What If You Run Out of Money?

[NW-Bound]

We try not to judge around here.

Who is judging? I was talking about smelling.

 

[bingybear]

And some of us already lead rather simple lives and need to plan for 100% to age 100 because we don't have too much fluff in the budget.

I don't think there is truly 100% in any of these calculators. If you use firecalc using the historical mode, you only have a fixed number of trials. RIP'd significantly down market use to be 95% chance based on their model. Don't know how it is set up these days.

I just use these calculators as warm fuzzies... make you feel good. If you plan well you will likely be flush with $ because you most likely not live in the worst case analysis. Be flexible.

 

[Live And Learn]

I don't think there is truly 100% in any of these calculators. If you use firecalc using the historical mode, you only have a fixed number of trials. RIP'd significantly down market use to be 95% chance based on their model. Don't know how it is set up these days.

I just use these calculators as warm fuzzies... make you feel good. If you plan well you will likely be flush with $ because you most likely not live in the worst case analysis. Be flexible.

Yes, of course. But I'm gambling that in FIRECalc a 100% to age 100 is "safer" than a 95% to age 87. RIP only goes to 90% probability now ... but since it predicts a shortfall at 105 I'm ok with that.

 

[daylatedollarshort]

I don't think there is truly 100% in any of these calculators.

Just keeping up with inflation alone provides a 100 / 30 years = 3.33% safe withdrawal rate. So if one uses 100 / 60 years = 1.67% safe withdrawal rate and has fairly safe investments like TIPS and CD ladders, the odds of running out of money are pretty low, except in pretty extreme cases like FDIC insurance not in effect or the government defaulting on TIPS. And real interest rates on TIPS are .77 to .93 as of of this writing, so that is even better than just keeping up with inflation. With a spreadsheet and matching strategies, I do think it is possible to get to 100% except for some pretty extreme, low probability scenarios.

 

[Teacher Terry]

Our small house is worth plenty of money so we could downsize to a condo. We also could eliminate our vacations and cut back on eating out. We have fluff we can cut. But I also bring in 21k/year teaching my class and that would disappear if I could no longer teach.

 

[NW-Bound]

Beyond a certain point, all that market probability becomes meaningless when one also considers events like wars and REWahoo's asteroid strikes. People at certain geographic locations should consider survival rate from tornadoes, earthquakes, hurricanes, forest fires, winter stoms, volcanoes, etc...

Bernstein suggests that RE success probabilities beyond 80% start losing meaning. He points out that a success of 97% for 40 years of retirement means roughly 1 failure in 1200 years. No dynasty or superpower country has survived that long.

For people new to this forum, read: The Retirement Calculator from Hell, Part III.

 

[bingybear]

Yes, of course. But I'm gambling that in FIRECalc a 100% to age 100 is "safer" than a 95% to age 87. RIP only goes to 90% probability now ... but since it predicts a shortfall at 105 I'm ok with that.

Planning for more years increases safety. I do the same. I think planning for 87 sounds dangerous unless someone has knowledge that their life will be somewhat short.

Just keeping up with inflation alone provides a 100 / 30 years = 3.33% safe withdrawal rate. So if one uses 100 / 60 years = 1.67% safe withdrawal rate and has fairly safe investments like TIPS and CD ladders, the odds of running out of money are pretty low, except in pretty extreme cases like FDIC insurance not in effect or the government defaulting on TIPS. And real interest rates on TIPS are .77 to .93 as of of this writing, so that is even better than just keeping up with inflation. With a spreadsheet and matching strategies, I do think it is possible to get to 100% except for some pretty extreme, low probability scenarios.

I don't know what to say about this. I usually use my portfolio with some assets missing when I run these calculations, not all tips and CDs. I think I understand what you are trying to say, but I'd expect CDs to under perform inflation.

I have run my runs for 60+ years at times even though I do not expect to live that long.

 

[daylatedollarshort]

I don't know what to say about this. I usually use my portfolio with some assets missing when I run these calculations, not all tips and CDs. I think I understand what you are trying to say, but I'd expect CDs to under perform inflation.

I have run my runs for 60+ years at times even though I do not expect to live that long.

There is a good write up in the Boglehead wiki on matching strategies with quite a few ways to not lose money in retirement due to inflation. We don't rely on any calculators for retirement planning - just spreadsheets with parameters for inflation and real investment returns. This may not be a good strategy for everyone, but I do think it is quite possible to plan for 100% except in cases civil war, asteroid strike, government bond default, etc.

 

[SecondCor521]

If I put all of my numbers into this calculator (hat tip to CCCA over on MMM), I come up with pretty much a zero percent chance of running out of money but about a 20% chance of being dead at age 70 (49 now):

https://engaging-data.com/will-money-last-retire-early/

 

[97guns]

Don’t need a calculator, I’ll have income until the day I die, no dipping into capital

 

[mountainsoft]

I'm gambling that in FIRECalc a 100% to age 100 is "safer" than a 95% to age 87. RIP only goes to 90% probability now ... but since it predicts a shortfall at 105 I'm ok with that.

The riskiest time frame for me is between age 64 and 72. We're planning to retire when I'm 60 and will live off my wife's pension and my IRA the first few years. My SS won't amount to much, so things could be a bit tight until my wife can draw her SS. We may also need to help my mom out financially during that part of our retirement. Once we get past those tight years in retirement, we won't really need the IRA anymore and it will start increasing in value again until I'm 95 or beyond.

I use the Flexible Retirement Planner most often and we usually get an estimated 98-100% success rate. Each year we get closer to retirement, the odds seem to get better as I've been underestimating investment returns and SS income, and overestimating taxes and inflation rates.

 

[Carpediem]

I use the Flexible Retirement Planner most often and we usually get an estimated 98-100% success rate. Each year we get closer to retirement, the odds seem to get better as I've been underestimating investment returns and SS income, and overestimating taxes and inflation rates.

@mountainsoft.... What pct have you been using for taxes in FRP? My situation sounds similar to yours and I too use FRP quite a bit. I've been using a tax pct range of 12-15%. (We have very little in post tax accounts unfortunately.) I've often wondered if my tax pct range is too low or too high or just right.

 

[mountainsoft]

@mountainsoft.... What pct have you been using for taxes in FRP? My situation sounds similar to yours and I too use FRP quite a bit. I've been using a tax pct range of 12-15%. (We have very little in post tax accounts unfortunately.) I've often wondered if my tax pct range is too low or too high or just right.

I use 12% for the income tax rate and 3.2% for the inflation rate. Our current gross income is around 55K per year and we should be around 40K per year once we retire, so we're easily within the 12% tax bracket.

However, I've used a number of different tax calculators online and our actual taxes are usually in the 7-10% range. So the 12% tax rate seems like a safe estimate to use.

I use 6% returns and 6% deviation for the investing returns. The actual returns have been over 9% since I started my IRA, but better to plan on the safe side. My IRA balance just passed where FRP estimated it would be at the end of the year, and we still have four months of contributions and possible returns.

For my taxable savings (Discover Online Savings Account), I defined a 1.6% return rate on the Additional Inputs page. It's actually paying around 1.75% now, but was only 1.5% when I signed up. It will probably fluctuate up and down over time, but close enough for the small amount I have in our savings account.

Since FRP doesn't specify a month, I assume all figures for the end of the year (my age at the end of the year, IRA balance at end of year, retiring at end of year, etc.).

 

[bingybear]

There is a good write up in the Boglehead wiki on matching strategies with quite a few ways to not lose money in retirement due to inflation. We don't rely on any calculators for retirement planning - just spreadsheets with parameters for inflation and real investment returns. This may not be a good strategy for everyone, but I do think it is quite possible to plan for 100% except in cases civil war, asteroid strike, government bond default, etc.

There are a lot of good write ups and spreadsheets on boggleheads and other sites. I would question the comment that that boggleheads don't use "calculators". I expect that many of the calculators started out as spreadsheets and may still be running on spreadsheets. Spreadsheets are ideal for these types of problems.

My complaint of 100% is have you covered all potential issues (barring things like asteroids). I googled the oldest person alive - they are over 122 yo. I look at my DMIL who has been dealing with parkenson's for about 20 years and who knows could live another 100 or 20 more. Have you planned for dementia? Are you sure you are planning for 0 possibility of failure?

If I put all of my numbers into this calculator (hat tip to CCCA over on MMM), I come up with pretty much a zero percent chance of running out of money but about a 20% chance of being dead at age 70 (49 now):

https://engaging-data.com/will-money-last-retire-early/

I ran it and it said I have a 99.9% likelihood of being dead at 107 (57 now). I would suspect that round off error in the display could be an issue at some point, but I did not play with the calculator that much.

Don’t need a calculator, I’ll have income until the day I die, no dipping into capital

If one has a reliable income with inflation protection, that would make planning easier.

 

[scrabbler1]

Don’t need a calculator, I’ll have income until the day I die, no dipping into capital

This is part of my ER plan, too, even though I am operating on only 2/3 of my portfolio since 2008 when I first ERed. As long as I get to age ~60 intact, when the first of my 3 "reinforcements" arrive, I will be just fine. Those reinforcements include (1) unfettered access to my IRA, (2) my frozen company pension, and (3) Social Security.

If I have to dip into principal a little bit in the next 5 years (I am 55 now), that's okay. That principal has grown nicely since late 2008 when the markets were tanking. I have still been able to reinvest excess bond fund and stock fund dividends in the last 10 years although those excess dividends have shrunk a bit.

The nice, colored graphs and charts from Fidelity's RIP program show my financial picture, already good, getting even better once the reinforcements arrive in my 60s.

 

[daylatedollarshort]

There are a lot of good write ups and spreadsheets on boggleheads and other sites. I would question the comment that that boggleheads don't use "calculators". I expect that many of the calculators started out as spreadsheets and may still be running on spreadsheets. Spreadsheets are ideal for these types of problems.

My complaint of 100% is have you covered all potential issues (barring things like asteroids). I googled the oldest person alive - they are over 122 yo. I look at my DMIL who has been dealing with parkenson's for about 20 years and who knows could live another 100 or 20 more. Have you planned for dementia? Are you sure you are planning for 0 possibility of failure?

My "we" not using the calculators referred to DH and me, not every poster on the Boglehead forum. We're good to 122 at current expenses, we're good for 10+ years each in a nursing home in the U.S. (at current rates), good indefinitely both in nursing homes if we moved outside the country (dual citizenship for plan B). We're pretty much good unless multiple extreme events all happened like dual citizenship revoked, house wiped out in earthquake and insurance carrier defaulted, SS was cut to zero, pensions defaulted and PBGC bankrupt, government defaulted on TIPS and FDIC insurance, etc.

 

[Dtail]

My "we" not using the calculators referred to DH and me, not every poster on the Boglehead forum. We're good to 122 at current expenses, we're good for 10+ years each in a nursing home in the U.S. (at current rates), good indefinitely both in nursing homes if we moved outside the country (dual citizenship for plan B). We're pretty much good unless multiple extreme events all happened like dual citizenship revoked, house wiped out in earthquake and insurance carrier defaulted, SS was cut to zero, pensions defaulted and PBGC bankrupt, government defaulted on TIPS and FDIC insurance, etc.

Sounds like you will just make it.
I do love playing with all the calculators.

 

[Rianne]

If I put all of my numbers into this calculator (hat tip to CCCA over on MMM), I come up with pretty much a zero percent chance of running out of money but about a 20% chance of being dead at age 70 (49 now):

https://engaging-data.com/will-money-last-retire-early/

Wow, that's a reality slap in the face. The probability of death is a little unsettling but surely realistic. Death is one way to look at it, another is a debilitating illness that could stretch out many years.



I rarely think of those things when playing around with VG Nestegg or Firecalc. Just ho humming along with good health and spending.

 

[NW-Bound]

If I put all of my numbers into this calculator (hat tip to CCCA over on MMM), I come up with pretty much a zero percent chance of running out of money but about a 20% chance of being dead at age 70 (49 now):

https://engaging-data.com/will-money-last-retire-early/

I have enough money that I do not have to worry about running out. That frees my mind to think more about running out of time. And I am not 49 either.

 

[bingybear]

My "we" not using the calculators referred to DH and me, not every poster on the Boglehead forum. We're good to 122 at current expenses, we're good for 10+ years each in a nursing home in the U.S. (at current rates), good indefinitely both in nursing homes if we moved outside the country (dual citizenship for plan B). We're pretty much good unless multiple extreme events all happened like dual citizenship revoked, house wiped out in earthquake and insurance carrier defaulted, SS was cut to zero, pensions defaulted and PBGC bankrupt, government defaulted on TIPS and FDIC insurance, etc.

you noted earlier

We don't rely on any calculators for retirement planning - just spreadsheets with parameters for inflation and real investment returns.

I was trying to point out that self written spreadsheets that models retirement finances IS a retirement calculator. I assume you use the spreadsheets to model inflation, investment returns and spending. Maybe I misunderstand and you are just using the spreadsheet as a ledger.

 

[daylatedollarshort]

you noted earlier
I was trying to point out that self written spreadsheets that models retirement finances IS a retirement calculator. I assume you use the spreadsheets to model inflation, investment returns and spending. Maybe I misunderstand and you are just using the spreadsheet as a ledger.

The difference is we use mainly matching strategies for investing and don't rely on stock market returns or historical probabilities, and instead use the ideas as written up here - https://www.bogleheads.org/wiki/Matching_strategy, "The process of matching strategies allows an investor planning for retirement to meet specific financial targets with near certainty."

 

[Retch The Grate]

Wow, that's a reality slap in the face. The probability of death is a little unsettling but surely realistic. Death is one way to look at it, another is a debilitating illness that could stretch out many years.

yeah, that's what I like about that calculator (though I do want to know how much familial lifespans matter, I've had two grandparents make it to 96+, so I assume I'll be around till 100).

 

[NW-Bound]

I have posted before about a study that shows there is a strong correlation between parents' and offsprings' heights, but zilch between their longevity.

Even identical twins do not have similar longevity.

 

[Teacher Terry]

My MIL died at 67 and her mom at 89.

 

[Retch The Grate]

well that's good since the other two grandparents died much earlier. I'm hoping my active lifestyle will help with longevity, and my paranoia makes me set a lifespan of 100 years for the calculators.