How would you detect when a retirement plan is failing and how to react to it?

[Kings over Queens]

I am curious how one would detect an impending retirement failure and how to get out of it? Some people just have a ridiculously low withdraw rate so that they almost every run out of money. Some people uses some sort of variable withdraw rate methodology like VPW or Guardrail. What are some of the other methods?

For example, do you use a product like Boldin to sense when you may run of money during a projection? Do you run monte carlo and react if the success rate significantly drops?

I don't think a retirement plan fails that quickly that you could call the failure impending. Spending down savings should be measured over a long period of time and the results checked and calibrated as you go on. It's a long journey, you need to monitor your path along the way so you stay on course.

I would think in a simple view, you could easily divide the number of years you expect (hope) to live by the amount of money you have and that will give you a quick and dirty idea of how many years of expenses you have left, not including growth, or conversely, unexpected expenses.

 

[USGrant1962]

I occasionally go to the Investigate tab on my FIRECalc model and run both Spending Level and Starting Portfolio at 100%. We've been under the 100% spending level since I left MegaCorp.

I consider the Starting Portfolio 100% number a preliminary action level. If we should ever hit that we might have to do one less dive trip or buy cheaper booze. And we can easily adjust spending down from there if needed.

And there hasn't been a serious down market since 2008 so I doubt anyone has a recent stress test.

 

[bloom2708]

If 3.5% withdrawal falls below your spending, that might be a sign to tweak spending.

I calculate a 55% Stocks haircut withdrawal rate and make sure that would cover our core/mandatory spend.

My gut says "you will know, when you know".

 

[jazz4cash]

With so much effort devoted to accumulating and planning, it’s hard to imagine failure. Nor have I really dug into the details of decumulation (different subject). Fidelity’s Income planner projects year by year. If those projections are off, I think I could dig in to see why the projections are off. You have to monitor every year. If your margin between what you have and ehat you need is slim, more scrutiny is required to react early. If the portfolio is flush, you might be able to go 2-3 yrs before fixing the problem. To me it seems like pundits assume that if your WR is too high you will fly the plane into the ground without pulling up. Autopilot is great. Set it, but don’t forget it. Monitor your instruments. Doesn’t work for DW if I’m not around, though.

 

[Jerry1]

I have a cumulative "predicted" safe spend for a year based on FireCalc and other models (blue dash line)

I slowly add real monthly spends as they come in.

Goal is to have the end points about the same in month 12, but also to watch how lumpy things are along
the way to tell me if I need to adjust on the fly.

2025 was pretty good though it started looking lumpy in July/August..but we ended up below budget for the year..

**just noticed i need to add december to this ! LOL not out of the woods yet !**

View attachment 61841

To the OP, the above graph is a great start - monitor spending. The next step would be to add portfolio balance Actual vs Projected. Those two components will give you a good handle on whether or not things are going south.

As to what to do about it - first step is to dial back or even eliminate discretionary spending. Be very discerning on the difference between necessary expenditures and discretionary spending. I hope your plan is sound enough that you'd never have to cut so deep as to have to consider cutting more than the discretionary spending. And, as was mentioned, if things like SS and Pension can cover necessary expenses, the likelihood of failure seems pretty slim.

 

[Sunset]

The problem with that is, if you retired at/near a market peak, and you are some years into the trough, if you re-run Firecalc from there, it puts you through another simulation from a market peak. So it is overly harsh.

The failures are all from a market peak, because you can only have a steep dip and SORR from a peak. Re-running from a trough would then be adding a bad SORR on top of an SORR. This will be offset a bit by the fewer years of support needed (shorter remaining life expectancy).

If a person inputs the existing remaining savings and age, etc. They would get the same answer as someone planning to retire. Either it is a success or less than success.

I see value in re-running Firecalc with existing numbers if a person starts to question the success of retirement or as a check.
Wouldn't simply be playing "If I retired this year".

 

[CalBird]

People who retired in last 15 years would not provide any meaningful input because of the historical bull market in last 15 years. Someone retired in 1960 felt totally different and had completely different experience about retirement finance.

 

[pb4uski]

I am curious how one would detect an impending retirement failure and how to get out of it? Some people just have a ridiculously low withdraw rate so that they almost every run out of money. Some people uses some sort of variable withdraw rate methodology like VPW or Guardrail. What are some of the other methods?

For example, do you use a product like Boldin to sense when you may run of money during a projection? Do you run monte carlo and react if the success rate significantly drops?

I would run FIRECalc as if I was retiring today and use the Investigate tab to solve for safe spending at 95% success. If you can live on that amount or less then you are all set. If your spending is higher, then you need to tighten your belt on spending.

 

[SecondCor521]

For those who run calc regularly, were that anytime during a downmarket where the calc suddenly indicate you are in danger?

Nope. I was ridiculously conservative, as are many on here.

I was a bit nervous in fall 2008 when we thought the US economy might crater. But FIREcalc was still showing 100% for me at that time.

That's partly what I am getting at. Let's say you retire in 66, which is probably the worse time in history to retire in.. This is when your portfolio will end up nearly depleted if you follow the 4% rule. Throughout the retirement the investor may be hit with some downturns. How would you tell if you are in trouble when you are 1 decade in?

You can't tell 100% based on historical data. People have constructed rules of thumb which tend to sort the successes and failures, but it's always possible that the future is unlike the past.

If you want to hand wave a bit:

1. You'll probably get nervous and course correct before it gets bad enough to where you'd actually fail if you continued.

2. It's better to course correct sooner rather than later, because the magnitude of the course correction would be smaller and more achievable.

3. One rule of thumb is that if you survive the first decade OK (maybe defined as your portfolio is the same or better on an inflation adjusted basis), then you're going to be fine. What this really means, though, per my first paragraph above, is that we have not seen a bad enough example in history yet which would cause a failure if the portfolio is still intact after a decade. The future could always be worse than the past. Also, there are other things (scams, dementia, theft, gray divorce, extremely large medical care bills, meteor strikes, zombies, etc.) that can cause failure besides WR%-type stuff.

 

[Sunset]

What I do is I have a spreadsheet that has our
Year, total savings, increase % this year, inflation rate this year, Net % increase, Cumulative % increase

As long as the Cumulative % increase is a positive number, we have more buying power than when we retired, if it ever turned negative , is when I'd get concerned as to why. (too much spending, poor investments, high inflation, etc)

 

[audreyh1]

That's partly what I am getting at. Let's say you retire in 66, which is probably the worse time in history to retire in.. This is when your portfolio will end up nearly depleted if you follow the 4% rule. Throughout the retirement the investor may be hit with some downturns. How would you tell if you are in trouble when you are 1 decade in?

If you looked at what you were pulling from your current portfolio each year you would notice that you were pulling increasing percentages out of it each year, well above the initial 4%. That’s a big clue right there that what you are doing is unsustainable.

 

[big-papa]

I am curious how one would detect an impending retirement failure and how to get out of it? Some people just have a ridiculously low withdraw rate so that they almost every run out of money. Some people uses some sort of variable withdraw rate methodology like VPW or Guardrail. What are some of the other methods?

For example, do you use a product like Boldin to sense when you may run of money during a projection? Do you run monte carlo and react if the success rate significantly drops?

I use actuarial/amortization math. VPW does this as well, but I have my own spreadsheet. Withdrawals automatically adjust in order to guarantee that your portfolio will last as long as you planned. Those variable withdrawals might not be pretty, though. And that's why we also have an income floor consisting of SS, and a couple of TIPS ladders.

Cheers.

 

[disneysteve]

I am curious how one would detect an impending retirement failure and how to get out of it?

I think if you are tracking things appropriately, you would start seeing weakness in the plan early on so that you still had plenty of time to make adjustments. Is your actual spending outpacing your projected spending? Is your portfolio under-performing the return you used in your planning?

I think it is a good idea to re-run the retirement calculators like FireCalc periodically and make sure you're still in good shape. If the predicted success rate has dropped significantly, like maybe you went from 100% to 90%, sit down and figure out why. Then determine what you can do to correct it. Maybe you need to rein in some spending. Maybe your AA is too conservative and you need to take more risk to improve your return. And maybe if the numbers are looking particularly bad, you need to consider doing something to earn some income.

 

[engineernerd]

If you looked at what you were pulling from your current portfolio each year you would notice that you were pulling increasing percentages out of it each year, well above the initial 4%. That’s a big clue right there that what you are doing is unsustainable.

That seems to be overconservative too. When I set my withdrawal rate in FIRECalc low enough that 1966 did not fail and in fact had between 5 and 6 years' worth of spending left at the end, the spreadsheet data showed the inflation-adjusted withdrawal amount was fairly consistently increasing as a percent of the remaining portfolio value in each year. In 1975 it was about 7%. In 1995 it was over 17%.

Kings over Queens's simple view makes more sense to me. Pretty similar to how they make you calculate your RMD, as a matter of fact.

 

[bobandsherry]

I have a plan and revisit it every year. Good news my cash and investments are ~2x what I thought I would have ~10 years into FIRE, result of conservative return estimates (and still conservative looking forward). On the other hand, my spending is about 25% as a result of the higher cash and investment balances, but the WR% is lower, so that's good. The biggest spending increase is travel, so something that's containable should an adjustment need to be made to my spending. But revisiting it each year I can determine if any fundamental changes need to be made before it fails.

 

[Koolau]

“Get behind me, Satan!”

And don't push.

 

[Koolau]

But seriously, I retired in late 2005 so I lived through the early 2000's debacle. then 2 years after I retired came 2008. About then, I moved 5000 miles and rehabbed a condo to live in. 2 years later I moved across the Island and rehabbed yet another place. My spending was 5 to 8% (not the recommended "less than 4%").

I mentioned this only to say that even "bad times" are usually survivable - even when you break the rules (4% rule). So, how do you know? I think it's more about faith in the system (The FIRECalc, 4% rule, etc.) that we speak of here all the time. You can't "know" but you can have faith. SO far so good!

 

[old medic]

We have three income sources in retirement - pension, SS, and investment income. If we lose any one of those three, we are still in good shape.

We both have/will have the 3 legged retirement stool each. Pension, SS and 401 Savings so 6 potential legs. Playing with FC I have run #s together and individually, cutting some legs shorter and even removing some. Outside some disaster we should do fine.

 

[COcheesehead]

In a forum like this, it would be incredibly rare for someone with an experience of a failing plan to post. We are just not like that here.
When I had my business I had a nice 75 year old gentleman call on me about every few months. He wanted a sales job. I didn’t hire him, not because of his age, but because he had no demonstrable sales results at other companies. The reason I am telling this story is I asked him why at 75 he was pounding the pavement looking for a job. His response was “mistakes were made”.

 

[disneysteve]

In a forum like this, it would be incredibly rare for someone with an experience of a failing plan to post. We are just not like that here.
When I had my business I had a nice 75 year old gentleman call on me about every few months. He wanted a sales job. I didn’t hire him, not because of his age, but because he had no demonstrable sales results at other companies. The reason I am telling this story is I asked him why at 75 he was pounding the pavement looking for a job. His response was “mistakes were made”.

In my practice, I had a patient who was a host and server at a nearby diner. I don’t remember exactly but she was definitely late 70s or even early 80s. She struggled to do the job physically but said she needed the income so she powered through it best she could.

 

[disneysteve]

I imagine many in this group

We have three income sources in retirement - pension, SS, and investment income.

I imagine many in this group delayed or plan to delay SS until 70. I do. That gives us a "plan B" if anything goes wildly off course in the early years of retirement. I'm 61 (retired at 59) so if something occurs to screw up our plan any time in the next 8.5 years, I can just decide to claim SS earlier than 70 to correct the problem. Our plan doesn't depend on SS income, so if the plan crashes and burns, adding in SS should take care of things.

 

[Texas Proud]

I imagine many in this group

I imagine many in this group delayed or plan to delay SS until 70. I do. That gives us a "plan B" if anything goes wildly off course in the early years of retirement. I'm 61 (retired at 59) so if something occurs to screw up our plan any time in the next 8.5 years, I can just decide to claim SS earlier than 70 to correct the problem. Our plan doesn't depend on SS income, so if the plan crashes and burns, adding in SS should take care of things.

LOL... my sister sent me an email with a lot of sayings... one was...

If plan A does not work do not worry, there are a lot of other letters...

 

[Yegey]

LOL... my sister sent me an email with a lot of sayings... one was...

If plan A does not work do not worry, there are a lot of other letters...

I rarely met anyone who was on plan A. Most are on plan G or higher. I originally wanted to battle Kaiji monsters as a career when I was a kid, so I was already pass Plan A in childhood.

 

[GravitySucks]

For those who run calc regularly, were that anytime during a downmarket where the calc suddenly indicate you are in danger?

I ran Fidelity’s planner in the depths of 2022 and it came back with a possible failure.
Still better numbers than when I did retired though.

Didn’t worry me as I have a good amount of discretionary spending in there and I have a very slim chance of living to the age the failure started.

 

[jollystomper]

I imagine many in this group delayed or plan to delay SS until 70. I do. That gives us a "plan B" if anything goes wildly off course in the early years of retirement. I'm 61 (retired at 59) so if something occurs to screw up our plan any time in the next 8.5 years, I can just decide to claim SS earlier than 70 to correct the problem. Our plan doesn't depend on SS income, so if the plan crashes and burns, adding in SS should take care of things.

I agree. When I started retirement at 60, I also had taking SS early as a "plan B" if my pension and our cash and investment income was not working out. I re-evaluated it every year. After 3 full years of retirement - including the pandemic year - I knew we would be fine without SS until 70 - still a "plan B" if needed, but not as much a factor now that I will be 68 this year. DW took her SS in her 62nd year, but it it relatively meager and that is what the opensocialsecurity.com model recommended.