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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
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Poll: Success rate - 90% to 85yo, 75% to 95yo
Old 06-09-2012, 01:46 PM   #1
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Poll: Success rate - 90% to 85yo, 75% to 95yo

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 06-09-2012, 02:00 PM   #2
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Override RIP to a 95% CI and push out the date to age 100 in your (and partner's case, if it applies.) Then ask yourself the question. If you don't know how to change the CI option, just let me know.
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Old 06-09-2012, 03:05 PM   #3
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I did, and would again. 90% @ age 85 is pretty good, once you hit age 70 or so you should know if the funds will last or not and can adjust the portfolio to make sure it stays healthy and will cover your needs.
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Old 06-09-2012, 03:33 PM   #4
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75% success to age 95 isn't good enough for me. That's the success rate if everything plays out for 40+ years according to the assumptions used to make the calculation. I just don't think that's likely to happen. Call me belt and suspenders kind of guy, but I want a bigger safety net than that. If nothing else, for the unexpected expenses that are not included in these models. No way I want to be 82 and discover I'm going to run out of money and need to find a job.
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Old 06-09-2012, 04:40 PM   #5
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I'm pretty sure I won't, unless, of course, I have no other choice.
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Old 06-09-2012, 04:56 PM   #6
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75% success to age 95 isn't good enough for me. That's the success rate if everything plays out for 40+ years according to the assumptions used to make the calculation. I just don't think that's likely to happen. Call me belt and suspenders kind of guy, but I want a bigger safety net than that. If nothing else, for the unexpected expenses that are not included in these models. No way I want to be 82 and discover I'm going to run out of money and need to find a job.
+1 Personally I would be uneasy if I did not see 100% at age 95, or at least 95%. Not only are there unexpected expenses such as large scale natural disasters or other disasters, but also there is no guarantee that investment yield will follow what we have seen in past years.

But then, I am pretty cautious as some here may recall.
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Old 06-09-2012, 05:11 PM   #7
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I use age 92 for both of us, and 90% in Fido. Also played with Firecalc. I like Fido because it generates annual expenditures, taxes, withdrawals. I use the calculators to generate what maximum I can take; at this point I've pretty much RE (61) although I do some part time consulting I don't use for calcs. Our monthly spend rate is just about 50% of what the generated max after tax is, so yes, we're way conservative. We care for MIL that really restricts travel, when that chapter closes we hope to do much more travel. Maybe move too. But back to your subject, I figure we obviously have a lot of flexibility to scale back if things were really to go south. We're very fortunate in that.

As I read many folks' situations, it strikes me that a lot of people get hung up on getting to that right number. I think we need to look at this more as ranges; ranges of risk. If you're as risk averse as I am (ain't goin' back, no way) then you will wait. I'm ever reminded of a former boss who RE in early 2008. Two years later he was calling me, working again in a lesser position. That would really suck. In my case, I had to wait til 60 for the DB pension. However, I'd never expected to stay in a government career, and in keeping with my father's admonition (you need to provide for your own retirement) I was always living WAY below our means, saving ~15-20% in 30's and 40's, twice that in 50's. So now we are about 50/50 DB and investment income. And SS when we take it. We look forward to learning better how to let go of the $ in the future; otherwise the son and daughter will get to enjoy it!
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Old 06-09-2012, 05:52 PM   #8
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Would not be comfortable with that, that would be something like a 5% chance of running out of money before dying, I'd be comfortable with up to about a ~1% chance. On the other hand, I would be reasonable about plugging in my expenditures number, if my target is 3.6%, but I've actually always been spending 3% in my initial retirement years, I'd plug in my actual to calculate it. I'd also take into account SS/pensions/home equity.
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Old 06-09-2012, 08:26 PM   #9
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I'm fine with 75%. We'll adjust if something doesn't go according to plan. As Dr. Pfau has been pointing out, the chance of living that long is fairly low, so the probability that you will live to 95 and run out of money would actually be much less than 25%. Unless there is some kind of perverse correlation there, like the 2008/2009 market.
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Old 06-09-2012, 08:32 PM   #10
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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).
Will you be receiving Social Security to support some basic expenses? Could you add a SPIA or a deferred annuity to "guarantee" a certain minimum standard of living in your 80s-90s? Or could you retire now and have a certain level of portfolio "game over" in mind at which you'd start buying SPIAs?

Then you don't have to worry about FIRECalc's odds, because you'll have your minimum standard of living covered and everything else is "upside".
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Old 06-09-2012, 09:27 PM   #11
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Will you be receiving Social Security to support some basic expenses? Could you add a SPIA or a deferred annuity to "guarantee" a certain minimum standard of living in your 80s-90s? Or could you retire now and have a certain level of portfolio "game over" in mind at which you'd start buying SPIAs?

Then you don't have to worry about FIRECalc's odds, because you'll have your minimum standard of living covered and everything else is "upside".
My calcs include 75% of what SSI says I will get if I have no further income. If it were only me (w/out spouse) that amount would keep me with a roof and food but not much else. I was thinking along the same SPIA lines as you suggest (I've learned ALOT here !!!).

My job is awful and I dread getting out of bed every day for it. My plan B includes working 10 - 15 hrs a week at a minimum wage job until I were 60 to pay for greens fees.

I have no heirs so I'm willing to spend my last dollar and leave anything I have to a couple of dear to my heart charities. However, I'd rather not work to leave my charities a bigger inheritance - I'd rather spend my TIME with them while I'm alive !
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Old 06-10-2012, 08:11 AM   #12
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I might consider it IF I had no spouse or children AND was sure I never would. Do you have disability insurance while working in case something were to happen and a really good medical insurance policy? Have you budgeted medical insurance and taxes into your retirement budget?

If I thought I could handle a major catastrophe in my early returement years that might eat a significant chunk of change, then you might be be OK.

How much "cushion" in your budget? You state you think you will live until 92... how will those late year expenses get coverered?
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Old 06-10-2012, 09:30 AM   #13
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I'm a similar age (50) with a similar timeframe. I get higher success rates for those ages but still have minor kids. What gives me confidence is the home equity. I never include the value of our house and can always sell it when the money runs out...

I hear you on the dread of going to work each day. I'm right there with you.
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Old 06-10-2012, 09:35 AM   #14
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Keep in mind that your chances of actually making it to 92 are much less than 100% so the real risk of running out of money is less than what the calculators say.
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Old 06-10-2012, 10:08 AM   #15
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I did, and would again. 90% @ age 85 is pretty good, once you hit age 70 or so you should know if the funds will last or not and can adjust the portfolio to make sure it stays healthy and will cover your needs.
+1 retired 59/57 - portfolio strategy is the same (no pensions/annuities), and nothing is off the table (ie. selling residence) when it comes to adjustments. Value of home not included in retirement portfolio (our safety net).
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Old 06-10-2012, 10:18 AM   #16
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My calcs include 75% of what SSI says I will get if I have no further income. If it were only me (w/out spouse) that amount would keep me with a roof and food but not much else. I was thinking along the same SPIA lines as you suggest (I've learned ALOT here !!!).

My job is awful and I dread getting out of bed every day for it. My plan B includes working 10 - 15 hrs a week at a minimum wage job until I were 60 to pay for greens fees.
So when you say that the amount would be enough for a roof and food only, is that the amount that just SS would provide?

What initial % of a withdrawal rate are you assuming on your portfolio? How much 'excess' (fun money) is built-in to that initial withdrawal that you could, in theory, cut back if need be?

Because your job is truly that bad, it is tempting to go ahead and pull the plug to enjoy your freedom....but realize that even if you went with the minimum wage route, you will likely have a new set of "OMG! What kind of IDIOTS am I working with? Why can't these customers make up their minds!" issues to deal with.

Have you identified the exact issues you can't stand with your current position? Any way to ask for a different role in your company that would have a higher salary than min. wage, but also less stress?

Depending on how much excess you have in your withdrawals to scale back, I would lean towards working just a few more years to give a higher confidence, since I'm more in the "hell, no, I'm not going back to work" camp.
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Old 06-10-2012, 10:19 AM   #17
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I think 100% may turn out to be 90%....with new things to come.
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Old 06-10-2012, 11:42 AM   #18
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Quote:
Originally Posted by Live And Learn

My calcs include 75% of what SSI says I will get if I have no further income. If it were only me (w/out spouse) that amount would keep me with a roof and food but not much else. I was thinking along the same SPIA lines as you suggest (I've learned ALOT here !!!).

My job is awful and I dread getting out of bed every day for it. My plan B includes working 10 - 15 hrs a week at a minimum wage job until I were 60 to pay for greens fees.

I have no heirs so I'm willing to spend my last dollar and leave anything I have to a couple of dear to my heart charities. However, I'd rather not work to leave my charities a bigger inheritance - I'd rather spend my TIME with them while I'm alive !
I chose option B just to keep myself from going crazy over fear of running out of money. I found an even better gig this year that is about 15 hours but consolidated into 3 days with more $. Numbers and emotions are sometime hard to integrate in a rational way. IF you make it to 65, you have about a 30% shot to be above ground at 90 and a 4% to 100 (the fairer sex does better). A lot of dying going on in the 80s and 90s. Of course if you are one of the 30% will you even mentally know what the word money even means? Who is to say you wont find a job that you like to do with minimal hours? Just giving another angle that I chose. When I read the words "job is awful and dread getting out of bed" that is no way to live your precious healthy years of life you have left, especially when it appears you have options.
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Old 06-10-2012, 12:05 PM   #19
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I summon William Bernstein and "The Retirement Calculator From Hell, Part III"

http://www.efficientfrontier.com/ef/901/hell3.htm

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The hard part, of course, is how to interpret this kind of output. Realize that these probabilities are merely an imperfect estimate of the investment risk you are taking. In other words, they assume the continuity of financial and political institutions over the period studied. Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year). For this to be a useful estimate of your true chance of not running out of money, the "success rate" of your ambient political, economic, and military environment must be at least 97% over this 40-year period. Do you think that this is likely? Only if you are an historical illiterate (which, I’m afraid, subsumes many finance academics).

Let’s examine a small sampling of possible political, economic, and military failure modes:

The mildest scenario is that of catastrophic inflation, as experienced in Germany and Hungary in the 1920s or, more recently, in much of the developing world.

Political failures are slightly worse, since these threaten the basic human motivation to work and produce. The state, for whatever reason, can decide to confiscate your assets or, worse, society’s means of production. Anyone who judges this unlikely should turn on CNN during any G-8 or WTO conference.

Local military action. Probably the lowest-probability item on this list, but something to think about on other continents.

The Big One: Some deranged prime minister or colonel in central Russia, Pyongyang, or South Asia could let loose the four horsemen upon the planet.

So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.

History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).

A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.
In other words, "Don't worry, be happy."
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Old 06-10-2012, 08:00 PM   #20
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History's best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).
I wonder if riots & protests like "Occupy Wall Street" count as "sackings"...

Nah, I guess it'd have to look like a scene from a post-apocalyptic disaster film.
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