You almost certainly are too optimistic about how fast your retirement portfolio will grow.
And that could cause grave problems for you in coming years. A too-high return assumption leads you to withdraw too much from your portfolio early in your retirement—thereby shortchanging your later years.
Most of you can readily appreciate why that is unrealistic. If anything, you want to do the opposite of extrapolating: Given today’s historically low interest rates, probably the most realistic long-term return expectation for the fixed income portion is that, at best, they will merely keep even with inflation—and more likely produce significant losses.
Recency bias is evident in investor expectations. Consider the responses to Natixis’ annual “Survey of Individual Investors.” Each year, one of the questions the firm poses to respondents is: “What are the real annual returns you expect to achieve in the long term?” On average since 2014, their answers have been higher when the stock market’s trailing returns were also higher.
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