You Can Make Almost Any Retirement Plan Work You can make almost any retirement plan work on a calculator. Just keep increasing the expected return until you get the answer you want. When I started seriously planning for retirement, I first had to figure out my end goal. Then I used a retirement calculator to determine what it would take to get there. In my case, a big part of the answer was contributions. There’s nothing wrong with running different return scenarios. I do it all the time. For my own planning, I generally assume my portfolio will grow at 5% annually over the long term. I’m not saying 5% is the right number for everyone. I use it because I’d rather be modest with my expectations and have the market outperform them. But here’s the important part for me: I can’t control what the market returns. I can control what I contribute. So I try to build my plan around the amount of capital I need and assumptions I think are reasonable, rather than needing a particular investment return to make the numbers work. This is also why I think it’s important to separate yield from return when we’re planning. If an ETF is yielding 15%, that doesn’t mean I should assume my portfolio will compound at 15%. If it’s yielding 20%, a 20% distribution doesn’t suddenly make a 20% long-term return a reasonable planning assumption. Yield isn’t return. Different investment strategies can absolutely have different goals, and income can certainly be one of them. My point is simply that I don’t want the yield of an investment determining the return assumption I use to plan my retirement. So I’m curious: Have you figured out how much you actually need for retirement? And is your plan built around the things you can control, or does it require a certain return from the market to get you there?
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7 Comments
Catherine @ffcatherine · 16d
I definitely use 7% as my return as it has been the historical average & it does get me to my goal in a more reasonable time .. 5% is fine, it would just mean I have to live off a smaller budget for longer in my retirement.. Once I reach my goal the main difference is I can more comfortably withdraw more each month without running out in most scenarios… Being already retired the only thing I can control is keeping my budget smaller & staying calm through the next bear market… Stock market investing is the only thing where you’re hardest job is doing nothing at all for the best results
Clantosa @clantosa · 16d
Definitely smart to under estimate. This ensures success and outperformance. It's always better to have more than expected than to shoot for the sky and be left looking at the bottom of the bag when you need it most
Jebs @rockybullit · 16d
What i thought was enough 5 years ago might not be enough today? Due to inflation ( nobody could have predicted this high a rate in 5 yrs) as well as other factors like goalposts moving (they always move?) and physchlogically ready to retire or not is a big one, regardless of number
David Wells@zdawn6818 · 15d
In my planning software I assume a pessimistic market which is like 3% growth.
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