Posted by: @mashby

I would greatly appreciate some general advice related to the real rates of return that I have assumed for my specific asset classes. I have attached a screen grab image from PRC Gold but also duplicated them below.

• Vanguard Total Stock - Real ROR = 5.0%
• Vanguard Total Intl Stock - Real ROR = 5.0%
• Vanguard Total Bonds - Real ROR = 1.0%
• Vanguard REIT - Real ROR = 5.0%
• SPTN 500 Index - Real ROR = 5.0%
• SPTN 500 Intl Index - Real ROR = 5.0%
• SPTN US Bond - Real ROR = 1.0%

Are these values perhaps too conservative, not conservative enough or pretty close to the goldilocks zone?

Attachment : Asset-Class-ROR-Advice.jpg

There's a thread titled "Asset Allocation" where we've been kicking some of this around recently. I'd read through that.

Thanks Bill. I read the Asset Allocation thread, and I found your post on December 10 to provide the most clarity to my initial question. It sounds like things are pretty pessimistic for the next 10 years due to current circumstances (e.g., global virus, supply chain issues, inflation, etc.). For example, both the Vanguard Total Stock and SPNT 500 Index should perhaps be revised to a very conservative real ROR of 2.3%, and this is what should be used in my PRC Gold analysis scenarios. Along these lines, I have a few follow up questions for you and/or others.

• Do you and others generally keep the asset class entries in PRC Gold super simplified? For example, do you keep them listed similar to what is provided in the help file (i.e., money market vs. equities vs. bonds), or do you break them out into specific ETF or index funds?
• If things are super pessimistic for the next 10 years, do you then use PRC Gold’s periods 2 thru 5 to adjust the Real ROR for your various asset classes in the future (i.e., beyond the next 10 years)? If “yes”, what values or general approach do you use for estimating the ROR’s in these future periods?

Lastly, I just wanted to share that I recently discovered the website Portfolio Charts ( https://portfoliocharts.com/ ), and I have been very intrigued by the site’s various blog posts, calculations, graphs/charts and ability to query various asset classes. I would be curious to know if you or others think some of the tools and content on Portfolio Charts are useful and might add not only to this discussion but maybe other threads on the forum, such as the “Asset Allocation” thread you recommended previously.

Short article. Take from it what you will.

First - As far as your real ROR assumptions go, I don't feel comfortable giving my personal opinion, however, here are two links to well respected advisors that I use as a guideline for my ROR assumptions. I have one other source that is behind a pay wall. The low expected returns over the next 10 years is mainly influenced by the relatively high valuations, especially for US.

Vanguard

Research Affiliates

Here is the one behind a pay wall. It has a lot of good stuff that is free if you are not interested in the plus site.

Money For The Rest Of Us

Second - Historical ROR go through periods of mean reversion over time due mainly to some pretty major valuation cycles. I have looked at this for the US and there is clearly a pattern but it is not perfect and it could change. If you have high rates of return like we have been experiencing, they tend to mean revert. I looked at 10 year ROR compared to subsequent 20 year ROR and when we have had low single digit real returns the first 10 years, it is followed by low double digit returns the following 20 years and visa versa. I did not look at shorter cycles. Keep in mind there is scatter in the data. The reason I looked at 10 years is because the returns a retire experiences the first 10 years correlates well with historical "safe" withdrawal rates.

Third - I keep things simple and only have Stocks, Bonds and Cash. My portfolio is primarily these asset classes and I just lump other asset classes into either a Risky bucket similar to equities or safe bucket similar to bonds. I don't think it pays to get to granular since we are not good at knowing the future returns of the broad asset classes let alone a certain etf or fund.

@mashby I keep it simple because my portfolio and the ones I set up for my clients are simple, inexpensive, and understandable. It's basically use a fantastic tool to do a fun exercise to measure their risk tolerance (separately and as a couple for those partnered up), their time horizon, their need for income, then strategize that into an allocation of total US stock market, total ex-US stock market, and some strategic coupling of fixed income ETFs with a recipe of anything needed (TIPS? duration? Corporate vs treasuries? commodities?).

So to get back to the question, like @golich428 I just use stocks, bonds, cash. With the new PRC I might extend that to US stock and Intl stock since all projections I've seen from the major brokerages show intl doing better in the next ten years due to factors here, such as US stocks being very overvalued per the CAPE measurements.

But yes, remember, that's only a ten-year outlook. If you're projecting out decades in Pralana, keep in mind the general rates of return historically. As mentioned in another thread, if you're retiring soon or just retired, you have to worry about sequence risk, and not be overly optimistic in this Pralana setting as the returns might not support your 90+% chance of success if they are low for ten years.

As always, remember that you're entering *real* rates of return - i.e. after inflation.

Kitces.com just posted a nice article entitled Why High Equity Valuations and Low Bond Yields Won't (Necessarily) Break the 4% Rule.

Some excerpts:

The Morningstar paper’s key insight is that expectations for future safe withdrawal rates should be adjusted based on current market conditions (which other research has supported). Accordingly, the paper’s authors use forward-looking return projections to calculate their future safe withdrawal rate estimates. But the investment return assumptions that Morningstar used for its analysis were so low – with real returns averaging just 5.7% for equities and 0.5% (!) for fixed income over 30 years – that, if those projections were to come to pass, the next 30 years would be among the very worst market environments in U.S. history.

Ultimately, however, Morningstar’s conservative return assumptions – which are comparable to some of the worst periods in the past 140 years – actually serve to highlight the strength of the 4% rule, which was created to withstand just those types of worst-case scenarios. Which means that, even if their historically low projections do come to pass, resulting in returns equal to the worst return scenarios in history, a 4% initial withdrawal rate would still hold up. And while today’s market conditions do merit caution (as there is reason to believe that the next 15 years could experience below-average portfolio returns), in reality, such conditions were precisely what the 4% rule was created for, to begin with!

Forgot the Kitces.com link: https://www.kitces.com/blog/4-percent-rule-bengen-morningstar-report-the-state-of-retirement-income-safe-withdrawal-rates/?utm_source=ActiveCampaign&utm_medium=email&utm_content=Why+High+Equity+Valuations+And+Low+Bond+Yields+Won+t+%28Necessarily%29+Break+The+4++Rule++%5BNEV%5D&utm_campaign=NEV+Wednesday+Email

Why would any Pralana Retirement Calculator user care about the 4% rule? Isn't Pralana's purpose to replace generic 'rules of thumb' with more accurate mathematical models using each individual's own data and goals? Pralana simulations with proper interpretation of the results seem to to render the 4% rule archaic and irrelevant. Am I missing something?

+1 Martin. IMO PRC Gold's big value-add is to obtain projections and "suggested spend, etc." based on personal data vs. something like the 4% rule.

Nice article by T. Rowe Price on withdraw strategies (see attached)

There are alternatives to the conventional strategy of drawing on a taxable
account first, followed by tax-deferred, and then Roth accounts.
Many people can take advantage of income in a low tax bracket or tax-free
capital gains.
If planning to leave an estate to heirs, consider which assets will ultimately
maximize the after-tax value.
How to Make Your Retirement
Account Withdrawals Work
Best for You

Pizza - You know the one thing I don't like about so many of these "strategy" articles is that everyone always assumes you want to leave a boatload of assets to kids/heirs, when there are some of us who don't fit that mold. In our case, the majority of that which we don't spend will go to charities. So we're focusing on QCD's instead. Regardless, thanks for posting

@nc-cpl I'm with you 😎. If we knew the last day we would be alive, our retirement account would be $1 on that day 🌼

@giovanelli766 We just don't have kids, even all the nieces and nephews are covered by their own parents and grandparents, so our plan is to give a lot away as QCD's while we're still alive so we can enjoy it being put to use with charities.

Here is a nice general article entitled "What Is a realistic Retirement Rate of Return" in SmartAsset: https://finance.yahoo.com/news/realistic-rate-return-retirement-130013374.html