This is a look at a real retirement port's behavior and its benchmark after the wrenching bear markets of 2000 and 2008. All values are nominal (non-inflation adjusted).If you want to see how this port would have performed with annual withdrawals, you need to add an AWR (e.g. 4%). To see how it would have performed in real, inflation adjusted numbers, you need to add an inflation rate (e.g. 3%). Years: 2000-2010 CAGR: 6.1 SD: 22.6 Benchmark: VTI CAGR: 3.2 SD: 20.5Comment: It took our port 5 years to re-cooperate its nominal value on Dec 30, 1999. From 2000-2005, AA was 90/0/10. Changed to 60/30/10 for 2006-2008. Changed to 70/25/5 for 2009. Changed to 60/30/10 for 2010. For 2011 AA will start at 60/30/10. It took VTI 7 years to re-cooperate its nominal value on Dec 30, 1999. Years: 2008-2010 CAGR: 9.0 SD: 27.0 Benchmark: VTI CAGR: 3.1 SD: 28.8Comment: It took our port 1 year to re-cooperate its nominal value on Dec 28, 2007. For 2008, AA 60/30/10. For 2009, AA 70/25/5. For 2010, AA 60/30/10. For 2011 AA will start at 60/30/10. Benchmark VTI still hasn't recovered its nominal value on Dec 28, 2007. It still needs to gain about 5% in 2011 to re-cover par on that date.
I decided to run a scenario of where we would be had we decided to retire on Jan 1, 2000 with $1M. AWR = 4. Annual inflation rate = 3.N (yrs) = 11. I/yr = -0.9%. PV = $1,000,000. PMT = $40,000. FV = $484,612.Anybody who decided to retire on January 1, 2000 with $1M will have 48.4% of their (real) portfolio's value today. That's pretty scary.
Ignore previous post. I counted the AWR twice. Once in PMT and also I deducted it from I/yr.N (yrs) = 11. I/yr = 3.1%. PV = $1,000,000. PMT = $40,000. FV = $868,172.Anybody who decided to retire on January 1, 2000 with $1M will have 86.8% of their (real) portfolio's value today. That's not scary at all.Conclusion: the 4% AWR rule works even retiring in the worst year possible in the last 30 years.
Let's hope we don't have a period of stagflation like in the 1970's.Let's take a look at a 15 year slice of US data from January 1969 to January 1984.S&P 500 true CAGR return=.-83%*$1.00 grew to .89*total inflation= 186.24%**The stock market traded sideway & the dollar was worth only 35 cent in 1969 value.***Price of gold 1969=$41.28****Price of gold 1984=$424.00****price of gold taking inflation into account $424x.35=$148.40a 359% returnPrice of silver 1969=$1.81*****Price of silver 1984=$9.12*****price of silver taking inflation into account $9.12x.35=$3.19a 176% returnIn that period of time one would be better off holding gold &/or silver.The future? Beats me.Ladies & gentlemen, Place yer bets.*http://www.moneychimp.com/features/market_cagr.htm**http://www.inflationdata.com/inflation/Inflation_Calculators...***http://www.dollartimes.com/calculators/inflation.htm****http://www.nma.org/pdf/gold/his_gold_prices.pdf*****http://goldmastersusa.com/silver_historical_prices.asp
I did the calculations longhand using year by year returns. The portfolio value I get on Dec 30 2010 is 47.4% of the initial portfolio value of $100 (in US$ of 2000).So for an initial port of $1M. After 11 years of 4% AWR using a 3% annual inflation rate, we'd have $474,000 today (in year 2000 US dollars).Somehow the first calculation is the accurate one. This is pretty scary indeed!In nominal terms, we'd have $657,000 left today.I used an initial portfolio value of $100 on Jan 1, 2000. I then subtracted $4.I then multiplied that number by the REAL return of the portfolio per year.Rinse and repeat 11 times.Real returns of retirement port (Inflation @ 3%):2000: -292001: -22002: -222003: 432004: 102005: 22006: 112007: 32008: -302009: 362010: 12
If we would have retired on Jan 1 2008, we would have $918,000 today (in US$ of 2008) or $1,000,000 in today's nominal dollars.
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