Mortality and the perfect retirement calculator

[Fred123]

In my quixotic quest to find the perfect retirement calculator, I have often wondered why all of the calculators I have encountered require that you guess how long you will live. There are mortality tables available (CDC/SSA) where you an readily find this information (probabilities of dying every year based on age), and it wouldn't seem to be that difficult to incorporate this info into a calculator like FIRECALC. And this would give a more scientific estimate of the probability of running out of money by the time you kick the bucket.

I've played around a bit with this, and it seems to give more reassuring results since you don't have to assume an unlikely long estimated lifespan. But I'm too lazy (that's why I want to retire early!) to follow through, so I was wondering if anyone knows of calculators that already do this?

 

[bo_knows]

I think that something like that could be incorporated into a retirement calculator, but a lot of people who use something like firecalc are looking for the worst case scenarios. Worst case scenario is outliving your portfolio for a lot of folks.

 

[Which Roger]

Also, mortality tables do not take into account your health, longevity (or lack thereof) of parents and grandparents, etc. And along the lines of the comment by bo_knows, a more conservative person would want to input a longer life expectancy than a risk taker.

 

[Chuckanut]

Worst case scenario is outliving your portfolio for a lot of folks.

My worst case scenario would be passing at a ripe old age, with a ton of money and having skipped and avoided enjoying my ER, full of regrets for what I didn't do, for not helping others I could have helped, and generally living in fear. Very close behind is the next worse case which would be to run out of money many years before I run out of time.

Figuring out when and how much to spend is the issue for most of us. Are we having fun yet?

 

[NW-Bound]

Also, mortality tables do not take into account your health, longevity (or lack thereof) of parents and grandparents, etc. And along the lines of the comment by bo_knows, a more conservative person would want to input a longer life expectancy than a risk taker.

or more optimistic... We all like to think we will live to 100 and beyond. The fact is that so few of us will. And medical advances often simply extend one's life to be bed-ridden in misery. Money does not matter much then.

 

[Bikerdude]

Run this first, then run FireCalc.

https://www.livingto100.com/

 

[Khufu]

How would you use mortality tables exactly? We all know that very few people will live into extreme old age. The question is how do you pay the cost of living if you happen to be one of them. Similarly, very few houses burn done, but most homeowners have fire insurance because being unlucky would ruin them. It's not adequate to plan for the average case. You have to plan for the worst case or, perhaps, the likely worst case.

 

[photoguy]

,I have often wondered why all of the calculators I have encountered require that you guess how long you will live.

Maybe to make the assumption explicit for the users of the program?

 

[ABQ2015]

Not me, I have no desire to live to 100 or longer. Unless medical science can greatly improve the quality of life in old age, I prefer to die in my mid 80's. But I plan for age 95 in retirement calculators.

 

[Fred123]

How would you use mortality tables exactly? We all know that very few people will live into extreme old age. The question is how do you pay the cost of living if you happen to be one of them. Similarly, very few houses burn done, but most homeowners have fire insurance because being unlucky would ruin them. It's not adequate to plan for the average case. You have to plan for the worst case or, perhaps, the likely worst case.

OK, based on some of the comments I should elaborate a bit. There really are two big considerations in a retirement calculator: how long you will live, and how your portfolio will evolve over time. All of the retirement calculators that I'm aware of focus on the probability distribution of the second consideration and ignore the probability distribution of the first. This seems like a mistake to me.

Here's an example (a bit contrived but illustrative): suppose you are 60 years, and you withdraw 4% of the initial value of your portfolio per year, and, to keep things simple, the returns on your portfolio are exactly the same as inflation. After 25 years, you will be out of money. If you run this through a calculator, and you use 25 years as the time period for the calculator, it will come up with a 100% chance of failing. But say the mortality tables tell you that have a 40% chance of living to be 85 years or older. Then a better guess at the chance of running out of money is 40%, not 100%, since you have a 60% chance of dying before your portfolio is exhausted.

I believe that you would calculate this by running your retirement calculator for the maximum number of years from your age to the end of the mortality table (about 100 years old) and instead of counting up all of the failures and dividing by the number of simulations to get the failure rate, you would weight each failure by the probability of surviving to the age of the failure and then divide by the number of simulations. Does that sound correct?

 

[NW-Bound]

We all know Japan is one of the leading nations in longevity. Here's a story about a 96-yr old woman, one of 1/4 million Japanese on feeding tube. The story is told by her granddaughter.

Grandma on Feeding Tube Without Consent Symbolizes Japan - Bloomberg

Excerpts:

Of the quarter-million patients in Japan estimated to be fed through a tube like Grandma’s, more than 90 percent are bedbound, according to the survey by Japan’s hospital association. They are, on average, 81 years old and nourished via tube for 2.3 years.

When it comes to death, Japan doesn’t score so well. In 2010, the Economist Intelligence Unit ranked 40 developed and developing countries on “quality of death,” based on criteria such as end-of-life cost and care and, more broadly, how well societies faced issues of death. Japan was 23.​

I have been thinking that if I am broke, perhaps they will let me go with dignity by palliative care.

 

[comicbookgujy]

My worst case scenario would be passing at a ripe old age, with a ton of money and having skipped and avoided enjoying my ER, full of regrets for what I didn't do, for not helping others I could have helped, and generally living in fear. Very close behind is the next worse case which would be to run out of money many years before I run out of time.

Figuring out when and how much to spend is the issue for most of us. Are we having fun yet?

Same here. My worse fear is dying with too much money...followed by dying without enough. I save about $40k a year, but I don't go overboard. I spend about $20k to $30k for crap and experience I don't need, but want to because I don't want to die without enjoying my hard work

 

[NW-Bound]

Same here. My worse fear is dying with too much money...followed by dying without enough. I save about $40k a year, but I don't go overboard. I spend about $20k to $30k for crap and experience I don't need, but want to because I don't want to die without enjoying my hard work

My worst fear is ... dying.

There's no material thing that I regret. On my deathbed, I will not regret that I have not driven a Ferrari, or climbed Kilimanjaro, etc... I might regret if I mistreated someone, or hurt someone who did not deserve it. Other than that, it does not matter.

 

[pb4uski]

In my quixotic quest to find the perfect retirement calculator, I have often wondered why all of the calculators I have encountered require that you guess how long you will live. ....

Very simple. How long you might live varies significantly depending on your personal factors. That is why life insurance companies underwrite large life insurance policies. Secondly, the authors of the program probably don't want to take responsibility for that assumption.

That said, my concern would be what happens if I end up at the right tail of the distribution and end up having to eat cat food or move in with my children so I plan to age 100.

If I die nearer to the average then my children will benefit.

 

[Onward]

Same here. My worse fear is dying with too much money...followed by dying without enough.

This is hard for me to believe. How can you fear dying comfortable more than dying indigent?

Unless ... your WR is so low that there is absolutely no possibility of your running out of $$?

 

[Independent]

In my quixotic quest to find the perfect retirement calculator, I have often wondered why all of the calculators I have encountered require that you guess how long you will live. There are mortality tables available (CDC/SSA) where you an readily find this information (probabilities of dying every year based on age), and it wouldn't seem to be that difficult to incorporate this info into a calculator like FIRECALC. And this would give a more scientific estimate of the probability of running out of money by the time you kick the bucket.

I've played around a bit with this, and it seems to give more reassuring results since you don't have to assume an unlikely long estimated lifespan. But I'm too lazy (that's why I want to retire early!) to follow through, so I was wondering if anyone knows of calculators that already do this?

I agree. Nobody here would rely on a calculator that uses a single investment return, we all want probability distributions. Yet, people seem content with a fixed date of death.

I w*rked on a calculator for my "diversified financial management" employer about 10 years ago that included random dates of death. AFAIK, they are still using it, but you have to deal with commission oriented sales people to get at it.

As you said, it's relatively easy to add mortality to an existing calculator. Any mortality table produces a distribution of dates of death (e.g. x% chance of dying at age 70, y% chance of dying at 71, z% at 72, etc.). Just weight the failure rates at specific years by the probabilities of dying in those years.

There's a complication for couples, if you assume that income and/or spending changes on the first death. That's a detail that most people here seem to ignore.

Yes, it means choosing a mortality table. That's similar to choosing some model of investment returns. Nothing is perfect, but it's better than just punting.

 

[fh2000]

Run this first, then run FireCalc.

https://www.livingto100.com/

Thanks for providing the link. I am 57 now. My calculated age is 87 from this site. That fits well with my expectation.

 

[NW-Bound]

Talk about worrying that one dies leaving a lot of money behind or having regrets, I have told this story which is worth repeating.

As a travel lover, I once talked to an older colleague that on my deathbed I wpould not want to regret not travelling more. He shook his head and replied that many dying people just wished they would die so the pain would stop.

That shook me up, and I still remember to this day.

 

[ERD50]

...

Here's an example (a bit contrived but illustrative): suppose you are 60 years, and you withdraw 4% of the initial value of your portfolio per year, and, to keep things simple, the returns on your portfolio are exactly the same as inflation. After 25 years, you will be out of money. If you run this through a calculator, and you use 25 years as the time period for the calculator, it will come up with a 100% chance of failing. But say the mortality tables tell you that have a 40% chance of living to be 85 years or older. Then a better guess at the chance of running out of money is 40%, not 100%, since you have a 60% chance of dying before your portfolio is exhausted. ....

Thanks, now I have a better idea of what you are talking about, and I can see the logic of it.

Like others, I'm interested in the worst case. But to get at what you are looking for, I guess what I do is either eyeball the failures for the year they fail, or do multiple runs, extending the time period to see where the failures occur.

I'm not sure that trying to merge that into one number would be that helpful. It starts to sound too much like that old saw of the 6 foot tall statistician drowning in a pool of average 4 foot depth. JMO.

-ERD50

 

[RunningBum]

OK, based on some of the comments I should elaborate a bit. There really are two big considerations in a retirement calculator: how long you will live, and how your portfolio will evolve over time. All of the retirement calculators that I'm aware of focus on the probability distribution of the second consideration and ignore the probability distribution of the first. This seems like a mistake to me.

Here's an example (a bit contrived but illustrative): suppose you are 60 years, and you withdraw 4% of the initial value of your portfolio per year, and, to keep things simple, the returns on your portfolio are exactly the same as inflation. After 25 years, you will be out of money. If you run this through a calculator, and you use 25 years as the time period for the calculator, it will come up with a 100% chance of failing. But say the mortality tables tell you that have a 40% chance of living to be 85 years or older. Then a better guess at the chance of running out of money is 40%, not 100%, since you have a 60% chance of dying before your portfolio is exhausted.

I believe that you would calculate this by running your retirement calculator for the maximum number of years from your age to the end of the mortality table (about 100 years old) and instead of counting up all of the failures and dividing by the number of simulations to get the failure rate, you would weight each failure by the probability of surviving to the age of the failure and then divide by the number of simulations. Does that sound correct?

OK, I get you. If there is a small chance you will live to be 95, and a small chance that your portfolio will not last if you make it to be 95, there would be a very small chance of both events actually happening to you. Suppose each is a 5% chance, that means your plan actually has a 1/4 of 1% chance of failing--or 99.75% chance of succeeding, rather than 95% as many look at it.

This is pretty much a new perspective for me so I'm not ready to say how I react to this for my own situation. I will say that everyone needs to make their own decision, and just because some will work a couple more years to get to this point or beyond doesn't mean you have to if you're comfortable with your own odds. My only comment about that is that if your plan fails, don't expect me to bail you out.

A further note on that last point, if you had a low % chance of failure and yet it does fail, there's a pretty reasonable chance that your country's economy has gone pretty bad. This makes it less likely that there will be a bailout for you. In the US, for example, a bad economy may not only mean your own portfolio fails, but your social security benefits are also cut. And any family you may have been counting on for emergency support may be limited in what they can do for you, likely having their own financial issues in a poor economy.

Final note, running out of money is a far, far, worse scenario for me than dying with too much money. Repeat "far" about 20 more times, or more.

 

[Independent]

Thanks, now I have a better idea of what you are talking about, and I can see the logic of it.

Like others, I'm interested in the worst case. But to get at what you are looking for, I guess what I do is either eyeball the failures for the year they fail, or do multiple runs, extending the time period to see where the failures occur.

I'm not sure that trying to merge that into one number would be that helpful. It starts to sound too much like that old saw of the 6 foot tall statistician drowning in a pool of average 4 foot depth. JMO.

-ERD50

Maybe we're imagining different things. With a traditional SWR, we say:

"Given this distribution of investment returns, and a real annual withdrawal of ___, I have a 5% chance of running out of money before 30 years have elapsed."

Instead of saying that, adding mortality probabilities means that we would say:

"Given this distribution of investment returns, and this distribution of possible dates of death, and a real annual withdrawal of ___, I have a 5% chance of running out of money before I die."

The second statement is more meaningful to me.

 

[Fred123]

Maybe we're imagining different things. With a traditional SWR, we say:

"Given this distribution of investment returns, and a real annual withdrawal of ___, I have a 5% chance of running out of money before 30 years have elapsed."

Instead of saying that, adding mortality probabilities means that we would say:

"Given this distribution of investment returns, and this distribution of possible dates of death, and a real annual withdrawal of ___, I have a 5% chance of running out of money before I die."

The second statement is more meaningful to me.

Thank you for phrasing it so much better than I did! That's exactly what I was trying to say. I think most people on this board are trying to figure out the solution to the second statement, not the first.

 

[NW-Bound]

I think most people on this board are trying to figure out the solution to the second statement, not the first.

I am not so sure.

Most people seem to say "Of course I will live for another 30 years, or even 50 years". So the two problem statements are synonymous in their mind.

Of course I am talking about geezers who are already in the mid-50s or 60s and above, not the youngun's who can afford to retire in their 30s and 40s.

 

[bmcgonig]

I am not so sure.

Most people seem to say "Of course I will live for another 30 years, or even 50 years". So the two problem statements are synonymous in their mind.

Of course I am talking about geezers who are already in the mid-50s or 60s and above, not the youngun's who can afford to retire in their 30s and 40s.

I'm not so sure either. The reason we all bandy 4% or less about is because that is almost the worst case scenario. I apply the same to my life expectancy. The worst case is I live to 100 or so. My mother is 96 alive and kicking. Life expectancy is increasing every decade. The failure case is so dire that probabilities of dying are unimportant to me. I really want to plan for the <1%

 

[harley]

My worst case scenario would be passing at a ripe old age, with a ton of money and having skipped and avoided enjoying my ER, full of regrets for what I didn't do, for not helping others I could have helped, and generally living in fear. Very close behind is the next worse case which would be to run out of money many years before I run out of time.

Figuring out when and how much to spend is the issue for most of us. Are we having fun yet?

Same here. My worse fear is dying with too much money...followed by dying without enough. I save about $40k a year, but I don't go overboard. I spend about $20k to $30k for crap and experience I don't need, but want to because I don't want to die without enjoying my hard work

Seriously? You would prefer living your last few years in a crappy Medicaid-paid nursing home cared for by minimum wage or below caregivers, suffering bedsores and neglect, just so you can say "damn! Sure glad I spent all my money before I died."?

Not me. I want top quality pain meds, a beautiful and well trained and well paid young nurse, and a golden bedpan (or at least a Teflon catheter). If I end up leaving some money to my daughter, grandkids, or even a charity, so it goes. I'm having enough fun in retirement already without worrying about whether I'm going to bounce my last check.