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Real rate of return

Including Financial Independence and Retiring Early (FIRE)
Lemon Half
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Re: Real rate of return


Postby dspp » January 12th, 2021, 7:37 pm

anniesdad wrote:Thank you. My real reason for lurking on here is that I wanted to see what rate of return is realistically achievable in the long term and in the future ie after ironing out peaks and troughs. Crystal ball sort of knowledge needed. I don’t want too much effort, skill :D and intervention and stress. I also invest in buy to let :shock: which has more intervention stress etc. So to sum it all up I think a 10 year test gives me some confidence and 5 or 6 % works for me. Thanks all.

4% used to be the rule of thumb, but recently that was nudged up to 5% (see ... 1603380557). Going to 6% might be a tad aventurous ?

regards, dspp

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Re: Real rate of return


Postby tikunetih » January 12th, 2021, 9:50 pm

dspp wrote:4% used to be the rule of thumb, but recently that was nudged up to 5% (see ... 1603380557). Going to 6% might be a tad aventurous ?

For the data-minded, Big Ern is probably "da man" when it comes to safe withdrawal rate (SWR) analysis. Here's his response to the reports of Bill Bengen ("4% rule" fella) bumping up his SAFEMAX number:

Can we raise our Safe Withdrawal Rate when inflation is low? – SWR Series Part 41 ... wal-rates/

Perhaps the most important thing regarding sequence risk and SWRs is to have seared into our brains the enormous range of possible outcomes that can occur. Understanding this should place potential/actual retirees in a better position to monitor progress and remain flexible to making changes if deemed prudent or reasonable, ie. recognising the fallibility of any so-called "rule" when it comes into contact with the real world.

Remaining attentive and willing to be flexible earlier rather than later may help ensure that someone doesn't dig too deep of a capital depletion hole for themselves that they'd be unable to climb out of. Old age isn't the best of times to suffer an awful loss of income that cannot be replaced. Conversely, if fortune swings the other way and someone achieves a very positive (outlier) outcome, especially in the earlier phase when sequence risk is greater, perhaps take note of the "bullet dodged" and thus the scope for drawing greater income, if required.

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