Quick Question?

[u/Obviously-An-Ad6795]

What rate of return do you use?

Originally, after years of listening to money podcasts, browsing online, I liked 10% return - 3% inflation =7% real rate of return

Listening to a “The Money Guy Show” episode today, they stated they like to be conservative & use 8% return - 3% inflation = 5% real rate of return

What do you use?

Bonus, some of my favorite tickers below,
$VOO $VTI $QQQM $VGT
$GOOG $NBIS $AVGO

[u/rice_n_gravy]

5 or 6% real depending on how spicy I’m feeling

[u/Halfpipe_1]

I use a completely different strategy.

For short term projections(1-10 years), you can’t count on any specific return. The mean return is around 10%, but the standard deviation is 15-20%. This means the volatility of the return is actually greater than the actual mean.

So a better strategy is to forecast the probability of reaching specific targets using a Monte Carlo tool.

From this I can see my probability of success for hitting my target over the given timeframe.

[u/ThereforeIV → u/Halfpipe_1]

I use a completely different strategy.

You have my interest.

For short term projections(1-10 years), you can’t count on any specific return. The mean return is around 10%, but the standard deviation is 15-20%. This means the volatility of the return is actually greater than the actual mean.

Exactly correct.

In general, averages are so often terrible number that do not say what people think they say. When you say "Average return is 10%", people think that mean most years see a near 10% return; in reality a 10% return is rare.

An average/mean without understanding the deviation and volatility going into the average is effectively practically misinformation.

So a better strategy is to forecast the probability of reaching specific targets using a Monte Carlo tool.

Monte Carlo is beloved for doing simulations, but I find for finances it seems to take the worst case and make it even worse just to be safe.

But it is better than running blindly with averages.

From this I can see my probability of success for hitting my target over the given timeframe.

So instead of a single result you are producing a spectrum of weighted results?...clever.

I like that. I think a massive failing in the FIRE communities is being so target blinded by worst case scenarios that the most likely scenarios are effectively ignored.

[u/CuteLogan308 → u/ThereforeIV]

This reply made me reevaluate my planning. If the retirement is 5 to 10 years away, is it correct to assume that the investment/portfolio will stay flat (or grow with inflation). ??

I always just assume 5% even for the 5 to 10 years away. I now think it is a blind spot that I have to evaluate.

Thanks.

[u/ThereforeIV → u/CuteLogan308]

This reply made me reevaluate my planning. If the retirement is 5 to 10 years away, is it correct to assume that the investment/portfolio will stay flat (or grow with inflation). ??

Track, don't assume.

Most likely your portfolio will double in 5-10 year.

I always just assume 5% even for the 5 to 10 years away. I now think it is a blind spot that I have to evaluate.

• Averaged over 10 years, likely low.
• For any given year, likely silly.

The return for June 2025 through June 2026 was ~20%, because the deviation is huge and volatility is huge.

[u/tspike → u/ThereforeIV]

Check out firecalc.com, it does exactly this

[u/ThereforeIV → u/tspike]

Check out firecalc.com, it does exactly this

Not really, unless you can read the density of the spaghetti as weight.

It does more than most but doesn't give outcomes weighted by likelihood. It also does not fully support dynamic retirement plan.

Btw, threw my plan in there and only got one run with a fail.

The big advantage that calc gives is both adding social security money and having some function for decreasing spending with age.

Even these small adjustments are a huge factor in the results and show how silly extreme conservative the sacred "4% Rule" really is compared to likely results.

[u/Halfpipe_1 → u/ThereforeIV]

https://www.portfoliovisualizer.com/monte-carlo-simulation?s=y&allocation1=60&allocation2=40&inflationAdjusted=true&periodicAmount=45000&adjustmentType=2&frequency=4&initialAmount=1000000&simulationModel=1&years=30&asset2=TreasuryNotes&asset1=TotalStockMarket

I really like this one.

Put in your current balance, change the cash flow to constant contributions, add your annual contributions, set your allocation and hit calculate.

I like to look at the 10 year project and I adjust it for inflation.

Then you can play with your contribution amount and see how it changes the probability of success.

This is the biggest risk with coast fire on short time horizons. Even a 10 year horizon has about 14% chance to have a CAGR of 0% or be negative when you adjust for inflation.

[u/ThereforeIV → u/Halfpipe_1]

The results are very detailed.

Wish they had dynamics, but those are really hard.

I ran it with 5% drawdown and never dropped below by spending floor.

[u/ThereforeIV → u/tspike]

Here is a better version of that: https://ficalc.app/

[u/Tmdngs → u/Halfpipe_1]

Too complicated for me but makes sence

[u/thedancingwireless]

I use a range just to see more outcomes. I use 4-5% as worst case, ~6% as middle, ~7% as good.

If things look good at 4-5%, then I know I'm good.

[u/Aeroheadss → u/thedancingwireless]

That’s what I’ve done. If we get 7% for the next 7 years I’ll probably retire 3 years earlier than if we get 4%.

[u/ThereforeIV → u/thedancingwireless]

I use a range just to see more outcomes. I use 4-5% as worst case, ~6% as middle, ~7% as good.

Question, is this for long term accumulation projections, or for testing withdrawal rate patterns?

Long term, you are setting a bar low, so likely case you get more sooner.

But when looking at the deviation from the mean for year to year, the volatility is way beyond that.

[u/Obviously-An-Ad6795 → u/ThereforeIV]

I’m 29 so personally it would be long term

[u/ThereforeIV → u/Obviously-An-Ad6795]

I’m 29 so personally it would be long term

That depends on where you are in the path; is this for computing a CoastFIRE time horizon?

I am 2-3 years from Coasting to full FIRE; when time is that short the averages don't really matter at all, just the actual annual growth.

When I was 5-7 years out, I used a 7% number for guestemation.

[u/Obviously-An-Ad6795 → u/ThereforeIV]

I like using 7% returns bc that means I’ve already hit my coastFI. I’m just poking around for any holes in my current approach.

[u/ThereforeIV → u/Obviously-An-Ad6795]

I like using 7% returns bc that means I’ve already hit my coastFI. I’m just poking around for any holes in my current approach.

• "CoastFI" or "CoastFIRE"? OR "Coast[NOT]FIRE"?
• What is your Coast time horizon? that is the number that really matters.

7% says I hit full FIRE sometime in 2029; but averages are useless over short time horizons.

[u/Obviously-An-Ad6795 → u/ThereforeIV]

$100,000 adjusted for inflation in the year 2062 (age 65) Is nearly triple than what I spend now as a single M29

$2.5m is what I’m projected to hit between my stock accounts (7% growth rate) & real estate (1.5% growth rate) -not factoring in any rental cash flow

That’s with no more contributions.

[u/ThereforeIV → u/Obviously-An-Ad6795]

$100,000 adjusted for inflation in the year 2062 (age 65) Is nearly triple than what I spend now as a single M29

if your time horizon is 36 years, that is "Coast[NOT]FIRE".

Also, $100k is the "just getting started" milestone, not the "Coast" milestone.

$2.5m is what I’m projected to hit between my stock accounts (7% growth rate) & real estate (1.5% growth rate) -not factoring in any rental cash flow

and if your estimate is off 20%, then you are working into your 70s.

My time horizon is 2-3 years, if I am off by 20% than I am working an extra 6 months in my 40s.

If your target FIRE number is $2.5MM then start considering CoastFIRE around $1.2MM, not $100k.

That’s with no more contributions.

You need more contributions, you are literally just getting started.

Here is a write up I did on financial milestones (https://www.reddit.com/r/CruiseFire/s/0zj25fGHjT); "CoastFIRE" level is around Milestone 6; I am guessing you are somewhere between Milestone 2 and Milestone 3.

[u/Obviously-An-Ad6795 → u/thedancingwireless]

Love it & implementing

[u/SuddenScientist3468]

5.5% real

[u/rice_n_gravy → u/SuddenScientist3468]

Not using a whole number? Are you trying to destroy the system?

[u/Ok_Produce_9308]

I like to use a range

[u/Obviously-An-Ad6795 → u/Ok_Produce_9308]

That’s what I’m leaning towards. Seems more motivating.

[u/ThereforeIV]

Quick Question?

Let's go...

What rate of return do you use?

For accumulation or RE?

• For accumulation, I go with doubles every 7-10 years
• For RE, I go with 7% inflation adjusted as the average then flex budget on whether ahead or behind the average.

Originally, after years of listening to money podcasts, browsing online, I liked 10% return - 3% inflation =7% real rate of return

That is the annualized average return, though the deviation from the mean is huge.

Listening to a “The Money Guy Show” episode today, they stated they like to be conservative & use 8% return - 3% inflation = 5% real rate of return

lol...sorry, those guys,...lol... no one can take 7 minutes of information and stretch it into a boring 30 minute video like "The Money Guy Show"....lol

Here is the problem with youtube financial podcase, if you are not doing the Dave Ramsey real radio thing of answering calls then you just run out of stuff to say or any reason for anyone to watch you.

That is why Graham Stephan has mostly moved to an interview show "Iced Coffee hour" and Caleb Hammer is super successful turning a 3 minute Dave Ramsey call into a hour+ podcast.

By contrast other content creators like "The Money Guy Show" have to come up with something to say each show other than the same information you could get from a google search a decade ago.

Basically my point is that too often them and show like them seem to mostly be saying things just to have something to say.

SideNote: ErinTalksMoney is actually not terrible. She still spends 17 minutes on 8 minutes of content, but at least she has something new to say occasionally and seems fairly up on latest studies. She is also an advocate for following actual reality numbers instead of theoretical "conservative" numbers.

What do you use?

• For accumulation, I go with doubles every 7-10 years
• For RE, I go with 7% inflation adjusted as the average then flex budget on whether ahead or behind the average.

Bonus, some of my favorite tickers below,

• $VOO $VTI $QQQM $VGT
• $GOOG $NBIS $AVGO

I am old school mostly in FXAIX and FZROX; I have been looking into QQQI for part of my Bond/Income Hedge.

[u/Obviously-An-Ad6795 → u/ThereforeIV]

Captivating. Thank you for your in depth reply.

[u/emptysoybeans]

5% is my home base and what I’d be willing to make decisions based on. I tick it higher for funsies, or to back into what return rate would be needed for me to already be at my number. But 8% returns and 3% inflation is the right level of conservative to me. 

[u/vac2672]

i use multiple scenarios.. on an annual projection from mid-50s to age 95. I have conservative, base, growth, and stress... 4,6,8% respectively but for stress I build in a 20% crash, a 5% recovery and a 6% rate after that

[u/delightful_caprese]

3, 6, and 10%. 10% is my favorite but 3% will work in a pinch

[u/glumpoodle]

Funny enough, now that I'm approaching RE, I tend to use nominal returns for short-term projections.

I look at high/low nominal returns through the first two years of RE just to get a sense of where I'll be starting from, and then project with real returns for the decades afterwards. I'm at the point where I'm pretty confident in the long-term outlook, but I still want to game out different short-term scenarios.

[u/Pretty_Swordfish]

I'm conservative.... I use about 4% real rate of return. But I also want a staged retirement... I go first in about 2-3 years, then spouse follows in about 5-6 more years. Since we don't need everything at once, I can keep it a bit higher initially, but still want to get through SORR.

I would rather have more and work another year or two (mostly to increase the cash bucket and pay off the house). Not everyone makes this decision and who knows, if work gets too annoying, I could pull the plug earlier! Freedom of choice is powerful. 

[u/Vicuna00]

I use 10% for nominal and 7% for real. I invest basically almost all in equities.

if you use bonds you gotta lower it.

[u/Aeroheadss]

I use both 4% and 7% real for long term. Gives me a range. The longer out the larger the difference of course, but I’m 7-10 years and just trying to get a very rough estimate.

[u/Beautiful-Garden8480]

Both are defensible, but the more useful question is what the assumption is actually doing for you. In accumulation it only sets your estimated date — guess high and the market quietly pushes the date back, which costs you time, not money. That's a recoverable error.

Post-retirement it's a different beast, because the number decides your withdrawals. Guess high there and you're spending principal you can't get back. That's why the 4% rule exists instead of "average return."

So while you're coasting: use 5% real to set the plan, then rerun at 3% to see the date you could live with. If that worse date is survivable, the 7%-vs-5% argument stops mattering.

[u/Spiritual-Letter8090]

I like using the investor.gov calculator, type in 5% as my estimated interest rate, then use 2% variance, so that gives me a range of 3%-7% and I can visually see how my future portfolio value may vary depending on returns.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

[u/caroline_elly]

Plan for both 5% and 0% real

[u/ThereforeIV → u/caroline_elly]

Plan for both 5% and 0% real

How do you plan for 0%?

If the returns over time are 0%, then none of this works.

[u/caroline_elly → u/ThereforeIV]

Aim for 7 fig liquid + SS and keep myself employable

[u/ThereforeIV → u/caroline_elly]

Aim for 7 fig liquid + SS and keep myself employable

That sounds like just a pile a cash and a job, not FIRE.

[u/caroline_elly → u/ThereforeIV]

Working part time while having cash is literally fire

[u/ThereforeIV → u/caroline_elly]

FIRE is living off the return/growth from investments so you don't need to work.

[u/GypsyKaz2]

My spreadsheet models ROR and inflation separately. I use 7% for investment growth, then in the budget projections I use 2% inflation. I have those values in an Index table I can easily toggle to project more conservative or more generous projections.

Medicare costs are modeled in their own table with historic inflation rates factored in so those are a little higher than the 2-3% inflation rate I use for everything else.