect based on historical market returns and tells you your odds of making your defined goal , eg your model is successful in x % of y scenarios.
I have used it and I think it's every bit as good as what my financial advisor uses for similar calcs.
I have used it and I think it's every bit as good as what my financial advisor uses for similar calcs.
Ok thanks, I've just been using one from bankrate.
https://www.portfoliovisualizer.com/monte-carlo-simulation
One of the better Monte Carlo simulators out there.
One of the better Monte Carlo simulators out there.
My stress test case is to run the portfolio and expenses using the actual market returns and inflation by year for the 30 year period from 1964-1994 - I think that's the worst 30-year period on record for the combination of returns vs. inflation. It's was eye opening for me to see what a period of lower returns and extended higher inflation can do to what looks like a solid plan. Running this stress test case has made me reconsider my longer-term asset allocation toward at least some portion of assets that are inflation hedges (real estate / commodities). If things go poorly in the stock market for some period, then you have something else to sell to avoid taking a loss.
Running this stress test has also shown me that we need to increase our assets that can be made liquid easily without taking a loss. I think it needs to expand to cover about 3-years of expenses - we are thinking of it as needing to grow our emergency fund prior to entering retirement.
Running this stress test has also shown me that we need to increase our assets that can be made liquid easily without taking a loss. I think it needs to expand to cover about 3-years of expenses - we are thinking of it as needing to grow our emergency fund prior to entering retirement.
I assume 7.22% over whatever inflation is, and then haircut that by 20-30%. So 8.1-8.5% assuming 3% inflation.
pretty sure that most financial planners go with 4% to 5% annual return,1Aggie99 said:
Depends but assuming this is for retirement? I always go conservative with 6-7% because if I'm going to be surprised I'd rather it be on the 10% side than the 6% side if you follow. Can never have too much but would suck to run out.
which then means when you are a millionaire you take out 40K each year to ensure you never run out of money
this strategy is all over the internet, podcasts, and financial planning books.
LMCane said:pretty sure that most financial planners go with 4% to 5% annual return,1Aggie99 said:
Depends but assuming this is for retirement? I always go conservative with 6-7% because if I'm going to be surprised I'd rather it be on the 10% side than the 6% side if you follow. Can never have too much but would suck to run out.
which then means when you are a millionaire you take out 40K each year to ensure you never run out of money
this strategy is all over the internet, podcasts, and financial planning books.
You're confusing two different things. This thread is about annual growth of your portfolio pre-retirement.
You're talking about the withdrawal rate in retirement; which a lot of advisors say you could withdraw 4% every year from your retirement savings to last you throughout retirement.
The 4% rule came from Bill Bengen back in 1994. The rule is not 4% per year, but it is 4% for the first year and then adjust that amount by inflation for subsequent years. If I remember correctly he adjusted it to 4.7% a couple of years ago.txaggie_08 said:LMCane said:pretty sure that most financial planners go with 4% to 5% annual return,1Aggie99 said:
Depends but assuming this is for retirement? I always go conservative with 6-7% because if I'm going to be surprised I'd rather it be on the 10% side than the 6% side if you follow. Can never have too much but would suck to run out.
which then means when you are a millionaire you take out 40K each year to ensure you never run out of money
this strategy is all over the internet, podcasts, and financial planning books.
You're confusing two different things. This thread is about annual growth of your portfolio pre-retirement.
You're talking about the withdrawal rate in retirement; which a lot of advisors say you could withdraw 4% every year from your retirement savings to last you throughout retirement.
The challenge to the OP question is what time period. Given we are starting at very high valuations levels today, returns over the next 10 are more likely than not going to lower than history. Add in the issues with the US deficit, commercial mortgages and political tension, I think the S&P will likely somewhere between -2 to 5%. The big upside being potential GDP and productivity growth from AI.
If you are looking at a 40 year return, starting at elevated valuations is less of an issue. At most, it might lower long term returns by 1%/yr or so.
See the picture to see trailing 10 year returns. From 99-08, it was negative between the high valuations in 99 from the dot com bubble and the depressed returns from the GFC. I am pretty sure the returns exclude dividends but I am not certain.
If you are looking at a 40 year return, starting at elevated valuations is less of an issue. At most, it might lower long term returns by 1%/yr or so.
See the picture to see trailing 10 year returns. From 99-08, it was negative between the high valuations in 99 from the dot com bubble and the depressed returns from the GFC. I am pretty sure the returns exclude dividends but I am not certain.
Disagree with getting conservative as you get closer to retirement. That implies moving away from equities into fixed income, bonds, or dogs of the Dow that pay dividends- and all of those get destroyed by rising interest rates.
Stay in the market.
~4% is the magic withdrawal rate that generates something around a 99% probability of not running out money in retirement based on historical market returns. It does means your income will vary year to year. But living on fixed income just about guarantees loss of purchasing power as you age.
Stay in the market.
~4% is the magic withdrawal rate that generates something around a 99% probability of not running out money in retirement based on historical market returns. It does means your income will vary year to year. But living on fixed income just about guarantees loss of purchasing power as you age.
Dirt 05 said:
Disagree with getting conservative as you get closer to retirement. That implies moving away from equities into fixed income, bonds, or dogs of the Dow that pay dividends- and all of those get destroyed by rising interest rates.
Stay in the market.
~4% is the magic withdrawal rate that generates something around a 99% probability of not running out money in retirement based on historical market returns. It does means your income will vary year to year. But living on fixed income just about guarantees loss of purchasing power as you age.
The problem with that strategy is you no longer have time being on your side to handle a large draw down. What are you going to do if your portfolio drops 30-50+% in the year after retirement. I think the magic formula many money managers use is too risk adverse but I also wouldn't want it all in tech and high growth companies if I am retired because they historically can drop even more than the market when they go into a bear market.
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.
Yep... I think the two are getting mixed together a little bit.
OP... there are some monte carlo simulation tools online that are fun to mess with if you are looking at back end withdraw amounts and success rates.
Either way, I error on the conservative side so hopefully our surprises in retirement are "**** what do we do with all this $$" vs "****, Welcome to Walmart"! On backend withdraws I like to use a 3.5% rate vs the common 4%. Builds in a little more cushion for when the dip ****s in DC spend like drunken Indians.
No offense to the drunken Indians on this board!
OP... there are some monte carlo simulation tools online that are fun to mess with if you are looking at back end withdraw amounts and success rates.
Either way, I error on the conservative side so hopefully our surprises in retirement are "**** what do we do with all this $$" vs "****, Welcome to Walmart"! On backend withdraws I like to use a 3.5% rate vs the common 4%. Builds in a little more cushion for when the dip ****s in DC spend like drunken Indians.
No offense to the drunken Indians on this board!
6% returns and 3.75% withdrawal rate.
You'll get tired of re-explaining it to LMCane. We have explained it to him about a half dozen times on this board, and he still sticks to his faulty guns.txaggie_08 said:LMCane said:pretty sure that most financial planners go with 4% to 5% annual return,1Aggie99 said:
Depends but assuming this is for retirement? I always go conservative with 6-7% because if I'm going to be surprised I'd rather it be on the 10% side than the 6% side if you follow. Can never have too much but would suck to run out.
which then means when you are a millionaire you take out 40K each year to ensure you never run out of money
this strategy is all over the internet, podcasts, and financial planning books.
You're confusing two different things. This thread is about annual growth of your portfolio pre-retirement.
You're talking about the withdrawal rate in retirement; which a lot of advisors say you could withdraw 4% every year from your retirement savings to last you throughout retirement.
To recap for LMCane and others:
Rate of Return = expected annual growth of a given portfolio in retirement. This is strongly impacted by the risk profile of investments selected. Which has nothing at all to do with...
Withdrawal Rate = safe annual rate to take money out at retirement to avoid running out of money. NOTE: This also has nothing to do with preserving initial principal, which is a different discussion.
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