Preparing For A 50-Year Retirement With Vanguard’s New Return Assumptions

Imagine retiring by age 40. You may have to prepare for a 50-year retirement! Traditionally, the average American retires by age 65 and prepares for a 20-25-year retirement.

However, with the median life expectancy increasing and more people desiring to retire earlier, we must plan for even more unknowns. Further, return assumptions for stocks, bonds, and other investments are coming down. As a result, more capital or a lower withdrawal rate is required to retire and stay retired.

When I first started writing about early retirement in 2009, I was 32 years old. My original plan was to work until 40 and call it a career in finance. I didn't know exactly what I wanted to do after finance. All I knew was that my interest in the industry was fading.

Instead of lasting until 40, I left a couple months before my 35th birthday because I negotiated a severance. The severance paid for five years of living expenses, which I translated into five years of time saved.

Leaving behind maximum earnings potential was a bummer for the first six months. But I got over it. The money you lose by retiring early will quickly be replaced with the joys of doing what you want to do.

The 50-Year Retirement Conundrum

If I made no active income after age 35, life would have been more difficult. I had about $80,000 a year in investment income coming in based on a $3 million net worth that was amassed over 13 years.

$80,000 was fine for an individual or a couple in a big city. However, it would be tight if we wanted to start a family. Therefore, we did the logical thing and waited for five years until we had generated enough passive income to take care of a child.

Thankfully, a bull market has lifted both capital values and passive income levels since I left in 2012. If you had just followed the returns of the S&P 500 since mid-2012, $3 million invested would now be worth about $10 million today, the ideal net worth amount for retirement.

However, is a ~14% compound annual return likely over the next 10 years? I think not. Further, few retirees are going to invest their entire net worth into the S&P 500.

We should probably expect lower investment returns.

Lower Investment Returns In Retirement

First of all, the historical return for the S&P 500 is about 10% a year. Therefore, why would we assume a 14% annual return into the future? We shouldn't.

After you retire, it's prudent to be more conservative in your return assumptions, not more aggressive. The last thing you want to do is have to go back to work because you have lost too much money or run out of money.

Second of all, the risk-free rate of return has come way down. Therefore, the expected real return for stocks should come down as well if the equity risk premium stays the same.

The simplified expected real return formula = risk-free rate + equity risk premium.

Finally, one could easily make the argument the equity risk premium should be lower as well. Given the opportunity cost to invest in a risk-free asset is low, investors don't require as high of an equity risk premium to take risk. Therefore, the expected real return should be even lower.

Here are some examples:

Expected Return For Stocks In 2001 = 4.5% (risk-free) + 6% (ERP) = 10.5%

Expected Return For Stocks In 2021 = 1.3% (risk-free) + 4.5% (ERP) = 5.8%

The only thing certain in the formula is the risk-free rate of return. The ERP and total expected return for stocks are academic guess work.

From this little exercise, we can make an assumption the 14% average stock market returns from when I left work in 2012 to now will likely not be repeated. We can also make a assumption the expected returns for stocks will be under the historical 10% average.

A Lower Safe Withdrawal Rate In Retirement

With lower expected returns for stocks, it is only logical to conclude your safe withdrawal rate in retirement should also decrease. By how much is debatable.

My proposal is the Financial Samurai Safe Withdrawal Rate Formula = 10-year bond yield X 80%. This way, your withdrawal rate adjusts with the times. To stay conservative, I recommend following this formula for the first two or three years of retirement.

Based on my experience of not having a paycheck since 2012, you will not be able to fully comprehend how it feels like to be retired until you are actually retired.

You may go through a series of unexpected, baffling emotions. You may doubt your decision, especially if you retire on the earlier side. The stock market could take a beating for a couple of years. Or your expense profile might rise significantly due to a medical issue or additional family members.

Because life is so unpredictable, it is prudent to be conservative for the first several years after you make your life even more unpredictable by retiring early.

Once you acclimate to retirement life, then you can start to withdraw funds more aggressively.

Flexibility Is Important For A 50-Year Retirement

The great thing about all of us is that we aren't pre-programmed robots. We are dynamic. We have the ability to change our financial habits if we want to.

After only one year into retirement, I was getting bored playing tennis and golf every day. Therefore, I decided to do some consulting at three startups for a couple years. The extra money was great as I reinvested almost all of it to generate more passive income.

After I had scratched the startup itch, I went back into retirement mode after my wife left her day job in 2015. Finally, I had someone I loved who has as much free time as me.

For two years, we aggressively traveled the world. Then our son was born in 2017 and it was back to making more money online. Our monthly healthcare bill ballooned from ~$300/month to ~$1,750/month.

Vanguard's 10-Year Stock, Bond, And Inflation Forecasts

Despite a lot of pushback about the Financial Samurai Safe Withdrawal Rate Formula, I'm pleased to say Vanguard, the behemoth money manager, agrees with the direction of my thesis.

A year after I introduced my safe withdrawal rate formula, Vanguard came out with its 10-year forecast for stocks, bonds, and inflation. Vanguard's return assumptions are much lower than the average historical returns. Have a look below.

Vanguard VCMM median forecast for stocks, bonds, and inflation over the next 10 years - 2022 to 2032 - Planning for a 50-year retirement

The Vanguard Capital Markets Model has calculated only a 4.02% annual return for U.S. stocks, a 1.31% annual return for U.S. bonds, and 1.58% for inflation over the next 10 years.

If you have a portfolio mix in retirement of 60% stocks and 40% bonds, your portfolio may return just 2.93% a year if Vanguard's forecasts come true.

Therefore, if you plan to retire early with a potential 50-year retirement ahead of you, you may have to:

  • Accumulate more capital before retiring – Shoot to accumulate 50X your annual expenses or more instead of just 25X annual expenses.
  • Generate supplemental retirement income – Find something you love to do that also makes money through consulting, part-time work, or something entrepreneurial. It'll give you more purpose in retirement as well.
  • Delay your retirement date – Each year you delay is a double benefit of saving more and having one less year of life to provide for.
  • Lower your life expectancy by eating more junk food and not exercising – Not recommended.

It warms my heart that Vanguard has come out with its new forecasts. Now, when anybody wants to yell at me for being too conservative, I can just direct their vitriol towards Vanguard.

But one key lesson I've learned as an investor and a writer is to not be too forward-thinking publicly. If you don't have a strong mind, there's little upside to being ridiculed.

Will Vanguard's Forecasts For Stocks, Bonds, And Inflation Come True?

Only time will tell whether Vanguard's forecasts come true or not. Personally, I feel Vanguard's forecasts are a bit too conservative. I expect closer to a 6.5% return for U.S. stocks, a 2.7% return for U.S. bonds, and a 2.3% inflation rate. However, other money management firms like Goldman Sachs and Bank America have all lowered their future return assumptions.

Let's check back in 10 years and see who was more right. So far, the bear market in 2022 has argued towards expecting lower returns going forward. In the meantime, we can run a simple simulation to see how Vanguard's forecasts could be right.

For example, let's say you invested $100,000 in stocks. A 4.02% compound return for 10 years would mean you'd end up with $148,309. Not bad if inflation is truly only 1.58% a year.

There are many ways to get to $148,309 in 10 years.

One way is to experience a 10% compound annual return for nine years. Your portfolio will have grown to $235,794. Then in the 10th year, your 100% S&P 500 portfolio experiences a 59% crash after the Taliban start World War III.

Another way is to experience a 7% compound annual return for three years to $119,101. In the fourth year, your portfolio experiences a 10% correction that brings its value down to $107,191. Then over the next six years, your portfolio compounds at 5.6% a year to get to $148,309.

In other words, when you see expected return forecasts, don't think linearly. Think dynamically. Stocks correct by 10%+ every couple of years. Meanwhile, we've experienced two 30%+ corrections within one year since 2007.

Your Chance Of Not Running Out Of Money With A 50-Year Retirement

One of your main goals in retirement is to never run out of money. Therefore, it’s much better to die with a little too much than a little too little.

The Trinity Study confirms the work done by William Bengen, showing that a 4% withdrawal rate, over a 30–year retirement horizon, with a 50%/50% mix of stocks and bonds was 100% successful.

But remember, back in the 1990s when the 4% rule was popularized, returns for stocks and bonds were much higher. The risk-free rate of return was between 5% – 6%, so of course, withdrawing at 4% meant you'd probably never run out of money.

Today, the Vanguard Capital Market Model calculates an 82% chance of success with a 30-year retirement. The main reason is due to its lower expected returns for stocks and bonds.

However, if you are a FIRE investor with a 50-year retirement horizon, the VCCM estimates only a 36% chance of success.

4% rule probability of success

Increase Your Chances Of Retirement Success

A 36% chance of success is terrible if we're talking about running out of money in old age. On the other hand, waiting for a 100% success rate seems too conservative.

The right percentage success rate before you retire will depend on your risk tolerance and your ability to generate more income and cut costs if needed.

Personally, I felt like I needed to have at least a 70% chance of success in order to leave my multiple six-figure job behind. If I failed at retirement, I would simply get another job after two or three years.

When I finally left work behind, I felt I had a 80% chance everything would work out. The severance package that provided five years of normal living expenses was the key. Without it, I would have kept on working until age 40.

Back when I left, a 50-year retirement was incomprehensible. Today, with 41 years left until age 85, it still feels like a long road that needs careful financial oversight.

Real Estate Seems Like A Better Asset Class For Retirement

If Vanguard's return assumptions for stocks and bonds holds true, then real estate may be the superior asset class for retirees.

For one, real estate investors tend to earn much higher income yields. It's common to earn high single-digit cap rates (net rental yields) in the heartland of America. Even in expensive coastal cities, cap rates of 4% are achievable.

When you then add on potential real estate price appreciation, real estate through REITs, rental properties, and private eREITs could continue to do well over the next 10 years. I expect real estate returns to average closer to 7%, which is 3% higher than Vanguard’s forecast for stocks.

As a retiree, you want steady income and lower volatility. These reasons are why I have ~40% of my net worth in real estate. If real estate can then outperform Vanguard's return assumptions for stocks and bonds, then even better.

Active and passive investing

Everybody's Retirement Lifestyle Will Be Different

I'd like everybody to take all retirement advice with a grain of MSG. Not only are people's definitions of retirement different, their actions are quite different as well.

Please be wary of any retirement advice from personal finance writers and bloggers like me. Some of us make a healthy amount of supplemental income from our freelance writing, books, and online activities. For example, this article has taken hours to write and should make me enough money to treat my family to In N' Out Burger.

Please beware of taking any retirement advice from retirement academics. All of them are still gainfully employed with big pensions waiting for them when they one day retire. Even William Bengen of the 4% rule fame has commented on this site saying he is actively working on multiple projects.

In addition, please be wary of taking any retirement advice from men who are stay-at-home dads and say they are retired but have a working spouse. Stay-at-home moms don't say they are retired when they have a working husband. Besides, being a stay-at-home parent is one of the hardest jobs in the world.

Finally, if you have children or want to start a family, taking retirement advice from a childless couple living in a one-bedroom apartment probably isn't appropriate. Children are a blessing. However, they make trying to generate enough passive income to pay for them much harder.

I'm not saying don't consider other people's retirement advice. I'm saying you must correctly “choose your fighter” to emulate and decide how you want to best live your life.

Stay Flexible With Your Retirement Plans

There will be plenty of twists and turns if you decide to retire early, especially if you have a 50-year retirement. But that's part of the fun of it all.

I'm planning on re-retiring sometime during the Biden presidency. If a bear market doesn't strike, we finally have enough investment income to care for a family of four. And if we miraculously have another child, then I will reassess retirement once again.

I'm not sure we'll be able to enjoy a 50-year retirement starting from today since we're already in our 40s. However, we sure as hell plan to enjoy as much of the remaining time we have left!

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Related posts about retirement:

Two Retirement Philosophies Will Help Determine Your Safe Withdrawal Rate

The Fear Of Running Out Of Money In Retirement Is Overblown

How To Retire Early And Never Have To Work Another Day Again

Readers, what do you think of Vanguard's return assumptions for stocks, bonds, and inflation? With lower return assumptions, do you think it's logical to lower your safe withdrawal rate in retirement?

How would you plan for a 50-year retirement? Bank of America, BlackRock, GS, and JP Morgan also came out with their 10-year forecast for stocks. They all predict much lower than historical average returns.

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.

65 thoughts on “Preparing For A 50-Year Retirement With Vanguard’s New Return Assumptions”

  1. Robert Ruschak

    “ For one, real estate investors tend to earn much higher income yields. It’s common to earn high single-digit cap rates (net rental yields) in the heartland of America. Even in expensive coastal cities, cap rates of 4% are achievable.”

    1) Why would an investor want to buy a real estate asset that has a 4% cap rate?

    1. The potential for further price appreciation. Look at superstar cities and international cities. Cap Rates are almost always lower, but it’s been OK because the appreciation rates have been higher.

    2. Vaughn McGuire

      Typically the lower cap ratio markets are in regions that appreciate more. Typically. At least that’s my understanding

  2. Great conversations. I also agree with the lower returns although not as low as Vanguard. I have 5% overall growth, 3% inflation in my plan for the next 10 years. So long as there is a 2% spread it should be ok. A 2.5% withdrawal rate to cover all expenses.

    1. Bank of America’s Savita S. just came out with their forecasts for stocks over the next 10 years. She is forecasting negative returns. There seems to be a growing trend given where valuations and other things are at now.

      1. Robert Ruschak

        “I had about $80,000 a year in investment income coming in based on a $3 million net worth that was amassed over 13 years.”

        Congratulations and those are incredible results. I managed to double my net worth in one year vs my 37 years of existence in life!

        Why waste money into a Vanguard, whereas bitcoin & Ethereum can increase by 1000% or more at current levels? I am already up 81+% on Ethereum and plan on holding for much higher returns.

          1. Robert Ruschak

            My NW is about 1/10 compared to your $3m! I am very confident that my NW will increase by 5x to 10 by the end of 2022. No reason to ever retire and continue to expand with my network!

            1. It is wonderful he still very much enjoy working. I definitely tired out by the age of 35. Enjoy what you do as a blessing. Congrats! Oh, and my net worth hasn’t stayed static since I left in 2012.

              Go bull market!

      2. Vaughn McGuire

        Vanguards forecast seemed fairly measured and came relatively early. The contrarian in me is happy that so many others are coming forward with horrific predications, especially given how far we’re already down

  3. I have to view those thoughts on future returns with a grain of salt. For example, I intend to put money with carefully selected fund managers (with long established records) of funds that specialize in things I believe, after decades of an ongoing fascination in science, technology, and society (a hobby or an addiction, it’s almost a substitute for inside information), will be most important to future economies. This means things like AI and anti-agathic medical tech, rather than manufacturers of buggy whips and videotapes. It’s been working pretty well for me for many years now, in good times and bad.

    My current thinking, though I will hedge my bets, is that explosive automation will be the order of the day throughout this decade, driving up capital-based earnings (investments) at the cost of wage-based earnings as a percentage of of earned income. After which, the rebound will be insufficient consumer demand, given the the relative decrease in wages, and too much investment money chasing too few good investments, exacerbated by ever more extreme income/wealth inequality.

    On the other hand, further breakthroughs in science and technology, which are actually somewhat likely over this time period, could derail that gloomy 2030s prospect. Strong and effective political leadership could also change that, but neither party is offering that, nor appears likely to, and certainly not in that timeframe.

  4. Texan Driver

    Sam, what do you think of this as Alternative Asset class allocation (15% of my portfolio):
    5% Inflation Hedge: Commodities & MLP
    10% Principle Preservation: Market Neutral & Arbitrage
    10% Portfolio Diversification: Risk-Balanced & Multi-Alternative
    10% Equity Diversification: Equity Long/Short
    5% Fixed-Income Diversification: Unconstrained Bond & Bank Loans
    25% Income Producers: Options (Cash Secured Puts)
    35% Non-Income Producers (Speculative Bets): Hedge Fund (10%), Private Equity (10%), Venture Cap (10%), Crypto (4%), Diamonds (3%), Art (2%) and Wine (1%)

    So my portfolio ends up like this, hopefully standing tall after the latest 50 year Vanguard forecast:
    30% US Equities
    15% Int’l Equities
    20% Real Estate (Equity)
    15% Debt Lending
    15% Alternatives
    5% Cash/Bonds

    My FA thinks it’s too busy. Regardless, I enjoy the hobby, always thinking fastball and sitting on a curveball (devastation, confiscation, etc).

    BTW: Awesome content, Sam….thank you!!

  5. Well if one factors in even minimal social security benefits and geo arbitrage I’m sure you can stretch that retirement out….
    40 or 50 year retirement have a plan A-B-C… Among others consider a Move for a few years to a lower cost place if your returns don’t hit projections…

  6. Lost in the woods

    Thanks for a very interesting article. Many people focus almost entirely on the the accumulation phase of wealth creation, which is relatively straightforward – earn, save, invest, keep at it. Not easy, but also not complex. The difficult questions are how to manage the draw-down phase and what is a safe withdrawal rate. I retired once in my late forties, got a bit bored, went back to work for a bit, and am now targeting re-retiring in another year or two. I will refrain from forecasting specific market returns, inflation, etc., except to say that I expect market returns to be lower and inflation to be higher than we have seen over the past 10 years. Having retired once and thinking more deeply about it now, I have found the following to be true in my case. 1.) I am much more comfortable living off of dividends, rents, etc. than I am selling investments. For me, the safe withdrawal rate is the income generated from my investments and no touching of principal, at least for a while. 2.) After the last pay check arrives, this ceases to be an academic and/or intellectual exercise and becomes real. Very real. Very quickly. It is very easy to underestimate the psychological element. As you say, be very careful about retirement advice from someone who is not retired and living off their own assets (as opposed to a traditional pension). 3.) Related to points 1 and 2, it is very difficult to tolerate one’s wealth declining after a lifetime of growing it. 4.) Things that seem wonderful on vacation can get old after a while when it becomes every day life. If at all possible, give your planned lifestyle a trial run for a year before you commit to it.

  7. Could you add a link to that Vanguard model you mentioned in the article? that sounds like it’d be fun to play around with!

  8. I met a speaker at my daughter’s scholarship presentation who had once been a VIP. His bio mentioned the date he retired (at the end of a normal-length career). It took me a moment to realize he had been retired since before I went to college, nearly forty years, and he was still quite active.

    Of course, he had to have been getting social security, as well as a sizable pension. Same plan my wife and I have, with both us getting pensions, social security (and some disability comp for when I was almost a hero in the war).

    I’ve also been very intent on taking our portfolio to a point where I believe it has crossed a threshold that will let it grow larger the rest of our lives, rather than smaller, even with a comfortable level of drawing. It helps that the pensions allow me to invest more aggressively (i.e. more heavily in equities, with less concern about bonds).

    I believe, based on what I read (and I read a lot) that medical science is about to make drastic changes in human longevity for those with access to good healthcare. By drastic, I mean adding several decades on to our lives in the next decade or two. During that time there could be even more advances, pushing things further yet. That means fifty year retirements might become quite common, with many being quite a bit longer.

    That will wreck social security, already facing some challenges (perhaps mostly political) in 2034. And it will test pensions to the breaking point. Eventually, many of them would break. Other lifelong entitlements would also be feeling an ever-increasing pain. In the event that lifespans become drastically longer I expect many of them will seek to cash out (before they are bankrupted) by paying lump sums and ending recurring payments. I’ve also seen this happen when certain large companies have gone out of business. One problem being that social security does not have the funds to cash out and distribute. Congress stole them many decades ago and the original perpetrators are long dead.

    I know it sounds like science fiction, but it does not appear to be out of the question when institutions as different as Harvard and Google (Alphabet) are involved and claiming huge progress, and promising articles are appearing regularly in highly reputable scientific periodicals.

    This not-entirely-unlikely-scenario makes a portfolio the best hope of real security. Specifically, getting it across that magic and non quite definable threshold where it should always grow in the long run, despite corrections and the periodic pruning caused by drawing, or even RMDs.

  9. Hey Sam,

    I enjoy all your content. Thanks for everything you produce!

    I thought of a financial instrument that seems to hedge against running out of money in retirement (or at least living too long): an annuity. What do you think about those for helping to solve this problem?

  10. I think the return estimate is too conservative and doesn’t account for human inventions. It’s hard to predict what the next big thing will be, AI, Robotics, etc, but throughout history we had these break throughs. If we assume these won’t happen, then yes, the market will be low for future years.

    Enjoy your blog, also went to Cal and stayed in SF for a few years.

  11. Since the S&P isn’t going to deliver the goods as fast as people would like, will people be pushed into riskier assets like crypto, junk bonds, etc.? Crypto “investors” (speculators) like me sure hope so:)

    “Find something you love to do that also makes money through consulting, part-time work, or something entrepreneurial.”

    100% on this one. In the early 2010s I took your advice and saved enough into retirement that it made me uncomfortable. It’s been working out well. In the mid 2010s I applied to and was admitted to a top 10 business school full-time, and it was your posts on here that brought the MBA onto my radar. Things are going so well- can’t thank you enough, Sam!

    Now I’m taking another piece of advice from you and starting a blog to establish another income source down the road. It’s a slog right now but I know having a choice down the road could be priceless, as you say.


    1. Really love the hustle Daniel! Hope your wealth has grown tremendously since the early 2010s.

      Yes, lower returns for classic asset classes will result in more capital seeking higher risk, higher return assets classes. It’ll be fun to see the booms and occasional busts!

      Let’s enjoy the journey.

  12. This is really helpful. My wife and I own a business together, and it’s done amazing in the last few years – to the point that we’re just shy of a $10mm net worth, about 60% of which is in Vanguard index funds (VGRO – we’re in Canada), 40% in real estate.

    The business we’re in is very volatile however, and it looks like we’re heading for a downswing. We keep debating if we want to continue it or if we have enough to retire, but much like you did, we came to a conclusion that for us to ‘live our best life’, $300k a year is what we need to be making.

    Of course we could scale down within the definition of ‘best life’, but for us that includes private school for the kids, first/business class flights when travelling (not often these days haha), paying mortgage(s), trying to eat quality organic foods, etc etc.

    So – the hard part has been realizing that even though we’re JUST shy of a $10mm networth, we don’t seem to generate $300k in passive income yet. The real estate we have is pretty leveraged and we live in an area with high real estate costs and high rents – but those rents barely cover the mortgages without paying down the principles very aggressively.

    I’d love to see an article about ‘how’ to begin withdrawing once you hit what you feel is your ideal FIRE nestegg. That’s something I never understood. Do you wait for distributions? Do you automatically sell a certain $xxxx worth of stocks per month to pay yourself and live off of?

    Thanks for the great article, as always.

  13. How about Nasdaq? I’d go almost all-in for QQQ for the next 10 years! (i’m a young person)
    I feel QQQ will have the same course as it did in the last 10 years, not to mention that SP500 is heavy on tech companies…
    If in the tech bubble from 20 years ago, techs made no profits (most of them), today companies are very well poised to be used at global scale with big profits (especially FAANMGS); even Buffett’s fond is heavy invested in Apple! ;)

    Bonds – do you think they’ll ever come back if inflation is here to stay for the next decade?! I’d rather risk coming short on QQQ (or even crypto), than to break even or lose on bonds!

    With REIT’s i’m OK, as more stable equities + dividends!

    1. Only real huge risks with tech are anti-trust and national (eg multi-billion dollar fines on US tech firms – previously was millions – next may be far larger).

  14. Canadian Reader

    We live a conservative existence and are happy that way. I wouldn’t mind returning to work casually once my kids go to school. We are hedged heavily by real estate, but my casual work alone would hedge us forever, and cover supplemental health care costs. I’ve also been thinking that if I remain current at work we would be eligible for transition to the US if we wished. Comfortable with SWD around 0.65-1% given current conditions and a 50 year retirement horizon :)

  15. I think early retirement is going to become harder and harder in the years to come. That is why I a using Real Estate as part of my investment strategy to help weather the impending storm.

    Thanks for the great article!

  16. I certainly think assuming a 14% return is ludicrous, but so is Vanguard’s estimate. I will continue to use a 9% gross return with a 2% inflation figure for a net of 7% annually. My portfolio is nearly 100% in equities, of which 20% is within REITs.

    I could be wrong on using a return of 7%, I could be right, but I am not going to stress over it. If I find myself in a situation where 4% becomes unsustainable with annual yields, then I will modify my plans accordingly (find side income, cut expenses, etc). Life is too fluid to try to plan out 50 years in advanced, instead I will do my best to be prepared and adjust accordingly. Those who cannot adapt are the ones who will fail.

    1. Olaf, your enthusiasm is great and your risk tolerance is admirable.

      Personally, there’s no way I’m going to risk 100% of my net worth in equities. The absolutely dollar swings downward would make me too unhappy, which would ultimately hurt my mood and lifestyle.

      But more power to you. Remind me again of your background eg age, family, etc?


      1. Sam,

        It’s definitely an equation each person needs to solve for, as no one individual’s X is the same as anothers. For me, historical statistics back up my equity exposure, as does the multi-century evidence of declining bond yields. With that said, my partner and I do not have any kids yet, so that isn’t to say things might not change. We are in our early thirties, after all.

        Enthusiasm and pessimism both have a place with finance, but I don’t mind work and if my plans fall through due to massive changes in the financial landscape, I can always adapt. It certainly helps that I enjoy working in finance professionally.

        On a closing note, some people need to have proof on paper their plan will not fall through, others don’t. Again that is all about risk tolerance, which your lower withdrawal rate highlights. For you, certainty for your family of four is paramount, for us, life is still hazy and that is okay.

  17. Hey Sam, I read your previous post about your expectation that markets will have much lower returns in the future and directionally agree with you.

    Question though: if you take your personal numbers (“Personally, I feel Vanguard’s forecasts are a bit too conservative. I expect closer to a 6.5% return for U.S. stocks, a 2.7% return for U.S. bonds, and a 2.3% inflation rate.”), doesn’t that still imply a real return of ~4% (6.5% (stock returns) – 2.3% (inflation)) for portfolios heavily indexed on stocks? Right now, for instance, 90% of my portfolio is in stocks. Obviously it will change as I get older and it gets rebalanced to reduce risk, but I have a higher risk threshold and don’t anticipate ever having a standard allocation. I realize this means I am accepting much higher volatility and risk of losing my money in the long run, but bonds are just too boring.

    If you take a 4% rate of real return, that implies a 25x savings/spending rule, which is exactly what the Trinity Study and the wider FIRE community espouse.

    It seems like I’m just overlooking some of the arithmetic that takes desired portfolio size from 25x to 50x.

    1. I used nominal and cut 4% in half. It’s somewhat arbitrary, but also just going in the direction of being more conservative.

      Personally, I like the goal of accumulating at least 20X your average salary for the past three years before retiring. Can’t cheat by cutting costs.

      But again, another discretionary multiple that is up to the individual to decide.

      1. I agree with the direction you’re going Sam but I think the work is incomplete at best. Is it 80% of the 10year, is it “6.5% return for U.S. stocks, a 2.7% return for U.S. bonds, and a 2.3% inflation rate”, is it what Vanguard says? None of us can know the future and I can appreciate the difficulty of making a call, however I think given your background a more in depth assessment would be welcome.

        1. For sure. I welcome your thoughts on the subject either through a comment or a guest post. I want to encourage as many readers who have an opinion to share their opinion with some detailed analysts. Together, we can come up with better analysis. And please share something about yourself too. Thanks Dan!

  18. Ha, I laughted at:
    “Lower your life expectancy by eating more junk food and not exercising – Not recommended.”

    Keeping your health on point so you can enjoy the fruits of your financial labor is definitely an underrated thing I feel like.

    I’ve invested in single family rentals and private real estate syndications, but after this post I feel like I really need to look into REITs a bit more.

    Also I’m not sure why folks are giving you pushback on being conservative on return estimates. Better to be surprised with more returns than surprised that you don’t have enough money left, I feel.

  19. Curious to know why some people have a hard time accepting that stocks and bonds could have structurally much lower returns going forward?

    You made a logical argument a year ago and even Vanguard is making an argument today. What makes people so rigid in their thinking?

    I’m personally going to accumulate greater than 50X my annual expenses before I retire and earn supplemental retirement income when I do.

  20. Paper Tiger

    I fall into this category. I retired from Corporate America at 57 in 2015 but my wife continues on with her career and does very well. At my age, I didn’t really consider this “FIRE’d” but it did give me an opportunity to get involved with startups for about 5 years, taking equity instead of the income as compensation.

    Early retirement was never a goal but sometimes life takes you down that path. Fortunately, we were saving and investing in a manner that would allow us to face most circumstances head-on and so we are making it work with me being retired and my wife working, because she wants to, not because she has to.

  21. Love the content as always. As residential RE has increased this year, while dry powder from large institutional RE buyers has also increased, do you still think now is a good time to be investing in multi family housing? It does feel a bit like everyone (and their brother) is talking up the asset class.

    1. As price appreciation slows and we also head into winter, my favorite time to buy, I do.

      There are always deals to be had, whether in a hot market or a cold market.

      More people are also away right now on holiday.

      It’s partly a numbers game. I know I only have a 10% chance to get this one property for about 10% below the market, but if I can continue to work on 10 properties, one might come true.

      1. Hi Sam-
        (Long time reader, seldom put comments)

        This seems to really seems to hit home. My wife and I were fortunate enough to have 700K in cash we need to deploy, we have run through many options on how to deploy the money and are considering purchasing a Sonoma property that will be used for short term rental (some personal use with my family). This would be 80% business decision and 20% for my family. We are considering a $2.3M home which would require 20% down…$460K (interest rate is 2.75%) and $100K to furnish it. Based on spreadsheets and market analysis for nightly rate, occupancy %, property management fees, repairs, utilities (always scared my numbers are wrong) it appears that we should be able to make around 55K-110K per year (worst and best case), not including mortgage pay down (30 year fix) or any appreciation.

        We are worried about future returns in the stock market and figure if housing drops too, if it is making money don’t need to be concerned about price. If things go really south and we can NEVER rent it, having that large of a mortgage is a risk that is hard to swallow but figure we could sell it (hopefully not lose too much).

        Think the Pandemic has changed us and while their is risk to try it, would rather look back 10 years and say “at least I tried it” vs never taking on any risk.

        1. Make sure to budget enough for maintenance. Personally I’d rather diversify than that big of a cash going into a single property in a single location focused on leisure which could be crushed by pandemic and travel limitations now or in future, plus risk not being able to evict if folks don’t leave etc but that’s just me.

  22. The VCM model might be right. However, it’s only for the next 10 years. You just need to hang on until things improve. If you did your homework, then you know you’ll have to be flexible with FIRE.
    I’d work a bit to reduce the withdrawal rate. Also, I’d be more conservative with my investment. Stocks might have low returns, but real estate still looks great.
    So work a bit and diversify your investment. The key is to be flexible.

    1. And have a working wife who makes 6-figures for the past 10 years since you “retired,” wink wink ;)

  23. Michael CPO, From the Far Side of the Planet

    Residential REITS Index Funds?… might be a good way to add balance to your portfolio etc … as well as some part time projects/work to spice things up …. :)

  24. I see so many guys who retire and call themselves FIREd. But their wives still work and bring in more than 100K+ from their salaries. How is this Retired Early since 100K+ is a good enough income for a family to live off of comfortably.

    1. It’s a self-esteem and beta male issue. And trust me, nobody takes them seriously except for other beta males.

      But hopefully they are good to their wives.

    2. Exactly. My wife stopped working at 21 when we got married. No one would say she’s retired. A single income family is just normal home economics.

    3. Paper Tiger

      I fall into this category. I retired from Corporate America at 57 in 2015 but my wife continues on with her career and does very well. At my age, I didn’t really consider this “FIRE’d” but it did give me an opportunity to get involved with startups for about 5 years, taking equity instead of the income as compensation.

      Early retirement was never a goal but sometimes life takes you down that path. Fortunately, we were saving and investing in a manner that would allow us to face most circumstances head-on and so we are making it work with me being retired and my wife working, because she wants to, not because she has to.

  25. I think returns will be lower over the next 10 years as a well. If not, it will be a nice surprise for all of us.

    I wonder if the disbelievers will calm down and be less apoplectic now that Vanguard is behind you.

    There were some really nasty and immature people from your safe withdrawal rate post. It was pretty funny how bent out of shape people get!

    1. Yeah, I’m not sure why people get so hot and bothered about a conservative financial opinion.

      Perhaps it’s because people immediately do the inverse calculation and say suddenly they have to save a lot more before they can retire early so that pisses them off.

      But the Financial samurai safe withdrawal rate formula is dynamic. As the the 10TBYield goes up, the withdrawal rate goes up.

      Further, I’m not saying that one should follow the formula forever in retirement. It is an initial guide as one acclimated to retirement life, which can often be a big shock.

  26. Daniel Stein

    I can’t help but think that continued money printing and low interest rates will result in continued inflation, mostly inflation of things like equities and housing! Given this, Vanguards estimates seem quite low unless they mean after inflation returns.

    1. Yup – I expect inflation to be much higher than 1.5%. Given this year around 5%, the next 9 would need to be around 1.1% a year to hit that. I think Sams forecast is better but expect more like 3-4% inflation, or higher if Dems keep practicing MMT

      1. I think we need to write off inflation this year as a one off. Same with YoY earnings rebounds.

        We’re gonna have some of the biggest stimulus ever this year and last year was artificially depressed.

        I would personally be very happy with 6.5% YoY equity returns for 10 years. Almost a doubling in this time period!

        1. I’m not so certain – the money supply is up huge in the last 18 months and we may get $4 trillion of extra government spending if these bills pass that will be covered by more printing by Fed Res to cover it. And we’ve seen huge inflation even with money multiplier down….if that ever gets going higher on increased money supply, look out! Did you see bloomberg’s article yesterday that apartment rents for new leases are 17% y/y! Homes in my area are seeing their biggest price increases in the last month than at any point in the last year as well. Every item I bought for a rehab renovation cost at least 10% more than before – many well above that – and no one wants to work anymore.

          Either way, I agree with you and Vanguard on lower real rates of return in equities – whether that’s through lower nominal growth or higher inflation is TBD.

  27. Regarding your goal of “re-retiring during the Biden administration,” you may have to modify the plan or retire post haste. Not sure how long the Biden Administration is going to be around.

      1. Perhaps he is referring to the “Justice for J6” protest scheduled for September 18th in Washington, D.C.?

  28. I’m hedging against diminished returns by reducing my anticipated expenses. A home paid off several years before the planned date of retirement means I need a LOT less passive income when that day arrives.

      1. It’s tempting. But I think one needs to balance returns with options/flexibility. No mortgage provides me more options.

        Less income means less taxes; no mortgage means no interest. Between those two, one can make up for the cashflow difference.

  29. It makes total sense to me to expect lower returns and to adjust to a more conservative withdrawal rate. I agree with you and Vanguard!

  30. Great job discussing about lower expected returns a full year before Vanguard published there forecasts. I hope their forecast don’t come true, but it’s definitely possible given how low the risk-free rate is.

    I’m not sure anybody would be surprised with a 10% of 20% Correction in the stock market after a huge rise.

    So 4% for the stock market could easily be a reality over the next 10 years.

  31. The idea of a 50 year retirement is closer than you think. I know this first hand and not because I have been retired for 50 years.

    My mother passed in June 2020 at the age of 98. She was still active with friends half her age. My point is that she retired at 65 and was retired for 33 years. She could have retired at 50 and would have been retired for 48 years, which is close enough to the 50 year target.

    Being ready for a 50 year retirement is a good idea. However, it is going to require a change in how we look at retirement in our younger years. As long as we maintain the illusion of immortality into our 30s, retiring at 40 is not going to result in an enjoyable pastime.

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