Hi all,
My question - is 4% rate of return an appropriate assumption for the below scenario. If not, should I use something like 6% (AA=80% equities / 20% bonds*)
I have a spreadsheet that I use to project yearly savings balances/goals. Currently, I use this formula: (yearly contribution+(existing balance*0.04)) where 0.04 is my projected ROI. I have a couple columns that show projected balances based on different yearly contributions. At the end of each year I replace the projected amount with actual balances. An example:
2013 42 $100,000 (actual balance at end of year)
2014 43 $134,000 (projected balance with annual contribution of 30k + 4% return) ; at end of year I will update this to true balance and repeat
2015 44 $169,360 (projected balance with annual contribution of 30k + 4% return)
2016 45 $206,134 (projected balance with annual contribution of 30k + 4% return)
Since the bulk of my contributions are tax sheltered, should I be more aggressive with my rate of return number? I do realize I will be taxed upon withdrawal but while in the wealth accumulation stage is 4% a useable number?
*This is my personal AA - some may think I have too much allocated to bonds. For the present time, I am happy with my asset allocation as we have my wife's IRA in 100% equities.
Edit: added closing parenthesis to above formula