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View Poll Results: Would you pull the plug with portfolio success rate of 90% to 85 and 75% to 95 years
Yes 68 43.04%
No 90 56.96%
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Old 06-10-2012, 08:02 PM   #21
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The best advice I got on this was from a co-worker. He said that you want a near-100% probability of covering your "basic" expenses. You can live with a much lower probability for "target" expenses.

So I'm targeting $70k, but, I haven't "failed" as long as I can spend $40k.

I need a plan where I can start out at $70k, but if things go badly I can drop my spending to $40k and live out my life.

The obvious candidate for the $40k is Social Security. If we defer till 70, we'll cover our basic spending on SS alone.
But, due to the political risks with SS, we should plan on some other amount on top of that, probably a fund that could be converted to a private SPIA at some higher age.
After that, the rest of the money is gravy. We might feel okay with a 50% probability for it.

(And, I'll agree with MP, anything like 100% has to be understood as a modeled basis only, with "no collapse of the economic system as we know it".)
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Old 06-10-2012, 08:16 PM   #22
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90% based on actual numbers does not work for me - I wouldn't be able to sleep at night knowing there was a 10% chance of being old and broke (or, at least, living in much reduced circumstances).

90% based on my over engineered budget that has room to make cuts that wouldn't affect us too much I can live with.

The fact that there is no SS, pension etc to put a floor under my post-retirement finances is relevant here.
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Old 06-11-2012, 01:44 AM   #23
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I answered "no". My planning scenario is 100% at age 95, nothing more and nothing less. I would not be able to sleep well with a 75% chance of my portfolio lasting to 95.
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Originally Posted by Live And Learn View Post
Would you (or did you) pull the plug if a variety of retirement calculators (including Fido RIP and Firecalc) gave you a 90% chance of your portfolio lasting to 85 and 75% chance of your portfolio lasting to 95%. I'm thinking likey age of death for me is 92 (currently 49 and planning to retire at 51 in 18 months).
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Old 06-11-2012, 08:35 AM   #24
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Not for me. DW is 5 years younger than me and we would like to leave an inheritance to our kids.
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Old 06-11-2012, 09:30 AM   #25
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Oddly, when I run my Firecalc scenarios, I get a 94.9% chance of success through 85, 98.9% chance of making it through 95, and 98.8% chance of making it through the age of 100.

In my case, I'm guessing those differences are pretty inconsequential, and just a result of the fact that the longer the retirement, the fewer scenarios Firecalc has to run.

If I had a 95% chance of making it through 85, but that fell off to 75% by age 95, I think I'd go ahead and do it! I should add though, that I'm single, no kids, so there's nobody depending on me. I might feel otherwise if I had people depending on me.
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Old 06-11-2012, 03:21 PM   #26
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This is very helpful ! More great questions and points to ponder.

Excluding about 280k from portfolio to self fund Long Term Care (100k), Bucket List Vacations (60k), 2 new roofs (current home before I sell and new home after I buy) 40K, two replacement used cars (25k), 3 new AC units (40k), realtor fee to sell current home (15k).

Also excludes value of next (smaller) home (which would fund about 1.5 - 2 yrs expenses at desired spend rate). Also assuming that SS will only pay out 65% of what it says I will be eligible for if I stop work today.

If desperate times came to desperate measures I could cut 7K annually from my spending. At that level I get 98% success to age 100 using Firecalc. However that assumes I start the reduced spending now. If I reduce by 5k staring at age 80 I get 86% to age 100.
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Old 06-12-2012, 02:07 PM   #27
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90% based on actual numbers does not work for me - I wouldn't be able to sleep at night knowing there was a 10% chance of being old and broke (or, at least, living in much reduced circumstances).
The thing is that there isn't a 10% chance of being old and broke. Let's say there was a 10% chance of being broke at age 95. That isn't a 10% chance of being old and broke because you don't have a 100% chance to get to 95.

Let's put it this way. How would you (you meaning anyone on this thread not trainee investor specifically) feel about a plan that was 100% at age 95 and was 90% at age 100? If you say that would be fine because I doubt I'll live to age 100 then I wonder if it would be OK to be 95% at, say, age 98.

To me it seems reasonable to have different levels of certainty for different ages since the probability of reaching different ages varies. I don't personally plan for high success for age 100 because it is extremely unlikely I will live that long. I also don't plan for success at 110 or 120. Do I plan for success at age 90 or 95? Yes. But, it also seems to me that while I might want a 100% success rate for getting to age 85, that I might accept 95% for 90 and maybe 90% for 95.
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Old 06-13-2012, 11:15 AM   #28
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The thing is that there isn't a 10% chance of being old and broke. Let's say there was a 10% chance of being broke at age 95. That isn't a 10% chance of being old and broke because you don't have a 100% chance to get to 95.

Let's put it this way. How would you (you meaning anyone on this thread not trainee investor specifically) feel about a plan that was 100% at age 95 and was 90% at age 100? If you say that would be fine because I doubt I'll live to age 100 then I wonder if it would be OK to be 95% at, say, age 98.

To me it seems reasonable to have different levels of certainty for different ages since the probability of reaching different ages varies. I don't personally plan for high success for age 100 because it is extremely unlikely I will live that long. I also don't plan for success at 110 or 120. Do I plan for success at age 90 or 95? Yes. But, it also seems to me that while I might want a 100% success rate for getting to age 85, that I might accept 95% for 90 and maybe 90% for 95.
I think you are going in the right direction. We really care about the probability of going broke before we die, not the probability of going broke at an arbitrary fixed date.

I would do the math this way for a 60 year old. Suppose
d30 = chance of living 30 years but dying before you have lived 31 years.
B30 = chance of being broke by the time you've lived 30 years.

Then the chance of dying broke is: d1*B1 + d2*B2 + d3*B3 ....

When we run Firecalc, it turns out that the B's are zero for quite a while. So maybe the first 25 terms are zero because B is zero.

If we look at a mortality table, we'll see that the d's start very low, increase until they are peaking somewhere in the range of life expectancy, and then decrease. So the terms in the tail are very small because d is very small.

When you multiply it out, you find that a 5% chance of going broke by age 90 is really a 2% (making up a number) chance of going broke before you die.
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Old 06-13-2012, 01:25 PM   #29
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If you ask your parents and grandparents ~30 years ago, what age they thought they would live to, they most likely said 70's. My paternal grandmother died in her early 90's, my father had quadruple bypass at 57 and live another 20+ years and his brother also was in poor health since his 50's but live into his early 80's. My maternal grandmother is still alive and well in her mid 90's. If they did not have family support, both financial and physically, not one would have any quality of life. They were lucky they had family that had the means and desire to care for them because not one of them died with any money. Unfortunately, a lot of our friends aging parents and relatives don't have much if any retirement funds and I have seen the resentment and fights among the siblings about what constitute as fair share. My mother had cancer and retired about 10 years earlier than planned but my brother and I actually did a financial plan for her 20+ years ago and she has done a great job so we don't have to worry about her and our grandmother financially. My grandmother have 3 other living children but none of them had ever given her more than an occassional "gift". If our mother passed on, then my brother and I know we would be the one providing for my grandmother and not any of our uncles. I do not want longevity to be a curse or ever be at the mercy of relatives or charity of others so if I died earlier than the calculated plan then my relatives and a few charities will get a nice windfall.
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Old 06-13-2012, 01:48 PM   #30
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I do not want longevity to be a curse or ever be at the mercy of relatives or charity of others so if I died earlier than the calculated plan then my relatives and a few charities will get a nice windfall.
Agreed. The thing is, though, that everyone draws a line somewhere. Some people want to plan for 100% success chance at 95. No problem with that. I seem to recall seeing someone who wanted a 100% success chance at 100. Fine.

But...how many people feel they have to plan for 100% chance at 120? Not many, I would wager.

And, let's say someone says I want to plan for 100% success chance at 95. OK. What if there plan then has 95% success rate at 96. Is that OK or does it need to have 99% at 96?

Maybe someone would say I need 100% at 90, but 95% at 95 is OK and 90% at 100 is fine.
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Old 06-13-2012, 02:50 PM   #31
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I'd look at it this way...

If I expected to live to 92, that means I'm looking at a 42 year (or 504 month) retirement with a 75% success rate to my estimated age under what I deem comfortable today.

Next I would find out how much that percentage increases for every month longer I work. The cutoff for me would be when the two percentages cross. That is... the percentage of retirement I lose compared to the percentage of my money not making it to 92 within my comfort level I've projected to spend.

Example: If the numbers showed that giving up 3% of my retirement (about 15 months) brings my success rate to 97% (up from 75%)... I'd be willing to do that trade. I'd also do 4% more if that brought my success rate up to 96%...

Some will say... "what if you died suddenly at 55, and just lost 33% of your retirement." To that I would say... you never know when you'll die, so playing the odds is your best bet. If 92 is your best guess... plan to get there comfortably, don't sell yourself short 25% of the time.

Others will say... they want 100% to every age possible. IMO, there is no such thing as 100%. You could be 90 years old with $5,000,000 in the bank and a percentage with a bunch of 9's after 99%. If this country collapses, or the world economy as a whole... everyone is SOL including you. Don't waste your life working through your retirement years to account for a 1 in 1,000 shot of not making it.

So there is no magic answer for everyone, its what you are comfortable with. The equation above is what I would use to meet at a happy middle. Maybe it'll help you, maybe it won't

Either way... looks like you're in for a very long and happy retirement! Congrats.
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Old 06-13-2012, 02:59 PM   #32
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Others will say... "what if you died suddenly at 55, and just lost 33% of your retirement."
My conserative answer would be "I'd rather die early with money than live longer without it"...
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Old 06-13-2012, 03:09 PM   #33
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I'll also mention that people who die younger than expected don't tend to care that they lost out on their retirement. They are too busy being dead...

Alternatively, people who run out of money are very much aware that they didn't make it, and care a great deal about how much they miscalculated what they needed and how long they'd live.

Because of this, I would err slightly on the side of of caution (maybe bring my percentage up another 1-2%)... just not to the extreme.

Edit: looks like rescueme beat me to the point
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Old 06-13-2012, 03:28 PM   #34
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We each have our own life expectancy as well, if you can trust the sources. So I'm supposed to live to (on average for those like me) 92, longer than average for the entire population. Makes that 95 SWR more important.
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Old 06-13-2012, 04:31 PM   #35
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This whole problem can be finessed by adopting a dividend strategy. When your dividend income is reasonably above your expenses, you are good forever.

Ha
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Old 06-13-2012, 04:56 PM   #36
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This whole problem can be finessed by adopting a dividend strategy. When your dividend income is reasonably above your expenses, you are good forever.

Ha
Sounds good to me, as long as dividends don't fall off a cliff. So far I haven't seen that happening too much.

Besides, since when are our needs and wants infinite, so that we have to spend every last cent we can beg, borrow, or steal? To me there is something almost pathological about not being able to draw the line in the sand, and say, "Enough! I have all that I will ever want or need. Now, to get on to the business of living happily for the rest of my life."
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Old 06-13-2012, 05:08 PM   #37
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Sounds good to me, as long as dividends don't fall off a cliff. So far I haven't seen that happening too much.
IIRC total S&P dividends from 1950 - 2010 run ahead of inflation and only fell two or three times. If the dividend rate of a broad index was equal to my withdrawal rate and I had an emergency fund on the side I would do it.

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Besides, since when are our needs and wants infinite, so that we have to spend every last cent we can beg, borrow, or steal? To me there is something almost pathological about not being able to draw the line in the sand, and say, "Enough! I have all that I will ever want or need. Now, to get on to the business of living happily for the rest of my life."
Some people are just more aware of what they don't have than what they do have or need. I think it is part genetic and part cultural / learned.
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Old 06-13-2012, 11:55 PM   #38
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This whole problem can be finessed by adopting a dividend strategy. When your dividend income is reasonably above your expenses, you are good forever.

Ha
+1

Dividends and rents.
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Old 06-17-2012, 05:10 PM   #39
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This whole problem can be finessed by adopting a dividend strategy. When your dividend income is reasonably above your expenses, you are good forever.

Ha
That is pretty much my plan along with my pension. At some point while alive, I would probably give some to my daughter though. Keep in mind that your plan can evolve over the long period of retirement.
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Old 06-17-2012, 07:11 PM   #40
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Besides, since when are our needs and wants infinite, so that we have to spend every last cent we can beg, borrow, or steal? To me there is something almost pathological about not being able to draw the line in the sand, and say, "Enough! I have all that I will ever want or need. Now, to get on to the business of living happily for the rest of my life."
Well said and to me the essence of FI/ER in a nutshell

Thanks!
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