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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Posted: Tue Jun 30, 2020 5:47 pm
by BigJohn
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.

Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Posted: Wed Jul 01, 2020 12:20 pm
by spreadsheetguy
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.

It’s like the story of the drunk guy looking for his keys at night under the lamp post. His friend says, “Are you sure you lost them here?” And he says, “ I didn’t but there’s more light here than where I lost them!” You tend to only analyze and study aspects of your life that you can measure and things that you can’t really “see” are ignored.

Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Posted: Wed Jul 01, 2020 12:27 pm
by willthrill81
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt

Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Posted: Wed Jul 01, 2020 4:47 pm
by EnjoyIt
willthrill81 wrote: Wed Jul 01, 2020 12:27 pm
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
Ahhh, but if you overestimate too much, maybe you wasted too many precious years of life left. It gets worse when one's life is cut shorter than expected.

This is a tough line to ride and everyone will at some point need to evaluate their own risk tolerance, willingness to work and need to work. I guess if I had nothing better to do than work, then I might as well work. But that isn't my life.

On the other hand some people love work so much and it adds to life's enjoyment. In that case, why ever retire?

Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Posted: Wed Jul 01, 2020 4:53 pm
by willthrill81
EnjoyIt wrote: Wed Jul 01, 2020 4:47 pm
willthrill81 wrote: Wed Jul 01, 2020 12:27 pm
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
Ahhh, but if you overestimate too much, maybe you wasted too many precious years of life left. It gets worse when one's life is cut shorter than expected.

This is a tough line to ride and everyone will at some point need to evaluate their own risk tolerance, willingness to work and need to work. I guess if I had nothing better to do than work, then I might as well work. But that isn't my life.

On the other hand some people love work so much and it adds to life's enjoyment. In that case, why ever retire?
Indeed, it is a very personal assessment based on myriad factors. I'm one of those who will retire the minute that I believe that I safely can.

When I use the time value of money formula to analyze possibilities in our own situation, the amount that we could theoretically withdraw in 12 years is not all very different if we were to live to 'only' 95 instead of 100. While SS benefits from age 70 onward should cover all of our essential spending needs, I still want us to have at least some cushion into my 90s, assuming that I make it that far. But that's just me. And the beauty of this approach is that I can adjust my expectations at any given point in time with ease (e.g. expected returns, desired bequest, remaining life expectancy).

Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Posted: Wed Jul 01, 2020 5:03 pm
by EnjoyIt
willthrill81 wrote: Wed Jul 01, 2020 4:53 pm
EnjoyIt wrote: Wed Jul 01, 2020 4:47 pm
willthrill81 wrote: Wed Jul 01, 2020 12:27 pm
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
Ahhh, but if you overestimate too much, maybe you wasted too many precious years of life left. It gets worse when one's life is cut shorter than expected.

This is a tough line to ride and everyone will at some point need to evaluate their own risk tolerance, willingness to work and need to work. I guess if I had nothing better to do than work, then I might as well work. But that isn't my life.

On the other hand some people love work so much and it adds to life's enjoyment. In that case, why ever retire?
Indeed, it is a very personal assessment based on myriad factors. I'm one of those who will retire the minute that I believe that I safely can.

When I use the time value of money formula to analyze possibilities in our own situation, the amount that we could theoretically withdraw in 12 years is not all very different if we were to live to 'only' 95 instead of 100. While SS benefits from age 70 onward should cover all of our essential spending needs, I still want us to have at least some cushion into my 90s, assuming that I make it that far. But that's just me. And the beauty of this approach is that I can adjust my expectations at any given point in time with ease (e.g. expected returns, desired bequest, remaining life expectancy).
I think most retirees who aren't bogleheads who analyze the crap out of this stuff use a sort of gut feeling time value of money withdrawal strategy. When times are good they spend more and when times are bad they spend less. That's what retirees did before Bengen wrote his 4% paper and that is exactly what retirees will do in the future.

Doing the math helps us not leave money on the table (spend more in retirement) and helps us not waste time working for money we may not need. I have several future retirees who plan to only spend the dividends on their investments who just don't understand total return and other withdrawal strategies.

Doing the math may also help the less than frugal not spend everything too quickly. I prefer doing the math :)