FIRE on 4%?

[Tyler]

There was an article in Marketwatch today that claims a strict interpretation of the 4% rule would have failed already if you retired in 2000.  I have not verified the numbers and don't plan to.  My main take away from the article is "Don't be stupid or blind to changing conditions."

http://www.marketwatch.com/story/why-buy-and-hold-is-a-bad-idea-for-retirees-2016-03-17

By my calculations, a Y2K retiree with $1mm in a total stock market fund and using a strict 4% SWR now has about $356k (inflation-adjusted).  Definitely not looking so hot.  It's following a similar trajectory to a 1973 retiree that technically didn't "fail" by the traditional definition but just barely made it.  Scroll down to the "Retirement with a 4% WR" chart here. 

However, putting all of your money in the stock market isn't the only way to invest in retirement.  A retiree with a 60-40 portfolio split between VTI and BND has $638k.  A retiree with the Coffeehouse Portfolio (also 60% stocks and 40% bonds but constructed differently) has $1.03mm.  Someone with the Permanent Portfolio has $1.04mm.  You get the idea.

Not all portfolios have done poorly since 2000, and understanding how safe withdrawal rates actually work opens up lots of attractive possibilities.  IMHO, dismissing passive investing in retirement just because one single investment option is struggling completely misses the point of how diversification and asset allocation works. 

[steveo]

IMHO, dismissing passive investing in retirement just because one single investment option is struggling completely misses the point of how diversification and asset allocation works.

Completely agree.

[clifp]

There was an article in Marketwatch today that claims a strict interpretation of the 4% rule would have failed already if you retired in 2000.  I have not verified the numbers and don't plan to.  My main take away from the article is "Don't be stupid or blind to changing conditions."

http://www.marketwatch.com/story/why-buy-and-hold-is-a-bad-idea-for-retirees-2016-03-17

By my calculations, a Y2K retiree with $1mm in a total stock market fund and using a strict 4% SWR now has about $356k (inflation-adjusted).  Definitely not looking so hot.  It's following a similar trajectory to a 1973 retiree that technically didn't "fail" by the traditional definition but just barely made it.  Scroll down to the "Retirement with a 4% WR" chart here. 


However, putting all of your money in the stock market isn't the only way to invest in retirement.  A retiree with a 60-40 portfolio split between VTI and BND has $638k.  A retiree with the Coffeehouse Portfolio (also 60% stocks and 40% bonds but constructed differently) has $1.03mm.  Someone with the Permanent Portfolio has $1.04mm.  You get the idea.

Not all portfolios have done poorly since 2000, and understanding how safe withdrawal rates actually work opens up lots of attractive possibilities.  IMHO, dismissing passive investing in retirement just because one single investment option is struggling completely misses the point of how diversification and asset allocation works.

Considering that neither VTI nor BND existing in 2000, (they were started in 2006 and 2007 respectively)  I don't know how you can reach any conclusion about their value today.  I assume you mean Vanguard Total Stock Market Fund and Vanguard Total Bond Market.  But, honestly, I'm tad skeptical just seeing fancy charts, and not the underlying data.

When looking back it also important to look at what portfolio options were common and not just what investment options were possible.  Vanguard Total Stock market was only started in 1992  and had the only fraction of the assets in 200 it has today.  Neither Total Stock Market or Total Bond Market were popular options in 401K in 2000.  At the Schwab didn't have total stock market fund until the mid-2000s and total bond market option until 4 or 5 years ago.  Total Stock Market is still not an option for the government TSP fund.

The coffeehouse book was written in 1998, and I first heard about despite reading all the investment boards sometime in 2003.  I can't imagine any prudent person retiring in 2000 sticking their retirement money in portfolio recommended by an obscure newspaper columnist in a book that had only been out for a year or so.

So for all intensive purpose when people talked about indexing in 2000, that meant A S&P 500 fund and some combination of bond and money market funds, CDs, and Treasuries.

Last I looked (circa 2010/2011) the permanent portfolio, did, in fact, hold up well. As did 50/50 portfolio of Vanguard Wellesley and Wellington, so these were a viable alternative, but far less popular in 2000.

[dude]

There was an article in Marketwatch today that claims a strict interpretation of the 4% rule would have failed already if you retired in 2000.  I have not verified the numbers and don't plan to.  My main take away from the article is "Don't be stupid or blind to changing conditions."

http://www.marketwatch.com/story/why-buy-and-hold-is-a-bad-idea-for-retirees-2016-03-17

Luckily Raddr (an early-retiree doctor) has already verified the real-life numbers and the Y2K retiree is not yet out of money... but time is running out.

http://raddr-pages.com/forums/viewtopic.php?f=2&t=1208&hilit=hapless+Y2K&start=405

John Greaney also did the math for a Y2K retiree back in his 2014 "Real Life Retiree Investment Returns" update:

http://www.retireearlyhomepage.com/reallife15.html  (scroll to the end).

The MPT portfolio was still above water, while the One Fund (VBINX) was underwater, but still had 91% of its original $100k balance.  Interestingly, the worst performer was the 75% S&P 500/25% Bonds/Money Market fund, dubbed the "Retire Early Safe Withdrawal Study Portfolio."

[dude]

There was an article in Marketwatch today that claims a strict interpretation of the 4% rule would have failed already if you retired in 2000.  I have not verified the numbers and don't plan to.  My main take away from the article is "Don't be stupid or blind to changing conditions."

http://www.marketwatch.com/story/why-buy-and-hold-is-a-bad-idea-for-retirees-2016-03-17

So for all intensive purpose when people . . .

intents and purposes -- sorry, pet peeve of mine!

[Mr. Green]

By my calculations, a Y2K retiree with $1mm in a total stock market fund and using a strict 4% SWR now has about $356k (inflation-adjusted).  Definitely not looking so hot.  It's following a similar trajectory to a 1973 retiree that technically didn't "fail" by the traditional definition but just barely made it.  Scroll down to the "Retirement with a 4% WR" chart here. 

However, putting all of your money in the stock market isn't the only way to invest in retirement.  A retiree with a 60-40 portfolio split between VTI and BND has $638k.  A retiree with the Coffeehouse Portfolio (also 60% stocks and 40% bonds but constructed differently) has $1.03mm.  Someone with the Permanent Portfolio has $1.04mm.  You get the idea.

Not all portfolios have done poorly since 2000, and understanding how safe withdrawal rates actually work opens up lots of attractive possibilities.  IMHO, dismissing passive investing in retirement just because one single investment option is struggling completely misses the point of how diversification and asset allocation works.

MadFIentist has an awesome article showing how the sequence of returns during the first decade of retirement are by far the biggest factor to the success of a portfolio going the distance. Considering the Y2K retiree hit two recessions in the span of that first decade I would say that qualifies as the definition of "bad timing." If the Y2K retiree retired knowing this info, as soon as the 2008 crash happened he should instantly know that he needs to find supplemental income for a period of time. Just my opinion. Given the historical data we have, I would create some extra income after a first decade in retirement like the 2000's even if my portfolio didn't look too bad (500-600k) because the statistics say that sequence has already thrown me into the highest risk category for portfolio failure and a little extra income will help move me back toward the median of historical outcomes.

[Retire-Canada]

MadFIentist has an awesome article showing how the sequence of returns during the first decade of retirement are by far the biggest factor to the success of a portfolio going the distance.

The first decade of retirement is also [happily] the timeframe it's easiest to engage in some part-time work should a bad sequence of returns occur.

[Tyler]

Considering that neither VTI nor BND existing in 2000, (they were started in 2006 and 2007 respectively)  I don't know how you can reach any conclusion about their value today.  I assume you mean Vanguard Total Stock Market Fund and Vanguard Total Bond Market.  But, honestly, I'm tad skeptical just seeing fancy charts, and not the underlying data.

Yeah, I sometimes use VTI and BND as shorthand for the total stock market and total bond market.  You're correct that the ETF versions are recent inventions, but the fund versions (that have the exact same assets and performance) started in the late 80s / early 90's and other sources provide index data before then.  The underlying data can be found here.

When looking back it also important to look at what portfolio options were common and not just what investment options were possible.  Vanguard Total Stock market was only started in 1992  and had the only fraction of the assets in 200 it has today.  Neither Total Stock Market or Total Bond Market were popular options in 401K in 2000.  At the Schwab didn't have total stock market fund until the mid-2000s and total bond market option until 4 or 5 years ago.  Total Stock Market is still not an option for the government TSP fund.

Jack Bogle started the world's first S&P500 index fund in 1975.  If we only limit ourselves to common investments easily available at the time, then no passive indexing strategy can be studied prior to that.  I personally don't think such strict interpretation is necessary or even desirable, as there's much we can learn about market conditions from reconstructed indices prior to the invention of individual index funds that track the same markets.  Without such data, for example, we wouldn't have the Trinity study and probably wouldn't be talking about the 4% rule right now.  ;)

But don't get me wrong -- I'm not trying to push any one portfolio.  Everyone needs to decide for themselves what they're comfortable with.  I just wanted to point out that diversifying outside of a single stock market index fund can have a very positive effect on retirement performance. 

[dude]

Paul Merriman recently had an interesting article on an alternative to the SWR, the fixed percentage withdrawal.  Yes, this means in down years, you may be drawing a LOT less (and likely having to cover the gap by working, or not traveling, or making some other sacrifice), but it also allows far greater withdrawals (dollar-wise) in up years, and pretty much guarantees you will not run out of money. The charts for the various percentages are pretty amazing.  He backtests to 1970, and boy are there some huge finishing balances.

http://www.marketwatch.com/story/the-ultimate-retirement-distribution-strategy-is-here-2016-03-09

Just something to consider.

[Tyler]

MadFIentist has an awesome article showing how the sequence of returns during the first decade of retirement are by far the biggest factor to the success of a portfolio going the distance. Considering the Y2K retiree hit two recessions in the span of that first decade I would say that qualifies as the definition of "bad timing." If the Y2K retiree retired knowing this info, as soon as the 2008 crash happened he should instantly know that he needs to find supplemental income for a period of time. Just my opinion. Given the historical data we have, I would create some extra income after a first decade in retirement like the 2000's even if my portfolio didn't look too bad (500-600k) because the statistics say that sequence has already thrown me into the highest risk category for portfolio failure and a little extra income will help move me back toward the median of historical outcomes.

Great point.  While passive investing is an excellent idea, passive living is not.  Spend a little less in the down times and perhaps earn a little more, and you'll be in much better shape than any retirement study indicates.  Be smart about it. 

[Threshkin]

Paul Merriman recently had an interesting article on an alternative to the SWR, the fixed percentage withdrawal.  Yes, this means in down years, you may be drawing a LOT less (and likely having to cover the gap by working, or not traveling, or making some other sacrifice), but it also allows far greater withdrawals (dollar-wise) in up years, and pretty much guarantees you will not run out of money. The charts for the various percentages are pretty amazing.  He backtests to 1970, and boy are there some huge finishing balances.

http://www.marketwatch.com/story/the-ultimate-retirement-distribution-strategy-is-here-2016-03-09

Just something to consider.

Yes, I liked this article.  It made a lot of sense.  Especially in the first decade of retirement when your portfolio is the most vulnerable.

[Nords]

Paul Merriman recently had an interesting article on an alternative to the SWR, the fixed percentage withdrawal.  Yes, this means in down years, you may be drawing a LOT less (and likely having to cover the gap by working, or not traveling, or making some other sacrifice), but it also allows far greater withdrawals (dollar-wise) in up years, and pretty much guarantees you will not run out of money. The charts for the various percentages are pretty amazing.  He backtests to 1970, and boy are there some huge finishing balances.

http://www.marketwatch.com/story/the-ultimate-retirement-distribution-strategy-is-here-2016-03-09

Just something to consider.

Yes, I liked this article.  It made a lot of sense.  Especially in the first decade of retirement when your portfolio is the most vulnerable.

Why, yes, a fixed-percentage withdrawal is an absolute guarantee that you'll never run out of money.  You might not have enough to pay the bills, but when you get down to that last penny it'll be awfully difficult to withdraw a fixed percentage.  Success!

Bob Clyatt of "Work Less, Live More" did the simulator math on his 4%/95% system.  It's 4% fixed every year from the portfolio, but if that 4% portfolio withdrawal in a down year cuts your withdrawal amount excessively then you withdraw 95% of last year's withdrawal.  The overall portfolio withdrawal for that year may be as much as 5%-6%, but the variability is what saves the Y2K retiree from his rigid 4% SWR.

[Telecaster]

Why, yes, a fixed-percentage withdrawal is an absolute guarantee that you'll never run out of money.  You might not have enough to pay the bills, but when you get down to that last penny it'll be awfully difficult to withdraw a fixed percentage.  Success!

I lol'ed   :)

[FrugalFan]

There was an article in Marketwatch today that claims a strict interpretation of the 4% rule would have failed already if you retired in 2000.  I have not verified the numbers and don't plan to.  My main take away from the article is "Don't be stupid or blind to changing conditions."

http://www.marketwatch.com/story/why-buy-and-hold-is-a-bad-idea-for-retirees-2016-03-17

By my calculations, a Y2K retiree with $1mm in a total stock market fund and using a strict 4% SWR now has about $356k (inflation-adjusted).  Definitely not looking so hot.  It's following a similar trajectory to a 1973 retiree that technically didn't "fail" by the traditional definition but just barely made it.  Scroll down to the "Retirement with a 4% WR" chart here. 

However, putting all of your money in the stock market isn't the only way to invest in retirement.  A retiree with a 60-40 portfolio split between VTI and BND has $638k.  A retiree with the Coffeehouse Portfolio (also 60% stocks and 40% bonds but constructed differently) has $1.03mm.  Someone with the Permanent Portfolio has $1.04mm.  You get the idea.

Not all portfolios have done poorly since 2000, and understanding how safe withdrawal rates actually work opens up lots of attractive possibilities.  IMHO, dismissing passive investing in retirement just because one single investment option is struggling completely misses the point of how diversification and asset allocation works.

A lot of interesting sources in this thread. Your charts are amazing, Tyler!

[AdrianC]

Thing is, the TSP's G Fund has produced a risk free 2.89% over the past 10 years (4.96% over the past 25 years). It returned 2.08% last year when inflation was essentially zero.  So it's better than cash.  It provides a nice buffer to stock volatility.

Sure. Would a paid off house do the same thing?

I don't think so, as it doesn't generate any revenue, right?

No, but wouldn't it be a psychological buffer against stock volatility?

Why would you have debt (mortgage) and own debt (bonds), unless the after tax return on the bonds is likely to exceed the after tax cost of the mortgage? Liquidity?

Folks say they have bonds so they can rebalance into stocks during a bear market. But do they, really? Who sold bonds to buy stocks in 2009?

Having a mortgage as uncallable margin to invest in stocks makes some sense for some people. Perhaps it depends on the house value as a percentage of net worth?

In my own case house value is <10% of net worth. Paraphrasing Buffett, it doesn't seem prudent to risk what my family has and needs to try to get what they don't have and don't need.

[AdrianC]

Like Nords, I'm a Berkshire fan. Perhaps our large BRK holding is as a kind of bond substitute.

I'm a BRK fan too.  But the reason to hold both bonds and stocks is because stocks and bonds behave differently.  BRK behaves like a stock.

Now, you can make an argument for holding 100% stocks (which maybe you were making), but that's a different conversation.

Volatility doesn't concern me. Volatility does not equal risk. I believe Berkshire is safe; very low risk when bought at close to 1.2 times book, as it was recently. As safe as bonds, actually. 

[dude]

Good article relevant to this topic from Scott Burns today (though perhaps more applicable to older retirees than the FIRE crowd?):

https://assetbuilder.com/knowledge-center/articles/live-long-spend-freely

[Nords]

Good article relevant to this topic from Scott Burns today (though perhaps more applicable to older retirees than the FIRE crowd?):

https://assetbuilder.com/knowledge-center/articles/live-long-spend-freely

That's exactly the problem with working for a 100% success ratio-- it leaves even more money on the table than a 95% success ratio.

And, at the very least, some of Burns' extra cash could be spent on a bare-bones annuity.

Side note:  I appreciate the irony of retirement advice from a guy who's stated publicly many times over the years that he never will...

[happy]

Nice to see an article addressing life expectancy. As someone who will be retiring older, its very pertinent.

[Threshkin]

Does anyone have links to a site where I can determine the probability of living to a given age? 

I have found sites where you plug in health, education and lifestyle data and they spit out a target life expectancy (91 in my case) but this does not help so much.  What I am looking for is a site that will return something like "90% chance of living to 80, 75% chance of living to 85, 55% chance of living to 90", etc.

This data, combined with the portfolio probability of success data from FIREcalc or cFIREsim would give me the true probability of running out of money at XX age discussed in Scott Burns' article.

[Nords]

Does anyone have links to a site where I can determine the probability of living to a given age? 

I have found sites where you plug in health, education and lifestyle data and they spit out a target life expectancy (91 in my case) but this does not help so much.  What I am looking for is a site that will return something like "90% chance of living to 80, 75% chance of living to 85, 55% chance of living to 90", etc.

This data, combined with the portfolio probability of success data from FIREcalc or cFIREsim would give me the true probability of running out of money at XX age discussed in Scott Burns' article.

That question gets back to the probability issues raised by William Bernstein in his "Retirement Calculator From Hell" posts.  I'd take your query a step further and figure out how you're going to cover the longevity-insurance aspect of living to 110 years of age.  For most U.S. citizens, maybe Social Security is good enough.

[Mr. Green]

Does anyone have links to a site where I can determine the probability of living to a given age? 

I have found sites where you plug in health, education and lifestyle data and they spit out a target life expectancy (91 in my case) but this does not help so much.  What I am looking for is a site that will return something like "90% chance of living to 80, 75% chance of living to 85, 55% chance of living to 90", etc.

This data, combined with the portfolio probability of success data from FIREcalc or cFIREsim would give me the true probability of running out of money at XX age discussed in Scott Burns' article.

Provided you live in the US... https://www.ssa.gov/oact/STATS/table4c6.html

Just look at how many of the 100,000 are still alive at the age you want to live to, and then divide by the number of people still alive for you age. Doesn't factor race, environment, work, or any thing else.

[BeanCounter]

There was an article in Marketwatch today that claims a strict interpretation of the 4% rule would have failed already if you retired in 2000.  I have not verified the numbers and don't plan to.  My main take away from the article is "Don't be stupid or blind to changing conditions."

http://www.marketwatch.com/story/why-buy-and-hold-is-a-bad-idea-for-retirees-2016-03-17

I think this his is rather a simplistic analysis.  For one thing, it assumes a 100% stock portfolio which isn't realistic. Conventional wisdom at the time along with  academic research such as the efficient frontier hypothesis said a more realistic portfolio, was 75% S&P 500, and 25% Total Bonds.  There are several threads on the subject in various boards, the longest running one is http://raddr-pages.com/forums/viewtopic.php?f=2&t=1208. At this point, 15 years into the retire the inflation-adjusted value of the portfolio is 49%. So you are now withdrawing 8% of your portfolio.

I know personally my portfolio dipped below 50% in March 2009 of my starting value, this despite me having returns that were 1-2% above the indexes (last year was notable exception) and withdrawal rate in the 2.5-3%

It is also worth noting that careful tracking of the year 2000 retiree portfolio, reveal that were bugs in FIRECalc in how it treated the bond portfolio. I believe that CFireSIM fixed these but I'm not 100% sure. But it does make the point that one shouldn't be overly dependent on only one retirement tool.

The most important takeaway for anybody looking at very early retirement in your 30s, and 40s is that FIRECalc/CFIREsim/Trinity study success is different for very early retiree than a traditional retiree.

If you were say 65 in 2000 when you retired, it is possible you'll run out of funds before 30 years pass, but it is even more likely you'll die before you hit 95. But for some like myself, if my portfolio was down 80-90% by the time I hit age 69, that's almost a big of a failure as running completely out of money by age 65. Statistically, I on average I have nearly 20 years left at 69.

I recommend people looking at very early retirement, define success as the minimum amount in their portfolio at their social security age so that portfolio income+ SS income= desired income.

So for instance,  a 37-year old with 40K spend and $1,000,000 portfolio. At age 67 he is eligible for $2,000/month 24K a year in social security.
This means he needs $16k from his portfolio to last from 67 to death, which is approximately 400K.  If you set a minimum of having $400,000 in your portfolio, a 4% withdrawal rate is only successful 75% of the time over 30 year.  Now while they maybe good enough for some people that would give me pause.

Really interesting discussion on this thread. Thanks for all the great input guys! I am about 5 years out from FIRE, so I'm getting down to the details of my plan and this thread has been helpful.
I'm curious about the SS statement above. How does being out of the workforce for 30 years or so before you file for SS affect your SS checks?

[Threshkin]

Does anyone have links to a site where I can determine the probability of living to a given age? 

I have found sites where you plug in health, education and lifestyle data and they spit out a target life expectancy (91 in my case) but this does not help so much.  What I am looking for is a site that will return something like "90% chance of living to 80, 75% chance of living to 85, 55% chance of living to 90", etc.

This data, combined with the portfolio probability of success data from FIREcalc or cFIREsim would give me the true probability of running out of money at XX age discussed in Scott Burns' article.

Provided you live in the US... https://www.ssa.gov/oact/STATS/table4c6.html

Just look at how many of the 100,000 are still alive at the age you want to live to, and then divide by the number of people still alive for you age. Doesn't factor race, environment, work, or any thing else.

Thanks Mr Green but this table has only limited usefulness.  It starts from age 0 and estimates from there.  What I am looking for is a table that starts from your current age.  For example, if you are already 70 you have a much better chance of living to 90 than if you are a newborn.  I have seen this type of analysis before i just cannot find it again.

[brooklynguy]

What I am looking for is a table that starts from your current age.  For example, if you are already 70 you have a much better chance of living to 90 than if you are a newborn.  I have seen this type of analysis before i just cannot find it again.

Vanguard has a tool that calculates the probabilities you're looking for (but the footnote indicates that the data is based on actuarial tables from 2000, so it might be somewhat stale at this point):

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

[Mr. Green]

Does anyone have links to a site where I can determine the probability of living to a given age? 

I have found sites where you plug in health, education and lifestyle data and they spit out a target life expectancy (91 in my case) but this does not help so much.  What I am looking for is a site that will return something like "90% chance of living to 80, 75% chance of living to 85, 55% chance of living to 90", etc.

This data, combined with the portfolio probability of success data from FIREcalc or cFIREsim would give me the true probability of running out of money at XX age discussed in Scott Burns' article.

Provided you live in the US... https://www.ssa.gov/oact/STATS/table4c6.html

Just look at how many of the 100,000 are still alive at the age you want to live to, and then divide by the number of people still alive for you age. Doesn't factor race, environment, work, or any thing else.

Thanks Mr Green but this table has only limited usefulness.  It starts from age 0 and estimates from there.  What I am looking for is a table that starts from your current age.  For example, if you are already 70 you have a much better chance of living to 90 than if you are a newborn.  I have seen this type of analysis before i just cannot find it again.

Actually that chart gives you what you need. For instance, if you were a 70 year old male there are 73,548 of you left from the original 100,000 at birth. At 90, there will be only 17,429 of the original 100,000 left. 17,429 divided by 73,548 means you have a 23.69% chance of living to 90. Certainly lends itself to the notion of spending a little more and running the small risk that you die broke, when you only have a 1 in 4 chance of living another 20 years.

[EscapeVelocity2020]

Here's a calculator with some lifestyle inputs:  https://www.myabaris.com/tools/life-expectancy-calculator-how-long-will-i-live/

I get a life expectancy (50/50 chance) of 97.  Not even halfway done, and life has already been mind blowingly unpredictable!  For me personally, I don't think Mr. Burns advice is very helpful.  I just simply don't want to run out of money before I die, I would hate to 'beat the odds' only to be a financial burden on others.

[BeanCounter]

Here's a calculator with some lifestyle inputs:  https://www.myabaris.com/tools/life-expectancy-calculator-how-long-will-i-live/

I get a life expectancy (50/50 chance) of 97.  Not even halfway done, and life has already been mind blowingly unpredictable!  For me personally, I don't think Mr. Burns advice is very helpful.  I just simply don't want to run out of money before I die, I would hate to 'beat the odds' only to be a financial burden on others.

Interesting that the calculator doesn't ask any questions about family medical history. Is that not as strong of a predictor as people think?

[Mr. Green]

Here's a calculator with some lifestyle inputs:  https://www.myabaris.com/tools/life-expectancy-calculator-how-long-will-i-live/

I get a life expectancy (50/50 chance) of 97.  Not even halfway done, and life has already been mind blowingly unpredictable!  For me personally, I don't think Mr. Burns advice is very helpful.  I just simply don't want to run out of money before I die, I would hate to 'beat the odds' only to be a financial burden on others.

So you wouldn't increase your spending at all if you were 70, still had your entire nest egg, and statistically had only a 1 in 4 shot of dying at 90? I'm not saying blow the whole wad on strippers and yachts in Monaco but just upping the ante a little bit? It's also worth considering that beyond that 1 in 4 shot you have of seeing 90, you're odds are probably even less that you'll reach 90 with the same energy you have as at 70. Trips will become less frequent, and generally expenses will fall. There is a floor somewhere because medical expenses rise but there's even a cap on that with the Medicare supplement policies that cover all remaining costs not covered by medicare. I don't think Mr. Burns was advocating being reckless, but a straight 4% WR into your grave? Something in me kinda feels like I worked so hard to make that money, I can't imagine there aren't a couple special trips or something that I could take that would go beyond the standard 4% SWR without too much danger.

[BeanCounter]

I've seen a few relatives live to mid nineties and it seems that they spend very little money. They don't seem to travel, work on their house, buy clothing or even eat very much. In fact I kind of think life after 90 sucks.  Worst case is that you need assisted living or full nursing care at that point. Hopefully that is being covered through long term care insurance you purchased a few decades before.
I did know a woman that had watched family and friends quality of life after 90 deteriorate and she decided it wasn't for her. She had a huge party for herself at a country club with all her friends and family. The next week she put on some music, took a bath with a bottle of booze and took a bunch of pills. It was sad, but there is a part of me that thinks she was smart.

[Retire-Canada]

I did know a woman that had watched family and friends quality of life after 90 deteriorate and she decided it wasn't for her. She had a huge party for herself at a country club with all her friends and family. The next week she put on some music, took a bath with a bottle of booze and took a bunch of pills. It was sad, but there is a part of me that thinks she was smart.

I suspect by the time I get to my 80's & 90's we'll have physician assisted suicide. I'm not planning on hanging on until the bitter end. I may change my tune, but I would be surprised if that happened.

[BeanCounter]

I did know a woman that had watched family and friends quality of life after 90 deteriorate and she decided it wasn't for her. She had a huge party for herself at a country club with all her friends and family. The next week she put on some music, took a bath with a bottle of booze and took a bunch of pills. It was sad, but there is a part of me that thinks she was smart.

I suspect by the time I get to my 80's & 90's we'll have physician assisted suicide. I'm not planning on hanging on until the bitter end. I may change my tune, but I would be surprised if that happened.

Yeah, a few trips to see relatives in the nursing home really opened my eyes.

[Mr. Green]

Hopefully that is being covered through long term care insurance you purchased a few decades before.

LTC insurance is falling apart. Don't be surprised if it doesn't exist in the very near future. Turns out actuaries do get things wrong occasionally.

Yeah, a few trips to see relatives in the nursing home really opened my eyes.

More often than not I it sucks. Even if you are one of the lucky few to be in phenomenal health, odds are your friends aren't or they're already dead. But who knows how science may change this. I fully expect that by the time I'm 90 (58 years from now) they'll be able to 3D print new organs using my own DNA and stem cells.

[BeanCounter]

Hopefully that is being covered through long term care insurance you purchased a few decades before.

LTC insurance is falling apart. Don't be surprised if it doesn't exist in the very near future. Turns out actuaries do get things wrong occasionally.

Interested to know more about this. FIL is finishing paperwork to purchase now (at age 71, which can't be cheap). My own mother bought years ago (in her 50's).

[Mr. Green]

Some google searches will yield volumes of data. Many insurance companies are finding the cost of premiums set years ago aren't even coming close to covering the cost of care. People are staying healthier and living longer than anticipated, which is to be expected with the advancements in science. I don't know if new policies are any more stable than older ones but some seniors are seeing massive jumps in premiums at a time when they're living on fixed income and some have to make the decision to drop coverage, or cut back the scope of their insurance to keep it affordable. Many insurance companies have gotten out of the business entirely. Definitely do your homework. I think I'd have a hard time trusting a policy that didn't dictate a hard cap on premium costs because people are only going to continue to living longer as our science gets better.

EDIT: I believe it's mostly older policies that are being hit with the extreme premium increases, though that would still give me pause about a new one. What's to say the actuaries are still just as wrong 20 years from now and new policies don't go through the same type of increases?

[Nords]

Hopefully that is being covered through long term care insurance you purchased a few decades before.

LTC insurance is falling apart. Don't be surprised if it doesn't exist in the very near future. Turns out actuaries do get things wrong occasionally.

Interested to know more about this. FIL is finishing paperwork to purchase now (at age 71, which can't be cheap). My own mother bought years ago (in her 50's).

The industry screwed up.  They competed on price (to gain market share), undercut each other, and then more clients held on to their policies than expected while care facility prices rose faster than expected... and then the interest rates on bonds went so low that the insurers took a huge loss on invested premiums.

Case in point:  my father purchased a policy in 1992 with a 5%/year inflation rider for 20 years.  By the time the 20-year inflation rider expired, the policy cap was $318K and he was already receiving payouts for mid-stage Alzheimer's.  Between 1992-2011 (when he filed the claim) he paid approximately $11K in premiums. 

The insurance company dragged their feet as much as possible on every aspect of the claim (short of the state insurance commissioner getting involved) and made the whole situation very stressful for the caregivers. 
http://the-military-guide.com/2014/12/18/wont-buy-long-term-care-insurance/

I'd like to believe that the newer hybrid policies (LTC + life insurance) are priced more reasonably.  Maybe your mother's policy won't raise its rates on her cohort by 30% to save the company's financial stability.  Maybe your FIL will get a fair premium (for both sides) just as bonds start to return a higher yield. 

I'm skeptical.

[BeanCounter]

Hopefully that is being covered through long term care insurance you purchased a few decades before.

LTC insurance is falling apart. Don't be surprised if it doesn't exist in the very near future. Turns out actuaries do get things wrong occasionally.

Interested to know more about this. FIL is finishing paperwork to purchase now (at age 71, which can't be cheap). My own mother bought years ago (in her 50's).

The industry screwed up.  They competed on price (to gain market share), undercut each other, and then more clients held on to their policies than expected while care facility prices rose faster than expected... and then the interest rates on bonds went so low that the insurers took a huge loss on invested premiums.

Case in point:  my father purchased a policy in 1992 with a 5%/year inflation rider for 20 years.  By the time the 20-year inflation rider expired, the policy cap was $318K and he was already receiving payouts for mid-stage Alzheimer's.  Between 1992-2011 (when he filed the claim) he paid approximately $11K in premiums. 

The insurance company dragged their feet as much as possible on every aspect of the claim (short of the state insurance commissioner getting involved) and made the whole situation very stressful for the caregivers. 
http://the-military-guide.com/2014/12/18/wont-buy-long-term-care-insurance/

I'd like to believe that the newer hybrid policies (LTC + life insurance) are priced more reasonably.  Maybe your mother's policy won't raise its rates on her cohort by 30% to save the company's financial stability.  Maybe your FIL will get a fair premium (for both sides) just as bonds start to return a higher yield. 

I'm skeptical.

I too am skeptical. I do not know the specifics of either policy. FIL sounds like a hybrid policy as I know he had to name beneficiaries. Mom's policy has raised rates once. She is turning 70 this year.
It sounds like it was a pain to get the claim paid for your father, but based on what I know about alzheimers care he probably still came out ahead as it's very expensive.

[Nords]

It sounds like it was a pain to get the claim paid for your father, but based on what I know about alzheimers care he probably still came out ahead as it's very expensive.

$11K in premiums for $318K in benefits is a 29:1 payout.  But John Hancock's "benefits" center made me spend an hour (or more) every month on the paperwork & tracking.

My father first recognized his symptoms in mid-2008 and by early 2011 could no longer live independently.  Today he's still healthy & mobile, maintaining weight and doing all right and generally happy, but he's deep into mid-stage.  The progress of the disease is completely unpredictable but his long-term trend of mid-stage has been fairly gradual.

Dad's Denver-area care facility started at $215/day for a semi-private room in 2011.  By late 2015 it had risen to $260/day and the new financial manager was predicting price hikes of 4%-6% per year.  Dad just moved to a memory-care unit a bit outside of Denver at about $250/day for a private room. 

The semi-private vs private issue comes from how comfortable the patient is around other people.  In 2011 Dad started out at the care facility with his usual engaging "street mayor" personality and benefited from the social interaction.  As his cognition declined he's gradually withdrawn from people.  Today he's way too introverted (and confused) to be around a group. 

Financially, the payout of a long-term care insurance policy is generally considered non-taxable.  (There are exceptions to that generalization.)  Of course he was only able to deduct unreimbursed medical expenses, so he was still paying taxes on his pension and investment income and Social Security.  Once the LTC payout ended he was able to deduct all of his medical expenses, and he won't pay any more taxes.

[dude]

What I am looking for is a table that starts from your current age.  For example, if you are already 70 you have a much better chance of living to 90 than if you are a newborn.  I have seen this type of analysis before i just cannot find it again.

Vanguard has a tool that calculates the probabilities you're looking for (but the footnote indicates that the data is based on actuarial tables from 2000, so it might be somewhat stale at this point):

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

Christ, this is kinda depressing!  I have a 12% chance of living until 90, and a 38% chance of living until 85.  In other words, there's an 88% probability I'll be dead before 90, and a 62% chance I'll be dead before 85.  I'd kinda thought survivor bias would give me better odds at this point in my life (50 years old).  Sobering.

[Nords]

What I am looking for is a table that starts from your current age.  For example, if you are already 70 you have a much better chance of living to 90 than if you are a newborn.  I have seen this type of analysis before i just cannot find it again.

Vanguard has a tool that calculates the probabilities you're looking for (but the footnote indicates that the data is based on actuarial tables from 2000, so it might be somewhat stale at this point):

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

Christ, this is kinda depressing!  I have a 12% chance of living until 90, and a 38% chance of living until 85.  In other words, there's an 88% probability I'll be dead before 90, and a 62% chance I'll be dead before 85.  I'd kinda thought survivor bias would give me better odds at this point in my life (50 years old).  Sobering.

Apparently there are new tables, published in 2001, which extend out to 121 years of age.
https://www.kitces.com/blog/outliving-the-end-of-life-insurance-mortality-tables-the-age-100-tax-problem-when-life-insurance-expires/
If we don't like the answers from the older data then we can go find new data...

[Threshkin]

...snip...

Apparently there are new tables, published in 2001, which extend out to 121 years of age.
https://www.kitces.com/blog/outliving-the-end-of-life-insurance-mortality-tables-the-age-100-tax-problem-when-life-insurance-expires/
If we don't like the answers from the older data then we can go find new data...

Interesting article Nords but I could not find the actual 121 year in the article.  I looked around and found it in Appendix A here: http://www.actuary.org/content/cso-task-force-report

[Mr. Green]

What I am looking for is a table that starts from your current age.  For example, if you are already 70 you have a much better chance of living to 90 than if you are a newborn.  I have seen this type of analysis before i just cannot find it again.

Vanguard has a tool that calculates the probabilities you're looking for (but the footnote indicates that the data is based on actuarial tables from 2000, so it might be somewhat stale at this point):

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

Christ, this is kinda depressing!  I have a 12% chance of living until 90, and a 38% chance of living until 85.  In other words, there's an 88% probability I'll be dead before 90, and a 62% chance I'll be dead before 85.  I'd kinda thought survivor bias would give me better odds at this point in my life (50 years old).  Sobering.

I'm not surprised at all. Though if you look at the data, it really goes downhill at 80. At 80, 50% of males are left. By 90, only 17.5% are left. By 95, 5.5% are left. With the appropriate data set I'm sure you could fine tune survivorship bias better based on someone's health at 80. But there are so many things that can happen that how you age is somewhat of a crap shoot, and being healthy (fitness and eating right) don't guarantee anything. Strokes happen, etc. Hell I just heard of a co-worker who had a brain aneurysm in his 40's (in the hospital right now, who knows if he'll make it).

If there's anything watching older people has taught me it's that mobility is a huge predictor of future health. I have/had 3 grandparents live into the late-80's/early-90's and as they stopped moving you could see the change happen. Weight gain, even less mobility, more health issues. I've burned that into my mind for when I'm old. Never stop moving, even if it hurts a little, and lift weights (even if it's not heavy) for as long as possible.

Some of it is luck, too. My grandfather fell over with a heart afib on Mother's Day almost 7 years ago (at age 82) and thanks to the quick response time of the paramedics and some luck on timing, he survived without incident, only now he has a defibrillator in his chest. I think it's only ever gone off once since but how many folks would typically die from something like that (the overwhelming majority) plus now he has automatic insurance against it happening again (the defib). You'd never get insurance to put in a defib preemptively. This applies to any "old age" problem and whether it gets treated before it kills you. Unfortunately most of the time it is "caught" when it happens and you either die or you get lucky.

[Eric]

I'm curious about the SS statement above. How does being out of the workforce for 30 years or so before you file for SS affect your SS checks?

http://rootofgood.com/early-retirement-social-security/

Here's a pretty thorough article on it.

[Exflyboy]

Good article.. I now know what SS will pay me for not working.. its definatley not worth working till 67 thats for damn sure..:)

[Exflyboy]

I just want to be healthy enough to do something about.. like lift a 9mm pistol.

Of course I say that in perfect health, when I get there who knows if I could do it?

[Nords]

I just want to be healthy enough to do something about.. like lift a 9mm pistol.

Of course I say that in perfect health, when I get there who knows if I could do it?

Gotta stockpile your oxycodone before the inventory controls are tightened.

Otherwise you'll end up having to do it like another famous submariner, Admiral Chet Nimitz Jr.: 
http://www.nytimes.com/2002/01/12/us/with-suicide-an-admiral-keeps-command-until-the-end.html

[Exflyboy]

I just want to be healthy enough to do something about.. like lift a 9mm pistol.

Of course I say that in perfect health, when I get there who knows if I could do it?

Gotta stockpile your oxycodone before the inventory controls are tightened.

Otherwise you'll end up having to do it like another famous submariner, Admiral Chet Nimitz Jr.: 
http://www.nytimes.com/2002/01/12/us/with-suicide-an-admiral-keeps-command-until-the-end.html

Impressive!

[ender]

Incentive to retire early? Sad thing about longevity stats is that they don't take into account quality of life. A person could become injured, sick, or become disabled and live for decades longer but have a very poor quality of life stuck in a nursing home or with limited function in their own home.  So while someone's particular odds of living a long life my be good, the quality of that live might be poor. Another good reason to retire early!

The flip side is my grandparents are 80+ and in great shape. But many of their friends whom they used to travel with have since died or become too ill to travel, to the point that... they aren't doing that any more.

[BeanCounter]

I'm curious about the SS statement above. How does being out of the workforce for 30 years or so before you file for SS affect your SS checks?

http://rootofgood.com/early-retirement-social-security/

Here's a pretty thorough article on it.

Thank you for posting. That's a really good article and seems like good news for me. I have not been including SS in my fire cals at all.  But it looks like I could consider it a bonus or additional buffer. 

[dude]

Incentive to retire early? Sad thing about longevity stats is that they don't take into account quality of life. A person could become injured, sick, or become disabled and live for decades longer but have a very poor quality of life stuck in a nursing home or with limited function in their own home.  So while someone's particular odds of living a long life my be good, the quality of that live might be poor. Another good reason to retire early!

Amen, sparty!!!