What are reasonable pessimistic assumptions

[eytonxav]

OP, I have no comment on your assumptions, but noticed you are from Scarsdale. As a teen I used to work at the Scarsdale Plaza and also delivered for Gamm Drugs, both were located on Garth Rd. I doubt either exists any more, but I have many great memories from those days.

 

[GoodLife59]

If you’re running what-if scenarios with these parameters you may want to run a series at various degrees. If you’re flying solo on your planning probably worth a deep dive with a qualified financial planner. Retirement shouldn’t be all about playing defense.

 

[Alex The Great]

Another scenario that could wipe out a lot of early retiree plans is the elimination of the ACA.

True it could happen. But rather than joining the workforce again, many early retirees would choose to move out of the country. For high quality inexpensive healthcare, there are plenty of choices.

 

[Old Microbiologist]

Social Security is a fatal issue for politicians. They want very badly to take it and give it to their banking benefactors but the most active voters are the retirees e.g. privatize it as they did with everything else. It is the last remaining thing not privatized. But, it is a live wire as well so very dangerous to tamper with. Congress already owes the SS fund $4 trillion they "borrowed" which somehow never gets into the equation. The remaining factor that could shift it completely back into solvency is to remove the cap on payments so no matter what you earn you pay into the system. Again, the 1% are against this (although technically I am a 1%'er and I think SSA is a great thing). The other thing floating out there is to put a means test on recipients. I am also a military pensioner which probably just by itself exceeds whatever threshold they put. But, again you don't want to mess with military retirees either.

So, frankly, I don't see an issue with long-term solvency. The population is continuing to grow and we can assume workers will still pay into the system so I don't foresee a problem UNLESS unemployment goes above 20%.

Other things are probably more at risk than SSA such as 401K's/IRAs and/or money invested in equities. I can see them trying to take some of that off us before messing with SSA. Watch Europe and you can see where it is heading in the US as it always gets tried first in Europe. Cyprus is a good place to watch. Also, taking the Russian oligarch's personal assets (ironically most not friendly to Russia) in the US and Europe is another good example. Who knows who may qualify next now that this cat is out of the bag?

 

[FLSUnFIRE]

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.

We seem to think similarly... My forward projecting cash flow sheet shaves 30% off today's values and investment returns 1.5% above inflation going forward. It's not what I plan for but by having a sheet showing a pessimistic scenario and how I'd survive it and FIREcalc and using other historical back-testing calculators, I am emotionally detached from market performance in the short term. Statistically, I'm much more likely to die "rich" than run out of money but need to plan for the worst.

 

[Alan]

Thanks for the interesting discussion.