What growth rate to use in retirement planning?

[Anonymous]

I'm 48 and plan to work for at least 20 more years. I use 8% when I run my retirement calculations. My retirement portfolio is 85% equities.

[Anonymous]

Anonymous wrote:Is it inflation adjusted growth? 5% net growth sounds reasonable

5% after inflation is absolutely insane.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Don’t people think 60%in stocks is high for someone retired? I mean they have a limited time horizon.

Perhaps if you have a hardy pension that is okay.

I'm retired (early) and that's basically our allocation. You can't win if you don't play. After years and years and years of overall solid returns in the market it makes little sense to just walk away completely. A 60 percent allocation isn't aggressive -- it's moderate.

But the accumulation phase was while you were working. And I am not big on saving for my heirs . I feel that they are lucky that I saved enough to support myself (a single woman) for the span of my lifespan.

I guess I want to be conservative with at least half of my life savings, now that my last paycheck is in the rear view mirror.
(I get no pensions)

[Anonymous]

Anonymous wrote:

Anonymous wrote:Don’t people think 60%in stocks is high for someone retired? I mean they have a limited time horizon.

Perhaps if you have a hardy pension that is okay.

I'm retired (early) and that's basically our allocation. You can't win if you don't play. After years and years and years of overall solid returns in the market it makes little sense to just walk away completely. A 60 percent allocation isn't aggressive -- it's moderate.

+1
A new retiree likely has a multi-decade time horizon during which they'll need their money to keep pace with inflation. 60/40 in retirement is totally reasonable. Assume that when stocks are down, the fixed part of your portfolio will keep you afloat. If you're aiming for a 4% withdrawal rate, that's ten years of income in "safe" investments you can lean on while your equities recover.

[Anonymous]

I’ll have a pension of $5k a month at age 59. Our other retirement savings are 95% equity.

But as we transition to retirement over the next 11 years we will save up two years of cash equivalents that we plan to keep as a bucket strategy. It will get refilled from the equities as long as the market is within 7% of peak. If market drops we will use the cash bucket over time until the market rises again.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Is it inflation adjusted growth? 5% net growth sounds reasonable

5% after inflation is absolutely insane.

Why? Seems pretty in line with historical averages as it relates to S&P 500 - maybe even a bit low.

The people on here are just so incredibly pessimistic/unrealistic.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I have always used 2% and then assumed zero inflation. That way I could see how much I would have as it related to today’s prices.

That is really low. A two percent real rate of return is awful and that has never happened over a 30 year time period with an 80/20 portfolio in the US. The historical percentile range from (inflation adjusted returns over 30 year time periods from 1870-2024) for an 80/20 portfolio is
Worst: 2.2%
5th: 3.5%
10th: 3.9%
Median: 5.7%
The lowest number that is reasonable to use for your return assumption is a 3.5% real rate of return (unless you have a significant percentage of your portfolio in bonds).

What has the Japanese market returned over the last 30 years? I don’t rule out a prolonged period of stagflation moving forward. FWIW I use 2% real return as our worst case.

[Anonymous]

Anonymous wrote:Is it inflation adjusted growth? 5% net growth sounds reasonable

OP here.

No not inflation adjusted. The only thing I see inflation was applied to in the analysis is the expenses, to which he applied 3.84% yearly.

The analysis also showed a maximum spending analysis (how much we would need to spend to run out of money by age 100) and we would need to spend 50% more per year than our actual planned expenses for that to happen. So that is somewhat reassuring.

[Anonymous]

What's the point of obsessing over rate of return, especially when the OP is retired? Nobody knows, not even economists. It's way more important to come up with a reasonable plan and focus on withdrawal rates.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is it inflation adjusted growth? 5% net growth sounds reasonable

5% after inflation is absolutely insane.

Why? Seems pretty in line with historical averages as it relates to S&P 500 - maybe even a bit low.

The people on here are just so incredibly pessimistic/unrealistic.

It's not unrealistic if you look at the historical stock market returns of other countries, current valuations, and how the US has been extremely lucky.

[Anonymous]

A realistic and informed anticipated portfolio rate of return depends on the types of assets, their proportions in your portfolio, and the impacts of taxes and inflation.

One informed estimate for projected 10-year asset class returns is available from Vanguard: https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/vemo-return-forecasts.html

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is it inflation adjusted growth? 5% net growth sounds reasonable

5% after inflation is absolutely insane.

Why? Seems pretty in line with historical averages as it relates to S&P 500 - maybe even a bit low.

The people on here are just so incredibly pessimistic/unrealistic.

It's not unrealistic if you look at the historical stock market returns of other countries, current valuations, and how the US has been extremely lucky.

Lucky is not quite right. It just is what has happened here. It is not likely to change. We are not Japan and could not be if we tried.

[Anonymous]

To OP. I would think it is quick, and easy, for your CFP to run your projected return rate for retirement planning purposes. Most use software.

We spitballed our own planning using 4,5 and 6% return projections. I’d rather plan for a low return and have a high chance of hitting that mark.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is it inflation adjusted growth? 5% net growth sounds reasonable

5% after inflation is absolutely insane.

Why? Seems pretty in line with historical averages as it relates to S&P 500 - maybe even a bit low.

The people on here are just so incredibly pessimistic/unrealistic.

It's not unrealistic if you look at the historical stock market returns of other countries, current valuations, and how the US has been extremely lucky.

Lucky is not quite right. It just is what has happened here. It is not likely to change. We are not Japan and could not be if we tried.

Uhhh...have you been living under a rock the past 9 months? We're certainly trying and have never had a better chance to succeed than right now. We're cutting and entirely eliminating government offices that provided billions and billions to US producers, (USAID spent ~70% of its entire budget buying foor from American farmers for instance) our tariffs are causing longtime trading partners to look for more stable countries to trade with. We're actively discouraging foreign investment in the US by directing ICE to conduct raids on legal workers building multibillion dollar factories in the US.

And if you think the Democrats will retake the government in 2028 to save us from all this you're dead wrong. Project 2026 means to ensure one-party rule permanently, and even if by some miracle the Dems do take our country back most of the damage will have already been done. We've shown to the world that we will not only elect an unstable moron to lead us who will appoint the most corrupt and unqualified people to the highest positions, but we will learn absolutely nothing and do it a second time. The world isn't going to risk anything on us because they now know enough of our population is so irredeemably stupid and evil they'll vote for it a third time, and a fourth time.

[Anonymous]

Anonymous wrote:To OP. I would think it is quick, and easy, for your CFP to run your projected return rate for retirement planning purposes. Most use software.

We spitballed our own planning using 4,5 and 6% return projections. I’d rather plan for a low return and have a high chance of hitting that mark.

Same. I plan for a 4% real return, and I can retire earlier if I get 5 or 6%. Once I get to my number (25x annual expenses, fully funded 529 plans, paid off house), I'm done. Always best to plan for the worst, hope for the best.