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Old 08-06-2017, 05:15 AM   #21
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That's 19 out of 20. Probably OK for RE planning, but I'll pass if it's for successful airline landings.
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Old 08-06-2017, 05:19 AM   #22
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It's whatever allows you to sleep at night, there is no guarantee, so no right answer.
Yes. In my case, my spending is about ⅔ of what FIRECalc says I could safely spend, which gives me all the cushion I need. Occasionally there is a year when I spend considerably more for one reason or another, but in the long run I've stayed in the ⅔ to ¾ range.

Yes, that should leave a considerable legacy, but that's planned for and perfectly acceptable since the purpose is to give me the cushion I want for unforeseen comets and the like. Nearly 16 years since retirement and everything is still on track. It has been great to increase the travel budget since SS began!
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Is 95% Success Rate Good Enough?
Old 08-06-2017, 05:48 AM   #23
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Is 95% Success Rate Good Enough?

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Originally Posted by SecondCor521 View Post
I claim my small contribution to the SWR literature was to point out about 20 years ago on another internet forum that independent of the probability of one's portfolio lasting 30-40 years, one has to consider the probability of dying before running out of money. I think intercst from retireearlyhomepage.com picked up on this idea and extended it here:



Combining Safe Withdrawal Rates and Life Expectancy



Just as a SWAG, if you are 45 years old and plan to a 95% portfolio survivability for, say 40 years, that means your money has a 1 in 20 chance of running out of money by age 85. But there is approximately a 50% chance you'll be dead by 85. So that 1 in 20 chance is effectively cut in half to a 1 in 40 chance, or 97.5%.


Good point but if you are married, isn't the chance of one of you surviving 40 years much higher than 50%?
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Old 08-06-2017, 06:16 AM   #24
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Good point but if you are married, isn't the chance of one of you surviving 40 years much higher than 50%?
No, it will just seem like 40 years.
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Is 95% Success Rate Good Enough?
Old 08-06-2017, 06:31 AM   #25
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Is 95% Success Rate Good Enough?

Although I now test with 100% and 95% both on Firecalc some of the time, since there are some variables I cannot predict (longevity, market performance at the beginning of retirement, in my case CAD/USD exchange rate), I see both numbers to be just a guideline and try to spend much less. I am planning to run Firecalc, FIDO planner, etc on regular basis to check where I am at and adjust my spending accordingly. Having said that, I did make sure I had more than 100% before pulling the plug.


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Old 08-06-2017, 06:38 AM   #26
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I've been retired for 11 years 67 years old. Haven't run Firecalc for years. Generally just spend divs and pension. Got quite a bit more now than when I started.

For me, since my portfolio is quite different than the market as a whole, Firecalc isn't really very relevant anyway.
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Old 08-06-2017, 07:04 AM   #27
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95% of what? Yes I know 5% of the analysis runs failed. But what is the analysis? historic data? monte carlo? What are the statistics of the distribution used in the model if not statistical?
And when you set your spending did you include that one might need 30 years of memory care?

In the past RIP would only show 95% maximum on the customer site. This may be different now. Fido reps could run for higher %.

The real question is how accurate are all the assumptions? The investing, tax and spending models.... even if we assume the calculations are flawless.
Will you follow your plan as you set it up?
Not sell out when the market craters?

What happens is health care has twice the inflation of living expenses? Did the model cover that?

If you modeled all possible expense accurately, you likely have a lot of margin at 95% as not all possible expenses will be needed.

The other way to look at it is at 95% success, you will likely have lots of $ left over.

I did my initial planning with life expectancy of 94. I've run it out to 115 to see what would happen. I find all this data interesting, but I still think I need to be flexible going forward. There are too many chances for error or erroneous assumptions. BTW, I did not include 30 years of memory care.
The results of these calculators are warm fuzzies... an indication that things may work out. Even the calculators are perfect, are the assumptions that were used?

Stay flexible. Look at some form of variable with draw rate... either formal method or ad hoc
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Old 08-06-2017, 07:40 AM   #28
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Worse case, you go from riches to rags when you are 80.

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Minneapolis' effervescent Barbara Carlson shares her cautionary riches-to-rags tale
Politician and gadfly Barbara Carlson once lived a life as large as her personality. Now she's trying to keep other women from going broke like she did.

She used to live in a stately mansion on Lake of the Isles. Now she’s in a 650-square-foot income-based apartment in a converted factory.

Her only source of income now is Social Security, half of which goes toward her rent.
Minneapolis' effervescent Barbara Carlson shares her cautionary riches-to-rags tale - StarTribune.com
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Old 08-06-2017, 07:49 AM   #29
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Whatever number you choose, keep in mind you are using a mathematical model as a guide for future events. More conservatism in the model = less time in retirement. So a lot depends on your confidence in the model, your input to the model, and how important getting to retirement is for you.

The scope of models are limited and the input we give them are just our best guesses. For example, the scope of models typically don't take into account unexpected life events or geopolitical upheavals which can have a dramatic effect on future success rates. The input we give the model necessarily includes guesses for things like rate of return and life expectancy, huge impacts on success rates. Also, we may actually input things we know are incorrect. For example, I use a withdrawal rate that doesn't change year after year NO MATTER WHAT THAT DOES TO OUR PORTFOLIO. However, I know I'd cut back expenses if things went south.

I think Bill Bernstein (author of "The Four Pillars of Investing") makes a good point when he says.... "A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless." (ref: The Retirement Calculator from Hell, Part III)

In any event, you asked if we felt that 95% is "good enough". I assume you are using Firecalc as many of us here do. I personally would have been happy with 80% success rate in Firecalc because we have good backup plan if things go south. We can cut back expenses a huge amount and still live happily. When I run cases for other people I usually use 95%. I think 95% is fine though could be quite conservative for people that can significantly cut expenses if needed.
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Old 08-06-2017, 08:34 AM   #30
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I think we can really over think this question. When I read magazines like Consumer Reports I often see ratings with numbers. Usually, at the bottom somewhere is the note that says "Differences of less than X points are not significant".

So... Unless somebody can show me evidence that there is a meaningful difference in the lives of many people between 100% and 95%, I would not worry to much. Now, 100% and 75% is another matter.

OTOH, If planning for 100% let's one sleep better at night go for it. Sleep is good for health, and being healthy is a great way to avoid spending on medical care. Win-Win!
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Old 08-06-2017, 08:43 AM   #31
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Old Barbara should have read my signature line. She spent like a Queen, and now she is roughing it. She should have spent like a Princess and would still be in a castle.
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Old 08-06-2017, 09:51 AM   #32
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Good point but if you are married, isn't the chance of one of you surviving 40 years much higher than 50%?
Sure. I don't know what that percentage is, and don't care, as I am a confirmed bachelor (but father of 3 thanks to a 15 year marriage earlier). I think intercst is also single.

The larger point is that the 95% success rate in Firecalc or whatever tool one is using, just considers how long one's stash might last. Combining that with how long one's body might last (and assuming the two are relatively independent variables), means that 95% survival rate is even somewhat safer than that.

(Also, if you're married, when one partner dies there are a host of changes that affect you financially. Among others, there is usually the loss of one Social Security check, the reduction in some expenses, and the increase in taxes (MFJ is generally more advantageous than single). I think the smart way to go if one is married is to run three analyses: both spouses alive, one spouse dies, the other spouse dies. Make sure you're OK in all three.)
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Old 08-06-2017, 10:34 AM   #33
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I think Bill Bernstein (author of "The Four Pillars of Investing") makes a good point when he says.... "[I]A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless." (ref: The Retirement Calculator from Hell, Part III)
This is inadvertently misquoted more often than not to suggest that an 80% prob of success is good enough, it's likely not. Just following the above quote, Bernstein goes on to say:
Quote:
Mind you, this is not a call for wild abandon. The above table constrains the retiree desiring a theoretical 97% success rate (of portfolio survival) from spending more than 3% per year of the initial real amount of his nest egg. Taking the accident propensity of the species into account would allow him to spend about 4%. But if you believe that we’re about to encounter a bad returns sequence or simply wish to leave a few baubles to your heirs, you’re right back to 3% again.

So live a little, and enjoy your money, for tomorrow we may be consumed by the ghosts of Hitler, Lenin, and Attila the Hun. And at withdrawals of 3% to 4% of your nest egg, don’t spend it all in one place.
A 3-4% withdrawal rate corresponds to a prob of success of 95% or more over 30 years. He's not advocating 80% is good enough. He's just noting that geopolitical or other seismic shifts can and have rendered market return probability, what FIRECALC and all other calculators model, moot.
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Old 08-06-2017, 12:03 PM   #34
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Hey, I plugged my numbers in today and thought hard about whether 40% was good enough, so 95% sounds good to me.
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Old 08-06-2017, 01:34 PM   #35
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Considering there is a better than 5% chance you won't even live long enough to enjoy retirement, I think 95% is fine.
If you are using median life expectancy, there is a 50% chance that you will be wrong anyway.
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Old 08-06-2017, 02:03 PM   #36
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If I admitted to DW that I had been faithful 95% of the time, I'd be 100% gone. So there's that.
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Old 08-06-2017, 02:08 PM   #37
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I have it on good authority that 73% of internet statistics are made up.
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Old 08-06-2017, 02:41 PM   #38
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That is the number I am using as my acceptable risk threshold. Curious what others think.

Thanks.
I think 95% is fine.

Another way to look at it is what your age will be in those few scenarios where the line breaches the $0 line and 1) how likely is it that you will still be around then and 2) will you give a damn at that age.
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Old 08-06-2017, 03:27 PM   #39
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If I admitted to DW that I had been faithful 95% of the time, I'd be 100% gone. So there's that.
Bwaaaa
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Old 08-06-2017, 03:32 PM   #40
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What % did Firecalc give her when she retired?
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