planning assumptions

[semi55]

I'm looking for a bit of a survey here. How long of a planning horizon and what kind of portfolio survival rate are folks using? I've seen very conservative approaches, but I think that is likely both overkill and assuming that the various models are godlike in their ability to forecast.

Unless most of you are unlike me, you don;t have nearly enough (a la warren Buffett) to ensure that the government won't screw up your best plan anyway. On the other hand, you have enough that it is worth planning out a future.

So my personal method is to use a longevity survey, which says I'll live to 95. I'm sure hoping I make it past my "average" life expectancy.

I'm also planning on a portfolio survival rate of 85%+. Not worried about leaving any legacy, if I do great for the kids, if not, no worse than I had it.

 

[racy]

Hi Semi,
Personally, I'm uncomfortable with less than 100%. At less than 100, I get these visions of Black Swans, Katrinas, Sandys, etc. I see 85% success and think 15% (or, a 1 in 6 chance of) failure.

 

[Calico]

Hi Semi,
Personally, I'm uncomfortable with less than 100%. At less than 100, I get these visions of Black Swans, Katrinas, Sandys, etc. I see 85% success and think 15% (or, a 1 in 6 chance of) failure.

Ditto. Anything less than 100% and I would not be able to sleep.

 

[ERD50]

Ditto. Anything less than 100% and I would not be able to sleep.

Double dittos. -ERD50

 

[Animorph]

I'm happy to go with 80% or so, given that I have the flexibility to withstand lower withdrawals if things go south. I wouldn't be riding it all the way to $0 of course.

 

[gcgang]

85% in Monte Carlo simulations is adequate for me. Anything above that, I'd feel like I'm eating cat food now when I could have caviar, although caviar tastes like cat food to some.

We can easily cut spending to stay at 85% should markets tumble, rather than assume more risk.

 

[Options]

Double dittos. -ERD50

Triple ditto. Caveat: plan to ER @ 60 with a run rate to 95. Despite "expert" advice, real world statistics demonstrate possibility of a single individual living to 100 to be exceptionally low.

 

[Katsmeow]

I am happy with about 95%, DH thinks anything above 80% is OK. As it happens, using a 35 year time horizon, we are at 100%. I do play with this, to see how this goes up if I increase spending or stretch the time out. We have some high expenses for the next 3 years due to 2 kids in college. Once that time is over I will reevaluate and probably set spending at the 100% level (per Firecalc) and feel I have a little flexibility if need be to go a little over that so long as I keep it so that success rate is from 95% up.

 

[Animorph]

Triple ditto. Caveat: plan to ER @ 60 with a run rate to 95. Despite "expert" advice, real world statistics demonstrate possibility of a single individual living to 100 to be exceptionally low.

My spreadsheet of life expectancy indicates a 10% chance of living to 96 for a single "average" female currently age 60 (period life table 2007 from ssa.gov) . If you are particularly healthy and don't smoke, you would do better. And for a couple (of females, since I used longer living females to be conservative), the chance of at least one spouse surviving to 96 would be roughly 19%.

So you may be using 95% success rate for 30 years but have only an 81% chance of actually fitting your life within 30 years. On the other hand, that should also give you a true failure rate (SWR fails and one of a couple lives too long) of about 1%. That's a 19% chance of outliving the 30 years, but only a 5% chance that it will coincide with running out of money before 30 years.

 

[LakeTravis]

Am I understanding the proposed scenario correctly?

If I plug the following into Firecalc:

$1M portfolio
60/40 investment portfolio
Spending level for 85% success

It reports a SWR of over 6% for an 85% success rate.

That seems high to me, I would have expected a much lower success rate at a 6% SWR.

 

[Animorph]

Am I understanding the proposed scenario correctly?

If I plug the following into Firecalc:

$1M portfolio
60/40 investment portfolio
Spending level for 85% success

It reports a SWR of over 6% for an 85% success rate.

That seems high to me, I would have expected a much lower success rate at a 6% SWR.

I get 4.33% changing just those numbers and leaving everything else at the defaults.

 

[Ed_The_Gypsy]

We do not have a lot of money. I am using 30 years and 100%. 3.5% w/d gives me this. If we can live off SS alone for 5 or 10 years, the w/d rate even goes lower.

I am not the least bit concerned about leaving an inheritance for the kids. What I am concerned about is a big health care hit. We do have supplemental Medicare, but long-term care or the Big C scare me. So, I want a fat poke for emergency purposes.

 

[pb4uski]

To age 100 and I would look for 90% or better.

 

[Major Tom]

The maximum WR that still gives 100% makes me a little jumpy, so I'm withdrawing a fair bit less than that. No doubt after a few years I'll be able to loosen up a bit but for the meantime, my ~2.5% WR (of the starting portfolio value, equivalent to ~2.1% of the current value) allows me to sleep like a babe.

That is, until about 7 in the morning every day, when my youngest cat gets hungry and starts tearing up the place at which point, even a 1% WR won't allow me to sleep

I'm using a 40 year period now (am now 50) but I am sure that the WR and time horizon will change with time.

 

[woodguy00]

Age 90 / 90% success - let's me sleep just fine.

I just don't get the 'plan to age 120 with 100% certainty with double my expected costs just in case and then cut the SWR in half cause the worst ever is yet to come, probably twice' mindset some folks have. But that's just me.

 

[sengsational]

With my personal situation, I work with 100/100%. But that is overkill for me because if the market/economy goes to cr*p, my AA has me no worse-off than most, so I figure it will be easy to cut-back expenses. If the economy is horrific, a whole lot of folks will be struggling, and I'm flexible enough to find guys running with business plans that will make money in that environment. That's another way to say that I don't think that a sunk economy will mean we won't be able to still shop at WalMart and get what we want.

 

[Major Tom]

Age 90 / 90% success - let's me sleep just fine.

I just don't get the 'plan to age 120 with 100% certainty with double my expected costs just in case and then cut the SWR in half cause the worst ever is yet to come, probably twice' mindset some folks have. But that's just me.

We/they are just being cautious

(Not sure if I'm part of the group you refer to, hence the use of two subject pronouns.)

 

[trirod]

I use 100% and 95. I know there isn't really a meaningful difference between 90% and 100% success rates, but I figure it gives me additional cushion. I don't think age makes much difference if you are planning for a long term retirement - there's not much difference between success rates using 30, 40 or 50 years.

 

[Bestwifeever]

Always 100 percent. And still worry.

 

[MichaelB]

You need to have a viable plan B. Otherwise 100%

 

[unclemick]

Worry and whining is good clean fun - possibly part of the American way.

Tongue in cheek and hindsight - especially since I never got to pick. Plan was age 63 with over $1 mil plus a pension with health care so length/longevity wasn't a consideration.

However layed off at age 49 - I used (circa 1993) age 84.6 from IRS tables for single IRA. Ballpark 35 yrs. I had a paperback workbook from Vanguard - memory 16-18 times expenses was adequate - interest rates were higher back then.

Fear can be a wonderful thing so I 'really' cut expenses tryed some temp work, nursed severance pay cash, rental income from a duplex, dividend stocks, REITs and some bond funds and let principle and IRA rollover grow.

I had no idea what my chances of success were until I came across FireCalc almost a decade later.

heh heh heh - needless to say after 20 yrs I've upped spending considerably and changed to age 91. I think it's common for many ER's to run tight til they get the hang of it. Hindsight says my being cheap didn't cheat myself out of anything I regret not doing 'younger' (in ER). I haven't run my percent success calc in a while. I do use ORP to estimate my spending range.

 

[walkinwood]

I'm looking for a bit of a survey here. How long of a planning horizon and what kind of portfolio survival rate are folks using? I've seen very conservative approaches, but I think that is likely both overkill and assuming that the various models are godlike in their ability to forecast.

Unless most of you are unlike me, you don;t have nearly enough (a la warren Buffett) to ensure that the government won't screw up your best plan anyway. On the other hand, you have enough that it is worth planning out a future.

So my personal method is to use a longevity survey, which says I'll live to 95. I'm sure hoping I make it past my "average" life expectancy.

I'm also planning on a portfolio survival rate of 85%+. Not worried about leaving any legacy, if I do great for the kids, if not, no worse than I had it.

I agree with your first paragraph. Retirement tools can give you a false sense of security. I'm also planning to 95. We're both in good health & have pretty healthy habits, so are hoping to beat the average life expectancy.

How much head-room do you have in your budget? If you just cover your essentials with very little discretionary income, you'll be courting trouble even if you have a 100% portfolio survival rate.

What sort of contingency plans do you have? work, reduce expenses, move, inheritance, Social Security? In close to 6 years of ER , we've already worked for a while and moved. Moving resulted in reduced expenses & a better quality of life for us.

 

[enjoyinglife102]

I use 100 and 100%. in practice, I also use the same withdrawal strategy that everyone else uses - what makes sense given ever changing conditions and my personal circumstances.

 

[BTravlin]

I use 90 and 100%. I doubt I'll get past my average life expectancy of 82 though since my lifestyle was very unhealthy for most of my life so this SHOULD end up being a big fudge factor for me.

 

[Options]

My spreadsheet of life expectancy indicates a 10% chance of living to 96 for a single "average" female currently age 60 (period life table 2007 from ssa.gov) . If you are particularly healthy and don't smoke, you would do better. And for a couple (of females, since I used longer living females to be conservative), the chance of at least one spouse surviving to 96 would be roughly 19%.

So you may be using 95% success rate for 30 years but have only an 81% chance of actually fitting your life within 30 years. On the other hand, that should also give you a true failure rate (SWR fails and one of a couple lives too long) of about 1%. That's a 19% chance of outliving the 30 years, but only a 5% chance that it will coincide with running out of money before 30 years.

Yes, as soon as I posted that thought I should qualify it (but got lazy). For females, it's a different story as life expectancy is longer. For married couples, too, the equation changes. Then again, you could be one of the 1 out of 2 boomers > 50 accounting for over 50% of divorce these days. That might blow a big hole in one's plans.