What is your net worth if you are 55 years of age

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03/18/2021 19:06

Subject: Re:What is your net worth if you are 55 years of age

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Anonymous wrote:Apologize if this is off topic but I was wondering what you think is a reasonable assumption to make about investment returns if you are within 10 years of retirement (assume 60% stocks) and after retirement. Also what is a reasonable assumption for average rate of inflation over the next 40 years

This a stupid question dear

It's not.
Nobody knows but reasonable conservative estimate would be 6% before retirement, 4% afterwards.

I don’t know how conservative 6% is for a 60/40 portfolio. What are your estimates for stock and bonds returns?

In my financial model, I assume a 5% rate of return (blended) and 3% inflation (i.e. Real Rate of Return is about 2%). Even before retirement. Of course, I'm pleasantly surprised each year when my return is in the 2 digits thanks to whatever is going on out there. . Plan is to withdraw no more than 3% in retirement and the hope is to get more than 3% in real return on a go-forward basis.

I also assume a "reset" (an event where my accounts is reduced by a certain % and stays at that level) of my account balances by a large percentage at some point. I adjust each year's model to reflect that. If I get by a given year without a reset happening, I modify the model to incorporate the reset into the following year. How much? My model currently assumes a 40% reset in 2021. If we get through 2021 without a major fiasco, I'll up that to 45%. This is more of a stress test of my portfolio with ultra-conservative assumptions.

We are 55 and 50 y.o. with plans to retire in no more than 10 years from now.

PP, I'm curious about this. When you say "reset" is this to reflect a correction or crash? And if so, then I assume you take the new amount and assume a 5% ROI and 3% inflation moving forward with the new amount?? Thanks

Yes. Using numbers.. Let's say Jan 2021 I start off with $1million in total assets, 5% growth takes it to $1,050,000. I adjust this down by 40% (it becomes $630,000). This flows into the opening balance for 2022 and all subsequent growth and spending is based on this balance. When Jan 2022 comes around and we have not had a "real" crash, I use the actual numbers as the ending balance for 2021 and opening balance for 2022. I also move the "reset" to end of 2022, etc.

40% is huge. One will need a very large amount of money using this method.

A market drop will happen regardless of your wealth $$. So why not model it and at least try to be prepared for it. The Coronavirus dip was 34% (I believe) and could have gotten worse and sat there had not the government stepped in. Thankfully we had a President and House that wanted to give money and a Senate that was too chicken to fight the President. Biden had to bend the rules for the next round and he can't keep doing that forever..