Often when people are talking about or writing articles about financial planning, they blithely assume that you can earn interest at rates that seem unrealistically high to me. This harms the credibility of everything they say - why would I take investment advice from someone who assumes I can just wander in and get 20% interest?
So here's an exercise to make sure your interest rate assumptions are reasonable.
You: "...so if you invested that at X% interest..."
Me: "Okay, suppose I gave you my life's savings to invest, and we signed an airtight, no-loopholes, no escape contract for you to give me (X-1)% of the principal every year. You can keep any extra interest you earn, but you have to give me (X-1)% every year even if you don't earn that much. Would you accept that agreement?"
If the answer is yes, then you can go ahead and use that interest rate example. If the answer is no, choose a lower rate. If the answer is yes only because you are so freaking rich that you could easily absorb the yearly loss of (X-1)% of my life's savings, add another zero or two to the amount of my life's savings and try again.
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