Retirement portfolio failure: What's your risk threshold?

[Rubic]

That is my bigger worry.  Not my expenses increasing, or my portfolio not putting out enough cash flow to support me over the next decade or two.  It's multiple decades down the line--will I have reinvested enough, along the way, to avoid that scenario?

Thanks for your thoughts on this topic.

[markbike528CBX]

90%+ as I have to explain all of this to my wife, quickly, before her eyes glaze over.

I have a conservative ( high, for forecasts ) WR, don't count SS/ small pension, and have a lot of slack (2/3*WR probable expenses) , but those are details that won't count for her peace of mind.  She is likely to outlive me by 10+ yrs.

[BTDretire]

I did it the other way, I figured out how much money I could get out for 30 years and still have 100% success rate.
But I didn't find MMM until I'd been living it a moderate MMM lifestyle for 4 years.
I can probably live on less than 3% WR.
Probably could have retired safely years ago.
 5 more months, then I'll be a kept man!
My wife wants to continue working.

[Much Fishing to Do]

I'm pretty sure the most dangerous risk to a long successful retirement for some is them not quitting early enough .... because of wanting certainty of not running out of money.  Don't forget that as you try to get 100% certainty that of course is 100% of past situations, not of possible future ones.  And don't forget that trying to push from 95% to 99% of your money lasting 40 years ignores that you yourself don't have a 95% chance of living another 40 years....

[Metric Mouse]

I'm pretty sure the most dangerous risk to a long successful retirement for some is them not quitting early enough .... because of wanting certainty of not running out of money.  Don't forget that as you try to get 100% certainty that of course is 100% of past situations, not of possible future ones.  And don't forget that trying to push from 95% to 99% of your money lasting 40 years ignores that you yourself don't have a 95% chance of living another 40 years....

Holy shit, that's depressing. Even if I'm only average, I hope to make it out of my 60's....

The hope that I make it with some of my 'stache left over is a close second.

[arebelspy]

I'm pretty sure the most dangerous risk to a long successful retirement for some is them not quitting early enough .... because of wanting certainty of not running out of money.  Don't forget that as you try to get 100% certainty that of course is 100% of past situations, not of possible future ones.  And don't forget that trying to push from 95% to 99% of your money lasting 40 years ignores that you yourself don't have a 95% chance of living another 40 years....

Holy shit, that's depressing. Even if I'm only average, I hope to make it out of my 60's....

The hope that I make it with some of my 'stache left over is a close second.

Looks like you're maybe 24 (according to the info under your name that says you hit FU at 22, FI at 23)? According to this actuarial life calculator, you have a 91% chance of lasting another 40 years, to 64.

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

So his estimate was correct--even for someone young, your chances of living 40 years are lower than the chance of your money running out, if you are at a 95%+ chance of your money lasting (historically, at least).

[arebelspy]

I meant that presumably you don't expect your rental income to go down on an inflation-adjusted basis.

Yes, that's exactly what I mean.

I think you're being overly pessimistic (at least in the context of estimating your own history-based odds of success).  Historically, rents (net of rental expenses) have generally kept pace with overall inflation, no? 

No.  They've kept pace with wages/income, not inflation (ditto home values, bubbles aside).  People can't pay more than they make (or higher than a certain percentage of their income, more accurately). 

And that's overall, in the aggregate.  If the areas I'm in stagnate, they very well could underperform inflation.  If my spending is rising over time (even if flat in real terms), but my rents aren't keeping up, then I start eating into principal.  I have to put enough away in other investments over the next 10-20 years before that happens, so I have a second income stream.

Or earn more.

Either way, it's not something I'm worried about, but it is a possibility I'm aware of.

That is my bigger worry.  Not my expenses increasing, or my portfolio not putting out enough cash flow to support me over the next decade or two.  It's multiple decades down the line--will I have reinvested enough, along the way, to avoid that scenario?

Thanks for your thoughts on this topic.

No problem.  I think it's an interesting potential area of concern almost no one is talking about--the idea of your SWR being lower than your ROI.  E.g. Cash flow covers all your expenses, but you're still headed for portfolio failure (primarily due to inflation).  This could happen with rental real estate, fixed income investments (e.g. CDs), pensions, etc.  Having cash flow cover your expenses is often talked about as the holy grail (passive income > expenses), but it's not foolproof.  And I rarely see this discussed, or even understood. :)

[Metric Mouse]

I'm pretty sure the most dangerous risk to a long successful retirement for some is them not quitting early enough .... because of wanting certainty of not running out of money.  Don't forget that as you try to get 100% certainty that of course is 100% of past situations, not of possible future ones.  And don't forget that trying to push from 95% to 99% of your money lasting 40 years ignores that you yourself don't have a 95% chance of living another 40 years....

Holy shit, that's depressing. Even if I'm only average, I hope to make it out of my 60's....

The hope that I make it with some of my 'stache left over is a close second.

Looks like you're maybe 24 (according to the info under your name that says you hit FU at 22, FI at 23)? According to this actuarial life calculator, you have a 91% chance of lasting another 40 years, to 64.

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

So his estimate was correct--even for someone young, your chances of living 40 years are lower than the chance of your money running out, if you are at a 95%+ chance of your money lasting (historically, at least).

That is actually kinda depressing. My portfolio has a much lower chance of success than 91% though, but I'll take the risk.

[Monkey Uncle]

I'm pretty sure the most dangerous risk to a long successful retirement for some is them not quitting early enough .... because of wanting certainty of not running out of money.  Don't forget that as you try to get 100% certainty that of course is 100% of past situations, not of possible future ones.  And don't forget that trying to push from 95% to 99% of your money lasting 40 years ignores that you yourself don't have a 95% chance of living another 40 years....

Holy shit, that's depressing. Even if I'm only average, I hope to make it out of my 60's....

The hope that I make it with some of my 'stache left over is a close second.

Looks like you're maybe 24 (according to the info under your name that says you hit FU at 22, FI at 23)? According to this actuarial life calculator, you have a 91% chance of lasting another 40 years, to 64.

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

So his estimate was correct--even for someone young, your chances of living 40 years are lower than the chance of your money running out, if you are at a 95%+ chance of your money lasting (historically, at least).

Of course I couldn't resist the calculator (I can't resist any calculator, no matter what it's calculating).  I've been running my cFiresim runs using a final age of 95.  According to that calculator, my probability of reaching 95 is 5%.  I've run other calculators that take various health metrics into account, and they generally project a final age somewhere in the mid 80s.  So yeah, planning for a 95%+ plus success rate out to a final age of 95 means I'm probably working too long.

[ender]

Of course I couldn't resist the calculator (I can't resist any calculator, no matter what it's calculating).  I've been running my cFiresim runs using a final age of 95.  According to that calculator, my probability of reaching 95 is 5%.  I've run other calculators that take various health metrics into account, and they generally project a final age somewhere in the mid 80s.  So yeah, planning for a 95%+ plus success rate out to a final age of 95 means I'm probably working too long.

One thing to consider is that more money saved very well might translate into a longer life expectancy if it results in higher quality medical care in your older years.

I suspect none of us who are thinking 40+ years or more out can really evaluate the implications of this either way, but it is a factor that is probably worth considering. This board is very biased towards younger people.

[arebelspy]

And life expectancy is (mostly) going up.  And technology.

I wouldn't plan on running out of money by death, personally.  But it's still relevant to the idea of your bigger risk being working too long.

[brooklynguy]

No.  They've kept pace with wages/income, not inflation

Ah.

And that's overall, in the aggregate.  If the areas I'm in stagnate, they very well could underperform inflation.  If my spending is rising over time (even if flat in real terms), but my rents aren't keeping up, then I start eating into principal.  I have to put enough away in other investments over the next 10-20 years before that happens, so I have a second income stream.

Yep.  And the other side of this coin, also seldom discussed, is that any given individual's personal inflation rate is specific to that individual (based on his or her specific spending needs/choices), and does not necessarily follow the overall inflation rate.  Even someone with, say, an inflation-indexed pension, can suffer the problem you describe (even if current cash flow > current expenses) if, say, that person is renting (as a renter) in an area where rents are outpacing overall inflation.  Of course, the more flexibility you have to substitute goods and services (e.g., willingness and ability to move to an area with cheaper rents), the more protection you have against this problem.

[forummm]

I've also become more OK with working after FIRE if the need arises. There are some jobs out there that could be "fun" maybe--or fun enough to do for a year or three if needed. Or try 3 different things for a year each if needed.

I also realized that I could make half as much money post-FIRE if I was providing the only income to the family and still end up with about as much money after taxes compared to my income now (since DW also works now we have a higher bracket, lose out on TIRA deductions, child tax credits, etc). So even if I can only get a lower paying job in the future, it might not be that much different in terms of amount I get to keep. There is the difference in that I get to earn returns on the money I save now.

[redcedar]

How about multiple success %s based on income levels? An example could be 70% success for living very well, 85% moderately well, and 95% needs are met. I would imagine most people are very conservative when the decision comes and it would be 85%, 95%, 120%.

[forummm]

I've also become more OK with working after FIRE if the need arises. There are some jobs out there that could be "fun" maybe--or fun enough to do for a year or three if needed. Or try 3 different things for a year each if needed.

I also realized that I could make half as much money post-FIRE if I was providing the only income to the family and still end up with about as much money after taxes compared to my income now (since DW also works now we have a higher bracket, lose out on TIRA deductions, child tax credits, etc). So even if I can only get a lower paying job in the future, it might not be that much different in terms of amount I get to keep. There is the difference in that I get to earn returns on the money I save now.

Also, no daycare cost for jobs if DW is not working.