So you get 100% in Firecalc .. but are you comfy with your lowest minimum balance ?

[Dtail]

While it is easy to say because we are at 100%, I would be a-ok with 95%. If you look at the graph of lines at 95%, there are less than a handful of failures and the failures are all in the last few years of the projection period... one after 23, 24, 25 and 29 years, respectively..... and once you factor in the liklihood of living to the point of failure the likelihood of failure is infintesimal.

So if you retire at 60 with 95% success/5% failure with the first failure is at 23 years and the probability of a 60 year old living to 83 is 50%, then the real failure rate is more like 2.5% rather than 5%. Presumably if one was headed towards failure there are actions that they could take to avoid it... the smallest failure is negligible, then three that are $150-300k.

I agree in general.
What do you think of the following concept intertwined within your statement? (95% vs. 100%)
Since a 95% success rate translates to roughly 6 failures, wouldn't one want to feel like they can survive those worst 6 cases which would logically include the Great Depression, 1966, 1965, 1937, 1906 (from memory)?
Or would your above mentioned statement effectively strongly diminish this thought process?

 

[tb001]

The caveat to the above is that if you’re married you have to assume two people dying, not one.

We were ok with 94%, mainly because we had a fair amount of flex in the budget. I don’t think one of the failed cycles was the depression—pretty sure they were almost all stagflation related, but now I want to go back and check!

 

[wmc1000]

The caveat to the above is that if you’re married you have to assume two people dying, not one.

Totally agree! That is why we look to 100% with a minimum of at least $300,000 cushion. Hopefully, if that is worst case, (no guarantee there, we understand), then most likely we will leave a significant reserve to our kids. Better to minimize any worry than to exhaust the stash.

 

[Mdlerth]

Two will live longer than one

The caveat to the above is that if you’re married you have to assume two people dying, not one.

+1

I have no expectation of living into my 90s and, after watching my own parents' slow disintegration, no interest in doing so.

But even absent some medical improvements that may happen in the coming decades to avoid dementia, current life expectancy for a couple suggests one of us - either I or DW - might very well last till 93. So I figure there needs to be at least 500k at all times.

As others point out, if that's the minimum in a worst-case scenario, the most probable outcome will be more than that.

 

[pb4uski]

I agree in general.
What do you think of the following concept intertwined within your statement? (95% vs. 100%)
Since a 95% success rate translates to roughly 6 failures, wouldn't one want to feel like they can survive those worst 6 cases which would logically include the Great Depression, 1966, 1965, 1937, 1906 (from memory)?
Or would your above mentioned statement effectively strongly diminish this thought process?

Like I said, we're well over 100%.

However, if I were face with a choice of early retirement at 95% or working say, 3 more years to get to 100%, I "think" that I would be willing to accept a small risk of being around for financial ruin in exchange for 3 more years of retirement at an earlier age.... in part, because the 95% assumes that spending increases at inflation and either it doesn't really in which case I would be fine if I end up spending less in old age as seems to be frequently reported or there would the factors that I could play as financial ruin is appearing to prevent it.

Or put another way, I would chose 3 years of freedom at an earlier age with a very slight risk of ending up on Medicaid in a nursing home.

I agree with other posters that for a couple it would be more prudent to consider joint mortality.

 

[audreyh1]

Bolded by me - but wonder how many folks on this site are withdrawing 4.35% each year. Probably very few.

Not clear how many people are using %remaining portfolio method either.

If you draw 4.35% of portfolio each year you have to know that worst case historical scenario sees a drop in real income over 60% over a decade and a half, so it’s not for the faint of heart. But it might not happen.

 

[kgtest]

If I were ever to write a planner (I won't) it would probably have three or four outputs like: "Doesn't look too good,"Kind of marginal,"A reasonable bet," and "Looks pretty good." No way would I punch out three digit % numbers.

(Old joke: "How do you know that economists have a sense of humor?" "They use decimals.")

My planner is a little different...

Really bad
Bad
Good
Really good


Most decisions we make could have any of the above potential outcomes, but I always aim for making decisions that will lead to a REALLY GOOD outcome.

 

[HI Bill]

Since ~50% of my budget is discretionary, and I'd presumably still have the house and SS, and I'm not worried about leaving an inheritance, I think $0 is just fine.

 

[tb001]

The caveat to the above is that if you’re married you have to assume two people dying, not one.

We were ok with 94%, mainly because we had a fair amount of flex in the budget. I don’t think one of the failed cycles was the depression—pretty sure they were almost all stagflation related, but now I want to go back and check!

Doubled checked using the “other” fire calculator. At 94%, assuming a 40 year retirement, the only cycles that fail are the 60s stagflation years and 1906.

 

[Dtail]

Doubled checked using the “other” fire calculator. At 94%, assuming a 40 year retirement, the only cycles that fail are the 60s stagflation years and 1906.

Using the standard 30 year Firecalc numbers at 95%, there are 6 failures.
Are you saying that the 1960's had 5 stagflation years?
I believe based on other calculators that only 1965 and 1966 were the worse years.

 

[Turbo29]

Bernstein maintains that any estimate of success >80% over a 40yr period is meaningless due to the chance that the whole system may not survive that long.

...For this [a retirement calculator result] 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).

The Retirement Calculator from Hell, Part III

 

[Dtail]

Bernstein maintains that any estimate of success >80% over a 40yr period is meaningless due to the chance that the whole system may not survive that long.





The Retirement Calculator from Hell, Part III

Yeah, however for those that used a retirement calculator as part of their decision making process to retire, how many would accept only 80% as a success rate?

 

[big-papa]

Just wondering, you run Firecalc, and you get 100% say over 40 years.
What minimum balance are you comfortable with ? $300K left, $500K left ? $1 Million left ?

None of the above because I would never use that type of withdrawal method in retirement. I'll only use tools like Firecalc and Fidelity RIP to know if I'm in the ballpark to retire. I mainly use my own backtesting with my own dataset using a variable withdrawal method to see what sorts of worst-case withdrawals might have happened in the past in any given year. If, during that backtest, the lowest withdrawal is still above my bare minimum to live on (with a little margin), I consider myself good to go.

BTW, I'm good to go, but I am in OMY mode right now as I kinda like my job.

 

[Finance Dave]

I’m ok with zero...SS will cover 40% of our spending, we have LTC insurance, and we have bought a SPIA that will cover another 20% of spending. Combine those facts with knowing that 50% of our spend is discretionary and I’m comfortable.

 

[SAtoUS]

I’m ok with zero...SS will cover 40% of our spending, we have LTC insurance, and we have bought a SPIA that will cover another 20% of spending. Combine those facts with knowing that 50% of our spend is discretionary and I’m comfortable.

Agree, I'm also 100% fine with zero. I would like to die w nothing.

 

[EvrClrx311]

I want vs I need is important. Most of my FIRE planning is wants, not needs. So when my wants are projecting 100%... I can be pretty sure that my needs are more than covered, since my wants far exceed my needs. This helps me feel content -- that if things really got bad, worse than 100% could have prepared me for... then I can fall back on just my needs and be ok.

For planning purposes my end goal is $0... my wants will rise and fall over my time in FIRE to make sure I hit that mark as best I can

 

[stepford]

Bernstein maintains that any estimate of success >80% over a 40yr period is meaningless due to the chance that the whole system may not survive that long.

I manage my retirement funds so that I will have enough money to live comfortably for rest of my life. Should "the whole system" collapse before then and an unpleasant doomsday scenario unfold I figure I'll have lived long enough by that point and retirement planning will cease to be relevant.

In other words, plan as if the system will be in place forever, and it's not worth worrying about the alternative.

 

[Cayman]

+1, I forgot about the house equity...

We don't include house equity. It's not liquid, it's subject to market value fluctuations - possibly substantial fluctuations, and we need a place to live.

Also, equity lines of credit may be unavailable during economic downturns, as several members posted here in '08-'09.

 

[jkern]

I don't mind having an extra $1M. I self insure for earthquakes and LTC. Also, I'd like to leave a legacy for my daughter and hopefully grandchildren.