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Originally Posted by Peter Gibbons
I would be curious to know what rate of return do you use for you post retirement investment portfolio projection?
It’s the time of the year that I meet with some investment professionals and consider my retirement plans, investments, estate planning, etc. I’ve noticed that many bigger firms (UBS, Merrill, etc) are being very pessimistic in their return projections for even growth balanced portfolios post retirement. Most have assumed overall rates of return below 3% after inflation adjustments. In my personal projections I am much more optimistic in my assumptions of around 6-7% after inflation.
What do you think: am I overly optimistic or are the financial planners overly pessimistic? Something in between? Something else entirely?
I’d love to hear your perspective.
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Quote:
Originally Posted by Buehler445
I think 3% after inflation is a pretty historic number.
May not be applicable these days because I’m sure that number was negative with the huge inflation in the 70s. Plus most of these outfits have traditionally moved to bonds which right now are returning ass. So it might be closer than you think over a lifetime following traditional rules.
I’d tend to be more conservative for retirement. Fools don’t need to be running out.
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I want to plan for surviving trouble, so I'm assuming (pre-inflation) a 7 percent return prior to retirement, and then after retirement a 5.5 percent return on IRA funds (which I'll tap last and thus have a longer time horizon) and a 3.5 percent return on other savings that will be tapped first. I recognize that this is very conservative, but I don't want to be 80 years old and hit a bump like we had last April where I lose 30 to 35 percent of my savings and get really stressed out.
However, I also agree with Peter about grimacing over bond returns. It really rankles me to accept a lower return over a long period of time just to avoid a shock risk. I wonder if my risk tolerance would keep me from doing it, but I also know that I should go with lower returns in exchange for lower risk.
One thing that I keep telling myself is that even if I retire at 65 I'll still have a 20 year time horizon or longer (I hope). So it points against being too conservative. I'll likely do some sort of risk ladder where the money that I'll need in 20 years will remain more aggressive.