Poll: Success rate - 90% to 85yo, 75% to 95yo

[Live And Learn]

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.

 

[Katsmeow]

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.

 

[Independent]

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.

 

[Vaca]

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.

 

[Katsmeow]

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.

 

[EvrClrx311]

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.

 

[rescueme]

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"...

 

[EvrClrx311]

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

 

[Animorph]

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.

 

[haha]

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

 

[W2R]

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."

 

[MichaelB]

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.

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.

 

[traineeinvestor]

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.

 

[Danmar]

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.

 

[ejman]

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!

 

[edsahara]

I think you need to look at the income you've projected you need during retirement and ask yourself if you could live on less if you had to. There are many ways of cutting costs and some of us would prefer get out while we can and take the chance they we may have to cut back down the road. Realize too that every year you work is a year of health that could be in limited supply.

 

[martyb]

Yes I would, but I will have 2 pensions that will sustain me/us even if/when the savings is depleted, and my health care will be covered. By the time I make it to 85, I don't expect our financial needs to be nearly what they are now, either. Most likely we'll spend a lot more time at home rocking on the front porch...

Also, I figure my kids owe me.....lol.

 

[palomalou]

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.[/QUOTE]


Good point, Animorph.

 

[akck]

While I voted no on the poll, I think those probabilities offer a good chance of success. This is mainly because we don't live statically and we will adjust if circumstances change. For instance, my spreadsheet inflates expenses to amounts I just can't see spending. I follow the theory that your expenses go down as you age (I really don't see taking expensive trips in my 80's), so I'll likely spend less than my plan allows. I will admit that I'd feel differently if I didn't have a retirement medical benefit.

 

[Brett_Cameron]

I agree, my spreadsheet inflates different expenses as well and I don't think I will be spending as much on discretionary things as the spreadsheet calculates. Nice to have a buffer or two, anyway.

 

[David1961]

The only scenario where I'd consider a 90% success rate would be if I have a major medical condition and was certain I would not live that long. And I'd make sure I have adequate health insurance.

 

[Midpack]

I was well over 100% to age 95 when I retired, but then I wasn't using hitting some number in FIRECALC to determine when to call it quits. My goal was to reach FI as young as possible, fortunately that turned out to be before I retired. I would not have been comfortable at 90% to 95 (both my parents are 90 and still ticking), even though those are excellent odds. What it takes to make any individual sleep well at night is unique to each of us...what works for someone else isn't of much value IMO.

 

[Live And Learn]

I was well over 100% to age 95 when I retired, but then I wasn't using hitting some number in FIRECALC to determine when to call it quits. My goal was to reach FI as young as possible, fortunately that turned out to be before I retired. I would not have been comfortable at 90% to 95 (both my parents are 90 and still ticking), even though those are excellent odds. What it takes to make any individual sleep well at night is unique to each of us...what works for someone else isn't of much value IMO.

It really is an individual matter. Part of me says that Midpack may have worked too long (but if you have heirs that not a bad thing). Part of me says, I have no heirs, statistically there's a 15% chance of either me or my DH living to 95 and a 25% chance of being broke at that age. I believe mathematically that means there is only an 4% chance of both of those happening.

 

[Texas Proud]

While I voted no on the poll, I think those probabilities offer a good chance of success. This is mainly because we don't live statically and we will adjust if circumstances change. For instance, my spreadsheet inflates expenses to amounts I just can't see spending. I follow the theory that your expenses go down as you age (I really don't see taking expensive trips in my 80's), so I'll likely spend less than my plan allows. I will admit that I'd feel differently if I didn't have a retirement medical benefit.

Yes, the cash needs after I would say 80 goes down from what I can see...

My mom traveled a LOT when she was in her 60s and even 70s.... one year she was traveling more than she was at home (and not a move to someplace and live there for awhile, really traveling)....

Now, her life is within 3 miles of where she lives if we (not just me, but all my siblings) do not take her anywhere... she does not want to take a plane anywhere... so the expensive trips stopped a long time ago...

 

[Midpack]

Part of me says that Midpack may have worked too long (but if you have heirs that not a bad thing).

Though we don't have heirs, "worked too long" does not apply IMO. I don't subscribe to the 'FI should automatically lead to ER' idea, there are many legitimate options, ER is but one...