Savings rate

[AnotherSwede]

I think the person with a PP expecting 3-4% real returns are better off than the person expecting his 60/40 will yield 8% real.

I do not think most folks in touch with reality expect 8% real returns going forward .

my own planning for retirement is around 6% nominal right now

I'd call that pretty damn optimistic. http://www.multpl.com/shiller-pe/

If you want a million, in todays value, in 30 years. Then your expected return decides how much you must save:
3% 20710 moneys/year.
4% 17490 moneys/year.
5% 14690 moneys/year.
6% 12290 moneys/year.

If the two most pessimistic is in PP and the more optimistic stock/bond-mixes, then that means someone using 4x25% is probably putting 2/3 into equity of what a 50/50-person does, not half.

I fully understand that saving 20k money per year is less good than saving 12k money, but ...

From another post I believe largest drawdown from a straight line in a PP is 10%, so if a PP overperforms you could lower savings rate and vice versa.
If a stock/bond-mix loses 50+% after 15+ years, there's no way you could get back on track just by saving a little more.

If you assume 0% return and get 5,2% you're out in 19 years. If you assume 6% and get 0%, you will never retire, not on your own money at least.

[mathjak107]

for someone projecting out 30 years i would go along with pfau's reasoning and project a lot lower  than past averages  . low bond rates and high valuations both point to quite a while of possible below average returns , which over the last 146 years using shillers data were  10.35% for stocks and 4.45% for bonds when examining 30 year chunks of time .

at one time if you held a 50/50 mix and  stocks fell  10% you were whole again from interest in a bit over 2 years.  today that can take many more years.

folks also usually tend to naturally follow the course most target date funds do . they start out very high equity percentages and gradually end up at lower percentages as they get closer to retirement . so no one actually gets that nominal average return over their entire investing time frame using traditional glide paths ..

if you think about the fact that dividends account for generally 1/3 of the s&p 500's growth and dividends are tied to interest rates then we are looking at about a 2% dividend and 4% appreciation  on stocks for a 6% average return over the near time which can span up to 5 years or more .


that is quite a bit lower than the historical average which was 10%.  throw in the fact rates are likely to slowly rise and any bond holdings will weigh down that 6% average on anything you already own and you got some pretty low numbers to deal with .

you also have a big wild card eating in to your return and for most of us that is rising health care costs.

holy , cow , i am retiring  on thursday and not in my wildest dreams would i ever have thought our medical costs would be anywhere near what they are.

i am 62 so i am going to cobra until 65 so my cobra for me alone is 6200 which is far better than i can get on the exchange as an individual since the out of pockets are 1/2 with our small business exchange plan.  my wife is going on medicare so a medigap f plan and medicare  is about 6k . throw in our ny long term partnership plan for long term care  and we are looking at about 16k a year in after tax dollars not pretax.  that includes no dental or vision .  dental for my wife and i was 18k this year.

i rejected 4 implants i had put in 7 years ago from being diabetic and she needed extensive work under a bunch of old caps .

those  healthcare  costs can eat in to projected  amounts you think you need or will have  big time and something we barely accounted for decades ago . hospitalization was a perk most jobs just threw in . .

[AnotherSwede]

Sorry to hear about your health troubles.

Even if I don't know anything about your insurances I can relate to how it is hard to plan healthcare costs long term - Healthcare (but not dental) is "free" here, but on the higher end of the income scale you pay about 2/3 in taxes.

Paying high taxes makes saving harder, and being what some call a pessimist I don't expect healthcare to be free when I'm more likely to need it in 20-30 years ... probably not in 10 years either.