What are reasonable pessimistic assumptions

[Car-Guy]

Assuming nothing "really catastrophic" happens to our economy in the next 20 years: ex. I mean the US is going to hit the debt ceiling "again" this week.

a) Inflation will be 0.2% higher than current inflation swaps implies Or more
b) Medicare will kick in at 67 instead of 65 Good chance that could happen
c) SS eligibility age will move by 2 years so my DW and I will start taking SS at age 72 and not 70 Good chance that could happen too
d) SS will pay out at around 60% of what is promised No
e) 100% of SS instead of 85% will be taxed Yes
d) A 60/40 portfolio will return 4% nominal terms every year No,
f) All medical costs (insurance premiums etc) will grow 1.8% more than the assumed inflation At least
g) My son's college costs will grow by 1.5% faster than inflation Sounds about right

 

[Jimonlimon]

To the original "Reasonable Pessimistic Assumptions"...

I think it's unReasonable to Assume that the Pessimistic predictions will all stack up. That's the advantage of using a Monte Carlo type simulation. Over the long haul if inflation is higher then investment returns will probably be higher. If you assume a big market crash then short term inflation will probably be low for a while then investment returns will probably be high for a while.

I'm a poorly educated amateur... Highly educated professionals don't have great track records in predictions so mine are unlikely to be correct either.

I have four versions of my planning spreadsheet including:

• Fairly pessimistic (30% market drop right after retirement, then 4% inflation and 4.5% market growth, SS all taxable);
• Conservatively realistic (20% drop, then 3.5% inflation and 5% growth, SS all taxable);
• Cautiously optimistic (15% drop, then 3% inflation and 5.5% growth, SS still 85% taxable);
• Moderately optimistic (10% drop, then 2.75% inflation and 5.75% growth, SS still 85% taxable).

I'm trying to come up with a spending plan that works for the more pessimistic outlook with "rules" to determine how much extra to spend if we end up with the more optimistic situation.

 

[Alex The Great]

Did you include a scenario when federal income tax is eliminated, and there is a federal sales tax 23% on everybody on top of existing state and local taxes?

 

[Car-Guy]

Did you include a scenario when federal income tax is eliminated, and there is a federal sales tax 23% on everybody on top of existing state and local taxes?

Would that be the same as a consumption tax?

 

[OldShooter]

All plenty pessimistic. Exceptionally unlikely that they would all happen together.

Yes. Much of my career was in project management and I also did some teaching of PM. What you are talking about here are "known unknowns" and it is a good exercise. But @DrRoy is right in pointing out that all the bad things won't happen at once. Some are correlated to the extent that if you get one you also get the other, but looking at correlations is part of the exercise.

The more likely negative event is some kind of unknown unknown; one of Nassim Taleb's black swans. By definition you cannot plan for these ahead of time except to value flexibility and simplicity over everything else. If you're a reader, you might try sampling some of his books (like "The Black Swan.") He can be kind of a lunatic but he has some very good insights to offer.

 

[yhoomajor]

If we're talking about pessimistic scenarios, one I would point out is "Democracy". Where bottom 50% on wealth scale vote to take (tax) the wealth from those 51-95% on wealth scale. Top 5% will find loop holes in the system. But most upper middle-class folks will be stuck paying for the wealth re-distribution in some form or fashion. It's already happening in subtle ways in very slow motion.

 

[NW-Bound]

Reasonable pessimistic assumptions?

Become plant food at age 70! This maybe more likely than the other items on your list.

A little of the glass is half empty or full thing��

Im a few years older than the OP and still grinding away so what do I know!

Man, I could have been done in at 55, right after I decided to get permanently off work to spend the rest of my life as a "life of Riley". Dang, it could have been a short period. I might not even make it to the point to draw my 401 penalty-free.

With my luck, I am cured and now delaying my SS till 70. Heh heh heh...

Having dodged a bullet, no make it a bomb, I am afraid of nothing no more.

 

[Bamaman]

It doesn't hurt to be realistic--and I consider you to be that more than pessimistic.

But don't think that you'll be retiring at age 50 if you have such substantial net worth. You're just going to be working at maintaining your personal investments.

All investment companies sell information directly or indirectly to various marketing companies. Just opening the marketing info coming in the mail and reading things of importance is half a job. It's also time consuming to watch the online articles on investing.

What's hard in retirement is spending less and keeping up the past's rate of saving. That's especially true when there are teenagers in the house.

 

[Out-to-Lunch]

If we're talking about pessimistic scenarios, one I would point out is "Democracy".

I am more worried about the LACK of democracy: The Retirement Calculator from Hell, Part III

 

[marko]

Phew! This sure is becoming a depressing thread!

If anything, it should encourage the OMY crowd to RE now! Why wait? This is the best its gonna be. Get while the gettin's good.

 

[MichaelB]

Phew! This sure is becoming a depressing thread.

If we look back over the past century there have always been long lists of fears and worries about the future. Things that could go wrong or end badly. And yet, over the same period, more people have left poverty and improved their standard of living than any other time in human history. Same is true for the past 50 years and 25 years.

It’s funny, people look at what can go wrong, but don’t think about what can get better. I’m betting on things getting better, here in the US and around the world. And by better, I mean improved standard of living.

 

[FREE866]

The problem with phrases like "reasonable pessimistic assumptions" is that they quickly turn into draconian panic expectations rather quickly

 

[MichaelB]

The future is just as uncertain as it has even been, and will always be so. The only thing we can safely predict is bad things will happen, but we don’t know what or when. What matters is not how well we predict or plan, but how we act and react when these things happen.

Just the last 2-3 years have seen events far worse than other things mentioned in this discussion, yet here we all are.

 

[Aerides]

I am surprised no one has brought up zombies yet.

 

[marko]

The future is just as uncertain as it has even been, and will always be so. The only thing we can safely predict is bad things will happen, but we don’t know what or when. What matters is not how well we predict or plan, but how we act and react when these things happen.

Just the last 2-3 years have seen events far worse than other things mentioned in this discussion, yet here we all are.

In my experience, the things we worry and plan about most never occur. It's always something out of left field.

I should be living cliffside on the Amalfi Coast right now. Instead, I'm in Ft Lauderdale caring for my suddenly disabled brother. ( no complaints, but...)

 

[FREE866]

In my experience, the things we worry and plan about most never occur. It's always something out of left field.

I should be living cliffside on the Amalfi Coast right now. Instead, I'm in Ft Lauderdale caring for my suddenly disabled brother. ( no complaints, but...)

So so true.....your brother is lucky to have you as a brother!


In the last three months I had to have emergency laser surgery for a torn retina, my BIL dropped dead of a heart attack and I got Covid twice in just the last 3 weeks!

 

[Dash man]

Rather than worry about what could happen, I suggest you create a buffer to mitigate for when something does happen. I know a number of us keep a few years of living expenses in cash or cash like instruments.

 

[marko]

Rather than worry about what could happen, I suggest you create a buffer to mitigate for when something does happen. I know a number of us keep a few years of living expenses in cash or cash like instruments.

+1. This is probably the best strategy. Get yourself covered for whatever and then relax.

 

[marko]

So so true.....your brother is lucky to have you as a brother!

Well, there's worse places than a home on the Intracoastal in Lauderdale. Just didn't go according to plan...that's the point I suppose.

 

[jollystomper]

Rather than worry about what could happen, I suggest you create a buffer to mitigate for when something does happen. I know a number of us keep a few years of living expenses in cash or cash like instruments.

+1

This is what I did when planning my retirement. I knew I could not forsee everything, so I worked a few more years to build up a buffer of cash to cover "what if I miscalculated" scenarios. I also modeled taking SS early as another buffer, and used that to determine when, from a living expenses standpoint, I could retire.

After 4.5 years of retirement none of the pessimism has occurred, and the buffer is more than covering the current inflation situation. I can delay SS to 70 - though taking it before then is still another kind of buffer.

 

[JackJester]

I am surprised no one has brought up zombies yet.

“The future in uncertain and the end is always neeear”

 

[RobbieB]

Be especially on the lookout for the latest fungal "ant zombie" incursion now available on TV!

Way more scary than intergalactic zombie radiation -

 

[Irishgirlyc58]

I am surprised no one has brought up zombies yet.

I’ve had a plan for the zombie apocalypse for years.
I’ve got the location scoped out and alternate in case the first option doesn’t work.
I was telling people about this at work a few years ago and one of the people said- I’m not sure if I should be more concerned about the fact that I have never thought of this or that fact that you have.

I may have seen a few too many zombie movies.

 

[SecondCor521]

I originally went down the path that the OP is heading down. For a while, anyway. It's natural to want padding and margin. I realized some of what people have said on this thread: Not everything is going to go that badly. I also thought that those padding factors made it difficult to see the most likely scenario. They could also combine in ways to create way too much of a safety margin.

So what I chose to do is to take the most likely outcome for each variable. Either current law, or the longest applicable historical average from a reliable source that I could find. I then built my spreadsheets and projections on those. I also ran FIREcalc, of course.

I then made a list of all of my contingency plans of how I could react if things went worse than average or worse than expected.

So rather than predict pessimistically and plan on that, I predicted averagely and agreed to be flexible.

I did get lucky with my retirement date (2016) in terms of SORR and such. But also, most things have turned out better than expected since then. So now I have several multiples of what I need to be comfortable. I haven't implemented any of my several dozen contingency plans. I don't even worry about asteroid strikes any more now (https://www.nasa.gov/press-release/...ion-impact-changed-asteroid-s-motion-in-space).

I guess that just leaves zombies. I'll have to work on that.

 

[ImThinkin2019]

One thing I didn't see in your list was managed care. We are dealing with that right now. Here are annual actual costs in Westborough, MA:

Memory care: $94,000
Assisted living (2 people, a couple, in one room): $144,000
Nursing home, single room: $198,000
Nursing home, double room: $183,600
Private care nursing help: $36/hr. (We needed this when my wife's parents had health crises like a fall, and needed extra help the memory care staff could not provide, like someone in the room constantly to keep the patient from injuring themselves further. Have used this service quite a bit.)

The couples above do have long term care insurance which pays $60,000/year X 3 years.

We don't have long term care insurance ourselves so we'll either pay for care out of cash flow, or if I have my way, take a dirt nap beforehand. We are observing the life of the people in managed care and we do not want to live like that. And think they don't either.....