Our calculators have been updated with 2023 data for CPI, S&P 500, bond, and cash returns.

The story of 2023 was all about a come back from 2022's onslaught of high inflation.  The Fed got inflation partially under control by raising short term interest rates to around 5.5%. In 2023 inflation ran at 3.4%, which wasn't ideal but a huge improvement from the 8.0% inflation we suffered through in 2022.  Pretty much all asset classes did well - stocks, bonds, cash. 

One pain point in 2023 was 7%+ mortgage rates. This had two effects. The first was it priced out many would be buyers (lowering demand). The second was many would be sellers decided to stay put since their current loans were locked in at much lower rates (lowering supply). In some places the restricted supply is so bad home prices have actually gone up despite record unaffordability. 

2023 raw numbers:

•  The CPI (consumer price index) increased by 3.4%. At least inflation is going in the right direction but it is still considered elevated. The Fed has more work to do. 
   
• The S&P 500 had a 26.06% return, which is great but not record setting.
   
• The 90-day T bill had an average return of 5.07%, this is the highest since the year 2000!
   
• 10 year Treasury Bonds returned 3.88% which shows that even though short term rates are high, long term they are expected to come down again.
   

Our retirement calculators use backtesting based on historical data since 1928. 2023 was overall a very good year to be in the markets.

When running the Retirement Withdrawal Calculator with default inputs the average resulting balance went up $120k (2.3%). The default settings are to retire with $1M (invested 70% stocks, 30% bonds), with an initial withdrawal amount of $40,000 that gets adjusted by the CPI every year, and to let it run for 30 years. 

• Average Resulting Balance    $5.30M (2017)
• Average Resulting Balance    $5.13M (2018)
• Average Resulting Balance    $5.34M (2019)
• Average Resulting Balance    $5.45M (2021)
• Average Resulting Balance    $5.60M (2021)
• Average Resulting Balance    $5.15M (2022)
• Average Resulting Balance    $5.27M (2022)

Other results are the same, except the number of successful simulations (ending above zero) crept up 0.1% to 99%!  

• Simulations Ending Above Zero (money left over) 99%
• Simulations Ending Below Zero (money ran out early) 1%
• Simulation Low    -$202k
• Simulation High    $16.08M

In terms of the outlook for 2024, if inflation continues to shrink the Fed is planning to start cutting interest rates. That will cause bond funds to go up in value, mortgage rates to drop, and provide a stimulus to the economy.  However if inflation continues to stay above the 2% goal set by the Fed then rate cuts may not be possible.  If rates stay too high for too long that could trigger a recession, which could be bad for stocks.  The truth is nobody knows what will happen. 2024 is an election year which always adds stress and uncertainty.

What can we take away from the 2023 update? Amazingly, simulations ending above zero increased 0.1% to 99.0%. So the 4% "safe withdrawal rate" works better than ever. The more data that gets piled on the more that number appears to prove itself out.
 

Associated Calculators:

• Inflation Calculator
• Saving for Retirement Calculator
• Retirement Withdrawal Calculator
• Portfolio Allocation Calculator
   

Data Sources:

• CPI data https://fred.stlouisfed.org.
• Stock market, bonds, and cash returns are from Professor Damodaran's Historical Returns spreadsheet.