There was a recent thread over on the bogleheads forum about what real rates people use for their planning that got me thinking about whether my assumption for my planning is reasonable. What real rate do you use (or would you suggest) with the following assumptions: an 80/20 or 75/25 portfolio and investing for 25-30 years (i.e. for someone now in their early 30s).
I was surprised to see that most folks over on the other thread were saying they would use a 1% to 2.5% real rate, with a few outliers saying they use 3% to 4.5% (and maybe one person saying they'd use 5%+). There were lots of cautions to not use anything too optimistic, which seems to them to be anything more than 1.5% or 2.0%.
Does that seem right to you? What do you use? If a real rate of 2.0% to 2.5% or so really is realistic, it seems pretty challenging for most people (including a lot of medium- and high-income earners) to comfortably get to a point where they can retire with $100k or $120k per year coming from their investments (using a 4% or 3% rule for the required size of a portfolio at retirement), particularly if they want to do it before age 60 or so.
Thoughts?
I was surprised to see that most folks over on the other thread were saying they would use a 1% to 2.5% real rate, with a few outliers saying they use 3% to 4.5% (and maybe one person saying they'd use 5%+). There were lots of cautions to not use anything too optimistic, which seems to them to be anything more than 1.5% or 2.0%.
Does that seem right to you? What do you use? If a real rate of 2.0% to 2.5% or so really is realistic, it seems pretty challenging for most people (including a lot of medium- and high-income earners) to comfortably get to a point where they can retire with $100k or $120k per year coming from their investments (using a 4% or 3% rule for the required size of a portfolio at retirement), particularly if they want to do it before age 60 or so.
Thoughts?
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