planning assumptions

[rescueme]

I just don't get the 'plan to age 120 with 100% certainty with double my expected costs just in case and then cut the SWR in half cause the worst ever is yet to come, probably twice' mindset some folks have. But that's just me.

Some of us are in the rare situation of not only planning for our own lifetime, but also accounting for income for those that follow.

Our (disabled) son is 22 years younger than us, and will have a normal lifespan - whatever that will be. Our plan termination age is 120 to cover not only our outside chance of DW or me living to a longer age but also understanding while his current expenses are much less than us at this time, they will drastically increase when others (lawyer/investment manager/care manager) will have to take over the duties that I/wife are currenly handling.

Not every situation is the same and we all don't have the same (financial) plan for the future.

We planned for the worst and hope for the best; that's all we can do...

 

[rodi]

I use age 90 for myself (100 for DH), and 100%.
My parents died in their 60's and 70's. Only one grandparent made it to 90, the other 3 died in their 60's and 70's.
My FIL died last year at 90, and MIL is 87 and still physically sound (albeit dementia impacts her quality of life.)
I'm pretty comfortable with the age 90/100 for us.

I also include full social security. If that gets cut, we'll cut our budget.

And the long term care and other unknowns... I don't include our home in the firecalc runs - so plan B has a very hefty, $900k asset that can be sold. That should cover some good long years in a nursing home.

Haven't retired yet... my 100% involves market gains or 2.5 more years of work to hit the number that will let me retire. DH retired last month.

 

[ERD50]

Age 90 / 90% success - let's me sleep just fine.

I just don't get the 'plan to age 120 with 100% certainty with double my expected costs just in case and then cut the SWR in half cause the worst ever is yet to come, probably twice' mindset some folks have. But that's just me.

Except the added cushion doesn't require doubling anything. A 30 year period (so assume age 60 to age 90) @ 90% success (or 10% failure as I like to call it), historically allows for 4.23% withdraws.

But going to 100% and 30 years drops to a 3.39% WR.

And 46 years* and 100% success drops to 3.05% WR.

So the extreme factor means spending about 72% of your more aggressive scenario. Or build 38.7% more in your portfolio. Not insignificant, but not a double of anything, even once.

* if you go beyond 46 years, you end up cutting off some of the bad scenarios, and rates go up again. But it's pretty safe to extrapolate that you are hitting diminishing returns, and you would not need to drop much at all to get extra years beyond 46, at some point you have a 'forever' portfolio.

-ERD50

 

[braumeister]

My mother and her father both made it to 96, so I figure there's a reasonable chance I will get to at least that age. As long as I can see the possibility, I feel it's necessary to make my plans out to age 100.

As for confidence level, I always use 99% (why type in three digits when two are close enough?).

Since FC tells me I can use a much higher WR than planned, I feel safely covered.

We don't have any burning desire to die broke, and we're very happy with our current spending level. I see a high probability that we'll die with a substantial nest egg left over, but since it's all earmarked for our favorite charities we don't worry about it.

 

[Ed_The_Gypsy]

...but long-term care or the Big C scare me. So, I want a fat poke for emergency purposes.

Also Alzheimer's. I think I have reason to be concerned.

 

[woodguy00]

Except the added cushion doesn't require doubling anything. A 30 year period (so assume age 60 to age 90) @ 90% success (or 10% failure as I like to call it), historically allows for 4.23% withdraws.

But going to 100% and 30 years drops to a 3.39% WR.

And 46 years* and 100% success drops to 3.05% WR.

So the extreme factor means spending about 72% of your more aggressive scenario. Or build 38.7% more in your portfolio. Not insignificant, but not a double of anything, even once.

* if you go beyond 46 years, you end up cutting off some of the bad scenarios, and rates go up again. But it's pretty safe to extrapolate that you are hitting diminishing returns, and you would not need to drop much at all to get extra years beyond 46, at some point you have a 'forever' portfolio.

-ERD50

My tongue in cheek comments have more to do with the many posts where people stack ultra conservative assumptions on top of other ultra conservative assumptions in whatever planning tool someone is using. The compounding effects may mean people either continue working long past when they need to or live on much less than they could and in both cases leave large estates they would have preferred not to.

While it is clearly preferable to leave more behind than anticipated when compared to running out early, one Plan B is to reduce spending long before you run out. Not living on cat food but cutting back if necessary. A bit of cushion is good but IMHO it is better to start with very realistic assumptions and then consciously apply a cushion factor to the outcome, not at each step in the process.

 

[ERD50]

My tongue in cheek comments have more to do with the many posts where people stack ultra conservative assumptions on top of other ultra conservative assumptions in whatever planning tool someone is using. ...

I 'got' the doubling and doubling angle (though I realize that wasn't clear from my response).

But my point was towards that end - the added security really doesn't add all that much to what you need. And I'm probably guilty of multiple 'cushions'. But I don't really think of planning for age 100 and a 100% HSWR as doubling up. If it happens (and it could), I want to have money (not, gee, statistically I had a good chance of having some money). But discounting some of my NW for a cushion and rounding down my WR fall into some double counting, but it's hard for some of us to not want a little more assurance!


-ERD50

 

[obgyn65]

Same for me.

Always 100 percent. And still worry.

 

[robnplunder]

95% success ratio to last until 82 which is my life expectancy according to census.

..... but I will set aside $300 - $600k for contingency plan (DW & I live longer, bigger than anticipated stock market set backs, traveling, unexpected LTC, ...).

 

[youbet]

I'm surprised more people are not mentioning the difference between portfolio withdrawals and SS/pensions.

When FireCalc refers to "failures," it's referring to your portfolio going to zero. SS and pensions continue. For lucky folks with SS and some sort of pension providing, say, half of their spending, running out of portfolio dollars is not nearly so bad as it would be for folks who count on their portfolio for all or nearly all of their spending.

For folks whose spending is primarily supported by some cola'd stream of payments from a secure source outside of their FIRE portfolio, I don't think going with a 90%, or even less, survival rate is daring at all.

For folks where their FIRE portfolio provides all, or nearly all, of their spending dollars, 100% survivability is none too conservative IMHO.

 

[robnplunder]

I'm surprised more people are mentioning the difference between portfolio withdrawals and SS/pensions.

When FireCalc refers to "failures," it's referring to your portfolio going to zero. SS and pensions continue. For lucky folks with SS and some sort of pension providing, say, half of their spending, running out of portfolio is not nearly so bad as it would be for folks who count on their portfolio for all or nearly all of their spending.

SS is baked into my failure analysis. If my money runs out, then I'd only have SS to support me (which is doable if I wait until 70 before withdrawing).

 

[youbet]

95% success ratio to last until 82 which is my life expectancy according to census.

..... but I will set aside $300 - $600k for contingency plan (DW & I live longer, bigger than anticipated stock market set backs, traveling, unexpected LTC, ...).

The methods of building in conservatism are endless! I like yours robnplunder.

For us, we're happy with a one percent success rate and use a one year time period. But, just in case, we've set aside several $million plus SS and pensions. If something goes wrong, we'll just live on that!

 

[braumeister]

SS is baked into my failure analysis.

Carrying that a step further, my planning assumes that the SS trustees are right, and there will be a 25% cut in SS benefits starting in 2035.

 

[FLD3C]

The problem is that nothing is 100%.
The economic/financial future for developed nations may follow a different trajectory over the next 30-40 years vs the past 80-100 years
There is also an unknown risk of war, plague and social/political disorder that represent potential sources of portfolio failure.
While useful for ballpark estimates FireCalc and other modeling tools are a very cloudy crystal ball.

 

[traineeinvestor]

Another 100 percenter.

Anything less and I would lose even more sleep. Even so, there are plenty of things that can derail even the best of plans with my on emotions (aka bad decisions) edging out government action for first place on the list.

 

[Katsmeow]

Another 100 percenter.

Anything less and I would lose even more sleep. Even so, there are plenty of things that can derail even the best of plans with my on emotions (aka bad decisions) edging out government action for first place on the list.

Two comments.

First - most of us can probably easily devise a plan that is 100% and then make a couple of small changes and it is now 95%. That is, on my plan as input into Firecalc it is at 100%. On the other hand, if I decide to run a version of it with any extra $3k a year in discretionary spending then it drops slightly below 100%. So, just making small changes could make a difference. Now, I'm happy with the 100% plan. But, an extra $3k a year might be nice too. So I could see someone going with the 99% plan, though, with a plan to adjust if need be.

Second - all of this is very dependent on time period selected. Yes, I know lots of people want to prepare to live to 95 or 100 and that is fine. That said, there is always some point to call a stop to it. I mean I doubt that many people want to make sure their plan will last to 115. Let's say you have a plan that is 100% to age 90 and is 99% to age 95. The reality is that that is much lower than a 1% failure rate since the changes to getting to 95 aren't 100%. I could see a rational choice to say that 100% to 90 and 99% to 95 is fine.

 

[palomalou]

95/95. We'll see what the future brings

 

[traineeinvestor]

Two comments.

First - .... So, just making small changes could make a difference. Now, I'm happy with the 100% plan. But, an extra $3k a year might be nice too. So I could see someone going with the 99% plan, though, with a plan to adjust if need be.

Second - all of this is very dependent on time period selected. Yes, I know lots of people want to prepare to live to 95 or 100 and that is fine. That said, there is always some point to call a stop to it. I mean I doubt that many people want to make sure their plan will last to 115. Let's say you have a plan that is 100% to age 90 and is 99% to age 95. The reality is that that is much lower than a 1% failure rate since the changes to getting to 95 aren't 100%. I could see a rational choice to say that 100% to 90 and 99% to 95 is fine.

I don't disagree with this at all but (i) my confidence in my ability to plan to adjust spending down should the need arise is greater than my ability to actually do it and (ii) there is no practical difference between a plan designed to last for 50 years (until DW is 90) and one designed to last forever so I might as well take the forever option for planning purposes so it shouldn't really matter whether she makes to to 90 or 100 or beyond.

 

[ERD50]

... Yes, I know lots of people want to prepare to live to 95 or 100 and that is fine. That said, there is always some point to call a stop to it. I mean I doubt that many people want to make sure their plan will last to 115. Let's say you have a plan that is 100% to age 90 and is 99% to age 95. The reality is that that is much lower than a 1% failure rate since the changes to getting to 95 aren't 100%. I could see a rational choice to say that 100% to 90 and 99% to 95 is fine.

... there is no practical difference between a plan designed to last for 50 years (until DW is 90) and one designed to last forever so I might as well take the forever option for planning purposes so it shouldn't really matter whether she makes to to 90 or 100 or beyond.

I agree with traineeinvestor on this. I just ran some numbers:

For a 100% HSWR (Historically Safe Withdraw Rate), going from a 40 year to 45 year (about the max you can run before excluding some bad periods), which is a 12.5% longer period, your spending would decrease by a mere 3% (3.34% down to 3.24%). You really are moving closer to an asymptotic point of a 'forever portfolio'. I prefer the conservative approach.

Second, and I've mentioned this many times, I just don't look at the odds of reaching 100 in a pure statistical way, because I have an extremely small (yet important to me!) sample size of one (or two, including a spouse). I either reach 100 or I don't. And if I do, I want to have some funds to support me, beyond SS and a non-cola pension that might buy lunch by that time. So I don't look at them as percentages to be weighted, they are binary.

-ERD50

 

[hiker88]

My plan is for a retirement savings amount that is good for 100% to age 95 plus a cushion. That cushion will be two years of expenses in cash, than an additional 10% deduction for a stock market drop.

 

[gcgang]

http://www.advisorperspectives.com/...ients_Pay_for_Using_Safe_Withdrawal_Rates.pdf

Above is a link to an article that appears to be written for FAs. As opposed to what you might expect, that because the FA has an incentive to keep the largest pool of investment assets to have larger fees (like insisting on 100% success to age 100+), it focuses on how FAs can advise their clients to get the most out of this one and only life they get to live without dying with a bunch of money stuffed in the mattress.

Seems to conclude that if you are targeting 100% success, it means you've guaranteed 100% excess funds in your estate, and 100% that you are not using your $ during this life to enjoy the things you may want to enjoy.

It also seems to realize that we can change our spending/behavior. If a terrible set of market returns occur, we can cut back on our spending and not risk going broke.

I'd be interested if any if the 100%ers here are open to this way if thinking. Do you have anything that you could use extra $ for during your lifetime, rather than leaving the $ when you die?

 

[Lucantes]

I run ours for 95 years old and 100% success.
We will both ER at 50 in 2017 and I plan for it to run at least 45 years from then.
We have a significant flexibility built into our comprehensive budget as well as an additional lump buffer that is not used in computing our 100% (will be used for fun or to fill unexpected gaps if required).
In reality I would expect my wife to live much longer than me (and she is more frugal than I am), as I have treated my body as a temple....but it was a pagan temple which is a lot more fun!

 

[Ozstache]

My plan assumptions are 100 years old for my wife, 97 for me, 99% firecalc success, expect not to be eligible for aged pension (SS equivalent) by the time I get there, no inheritance, me never work again, wife to only work part time for 4 more years and gift a good chunk of money to my parents. Some of these assumptions are very pessimistic eg. wife is an only child and very likely to receive a pot of gold when her well-off 86 yr old mother passes on, but I don't want to be too aggressive with our spending until a couple of years in to ER on what could be a 52 year glide path for me.

Although I finished work four months ago and have been on leave, my employment only officially terminated yesterday, hence today is my first solo day of ER. Kind of feels like the tandem skydive I did on Sunday just gone: all preparations were made, safety harnesses checked, drills practice and now I've just pushed out the door. I hope I have as great a ride and as safe a landing in ER as I did with my skydive!