Is 95% Success Rate Good Enough?

I've been retired for 11 years 67 years old. Haven't run Firecalc for years. Generally just spend divs and pension. Got quite a bit more now than when I started.

For me, since my portfolio is quite different than the market as a whole, Firecalc isn't really very relevant anyway.
 
95% of what? Yes I know 5% of the analysis runs failed. But what is the analysis? historic data? monte carlo? What are the statistics of the distribution used in the model if not statistical?
And when you set your spending did you include that one might need 30 years of memory care?

In the past RIP would only show 95% maximum on the customer site. This may be different now. Fido reps could run for higher %.

The real question is how accurate are all the assumptions? The investing, tax and spending models.... even if we assume the calculations are flawless.
Will you follow your plan as you set it up?
Not sell out when the market craters?

What happens is health care has twice the inflation of living expenses? Did the model cover that?

If you modeled all possible expense accurately, you likely have a lot of margin at 95% as not all possible expenses will be needed.

The other way to look at it is at 95% success, you will likely have lots of $ left over.

I did my initial planning with life expectancy of 94. I've run it out to 115 to see what would happen. I find all this data interesting, but I still think I need to be flexible going forward. There are too many chances for error or erroneous assumptions. BTW, I did not include 30 years of memory care.
The results of these calculators are warm fuzzies... an indication that things may work out. Even the calculators are perfect, are the assumptions that were used?

Stay flexible. Look at some form of variable with draw rate... either formal method or ad hoc
 
Worse case, you go from riches to rags when you are 80.

Minneapolis' effervescent Barbara Carlson shares her cautionary riches-to-rags tale
Politician and gadfly Barbara Carlson once lived a life as large as her personality. Now she's trying to keep other women from going broke like she did.

She used to live in a stately mansion on Lake of the Isles. Now she’s in a 650-square-foot income-based apartment in a converted factory.

Her only source of income now is Social Security, half of which goes toward her rent.
Click to expand...

Minneapolis' effervescent Barbara Carlson shares her cautionary riches-to-rags tale - StarTribune.com
 
Whatever number you choose, keep in mind you are using a mathematical model as a guide for future events. More conservatism in the model = less time in retirement. So a lot depends on your confidence in the model, your input to the model, and how important getting to retirement is for you.

The scope of models are limited and the input we give them are just our best guesses. For example, the scope of models typically don't take into account unexpected life events or geopolitical upheavals which can have a dramatic effect on future success rates. The input we give the model necessarily includes guesses for things like rate of return and life expectancy, huge impacts on success rates. Also, we may actually input things we know are incorrect. For example, I use a withdrawal rate that doesn't change year after year NO MATTER WHAT THAT DOES TO OUR PORTFOLIO. However, I know I'd cut back expenses if things went south.

I think Bill Bernstein (author of "The Four Pillars of Investing") makes a good point when he says.... "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." (ref: The Retirement Calculator from Hell, Part III)

In any event, you asked if we felt that 95% is "good enough". I assume you are using Firecalc as many of us here do. I personally would have been happy with 80% success rate in Firecalc because we have good backup plan if things go south. We can cut back expenses a huge amount and still live happily. When I run cases for other people I usually use 95%. I think 95% is fine though could be quite conservative for people that can significantly cut expenses if needed.
 
I think we can really over think this question. When I read magazines like Consumer Reports I often see ratings with numbers. Usually, at the bottom somewhere is the note that says "Differences of less than X points are not significant".

So... Unless somebody can show me evidence that there is a meaningful difference in the lives of many people between 100% and 95%, I would not worry to much. Now, 100% and 75% is another matter.

OTOH, If planning for 100% let's one sleep better at night go for it. Sleep is good for health, and being healthy is a great way to avoid spending on medical care. Win-Win!
 
jabbahop said:
Good point but if you are married, isn't the chance of one of you surviving 40 years much higher than 50%?
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Sure. I don't know what that percentage is, and don't care, as I am a confirmed bachelor (but father of 3 thanks to a 15 year marriage earlier). I think intercst is also single.

The larger point is that the 95% success rate in Firecalc or whatever tool one is using, just considers how long one's stash might last. Combining that with how long one's body might last (and assuming the two are relatively independent variables), means that 95% survival rate is even somewhat safer than that.

(Also, if you're married, when one partner dies there are a host of changes that affect you financially. Among others, there is usually the loss of one Social Security check, the reduction in some expenses, and the increase in taxes (MFJ is generally more advantageous than single). I think the smart way to go if one is married is to run three analyses: both spouses alive, one spouse dies, the other spouse dies. Make sure you're OK in all three.)
 
Whisper66 said:
I think Bill Bernstein (author of "The Four Pillars of Investing") makes a good point when he says.... "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." (ref: The Retirement Calculator from Hell, Part III)
Click to expand...

This is inadvertently misquoted more often than not to suggest that an 80% prob of success is good enough, it's likely not. Just following the above quote, Bernstein goes on to say:
Mind you, this is not a call for wild abandon. The above table constrains the retiree desiring a theoretical 97% success rate (of portfolio survival) from spending more than 3% per year of the initial real amount of his nest egg. Taking the accident propensity of the species into account would allow him to spend about 4%. But if you believe that we’re about to encounter a bad returns sequence or simply wish to leave a few baubles to your heirs, you’re right back to 3% again.

So live a little, and enjoy your money, for tomorrow we may be consumed by the ghosts of Hitler, Lenin, and Attila the Hun. And at withdrawals of 3% to 4% of your nest egg, don’t spend it all in one place.
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A 3-4% withdrawal rate corresponds to a prob of success of 95% or more over 30 years. He's not advocating 80% is good enough. He's just noting that geopolitical or other seismic shifts can and have rendered market return probability, what FIRECALC and all other calculators model, moot.
 
Hey, I plugged my numbers in today and thought hard about whether 40% was good enough, so 95% sounds good to me. :)
 
I have it on good authority that 73% of internet statistics are made up.
 
ivanl3 said:
That is the number I am using as my acceptable risk threshold. Curious what others think.

Thanks.
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I think 95% is fine.

Another way to look at it is what your age will be in those few scenarios where the line breaches the $0 line and 1) how likely is it that you will still be around then and 2) will you give a damn at that age. :D
 
travelover said:
What % did Firecalc give her when she retired?
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The first few sentences of the article show that she simply overspent and never thought about her bank balance. What did people think would happen?
 
The % success chances also all depend upon you never changing your spending levels, or getting more income in the future, even if you see significant economic downturns.

My "essential" budget (covering everything I need to have my home/car/food/utilities/internet/TV/clothes/etc) comes out to ~$28k/year. So I could theoretically cut down to that level of spending if I eliminated all my "outside the house fun/enjoyment" money from my budget. I could still garden, go for walks, attend free events, watch TV/movies, play games, read books, etc all for that amount.

My "overall budget", however, is planned for needing $60k/year instead.

So while an "80% chance of success" on a $60k/year planned spending (using constant spending forever) may seem a bit low, it doesn't factor in that I will probably do some consulting work for a few months a year when I first "retire", or that if I watch the stock market drop I'll probably not spend $15k on vacations that year or I'll cut back on buying "stuff" that I probably don't need etc during such times.

Unless you're one of the "Mr Money Mustache" follower types that is planning on retiring on a 4% SWR that barely covers a "minimalist spending" lifestyle, I'd say that a 95% success rate, when adjusted for how most people would actually behave if things went poorly for a while, is probably more like a "you'll be absolutely fine unless something close to world-ending or other similar catastrophic scenario occurs". I'd say for most FIRE people, 80% is probably plenty, and 90% is practically a guarantee of success without a future calamity that would probably screw over the 95% success rate plan as well.
 
This is an old thread. But playing with Firecalc, using different assumptions on spending and when to pay off my mortgage and years of retirement (30, 35, 40 years), I get a range of 96% - 100%. So, just wanted to revive this thread :)
I want to throw a question to the forum - aside from how you feel about 95% - 100% success rate, what is your favorite length of retirement - 30 years, 35 years, 40 years, or more. I use 34 - 39 years (assuming I retire at 56) and that gets me to 90-95 years old. I feel confident about a 99% success factor, with 1% chance of failure. I suppose 100% success is the ideal factor, but don't know if you can really survive 40 years of retirement. So, 100% for 35 years of retirement is ok, and 99% for 40 years of retirement works for me.
 
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I didn't plan for 100%, as being able to retire snuck up on me. However, once I used the calculators, I did want it to be at 100%. I use 92 yo as my longevity date.
One poster in the past mentioned that with 95% success rate, one is failing the worst 6 times in history. Although the past doesn't indicate what comes in the future, wouldn't one want to theoretically survive the worst examples in history (i.e. 1929, 1937, 1966, etc).
 
I plan for living to 100, which is highly likely to be longer than I live unless huge strides in medicine are made, and my length of retirement is always whatever gets me to that age, so 54 years in my current calcs.

Which is pretty much why I have set a target withdrawal rate of 3%, because I want no historical failures. This means I am almost certainly vastly over-saving, but I'd rather be safe than sorry, which is a pretty common position on here. :)
 
I think 95% is fine... in fact, the 4% rule was based on a 95% success rate if I recall correctly. The way I figure it if one has a 95% success ratio and comes close to running out of money, there will be a whole lot of people suffering a lot more.
 
pb4uski said:
I think 95% is fine... in fact, the 4% rule was based on a 95% success rate if I recall correctly. The way I figure it if one has a 95% success ratio and comes close to running out of money, there will be a whole lot of people suffering a lot more.
Click to expand...

Bolded - correct
 
4% is 95% success rate and 30 year retirement window. So not nearly conservative for my comfort enough if you are hoping to retire in your 30s or 40s and expect to die in your late 90s.
 
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