Quote Originally Posted by BlueTeuf View Post
Have been planning for full retirement for several years now. Have built various models to represent our current holdings/savings and project savings needs/implications over the remaining income-earning years.


Q1: Models include projected Social Security benefits as a part of our annual income. How should we value these numbers? At a 100% of estimated benefit? Something less based on concerns for program solvency? I reach age 62 in 2025. Wife in 2027.


Q2: What's a useful/sensible compounded annual growth rate to use in my models for $$ parked in the market for a 20-year run?
I'm way late to this party, but just in case some others may benefit:

A1: My firm (Garrett Investment Advisors) recommends subtracting 1% for every year between now and your full retirement age. If you are 55 like me that would be 67-55 = 12(%). There are three factors at play here. First, the political risk of reductions. It may be minimal, but it is non-zero. Second, the fact that increases do not truly keep up with inflation in the sectors that seniors consume disproportionally more than the rest of society, namely healthcare. Third, lots of people stop working before their targeted retirement date due to forces beyond their control. This is important because your benefit is based on your best 35 years of income. Let's say you are a college professor, and you took a while to get your Ph.D. You may not have significant income until age 30. If you stop working at age 60, you will have five years of near-zero income. Your estimate will have assumed you kept working right up to age 67 and will thus overstate your actual benefit.

A2: The answer depends entirely on your risk tolerance. Not everyone can tolerate the volatility of an all-stock portfolio, even with a 20-year time horizon. If you have accumulated significant assets, you may wish to reduce exposure no matter how long your outlook is. The largest barrier to successful investing is emotional decision making (fear and greed). If you are invested out of synch with your risk tolerance, you will likely succumb to one of those emotions. So find a fee-only, fiduciary advisor who has a tool (I use Riskalyze, but there are others) that can pinpoint your risk tolerance with more specificity than the old-school Conservative/Moderate/Aggressive buckets. The advisor should be able to match your investments to your risk and tell you what the long-term expected return is. For most people, unless you have an unusually straightforward portfolio, this is not something you can do yourself, unfortunately. The good news is that an hourly planner should be able to do a checkup like that for a one hour fee.