Math for investing.
Savings rate to 25X expenses:
Savings Rate(%) | Time in years |
---|---|
5 | 66 |
10 | 51 |
15 | 43 |
20 | 37 |
25 | 32 |
30 | 28 |
35 | 25 |
40 | 22 |
45 | 19 |
50 | 17 |
55 | 14.5 |
60 | 12.5 |
65 | 10.5 |
70 | 8.5 |
75 | 7 |
80 | 5.5 |
85 | 4 |
90 | 3 |
95 | 2 |
100 | 0 |
source Assumptions: 5% real CAGR, 25X expenses
Expenses by withdrawal rate(WR):
The math: 1 / %WR * 100
4% WR: 1/4*100 = 25
Example in the table below is for $30,000/yr in retirement expenses
Withdrawal Rate(%) | Expense Multiple | Example($30k) |
---|---|---|
2% | 50 | $1,500,000 |
2.5% | 40 | $1,200,000 |
3% | 33.4 | $1,002,000 |
3.5% | 28.6 | $858,000 |
4% | 25 | $750,000 |
4%WR has historically been fine for US based retirements w/ a 60/40 AA for a 30 year long retirement, see Trinity Study & William Bengen's work.
Calculating rate of return
use Modified Dietz
Expected Returns
A "normal" view, not including countries that lost a major world war, etc:
A quick look at one of the Credit Suisse Yearbooks yielded the list of ten countries below — showing real (inflation-adjusted), geometric average returns from 1900 to 2016:
Stocks | Bonds | |
---|---|---|
Australia | 6.8% | 1.7% |
Canada | 5.7% | 2.2% |
Ireland | 4.4% | 1.6% |
New Zealand | 6.2% | 2.1% |
Norway | 4.3% | 1.8% |
Spain | 3.6% | 1.8% |
Sweden | 5.9% | 2.7% |
Switzerland | 4.4% | 2.3% |
United Kingdom | 5.5% | 1.8% |
United States | 6.4% | 2.0% |
AVERAGE | 5.3% | 2.0% |
So expecting 4-5%/yr real in equities and about half that in bonds seems reasonable. Or they way I say it, expect a touch above inflation for bonds and about 2X more in equities.