While it’s true that past performance is no guarranty of future returns, using a long term track record as a predictor is IMO a superior method to trying to guess what the markets will do for the next thirty years.
My 11% adjusted for inflation to 8% is quite realistic, as performance figures for the SP500 are available going back to the early 1800s, and is based on last year’s Ibbotson’s data. If anything, I think that we’re overestimating inflation do to some recent abberations, but since the mean is 3%, that’s what I’m using.
There is a very strong case that real economic growth has been hampered in the past 100 years, and that we really do have great expectations looking forward. Technology has greatly speeded up commerce, we have the emergence of a world economy, and the potential contribution of the third world to look forward to. We have the resergence of Asia, and Russia entering the free markets.
If we figure things historically, a large perdcentage of the return of the SP500 is dividends, about 3.5% if I recall correctly. That means are number for stock market growth is 7.5% and down to 4.5% in real terms. It’s quite conservative, especially when you consider tha their are funds out there like the Income Fund of America that have total returns of 13.5% over the last 70 years with diversified portfolios of stocks that historically grow their dividends.
If you wish to make the argument that a broad selection of large cap stocks historically and in the future have and can only be expected to return 4% in real terms, please do so. I’m eager to hear it.
Until you make the case, I feel quite justified in using the historic numbers. They may be only half sighted, but that’s better than the a blind assumption (and actuarial projections have not been especially good indidcators of market performance in the past, no offense.)
Perhaps we’re quibbling too much at this point. It’s been my experience that quite a few teenagers work during high school and frequently purchase their own cars and acquire assets. This is more likely to occur in rural areas with kids that aren’t going to be going to College but are proceeding directly into the workforce.
His top income at age 50 is going to place him in the 33 percentile for income, and I just pulled that from 5 year old data, so it’s probably not as good now.
I chose it that way so that Sam would be spending roughly half his working life below the mean, and half above, and capped his income at 50k so we wouldn’t inadvertently push his income too high.
In reality he’s quite the underachiever, as mean household income numbers are for all households in the US, not just those with members gainfully employed. After working 30 years, he should be doing better.
So, I feel pretty confident that Sam is on the low side of mediocre.
To be fair, I really am giving this couple one major untypical advantage. I’m starting them off a little young.
Once we got it done the first time though, we can easily play with it, and start them off at age 23 for example, or make it a shotgun wedding and give Sally a kid at 18.
I think the assumptions are fair enough that we can fiddle with thme after the first run.
Let’s start budgeting the first few years, 18-25. Let’s hash out their expenses. I’ll see what people post, and try to put it together this afternoon or evening.