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planning assumptions
Old 02-05-2014, 12:54 PM   #1
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planning assumptions

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.
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Old 02-05-2014, 01:21 PM   #2
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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.
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Old 02-05-2014, 01:28 PM   #3
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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.
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Old 02-05-2014, 01:29 PM   #4
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Ditto. Anything less than 100% and I would not be able to sleep.
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Old 02-05-2014, 03:00 PM   #5
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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.
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Old 02-05-2014, 03:09 PM   #6
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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.
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Old 02-05-2014, 03:21 PM   #7
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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.
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Old 02-05-2014, 04:54 PM   #8
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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.
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Old 02-05-2014, 08:45 PM   #9
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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.
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Old 02-05-2014, 08:57 PM   #10
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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.
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Old 02-05-2014, 09:03 PM   #11
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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.
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Old 02-05-2014, 09:33 PM   #12
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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.
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Old 02-06-2014, 01:19 AM   #13
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To age 100 and I would look for 90% or better.
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Old 02-06-2014, 02:23 AM   #14
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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.
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Old 02-06-2014, 10:15 AM   #15
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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.
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Old 02-06-2014, 10:29 AM   #16
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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.
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Old 02-06-2014, 10:53 AM   #17
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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.)
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Old 02-06-2014, 11:16 AM   #18
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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.
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Old 02-06-2014, 11:32 AM   #19
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Always 100 percent. And still worry.
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Old 02-06-2014, 11:40 AM   #20
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You need to have a viable plan B. Otherwise 100%
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