Poll

What percentage of portfolio success using firecalc or cfiresim do you need to hit before you pull the plug?

<40%
0 (0%)
40% -- <50%
2 (0.8%)
50% -- <60%
3 (1.2%)
60% -- <70%
3 (1.2%)
70% -- <80%
12 (5%)
80% -- <90%
43 (17.8%)
90% -- <95%
57 (23.6%)
95% +
122 (50.4%)

Total Members Voted: 235

Author Topic: Retirement portfolio failure: What's your risk threshold?  (Read 21941 times)

forummm

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Retirement portfolio failure: What's your risk threshold?
« on: May 03, 2016, 09:43:01 AM »
As a supplement to Sol's thread, I thought it would be interesting to find out what people's threshold for risk is. What percentage of portfolio success using firecalc or cfiresim do you need to hit before you pull the plug?

For me, I'm thinking that 80% is pretty safe, even with the market being somewhat overvalued. But I'm not sure that's the right number. I would be open to cutting back (flexibility is built into my spending plans), getting some part time work that I might enjoy, or maybe even a full time job if the right opportunity was around. And my base expenses will be low enough that even minimum wage employment would put a significant dent in our annual need from savings. If you're interested in my current plan: http://forum.mrmoneymustache.com/ask-a-mustachian/planning-for-a-6-withdrawal-rate-am-i-crazy/

What's your number, and why?
« Last Edit: May 03, 2016, 09:45:41 AM by forummm »

Northwestie

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #1 on: May 03, 2016, 09:51:46 AM »
Good question in general.  I think for my spouse and I it's that we both find our jobs fun and engaging.  So a couple of more years of full-time work and then we'll ease back to part-time when we are 62.

To answer your question directly, I think 90% would make me feel comfortable.

tipster350

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #2 on: May 03, 2016, 10:50:05 AM »
I put 90 - 95% but am reconsidering because I need a higher degree of assurance that my assets will last barring major catastrophe such as an economic collapse. I need that security. On the other hand once I reach that point I will not stay working a minute longer.

Cycling Stache

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #3 on: May 03, 2016, 11:20:09 AM »
What's your number, and why?

I think almost all the responses are going to overstate the number because people feel like they can tolerate their current job even if they don't like it, while discounting almost to zero possible future employment if for some reason they need money later on.  So they build up (probably unnecessarily) the safety margins.

I bet if you asked people who are at 50% or greater, if you lost your job today, how quickly would you look for a new job?  That might get you closer to a real answer.

Candace

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #4 on: May 03, 2016, 11:34:10 AM »
I'm shocked to find I'm the only person so far who said 60-70%. My reason is that with a side hustle, all would be well. I'd probably do that right now if I lost my job, and all would be fine. For me, I'm also thinking there's a reasonable chance I'll inherit some non-trivial money -- but hopefully way in the future. Neither of those two things is in my calculation. I also have an investment that could possibly work out well, but again that's not in my calculation. All that being said, I feel comfortable at 60-70%.

MandyM

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #5 on: May 03, 2016, 11:47:36 AM »

I bet if you asked people who are at 50% or greater, if you lost your job today, how quickly would you look for a new job?  That might get you closer to a real answer.

Good point, but if I get to choose, something around 75% gives me a warm and fuzzy feeling. But I actually like my job most of the time. If I hated it or lost it, I would just call myself retired and pick up more PT than anticipated.

AZDude

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #6 on: May 03, 2016, 12:41:41 PM »
According to your poll, so far I have the highest risk tolerance. I feel like a rebel. Anyway, I seem to have a good ability to find side gigs and I am not afraid of going to back to work, if necessary. I am also blessed/cursed with a spouse who has little interest in early retirement. So worst case scenario, if my ER fails, we live off her income and my part-time job as a Wal-Mart greeter.

I can live with that if there is a 50-50 chance of me never having to work again. I have also gone on record as saying I would rather leave the full time workforce earlier and just working part-time/freelance as needed rather than stay until I hit the 100% confidence number.

Mr. Green

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #7 on: May 03, 2016, 01:59:49 PM »
I said 90%+ but I think there's a huge amount of subjectivity here. Personally, I'll likely be stringing two 30-year "retirements" together. Hell, with the way science is going I might be stringing three of them together. Given that, ending a 30-year period with barely more than $0 isn't exactly success in my book though it's considered a successful cfiresim scenario. I could lengthen the cfiresim time period but then that reduces the number of cycles it includes because there's less history to look at. I'd prefer to keep a 30-year window and consider success to be where my portfolio ends the 30 year period with all of my initial stash intact, or at least most of it considering SS will kick in right about the end of the first 30-year period.

Beyond that I have my personal unknowns to consider, the two biggest being the cost of children and the change that ACA changes. Since I'm retiring before kids and I can't return to my career once I give it up, I want there to be a little more flexibility in spending.
« Last Edit: May 03, 2016, 02:03:35 PM by Mr. Green »

I'm a red panda

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #8 on: May 03, 2016, 02:07:09 PM »

I bet if you asked people who are at 50% or greater, if you lost your job today, how quickly would you look for a new job?  That might get you closer to a real answer.

If I lost my job today, I'd start looking for a new job tomorrow.

I probably wouldn't need to actually find one for 10 or more years though...

How does this question answer anything?
« Last Edit: May 04, 2016, 06:08:14 AM by iowajes »

Bateaux

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #9 on: May 03, 2016, 09:46:11 PM »
I only start to trust the numbers when they are 100%.  Even then there is no gurantee.  A 4% SWR would hand us 60k a year and 85% chance of sucess.  The long held belief in the 4% SWR is not 100%.  For me to reach 100% at my desired 60k per year i need a 3% SWR.  That means we need to start with 2 million dollars. We need about 500k or so give or take 100k.  Healthcare is in flux.  Healthcare i will certainly wait on the election for.  Cruz is gone so that was a sigh of relief. No debt but still have kid college expenses.  Also there is a recession looming.  Maybe not a bad one but certainly a downtrend will hit the market.  My occupation is nearly recession proof so i will wait it out.  Somewhere in the 2018 to 2020 window hopefully it all melds.  We hit 2 million NW, a workable healthcare plan comes about and my paraniod self feels comfortable enough to FIRE. 

Tyn

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #10 on: May 04, 2016, 04:35:03 AM »
95+ camp, I'm planning for a small stash (all I can manage without changing careers) and low annual spending so I don't feel I'd have as much flexibility to reduce spending during down years.  My semi-FI plan already involves transitioning to part-time work, so I want the full FIRE one to not be likely to need that as an option.

Monkey Uncle

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #11 on: May 04, 2016, 05:19:42 AM »
95%+.  I've played around with cFiresim enough to notice that seemingly small changes in the inputs can cause significant swings in the success probability.  And I always keep in mind that it is modeling historical outcomes, not predicting the future.  I was investing full-on in stocks through the 2000-'02 and 2007-'08 bear markets, so sequence of return risk scares the shit out of me.  I held on through the carnage and benefited from the rebounds, so I don't doubt my ability to stay the course, but if I'm living off of my stash during a similar downturn, I'd be forced to sell low.  Add to all of that the fact that I'll be drawing heavily on the stash in the early years until SS and pension kick in, and I want to be damn sure I've slain the beast.

But if I apply the "what if I lost my job today" test, I probably wouldn't be in a great hurry to look for another one.  Right now I'm between 79 and 100%, depending on assumed spending, so I consider myself quasi-FI.

rantk81

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #12 on: May 04, 2016, 06:51:15 AM »
Definitely 95+% for me.

I have a fabulously high paying job right now.  Pay is one thing, happiness is another.  I mostly don't like my job nor my employer, nor a couple of the managers in my org structure at work.

However, with as high of a salary as I have now, it makes more sense to "tough it out a while longer" and keep the fire-hose of money flowing, instead of having to go back to work at a later point, at a (probably) much lower salary.  I do not have confidence in myself to find another job that pays this well, especially if I have had a long lapse in employment at some point.

I want to be able to know that I am "DONE FOR GOOD" when I am done :)

forummm

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #13 on: May 04, 2016, 07:13:12 AM »
95%+.  I've played around with cFiresim enough to notice that seemingly small changes in the inputs can cause significant swings in the success probability.  And I always keep in mind that it is modeling historical outcomes, not predicting the future.  I was investing full-on in stocks through the 2000-'02 and 2007-'08 bear markets, so sequence of return risk scares the shit out of me.  I held on through the carnage and benefited from the rebounds, so I don't doubt my ability to stay the course, but if I'm living off of my stash during a similar downturn, I'd be forced to sell low.
If you have bonds and the market drops 50%, your expenses would probably be funded by dividends and selling bonds (and the bonds will have increased in price due to flight to safety). So you may not even have to sell any stocks while the downturn is still active. If you're 60/40, you become heavily overweight in bonds if the market drops 50%, so you'd sell those first.

mak1277

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #14 on: May 04, 2016, 08:12:22 AM »
I'm 90-95%...once I retire, I have no desire to work again or take on a side hustle.  That's just not part of my plans, so I want to make darn sure I'm in a good place when I pull the plug.  That said, I consider a withdrawl rate between 3-4% to be a "good place".

seattlecyclone

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #15 on: May 04, 2016, 11:23:43 AM »
nereo made a good point in the other thread that the difference in stash required for a 0% success rate and a 100% success rate isn't as big as one might expect. The difference between a 90% success rate and a 100% success rate is even smaller. Once you're already at 90% and have a sizable enough stash that your investments are growing as fast as you can contribute new money, it seems likely that you could get all the way to 100% in a matter of months.

For that reason I put >95% because the extra work time required to get that extra margin of safety just isn't that large. But if I was at 90% or something and got laid off, I'd probably be comfortable enough giving retirement a try to see how it goes.

brooklynguy

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #16 on: May 04, 2016, 02:57:12 PM »
nereo made a good point in the other thread that the difference in stash required for a 0% success rate and a 100% success rate isn't as big as one might expect. The difference between a 90% success rate and a 100% success rate is even smaller. Once you're already at 90% and have a sizable enough stash that your investments are growing as fast as you can contribute new money, it seems likely that you could get all the way to 100% in a matter of months.

Using cfiresim's default settings, in order to move from a 90% success rate to a 100% success rate, you need to decrease your withdrawal rate from ~4.45% to ~3.6%, which means you need to increase the size of your stash by 25%.  That's a dramatic difference that would require a relatively long time to accumulate unless you have an extraordinary savings rate or experience incredible investment returns.

Monkey Uncle

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #17 on: May 05, 2016, 04:44:01 AM »
nereo made a good point in the other thread that the difference in stash required for a 0% success rate and a 100% success rate isn't as big as one might expect. The difference between a 90% success rate and a 100% success rate is even smaller. Once you're already at 90% and have a sizable enough stash that your investments are growing as fast as you can contribute new money, it seems likely that you could get all the way to 100% in a matter of months.

Using cfiresim's default settings, in order to move from a 90% success rate to a 100% success rate, you need to decrease your withdrawal rate from ~4.45% to ~3.6%, which means you need to increase the size of your stash by 25%.  That's a dramatic difference that would require a relatively long time to accumulate unless you have an extraordinary savings rate or experience incredible investment returns.

Another way to look at this is that a typical bear market could easily reduce your stash enough to cut your success probability from 100% to 90%.  So if I were looking to retire a year or two into a bear market, I might be willing to accept 90% success, whereas if I were retiring now with stocks near all-time highs, I'd try to get as close to 100% as possible.

forummm

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #18 on: May 05, 2016, 08:10:00 AM »
nereo made a good point in the other thread that the difference in stash required for a 0% success rate and a 100% success rate isn't as big as one might expect. The difference between a 90% success rate and a 100% success rate is even smaller. Once you're already at 90% and have a sizable enough stash that your investments are growing as fast as you can contribute new money, it seems likely that you could get all the way to 100% in a matter of months.

Using cfiresim's default settings, in order to move from a 90% success rate to a 100% success rate, you need to decrease your withdrawal rate from ~4.45% to ~3.6%, which means you need to increase the size of your stash by 25%.  That's a dramatic difference that would require a relatively long time to accumulate unless you have an extraordinary savings rate or experience incredible investment returns.

Another way to look at this is that a typical bear market could easily reduce your stash enough to cut your success probability from 100% to 90%.  So if I were looking to retire a year or two into a bear market, I might be willing to accept 90% success, whereas if I were retiring now with stocks near all-time highs, I'd try to get as close to 100% as possible.

But stocks are usually at or near their all-time highs. I forget the stat, and could be way off, but it's something like 50% of the time they are within 5% of an all-time high. And then they go higher of course. These backtesting calculators use all of the historical scenarios for this reason, including those times where the markets were at or near all-time highs (which is maybe half the scenarios).

Ramblin' Ma'am

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #19 on: May 05, 2016, 12:49:05 PM »
I chose 90-95%. There are always a lot of retailers hiring part-time employees near me. So if worse came to worst, I could add a part-time gig to my investment earnings.

BlueMR2

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #20 on: May 07, 2016, 03:55:34 PM »
I gotta go 95%+.  While I'm generally tolerant of risk (I race cars, ride motorcycles, etc), in the IT field, once you hit 40, you're done ever getting a new job.  Retire and there's no getting back in.  Once I retire, I'll probably never be able to find work again as I'm overqualified for the jobs that are available and the ones I'm appropriate qualified for are in an extremely ageist industry.

LeRainDrop

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #21 on: May 07, 2016, 04:39:12 PM »
I went with 80-90%.  Truth is, I'm just over 60% right now; I have been in a very high stress, high hours, high compensation job for 8 1/2 years (attorney in biglaw); and I'm ready at this stage to make a significant change in my career.  I'm ready to sacrifice a great deal of compensation in exchange for better work-life balance, better work environment, etc.  I wouldn't say that I'm about to retire because I still want a full-time job, but I certainly would take a massive pay-cut for something that's a more enjoyable, less consuming work environment.  I think at 80-90%, I would scale back on work even further.

ender

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #22 on: May 07, 2016, 04:50:32 PM »
It depends. Currently? It could be pretty low, because I'm young and easily could reenter the workforce in some capacity if FIRE failed (though it would, since our chance of success is currently 0%). Failure would be more of an "oops" than a full-on failure.

Our expenses as a couple are pretty stable. Both of us have good health. It'd would be easy to reenter the workforce.

There are a lot of variables that might affect this later and make my risk lower. Health, having children, family to take care of. Lots of things might affect this as we get closer.

Nangirl17

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #23 on: May 07, 2016, 05:59:00 PM »
>95% for me.
I'm currently at 80%ish, and it will be a while before hitting >95% because I went to part time work in January. I didn't want to sacrifice the prime years with my son just so I could retire early and then find that he is in his teens and wants very little to do with me... I'd rather work part time, enjoy my time with him, and then when he is in his teens and wants very little to do with me then I can work more to finish off the retirement stash! So far, I'm LOVING the trade off. Even if I have to work until 65 (which I won't - even at part time I could retire in under 20 years), spending this precious time with my son has been so rewarding!! I'm also finding that I'm LOVING my job a whole lot more - even looking forward to going into work after being off for a few days! Right now, life is grand!

EnjoyIt

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #24 on: May 07, 2016, 06:38:01 PM »
Although I chose 90-95%. I think I would like to change my answer to 80-90%.
I see no reason why I can't cut my lifestyle a little in down times.  Maybe 1 less vacation, maybe a little less fish in my diet for a year. I think I could make it work.

But realistically I plan to work full time until I hit about 20x and then go part time thereafter. I expect growth to get me there and then some.  If I was fired and had an 80% success rate I would very likely not look for work very hard. Eventually I would go back part time because work is fun.

Metric Mouse

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #25 on: May 08, 2016, 04:34:42 AM »
nereo made a good point in the other thread that the difference in stash required for a 0% success rate and a 100% success rate isn't as big as one might expect. The difference between a 90% success rate and a 100% success rate is even smaller. Once you're already at 90% and have a sizable enough stash that your investments are growing as fast as you can contribute new money, it seems likely that you could get all the way to 100% in a matter of months.

Using cfiresim's default settings, in order to move from a 90% success rate to a 100% success rate, you need to decrease your withdrawal rate from ~4.45% to ~3.6%, which means you need to increase the size of your stash by 25%.  That's a dramatic difference that would require a relatively long time to accumulate unless you have an extraordinary savings rate or experience incredible investment returns.

Another way to look at this is that a typical bear market could easily reduce your stash enough to cut your success probability from 100% to 90%.  So if I were looking to retire a year or two into a bear market, I might be willing to accept 90% success, whereas if I were retiring now with stocks near all-time highs, I'd try to get as close to 100% as possible.

But stocks are usually at or near their all-time highs. I forget the stat, and could be way off, but it's something like 50% of the time they are within 5% of an all-time high. And then they go higher of course. These backtesting calculators use all of the historical scenarios for this reason, including those times where the markets were at or near all-time highs (which is maybe half the scenarios).

Fantastic point Forummm. No sense in timing the market. Take the plunge and follow your investment plan. Trust the math.  It's really that simple.  It's not so hard to factor in sequence of return risks into an investment plan, though it may make the 'stache as a little bigger.

Clearly from the results of the poll we can see people are risk adverse. Not un expected. I myself choose the 75% scenario, even though my own FIRE probably didn't follow that line. I guess that would be the point where I went back to looking for work, when the numbers were looking like there was less than 70% chance of making it.  So far so good!

New Attitude

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #26 on: May 08, 2016, 10:53:19 AM »
As others have said, there's always the possibility of going back to work until the markets return, to reduce your draw down of assets.  It's not that hard to make $20-30K in this country, even if elderly.  So my plan is, if we hit a few years like 2009, is to pick up whatever extra work I can and reduce my spending to minimal levels, to reduce withdrawals on my portfolio until asset values return.

Aussiegirl

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #27 on: May 08, 2016, 11:24:10 AM »
Mine's 90 - 98% depending on what I put in and the assumptions I use.    I continue to fall into the OMY trap in order to get this percentage higher, I'm thinking I'd like 96-100%.  Am I being ridiculously conservative? 

In those 2-10% failures, why do they occur, what circumstances come together to mean that your portfolio fails?  And if you know that, can you either construct your portfolio so that you avoid those circumstances or take action at the time to damage which would mean your portfolio wouldn't fail?

EnjoyIt

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #28 on: May 08, 2016, 02:07:40 PM »
In those 2-10% failures, why do they occur, what circumstances come together to mean that your portfolio fails?  And if you know that, can you either construct your portfolio so that you avoid those circumstances or take action at the time to damage which would mean your portfolio wouldn't fail?

Usually portfolio failure occurs if right as you retire the market crashes big, lasts for many years,  and you are still withdrawing the same 4% you were originally planning on.
There are 2 ways to mitigate this:
1) Go back to work part time to supplement your spending. 
2) Spend less
3) A little bit of both

Keep in mind, retirement calculators do not take human nature into account.  Most people naturally will spend less when times appear to be tougher.  It is not like the market will crash and you will continue spending as usual. I am sure if you have the capability to cut your spending by 20% or find a way to make a little money during recessions you will be practically bullet proof.

In addition, many people find ways to make a little money during retirement.  This cuts your withdrawal rate during those years a little giving you even more security.
This is one of the reasons why I am saving up enough to allow plenty of travel during my retirement.  If the market crashes I will travel less for a few years.  No big deal.

John Doe

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #29 on: May 08, 2016, 03:17:24 PM »
My risk threshold is quite high. Currently invested fully in Canadian dividend paying equities with few US holdings also. We are fortunate that my wife has a DB pension plan which allows for a higher risk tolerance.

ModernIncantations

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #30 on: May 08, 2016, 03:25:30 PM »
Wow, everyone's so conservative. I'm that one outlier tapping out at 40-50%. Paid off house + $100 - $150k in cash and I'm leaving the rat race. We'll get by on ad-hoc income from there, making sure that we run a profit each year. Sort of disingenuous as we're not actually FI

... more like perpetually, minimally financially dependent.

EnjoyIt

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #31 on: May 08, 2016, 06:45:41 PM »
Wow, everyone's so conservative. I'm that one outlier tapping out at 40-50%. Paid off house + $100 - $150k in cash and I'm leaving the rat race. We'll get by on ad-hoc income from there, making sure that we run a profit each year. Sort of disingenuous as we're not actually FI

... more like perpetually, minimally financially dependent.

May I ask how are you going to support your lifestyle?
Will you be working part time?

Metric Mouse

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #32 on: May 11, 2016, 03:21:47 AM »
Wow, everyone's so conservative. I'm that one outlier tapping out at 40-50%. Paid off house + $100 - $150k in cash and I'm leaving the rat race. We'll get by on ad-hoc income from there, making sure that we run a profit each year. Sort of disingenuous as we're not actually FI

... more like perpetually, minimally financially dependent.

Sounds like you're trading one job for another...

steveo

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #33 on: May 11, 2016, 05:24:55 AM »
I just did Sol's thread and I'm looking at 95% success rate. I'm not really happy with that because I think it's way too conservative and I don't think I really like work anyway.

To be fair to myself I have 3 young kids and I don't want to move them to another area and I really don't want to go back to work. I also use a variable withdrawal rate which basically makes a 5% WR give me a 93% success rate.
« Last Edit: May 11, 2016, 05:27:13 AM by steveo »

Fastfwd

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #34 on: May 11, 2016, 06:02:52 AM »
I bet if you asked people who are at 50% or greater, if you lost your job today, how quickly would you look for a new job?  That might get you closer to a real answer.

I think it also depends a lot on what you do exactly. I work in IT on a very specific specialty that is a technological moving target. If I am out of the workplace for more than a year I become completely unemployable in this specialty.

Once I pull the plug my only option is to find work with a basic salary; no more above average income.

happy

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #35 on: May 11, 2016, 06:55:57 AM »
I put 80-90%, but I'm happy to accept 80%.  Reasons being I'll be 60 or so when I retire, so the max period I'm covering would be 40 years and probably only 30. It also could be less than that although I have several close family who have lived to close to 90. That quite different to retiring at 30, IMO.  Secondly I have quite a bit of excess equity in my house, which will be downsized at some point, but I haven't counted that in calculations. Thirdly at least at this point, my country has a  reasonable safety in the form of an Old Age pension and healthcare: that could of course have diminished in 30 years time. Finally I don't believe life and world events can in practice be reduced to a mathematical probability of 100%. I'm with Bernstein
Quote
any estimate of long-term financial success greater than about 80% is meaningless.
..fromhttp://www.efficientfrontier.com/ef/901/hell3.htm

Aussiegirl

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #36 on: May 11, 2016, 02:56:22 PM »
Keep in mind, retirement calculators do not take human nature into account.  Most people naturally will spend less when times appear to be tougher.  It is not like the market will crash and you will continue spending as usual. I am sure if you have the capability to cut your spending by 20% or find a way to make a little money during recessions you will be practically bullet proof.

In addition, many people find ways to make a little money during retirement.  This cuts your withdrawal rate during those years a little giving you even more security.
This is one of the reasons why I am saving up enough to allow plenty of travel during my retirement.  If the market crashes I will travel less for a few years.  No big deal.

Agreed EnjoyIt, I've got a healthy allowance for travel built into our retirement calculator that we'll probably use when we're younger but once we hit 70, chance of wanting to get on a long haul flight will be low (and anywhere from Australia is a long haul flight!).   And if some years we don't go because the markets crap, then its not such a hardship.

This forum has been instrumental in getting me comfortable with early retirement - my naturally conservative nature would have had me working till 2018 (or beyond - the pull of OMY is strong), but really, another 2 years of work is 2 years of my life I'll never get back and its really not necessary.  Thanks all.

Gunny

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #37 on: May 11, 2016, 05:00:52 PM »
I'm currently invested at about 80/20 in my retirment stash.  We are FIRED but we live on my pension and my substitute teaching income.  I'm not touching the stash for several years since, if I precede my wife in death, the pension goes away.  This leaves my wife with SS of about 2400/mo and the stash.  Once stash hits 800k, I will decide then on a WR.  Since wife will depend on the stash upon my demise, when I start withdrawals in 7 years at 60 I will be comfortable with 95%.

steveo

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #38 on: May 15, 2016, 04:42:18 AM »
This and Sol's thread have made me reassess my retirement number. They are both good stuff. They should be combined.

forummm

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #39 on: May 15, 2016, 07:38:00 AM »
This and Sol's thread have made me reassess my retirement number. They are both good stuff. They should be combined.

Glad they helped. They are separate polls, so it wouldn't make sense to combine them. But they both have links to each other in the threads, so people should be able to find them from each other.

2Birds1Stone

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #40 on: May 15, 2016, 07:45:32 AM »
I would be comfortable at 50% success rate on my *desired* spending level.

I can always earn income or cut expenses. I want to get out of the corporate rat race asap.

Rubic

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #41 on: May 15, 2016, 03:05:24 PM »
I've enjoyed reading both this thread and Sol's.

I'll invert the question and my response a bit by first stating that I got to MMM by way of thinking, "Hmm, I wonder if I can just quit working and retire early." After reading through these forums I plugged in the numbers to cfiresim and, based on my semi-frugal lifestyle, came out with a 99% success rate.  A lot of you might think that I've worked too long, but until last year I thoroughly enjoyed my work, and it didn't significantly interfere with other aspects of my life (e.g. ultracycling).
 
Going forward, I'm in the process of divesting myself of material possessions (stuff) that would crimp my ability to lead a semi-nomadic lifestyle while I'm young enough to enjoy traveling.  These options might not have occurred to me had I not read through many of the FIRE journals/blogs here and elsewhere.  I'm appreciative that so many people are willing to share their knowledge.

Metric Mouse

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #42 on: May 16, 2016, 04:29:19 AM »
I've enjoyed reading both this thread and Sol's.

I'll invert the question and my response a bit by first stating that I got to MMM by way of thinking, "Hmm, I wonder if I can just quit working and retire early." After reading through these forums I plugged in the numbers to cfiresim and, based on my semi-frugal lifestyle, came out with a 99% success rate.  A lot of you might think that I've worked too long, but until last year I thoroughly enjoyed my work, and it didn't significantly interfere with other aspects of my life (e.g. ultracycling).
 
Going forward, I'm in the process of divesting myself of material possessions (stuff) that would crimp my ability to lead a semi-nomadic lifestyle while I'm young enough to enjoy traveling.  These options might not have occurred to me had I not read through many of the FIRE journals/blogs here and elsewhere.  I'm appreciative that so many people are willing to share their knowledge.

Congrats! Let us know how divesting yourself of a job goes as well! Good luck with your future plans.

phwadsworth

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #43 on: May 16, 2016, 06:24:40 AM »
What's your number, and why?
You didn't specify a withdrawal plan, and I answered the poll before I realized that you probably mean a straight 4% withdrawal, the default.  Using 4% straight withdrawal I get a about 79% success rate, but if switch to the Variable Spending scenario and allow myself to be flexible the success rate bumps to 97%.  Basically, my goal withdrawal rate is not frugal, so I have a lot fat that I can trim in the bad years, and still be living a happy lifestyle.  I answered the poll at 80-90%, because that's what I would need to see, with very flexible long term spending.  I guess this is not core mustachianism though, since I could just lower my lifetime annual withdrawal rate to that low number and retire earlier.

forummm

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #44 on: May 16, 2016, 11:05:03 AM »
What's your number, and why?
You didn't specify a withdrawal plan, and I answered the poll before I realized that you probably mean a straight 4% withdrawal, the default.  Using 4% straight withdrawal I get a about 79% success rate, but if switch to the Variable Spending scenario and allow myself to be flexible the success rate bumps to 97%.  Basically, my goal withdrawal rate is not frugal, so I have a lot fat that I can trim in the bad years, and still be living a happy lifestyle.  I answered the poll at 80-90%, because that's what I would need to see, with very flexible long term spending.  I guess this is not core mustachianism though, since I could just lower my lifetime annual withdrawal rate to that low number and retire earlier.

The withdrawal plan is whatever plan you intend to follow. Same with your intended spending level, pensions, SS, unusual and temporary future expenses (like college for the kids), etc. You can be very specific about those items in cFIREsim. It's a great tool.

arebelspy

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #45 on: June 30, 2016, 07:35:09 AM »
Wow, everyone's so conservative.

+1.

I can't use cFIREsim, cause our portfolio is mostly real estate.  But I'd estimate my chances are just north of 50% of not needing more paid work? 

We pulled the trigger early, another year or two likely would have put us to a more comfortable 80%+, but it was time.

I have a better than 50% chance to never have to work again, and a slightly worse than coinflip chance of going out to pick up some extra money.  I'll take those odds.

Quote
I'm that one outlier tapping out at 40-50%. Paid off house + $100 - $150k in cash and I'm leaving the rat race. We'll get by on ad-hoc income from there, making sure that we run a profit each year. Sort of disingenuous as we're not actually FI

... more like perpetually, minimally financially dependent.

Good on you.  Sounds fun.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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brooklynguy

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #46 on: June 30, 2016, 09:16:24 PM »
I can't use cFIREsim, cause our portfolio is mostly real estate.  But I'd estimate my chances are just north of 50% of not needing more paid work? 

I'm surprised your estimate is that low.  Didn't you say you continue to have a positive savings rate in retirement?  Is it because you expect your expenses to go up (presumably it's not because you expect your rental income to go down)?

arebelspy

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #47 on: July 01, 2016, 12:57:44 AM »
I can't use cFIREsim, cause our portfolio is mostly real estate.  But I'd estimate my chances are just north of 50% of not needing more paid work? 

I'm surprised your estimate is that low.  Didn't you say you continue to have a positive savings rate in retirement?  Is it because you expect your expenses to go up (presumably it's not because you expect your rental income to go down)?

Well... it's really hard to get an accurate estimate.  So I fluctuate between "we never have to work for money again!" and "we'll definitely have to go back at some point."  My 50/50 estimate is approximately how much time I spend in each stage.  ;)

I do expect my expenses to go up, but only to the level I projected pre-FIREing. We're way below that right now, and if we stayed at this low level forever, we'd have no problems whatsoever.  But I don't necessarily expect them to rise past what I had projected (aka pulled out of nowhere).

It's more that I think my SWR is lower than my ROI.  So while I think we can get along just fine on cash flow for decades(?), we could still hit ER failure.  With my type of income, over time it could fall in real terms if expenses outpace inflation and/or rents underperform inflation.

So we do have a positive savings rate, for now.  But that's not even enough to guarantee having "enough."

For example, i someone had 1MM and wanted to spend in line with the 4% rule, and had a higher ROI than that 4%, so they had a positive savings rate, and a flat inflation rate, but it was higher than their savings rate, they'd run out of money, even with a positive savings rate.

Hypothetical: Person has 1MM, is invested in a one-year CD that paid 5% (and had access to this investment forever, in this hypothetical), and they spent 4% (40k), and reinvest 1% of it (10k), with a 3% inflation rate, the first year they'd spend 40k, reinvest 10k.  The next year, at 3% inflation, they'd spend 41200 (an extra 1.2k over the year before), but they'd have only generated an extra $500 (5% return on the extra 10k invested).  Their expenses are growing faster than their reinvestments. 

Eventually the amount they withdraw (the initial 40k, but adjusted up for inflation) will be higher than the interest generated, so they won't be reinvesting any anymore.  This happens in year 11.  They then have a negative savings rate, and start eating into principal to maintain their lifestyle.  At the end of year 18, their portfolio has fallen back below it's original 1MM.

After 30 years, they'd have about half their initial starting capital (~500k), and only generating ~30k (with their expenses being ~94k annually at that point).  By year 37, they're out of money.

This is someone with a guaranteed investment return of 5% and a positive savings rate of 20% (1% of their 5% return), and they ran out of money after less than 40 years!

Now, obviously they only had a real positive return of ~1.94% (5% nominal, 3% inflation) and were withdrawing 4%, so we can see disaster coming when we understand real return.  But you can easily see why someone who says "I have a withdrawal rate less than my ROI, and a 20% savings rate!" would think they're in good shape, even though they're headed for disaster.

This is the situation I'm in.  My ROI on my rentals (just my cash on cash return, not counting appreciation and principal paydown) is much higher than my "WR" (aka spending amount).  Due to this, I have a positive savings rate.

Yet my "WR" may still be too high, and I may still be heading for portfolio failure.  I don't know.  But it is an added risk, if expenses outpace inflation or rents underperform inflation.  Then I could have a real return, like our doomed investor, of less than my spending rate, all while having a positive savings rate, and not even know it.

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?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

jim555

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #48 on: July 01, 2016, 03:41:36 AM »
95+.  I don't want side hustles if that can be avoided.

brooklynguy

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Re: Retirement portfolio failure: What's your risk threshold?
« Reply #49 on: July 01, 2016, 07:10:55 AM »
This is the situation I'm in.  My ROI on my rentals (just my cash on cash return, not counting appreciation and principal paydown) is much higher than my "WR" (aka spending amount).  Due to this, I have a positive savings rate.

Yet my "WR" may still be too high, and I may still be heading for portfolio failure.  I don't know.  But it is an added risk, if expenses outpace inflation or rents underperform inflation.  Then I could have a real return, like our doomed investor, of less than my spending rate, all while having a positive savings rate, and not even know it.

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?

I meant that presumably you don't expect your rental income to go down on an inflation-adjusted basis.  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?  So your cFIREsim-equivalent success odds are probably closer to 100% than 50% (unless your projected increase in inflation-adjusted living expenses is high enough to make the reverse true, but it sounds like that's not the case based on your description of your concern).