How to Estimate Future Returns in Retirement

No medal required for staying the course, Rob! Your videos distract me very nicely during my morning cycling and rowing routine!

God bless you for so many useful no non-sense financial videos.

Very timely for me. And your methods extremely useful. Thank You!

Thank you for this helpful video Rob. Every time someone shows the New Retirement estimated returns and inflation settings I've wondered about a reasonable approach to them.

Congrats on 200K Subs Rob!!!

Thanks for your video explaining how to look at the what ifs.

Rob, this video has unlocked even more value to me from NR. Well done!

Nice overview, thanks!

Great video, I really like the way you present and explain how you arrived at your conclusion. Thanks!

always good info from you. thanks

Contender for best YouTube channel... ever. Very grateful for you Rob.

Thanks for the guidance with NR. I’m only 1 week in and this information is invaluable. More like these please.

I watched a few of your videos today and now subscribed to your channel. Love how you discuss these financial topics. I’m early 40’s but very interested in how to plan for retirement. Thank you for showing demo and specific scenarios!! Too many channels are so vague and seem to say generally the same generic stuff. The specifics in how you think about it and how you use the tools is sooo helpful! Thank You!!

Thanks Rob!

Thanks Rob. I was just working on my returns per account ratios. You must of read my mine. Great video.

Very helpful video. I am always very conservative in my assumptions (using much less than historical returns). It is a good idea to plan how you would react if things still turn out worse than assumed (eg cut my travel expenses by X%, replace the car 10 yearly rather than every 5 etc.) and basically see what would be required to scrape through. It is also instructive to look closely at the FiCalc results. Sometimes a 'failure' is only at the margins (eg you run out of funding at year 29 rather than year 30) and some life style adjustment could easily get it back on track. We can do a lot in adversity!

Very thorough explanation, Rob. My pension is modest and my savings are too. I use 5% future returns on pre tax and 6% on a Roth that is 100% stocks. Sleep well at night.

Great information and calculators. One of the "assumptions" not mentioned is the changes in behavior (eg. changes to portfolio allocations) that would likely come during changing times. For instance I would like to test whether or not a "reverse" TDF glide path (eg increasing stock allocation), rather than a static one might be one way to approach a portfolio "sequence of return risk", while maintaining growth of the portfolio in later years.

Rob, I was hopeful your intro on caveats was going to pan out in your video, but I didn't really hear it. You could just change assumptions for every year rather than the historic average of NR default, which is basically what Kitces' article you mentioned comes down to. Even then, it still fails to predict the future, it can only tell you what could have happened in the past if your hypothetical assumptions panned out in the past. These tools are only useful to the extent they show you how your assumptions could impact a portfolio. Because of this, people ought to measure their outsized confidence and faith in the predictive nature of these sim modeling tools. In watchig this video, it dawned on me the same people advocating the merits of NR and the like are the same ones who loudly criticized Dave Ramsey (you included) for his comments about average RoR and withdrawal comment that upset the internet. The criticism held Dave assumed a linear historic average return. Yet, NR and the like base a historic outcome on a linear historic average RoR. Sure, you can input an optimistic and pessimistic numbers to get you an outcome band, but there is really no distinction to what Dave said. For example, your inputted optimistic RoR of 9% assumption is literally taking the linear historic average RoR over the 30yr period and making it your optimistic assumption. You didn't choose 36.7% high for optimistic and -26.6% low for your pessimistic from that time period after all. Other than his 12%+ RoR average on his mutual fund comment, there is no difference in Dave's lineaer historical average RoR comment than paying $120/yr for NR or 1%AUM fee to a FA to generate the same linear historic average RoR based outcome. I don't understand why people use 2% inflation, since the historic average has been 3.3%. 3.3% would seem like a more logicaloptimistic assumption, since it has been the historic average floor. 2% inflation was a Bernanke made up number from 2012. I also don't know why people use 30yr projection when the average life expectancy is 77yo plus or minus for male and female when starting retirement assumption at 62-65yo. NR and the like don't weigh the probability on the accuracy of your assumptions. There may be a patterns of x and check marks, because they reflect what the market and rates were doing. Not shocking. However, the historic patterns are not predictive just like playing baccart believing a historic pattern of dealer wins means player wins on the next and subsequent plays has a high probability or has to occur. If you continually change assumptions to adjust to the conditions, you are doing what Kitces' is arguing, except you would also need to weigh the probabilities of each assumption rather than equally weighing like NR and the like does. Even then, the modeling isn't predicting, it is just giving you an outcome based on last year's conditions as somehow indicative for the upcomming and subsequent years. That's the only real problem I see in Kitces' conclusion. You can change your assumptions all you want but that doesn't change the probability, just like your probability of winning the lottery doesn't increase buying more lottery tickets. You kept saying NR demo account, when you mean demo scenario. NR doesn't allow you to adjust assumptions like rates unless you pay and upgrade to PlannerPlus.

It's interesting that Vanguard projections for returns the next decade is much lower for stocks and higher for bonds than historical averages. They also believe foreign stocks will do well. Of course, no one can predict the future, but these projections can help inform decisions going forward.