NinetyFour

• Walrus Stache
• Posts: 6254
• Location: Southwestern US
How does your CRYSTAL BALL work?
« on: April 02, 2014, 11:31:49 AM »
I have lots of spreadsheets and spend a lot of time futzing with them, in an attempt to try to predict my financial state in 5 - 8 - 15 years and when I will be able to retire.  I also know about FireCalc and have played with that quite a bit.

I am wondering, when you use your crystal ball, what assumptions do you make about the growth of your accounts?  For instance, say I have \$30,000 in a Roth IRA in the VTSAX fund, and I'd like to predict what the balance will be (assuming I leave it alone) in 5 years, or 15 years, should I use 4%, 5%, 8%?  What do you do?  Say I have \$200,000 in TIAA retirement funds.  Same questions--how do you anticipate the growth in the next 10 - 20 years?

I realize that no one knows what the markets will do, etc., but I'm just wondering what kinds of assumptions you make as you play with your spreadsheets and try to plan.

Thanks!

nereo

• Senior Mustachian
• Posts: 10061
• Location: la belle province
Re: How does your CRYSTAL BALL work?
« Reply #1 on: April 02, 2014, 11:46:11 AM »
I have lots of spreadsheets and spend a lot of time futzing with them, in an attempt to try to predict my financial state in 5 - 8 - 15 years and when I will be able to retire.  I also know about FireCalc and have played with that quite a bit.

I am wondering, when you use your crystal ball, what assumptions do you make about the growth of your accounts?  For instance, say I have \$30,000 in a Roth IRA in the VTSAX fund, and I'd like to predict what the balance will be (assuming I leave it alone) in 5 years, or 15 years, should I use 4%, 5%, 8%?  What do you do?  Say I have \$200,000 in TIAA retirement funds.  Same questions--how do you anticipate the growth in the next 10 - 20 years?

I realize that no one knows what the markets will do, etc., but I'm just wondering what kinds of assumptions you make as you play with your spreadsheets and try to plan.

Thanks!

I do all of the above.  I run three scenarios, with real-adjusted annualized growth at low (2%), medium (5%) and high (8%) returns.  Notice my "high" returns isn't much higher than the historical average.  If I get to FI sooner, even better.  I simulate what my savings will be at these levels every year for the next 25 years. For my tax-advantaged accounts I run these numbers assuming I continue maxing out my IRA and assuming I do not. I highlight the box in each category that hits my minimum FI number (\$800k for me).  It takes about 30 minutes to do in excel.  Then I print it out, put it in that years' financial binder and largely forget about it until the following year.

The following year I'll pull out the estimates from previous years and use them as benchmarks to see how I'm doing. It is the single-most thing I do that calms my fears that I will "never make it to FI".

I do a similar thing with my debts (currently just SL and mortgage) - calculating the time until they will be paid off.  Again, I use the minimum payments, plus two different accelerated payment plans (e.g. for my mortgage it is +\$100/month and +\$150/month).

jfer_rose

• Bristles
• Posts: 438
• Age: 41
• Location: Urban Dweller
Re: How does your CRYSTAL BALL work?
« Reply #2 on: April 02, 2014, 01:18:57 PM »
I'm very conservative in my projections. I run my projections with a 4% growth rate and 3% withdrawal rate. I hope for better in terms of actual returns, but being conservative in my growth projections is one way I add to my safety margin.

SnackDog

• Handlebar Stache
• Posts: 1284
• Location: Latin America
Re: How does your CRYSTAL BALL work?
« Reply #3 on: April 02, 2014, 01:34:25 PM »
Depends on your comfort with risk. If you are the sort of person who only "invests" in CDs, you maybe better put 1-2%.  If you invest in VTSAX, then something like 6-7% is reasonable.   I like having this (and many other inputs) as a variable which I can adjust and immediately see the results on long term net worth charts.

NumberCruncher

• Pencil Stache
• Posts: 612
Re: How does your CRYSTAL BALL work?
« Reply #4 on: April 02, 2014, 01:54:49 PM »
I'm very conservative in my projections. I run my projections with a 4% growth rate and 3% withdrawal rate. I hope for better in terms of actual returns, but being conservative in my growth projections is one way I add to my safety margin.

4% real growth rate?

If so, that's the same for me - I assume 7% growth with 3% inflation, and 3% withdrawal. When running the FIRE sim, I just use the historical growth/CPI.

If that's not adjusted for inflation, you're far more conservative than me!

jfer_rose

• Bristles
• Posts: 438
• Age: 41
• Location: Urban Dweller
Re: How does your CRYSTAL BALL work?
« Reply #5 on: April 02, 2014, 01:59:40 PM »
I'm very conservative in my projections. I run my projections with a 4% growth rate and 3% withdrawal rate. I hope for better in terms of actual returns, but being conservative in my growth projections is one way I add to my safety margin.

4% real growth rate?

If so, that's the same for me - I assume 7% growth with 3% inflation, and 3% withdrawal. When running the FIRE sim, I just use the historical growth/CPI.

If that's not adjusted for inflation, you're far more conservative than me!

Yes, should have specified. I use a 4% real growth rate to account for inflation.

MDM

• Walrus Stache
• Posts: 9247
Re: How does your CRYSTAL BALL work?
« Reply #6 on: April 02, 2014, 04:57:26 PM »
When I saw the thread title, and even more after reading the first sentence, I thought you were discussing this.  No firsthand experience with it, just know some folks who have used it.

But to your question: we ran projections using 1% over inflation (4% return, 3% inflation) to persuade ourselves that retirement, even with kids in and going to college, was doable.  If that becomes too conservative, we'll end up with more than we know what to do with.

CarDude

• Pencil Stache
• Posts: 611
• Location: Chicago, IL
• Beep Beep!
Re: How does your CRYSTAL BALL work?
« Reply #7 on: April 02, 2014, 09:14:47 PM »
I kept it simple; just figured out what I needed to get through a year and multiplied that by 25 for a savings goal.

NinetyFour

• Walrus Stache
• Posts: 6254
• Location: Southwestern US
Re: How does your CRYSTAL BALL work?
« Reply #8 on: April 03, 2014, 05:13:49 AM »
I kept it simple; just figured out what I needed to get through a year and multiplied that by 25 for a savings goal.

Yes, this is how I am calculating my goal, but my question was about how to predict when I might reach that goal.  Sure, I could just plod along until I actually get there, but since many on the forums seem to have figured out when they will get to their number, I wondered what forecasting mechanism they were using.

Sounds like 4% real growth might be reasonable.

Thanks for the responses so far!

Thegoblinchief

• Guest
Re: How does your CRYSTAL BALL work?
« Reply #9 on: April 03, 2014, 05:56:13 AM »
I haven't sat down to pen and paper it, since we have a mix of debt repayment and investing all going to improve our net worth.

I just started tracked NW a few months ago. In a couple years I will have a good sense of progress and can graph it.

Currently my retire by 45 goal is based off of when we will get debt free, and then our savings rate once hitting that. Excepting debt, our effective savings rate is in the 70+% range.