Questions on Monte Carlo, Inputs and Assumptions report
I have a couple of specific questions about the "Monte Carlo Spending Behavior & Portfolio Characteristics" section of the PDF Reports under "Inputs and Assumptions" that I hope you can answer.
There is a heading called "Choice of Discretionary Spending Behavior: XXXX". In mine XXXX says Cautious because that's the spending behavior I chose. Under this heading it shows each Monte Carlo Portfolio with a set of columns. One of the columns is "Mean Real Rate of Return".
In ESPlanner's Monte Carlo "Implement Portfolios" tab, for 2015 I set up Portfolio 2 for my Retirement Assets to be 40% Large Cap Stocks, 10% Small Cap Stocks, and 50% Short Term Govt Bonds. In the "Build Portfolios" Monte Carlo tab, the Mean Return Column shows 8.7% for Large Cap Stocks, 13.36% for Small Cap stocks, and 0.69% for Short Term Govt Bonds.
In Assumptions, my inflation rate is set at 3%.
In my PDF report, the "Mean Real Rate of Return" for Portfolio 2 is 4.737137. I have two questions regarding this 4.737137 value.
1) Can you show how this value is calculated given the percentages for allocation shares, returns, and inflation rate I mentioned above (i.e., Can you show the formula or equation that results in 4.737137) ?
2) Is this value used in the Main reports to calculate Retirement Asset Income? It seems like it is, but I am not entirely sure. For example, if I multiply my Retirement Assets balance (in the Retirement Account report) for 2015 by .04737127 / 2, it roughly equals the Retirement Asset Income value in the report for that year. I assume I have to divide by 2 since I used Cautious Spending. Is this correct ?