Reply to When does contributing to your portfolio start to feel pointless?

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[quote=Anonymous][quote=Anonymous]We ... save around 100k a year ... and have a net worth of 1.5M. [b]The stock market returns 10% on average[/b] ... .[/quote]

Finance bro here.  Real return is lower than nominal return.  After inflation, U.S. bonds have historically returned only around 1% and stocks around 7%.  Current TIPS yields are 2%.

Compound return is around 2% lower than average return.  For example, suppose the stock market goes up 20% three times and loses 20% once.  Then the average return is (20%+20%+20%-20%)/4 = 10%.  But a $100 investment would grow to only $100*1.2*1.2*1.2*.8  =  $138, which is only an 8.4% return.

Optimal spending depends on patience and risk tolerance.  I understand overspending with kids if you have decades to save for retirement, because you never get that time back.

In the last century, the U.S. stock market might have been a bit lucky, outperforming the U.S. in previous centuries and other most other countries contemporaneously.  Wall Street recommends that you underspend in retirement (only 4%) so they can collect fees.  On the other hand, you can adapt by saving more if the market performs poorly.  You don't want to scrimp for your whole life and then die with massive unspent wealth.  To avoid this, you can use Social Security, reverse mortgages, and lifetime retirement annuities.
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