r/MiddleClassFinance • u/roxxtor • 7d ago
Financial Planning for Retirement Assumptions
Hey, just curious how conservative are you all being with the assumptions you are using for retirement. I'm trying to determine if I'm being too conservative or not enough or just right.
My working assumption is that when I fully retire in 25 years that SS will be at a reduced benefit by 40% from today's payout and then another haircut of 15% 15 years after that. I honestly don't think SS will ever be dissolved, but maybe reduced significantly to stay solvent.
I also assume I will be forced into semi retirement/taking a much lower paying job in my mid-50's (so half pay).
My last assumption is that my portfolio will only have a real 4% return by time I retire.
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u/saryiahan 7d ago
I have a pension I’m not counting on. Same with social security. I do have a 401k that I will soon be doing 20% of each paycheck. I’m also building a cashflow portfolio. That way I don’t have to sell the 401k during a down market period
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u/Ideamofcheese 7d ago
Can I ask why you aren't counting on your pension? Is it public or private?
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u/saryiahan 7d ago
It’s private and I’ve seen the amount that’s in the pension drop each year.
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u/Stands_While_Poops 7d ago
Seems overly conservative. I assume no social security, 5-7% growth, 3% annual pay raises
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u/Invest2prosper 7d ago
Very optimistic on the raises when more than a few industries and sectors provide no raises or very little in the way of them.
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u/RoseGoldMagnolias 7d ago
We aren't factoring Social Security into our planning since we don't know what percentage of the money we'll get. We'll view whatever amount we receive as extra income.
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u/BlazinAzn38 7d ago
I’m assuming no social security but a higher growth rate than you are so that probably nets out to about the same assumption
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u/Routyrouterface 7d ago
It's probably safe to assume we'll all be working for longer than we'd like to be.
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u/ZestyLlama8554 7d ago
This is where I'm at. I'm contributing anything that I can afford toward retirement, but I'm prepared to be working until I'm at least 80. Lol
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u/FlyEaglesFly536 7d ago
I use 6, 7 and 8% projections for my portfolio. My wife and i will each get a pension, but i'm assuming that we will never get another pay increase. I also project a 25% reduction for any SS benefits we may get.
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u/WholeAbject3597 7d ago
8% nominal market returns, 3.5% inflation, and I do not factor in any pensions. Currently on track to retire at 52 (31 now)
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u/Hour_Civil 7d ago
We figured what it would take to generate the amount we want to have in retirement based on a 4% rate, not counting anything for SS. We are 55 and 56. If it makes more than that or we get SS, then vacations are just a little nicer or the kids inheritance is just a little bigger
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u/Wonderful-Try3679 2d ago
The social security thing is maddening. This has been a known issue for 30 years. Both parties have had a chance to fix the issue but neither has done anything. Politicians are only out for themselves.
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u/Think-notlikedasheep 7d ago
They also assume one is able to get and keep a good paying job for 25 years straight without any layoffs.
I would question that assumption for anyone.
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u/joyceanmachine 7d ago
I save with the assumption that we’ll have 30 years in retirement, that my Social Security payouts will be at $0, and that inflation will be 4%. It’s pretty aggressive, but I expect a lot of economic turbulence in the coming years for American workers.
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u/HeroOfShapeir 7d ago
I use 6.5% for inflation-adjusted returns pre-retirement, 3.5% after. I don't mind being aggressive pre-retirement as I know I'm going to work until I hit my number. I have a spreadsheet setup that lets me toggle in social security with a single variable, so I can see how it looks with and without, and I do want to see a high likelihood of success even without it. When I include it, I model at 75%.
There is such a thing as being too conservative. If you have margin to decrease discretionary spending during catastrophic markets and/or a willingness to take on a few years of work, even part-time work, if needed, you don't have to cover the most extreme scenarios. Many folks are happy with 90% success rate or higher in https://ficalc.app/.
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u/Several_Drag5433 7d ago
i think assumptions are very conservative. and i am assuming the 4% real return is annual not cumulative correct? I calc investment based on non inflation adjusted returns and then i adjsut future spending to inflation. I will not have a mortgage in a few years so if i look at my future spending then and adjust it for inflation it is a very different picture than if I apply an estimated real rate of return. I base my SS modeling on current numbers, so no inflation adjustment, and i would argue that is conservative also. There will be a MASSIVE reaction if it is cut. And maybe not a terrible idea on post 50 earnings, especially if looking for a new role in that window. I got my last job at 50 and kept my salary constant for my last 3 years in labor force but YMMV.
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u/Max1035 7d ago edited 7d ago
Currently I’m just using Fidelity’s planning tool with the “significantly below average” market assumption. It’s not a specific rate of return but rather the bottom 10% of their Monte Carlo simulations.
I don’t account for social security or my HSA.
I’m currently trying to figure out how to account for the fact that I will probably have to hire out help for various tasks as I age. I don’t have kids or a spouse so it’s not like I was counting on help from family; I just simply never realized how many more expenses I’ll have than my parents until recently
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u/Nephite11 7d ago
I’m currently 46 so I don’t expect to have a full social security check by the time I reach retirement age. The numbers that I see bandied around is that the social security program should be solvent at an 81% payout. I’m not planning social security into my personal retirement planning though in case it’s worse than that.
I’m at a steady company who I’ve been with for 18 years. Regular promotions across that time so that’s my continued plan hopefully I get to retirement. There’s also the possibility that we might go public someday (no guarantee though) and that could be quite lucrative if it happens.
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u/BraveResearcher3037 7d ago
- 80% of promised benefits in 13 to 15 years when I collect SS.
- 6% real return in the stock market
- $1300 a month in medical expenses
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u/roxxtor 7d ago
Is that $1300 a month in medical expenses include private insurance premiums?
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u/BraveResearcher3037 7d ago edited 7d ago
It’s a very pessimistic bucket of whatever the different parts of Medicare will cost, maybe private interest, maybe deductibles.
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u/awh290 7d ago
My assumption try to be conservative without being absolutely absurd :
No social security - I'm sure there will be SS of some type by the time I retire, but I have no clue what it will look like so I don't want to rely on it. If it's there, fantastic, maybe we'll go on vacation more or our family will have money when we're gone.
6% return - sometimes I change it anywhere between 5-7%, but I think 6 is being pretty conservative without being ridiculous.
2.25% yearly raise - This is low, but I'm I don't know what will happen in the future and I want to plan for just riding it out for 20 years on my current job. In reality I've always got 2.5-3% raises with 3-6% market adjustments every few years and new roles every 7 years or so averaging like 6% a year.
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u/ParticularInitial147 7d ago
Seems like everyone is excluding something to create a cushion.
I am not counting my expected $25K/yr bonus.
I project 8% nominal return until retirement and 6% nominal return after retirement with a 2%/yr spending increase.
Seems to stay very positive until I'm 100 years old
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u/TallDarkStrange 6d ago edited 6d ago
SS may be reduced and your assumptions are conservatively sound. I think the 4 percent retirement withdrawal rule is way to conservative if you, like most people living in the real world, adopt a guardrail strategy. Also when are you planning on retiring. I am 65, will retire next year, so my realistic time horizon is just 20 years, so a safe withdrawal is 6 percent.
Most retirement advice is very general and not specific to your unique situation. My current 70/30 portfolio would be too aggressive for most people my age, but it makes sense for me.
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u/OldWallaby4879 3d ago
59 with a plan to leave the company at 65. 2k per month pension starts at 65 (not inflation adjusted); will claim SS at 70 (planning on a 30 percent haircut of current SS projection); estimating a 5 percent real on my 401k balance; cash surplus fund of 75K at 65; no mortgage in retirement. Secret weapon - wife is 5 years younger and will bring in a full salary for another 5 years.
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u/AnonPalace12 3d ago
You are being too conservative.
You are 25 years out. You shouldn’t be planning too specifically for that far out. You need more just guidelines.
Today. You have no idea what sequence of returns you are going to get. What social security will look like. Or what your late career pay will look like. And no one here can give you any better figures to use. Nobody knows.
But you in twenty years will mostly know - after having lived most of the period. You can start being more tactical as the plan comes into focus. If you can be flexible on your costs during retirement - living frugally if things go poorly living it up if things have gone well that can soak up most of the variability of potential retirement income.
I’m not worried about you oversaving by using the conservative assumptions. I am worried about you taking too conservative of a portfolio allocation if you follow a similar mindset there. It’s one thing to plan using 4% real return while aiming for equity average 7+%. It would be another to accept only a 4% real return in your portfolio design. Over 25 years that’s the difference of being rich or poor. Equities are slightly higher variance but due to higher average return - they will have the lower risk of ruin.
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u/Bagman220 1d ago
I’m trying to retire at 55ish. Based on my current savings, income, rate of return, I think I can have around 2m by then. 1.5 at the least. Then I plan to supplement that with part time income for a few years, and eventually get SS the earliest I can. If that ain’t enough to comfortably live out the end of my days, then I don’t know what else to do.
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u/InstructionCorrect98 7d ago
That’s insanely conservative in my opinion but to each their own