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Sharing of Inflation Rates, Rates of Return

Last Post by Bill Hines, Advice-Only Flat-F... 3 years ago

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(@nc-cpl)

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March 8, 2023 7:42 am

@hines202 got it - thanks, but just to clarify the entries, you're putting 2.8% in the home page for general Inflation , and 2% or 4.8% as your healthcare inflation entry? I think thats where a lot of confusion exists for some. My understanding is it's additive to it would be (using your data) 2%.

This post was modified 4 years ago by NC

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Bill Hines, Advice-Only Flat-F...

(@hines202)

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March 8, 2023 7:54 am

@nc-cpl That is correct. Entering 2.8% for general, entering 2% for healthcare (to bring healthcare to 4.8%).

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Richard Patton

(@patton525)

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March 8, 2023 8:55 am

@nc-cpl Obviously, assumptions make or break long term plans. The new total savings at the end of life went up 450%. Both the previous and current Monte Carlo simulations resulted in 100% success. Used the following:

Asset allocation - did not change from 98.5% stock, 1.5% cash until wife's retirement. (aggressive since we do not need access to deferred accounts and we are living off my wife's income until her retirement. I have been retired for 6+ years). After wife's retirement, used 60%, 39% and 1% respectively.

Real returns for stock at 5%, bonds at 2%, and cash at -1%. Previous was very conservative 1%, -1% and -1.8% respectively. 30+ years until end of life

Inflation at 3.5%. Previous was 3%

Health care inflation total at 4.3% (entered +.8% in table). Previous was 5% total.

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Pizza Man

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Topic starter March 8, 2023 1:35 pm

@patton525 Yes my ROR are real numbers.

@hines202 That's not how PRC was set up to include health care inflation. The health care inflation you enter on the home page is above and beyond the general inflation number that you also enter on the home page. For example, if you input 3% for general inflation and 2% for health care inflation, PRC applies 5% to health care costs. How the health care inflation value itself is determined is being discussed on the thread Frequently-Asked Questions/Health Care and General Inflation thread.

Update - @hines202 Just saw your 7:54 AM update.

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(@nc-cpl)

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March 12, 2023 1:13 pm

@pizzaman and I Bonds still earn 6.89% through April 30, and an article todays talks about money piling into CD's (see attachment)

Attachment : Savers-Pile-Money-Into-Bank-CDs-as-Rates-Top-5_-WSJ.pdf

This post was modified 4 years ago by NC

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Pizza Man

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Topic starter March 12, 2023 1:28 pm

True true, the % will apply until April 2023 when it then resets. You must own the bond for at least five years to receive all of the interest that is due. You cannot cash out an I bond before holding it for a year; if you do so after that point (but before five years), you forfeit three months of interest. I was looking at US T-bills & Bonds for their shorter time frames.

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Pizza Man

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Topic starter March 12, 2023 3:10 pm

More detail on I-Bonds: https://www.kiplinger.com/taxes/604926/taxes-on-i-bonds

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(@nc-cpl)

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March 12, 2023 5:02 pm

@pizzaman We bought I bonds last year when they were 9.62%; $10k each as a direct purchase and another $10k for each other as "gifts." (Treasury doesn't advertise that nice little option to double up). Bought again at the current rate too.

This post was modified 4 years ago 2 times by NC

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Pizza Man

(@pizzaman)

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Topic starter March 20, 2023 12:04 pm

So much for financial "Professionals" 😝. Credit Suisse makes 10+ year projections on where the economy is going but couldn't see out two weeks that they were going to implode. 💣

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Pizza Man

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Topic starter April 1, 2023 4:53 pm

OK, putting my stake in the ground, again, final answer (at least until tomorrow 😜). Using the results of the PRC survey and reading all the reports posted on the PRC forums and my own research, this is what I am inputting into PRC Gold:

Inflation = 3.5%. Long term avg. is 3.27% so I rounded up.

Using 4.0% for first 10 years of retirement may be a good idea.

Cash = 0%. PRC Survey result.

Bonds = 2.0%. PRC Survey result.

Stocks = 5.3%. Used PRC historical results starting in 1965 for my asset allocation.

Health Care Inflation = 2.0%. Making the assumption that CPI-U includes some healthcare costs.

Asset Allocation = 80/15/5. Sticking with US Index stock funds.

All stay the same for entire 30+ years.

Expect tax law to revert to pre-TCJA in 2026.

Social Security = Drops by 20% in 2033 (this is a year earlier as announced by SS today). Not much faith in government right now, hopefully that will change.

Providing more detail on my asset allocation. My 5% cash bucket (emergency fund) is in a Fidelity money market account, present 7 day average is 4.66% return.

My 15% bond bucket actually has no bonds in it now. All of it is in short term CD's (3 month through 2 year length, most in the 9 month, 1 year and 18 months) as well as US Treasury bills and notes with maturities of less than 2 years.

My stock market bucket is 80%. Of my stock market bucket:

60% is in Fidelity Zero Total Market Index fund (FZROX).

19% is in Fidelity Zero Extended Market Index fund (FZIPX). Mid- and small-cap stocks are considered to be stocks of the top 2,500 U.S. companies, excluding the largest 500 companies.

5.6% is in Vanguard Total Market fund (VTI).

1.5% is in Fidelity Zero Large Cap Index fund (FNILX).

1.5% is in STAG Industrial, Inc. (STAG). This is a REIT.

The Fidelity Zero funds charge $0 fees and 0% expense ratio. No cost to me compared to all other funds.

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Robert Wallace

(@wallace471)

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April 7, 2023 9:52 am

@pizzaman For the stock market sleeve of your allocation, should the total of the individual stock fund allocations shown = 80%? As written, I get 87.6%? (Alternatively, if those allocations are percentages of 80%, I get a total of only 70.1%)

Have you tried Portfolio Visualizer to see what the back-tested return rate for the portfolio is? For your current 15% "bond", perhaps SHV could be used as a proxy in Portfolio Visualizer?

https://www.portfoliovisualizer.com/backtest-portfolio

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Pizza Man

(@pizzaman)

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Topic starter April 9, 2023 7:58 pm

@wallace471 The allocations are percentages of 80%, so 60% + 19% + 5.6% + 1.5% + 1.5% = 87.6%. The remaining 12% or so is a hodgepodge of various funds. This includes my only remaining single company stock, Microsoft, which I bought for $30 a couple of decades ago. Unfortunately I only bought $2,500 worth back then 😥.

The Fidelity Zero funds have only been around since 2018, so the Portfolio Visualizer won't help much. I started moving our funds to Fidelity about 14 years ago and Fidelity can give me my rate of return for any combination of our accounts. So the combined nominal rate of return for our retirement accounts (one regular IRA, two Roth IRAs, and two HSA accounts all of which are now 90% plus in US stock index/mutual funds) is listed below. My regular IRA is where our "bond" holdings are (right now all of it is in short term US Treasury bills and notes and CDs) and is not included in the below ROR.

Year to date = 6.5%

1 year = (-8.90%)

3 year = 15.27%

5 year = 8.59%

10 year = 9.52%

14 year = 9.02%

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Pizza Man

(@pizzaman)

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Topic starter April 29, 2023 12:58 pm

So much for bonds being the bedrock of your retirement portfolio (at least recently): https://www.reuters.com/markets/rates-bonds/worlds-biggest-bond-markets-left-picking-up-pieces-after-march-mayhem-2023-04-28/

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Richard Eaton

(@ricke)

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April 30, 2023 11:44 am

@pizzaman

I think the article is fear mongering. Vanguard Total Bond Market was up 2.8% in March, the best month in a long time. It's up 8.4% since the bottom in mid-October.

In retirement, most people need something that is lower volatility than 100% stocks. I am considering buying a TIPS fund to try to mitigate the risk that politicians decide to inflate away their spending habits. If I do, it will be in my IRA, TIPS are tax unfriendly if held in taxable.

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Steve Laufer

(@slaufer)

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May 3, 2023 2:55 pm

A simpler question, how are you modeling target date funds? I can decompose them (liquidate them) but not practical prior to retirement.

Is there an easy way to model them? maybe make them 50/50 or other models? and ride it out until the target date and then decompose into Bond/Asset allocations?

Thanks.

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