Kitces article on lower prob of retirement success ok

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am
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Kitces article on lower prob of retirement success ok

Post by am »

https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
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Re: Kitces article on lower prob of retirement success ok

Post by Normchad »

His articles are great. I was just reading that one today. The main point is also echoed frequently in here. Failure doesn’t have to mean you die broke and starving in an alley. Be flexible and adjust as you go. Or more to the point, make sure you have a plan that allows for flexibility if things go sideways.

For me, I’m seriously looking at the VPW spreadsheet to guide my spending levels into retirement. It will adjust annually with market changes, and looks like something that will work well for us.
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Re: Kitces article on lower prob of retirement success ok

Post by Marseille07 »

Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great. I was just reading that one today. The main point is also echoed frequently in here. Failure doesn’t have to mean you die broke and starving in an alley. Be flexible and adjust as you go. Or more to the point, make sure you have a plan that allows for flexibility if things go sideways.

For me, I’m seriously looking at the VPW spreadsheet to guide my spending levels into retirement. It will adjust annually with market changes, and looks like something that will work well for us.
VPW is good if you don't care to leave anything on the table. My concern is, VPW will run into a death spiral where your capital depletes so much to the point that you have to withdraw a high percentage of your portfolio just to survive; and there's no turning back at that point as you can't rebuild the portfolio.
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Re: Kitces article on lower prob of retirement success ok

Post by am »

I say run firecalc to 50% success level spending. 1/2 chance that you will enjoy much more spending until death is pretty damn good. If things start going bad, adjust. My question is: how does kitces adjust and how do you know your off track?
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Re: Kitces article on lower prob of retirement success ok

Post by Dottie57 »

Marseille07 wrote: Sun Jan 10, 2021 7:00 pm
Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great. I was just reading that one today. The main point is also echoed frequently in here. Failure doesn’t have to mean you die broke and starving in an alley. Be flexible and adjust as you go. Or more to the point, make sure you have a plan that allows for flexibility if things go sideways.

For me, I’m seriously looking at the VPW spreadsheet to guide my spending levels into retirement. It will adjust annually with market changes, and looks like something that will work well for us.
VPW is good if you don't care to leave anything on the table. My concern is, VPW will run into a death spiral where your capital depletes so much to the point that you have to withdraw a high percentage of your portfolio just to survive; and there's no turning back at that point as you can't rebuild the portfolio.
My concern too.
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Re: Kitces article on lower prob of retirement success ok

Post by gips »

am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
we've taken this approach, I retired at 58 with the idea that we'd spend more money through our 60s than our 70s. The market has been good to us over the last 7 years and I've consulted pt through the pandemic so our 40-60 portfolio is up quite a bit from the point of retirement despite those expenses. Still, the market is cyclical and we expect a bear market at some point...our backup plan is to sell a vacation home.

best,
Last edited by gips on Sun Jan 10, 2021 8:26 pm, edited 1 time in total.
Tamalak
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Re: Kitces article on lower prob of retirement success ok

Post by Tamalak »

Great article. I'm early retiring at a number that gives some chance of failure. We have limited years :sharebeer
typical.investor
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Re: Kitces article on lower prob of retirement success ok

Post by typical.investor »

am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
It's an interesting look, but a couple of points:
They pay 1.2% in all-in weighted average fees

In this 95% probability of success scenario, that amount (Note: withdrawal not fee) is $6,769 per month ($81,228 per year), which, once we back out the $3,500 in Social Security income, amounts to an initial portfolio withdrawal rate of approximately 3.3%.
So that's what, 27% of your total withdrawals going towards fees? [1.2%/4.5% ie. fees + withdrawal]

Sure we can accept a lower probability of success, and failure won't kill us. What about reinvesting that 1.2% each year instead of paying the advisor. Surely the legacy will be more protected.
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Re: Kitces article on lower prob of retirement success ok

Post by zaboomafoozarg »

Interesting article, but with the goal of retiring 15 or 20 years early I feel like that success rate needs to be 99% in order for me to consider quitting.
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Re: Kitces article on lower prob of retirement success ok

Post by Wanderingwheelz »

That’s it, I’m buying a Ferrari.

There is literally no way Kitces is taking on clients who are only looking at a 50% chance of retiring without too much worry. Otherwise his phone would be ringing nonstop. I realize the article wasn’t written by him, but I have to think he endorsed it.

This strikes me as financial porn for millennials, nothing more and nothing less. “I really can retire on $700,000!”
Last edited by Wanderingwheelz on Sun Jan 10, 2021 7:22 pm, edited 1 time in total.
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Re: Kitces article on lower prob of retirement success ok

Post by jhawktx »

Kitces articles are always an absolute must read. Extremely valuable advice and analysis. If you read, understand, and follow the learnings from Kitces you could save many, many thousands of dollars in your portfolio over a lifetime. [Disrespectful comment removed by moderator oldcomputerguy]
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Re: Kitces article on lower prob of retirement success ok

Post by am »

Wanderingwheelz wrote: Sun Jan 10, 2021 7:19 pm That’s it, I’m buying a Ferrari.

There is literally no way Kitces is taking on clients who are only looking at a 50% chance of retiring without too much worry. Otherwise his phone would be ringing nonstop. I realize rfid want written by him, but I have to think he endorsed it.

This strikes me as financial porn for millennials, nothing more and nothing less. “I really can retire on $700,000!”
If you have just enough to cover essentials then 50% does not cut it. I think this will work for those who have a lot of discretionary expenses built in to the budget and other backups like selling a vacation home or moving to lower cost of living area. Beats grinding away at a job for an extra 5 years to achieve a 99% success rate which can also fail, or hearing about absurdly low withdrawal rates.
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Re: Kitces article on lower prob of retirement success ok

Post by WoodSpinner »

am wrote: Sun Jan 10, 2021 7:03 pm I say run firecalc to 50% success level spending. 1/2 chance that you will enjoy much more spending until death is pretty damn good. If things start going bad, adjust. My question is: how does kitces adjust and how do you know your off track?
I am not comfortable with this advice.

If you are going to go this route you need a tool that allows you to:
- Better understand the magnitude of the adjustment (10% or 80%) and timing (e.g. 25 years in or 5 years in).
- Ability to use Expected returns NOT Historical returns over a variety of periods
- Ability to use various inflation rates (Personal, Health, Housing) over a variety of periods
- Customize Spending patterns, deal with lumpy expenses etc.
- Accurately (as possible) deal with taxes

I think Firecalc is a great quick and dirty tool but I would NOT bet my Retirement on it — especially at a 50% rate.

If you are a DIYer, the Flexible Retirement Planner (FRP) might be a good place to start but I suspect there are even better Monte Carlo modeling tools out there ( I just don’t know about them).

What has worked for me is using a detailed model (via Additional Inputs and Settings) then exporting the detailed results to Excel to better understand any spending shortfalls and the parameters they are most sensitive to.

https://www.flexibleretirementplanner.com/wp/

Anyway, that’s how I approach my planning.

WoodSpinner
Last edited by WoodSpinner on Sun Jan 10, 2021 7:33 pm, edited 1 time in total.
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Re: Kitces article on lower prob of retirement success ok

Post by WoodSpinner »

Dottie57 wrote: Sun Jan 10, 2021 7:04 pm
Marseille07 wrote: Sun Jan 10, 2021 7:00 pm
Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great. I was just reading that one today. The main point is also echoed frequently in here. Failure doesn’t have to mean you die broke and starving in an alley. Be flexible and adjust as you go. Or more to the point, make sure you have a plan that allows for flexibility if things go sideways.

For me, I’m seriously looking at the VPW spreadsheet to guide my spending levels into retirement. It will adjust annually with market changes, and looks like something that will work well for us.
VPW is good if you don't care to leave anything on the table. My concern is, VPW will run into a death spiral where your capital depletes so much to the point that you have to withdraw a high percentage of your portfolio just to survive; and there's no turning back at that point as you can't rebuild the portfolio.
My concern too.
Why do you say that? VPW or ABW will not go into a Death Spiral under any circumstances if you use these tools as intended and update at least yearly. What may happen though is the suggested spending may be lower than what you hoped for — if you don’t adjust then you could be in trouble.

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Re: Kitces article on lower prob of retirement success ok

Post by WoodSpinner »

zaboomafoozarg wrote: Sun Jan 10, 2021 7:16 pm Interesting article, but with the goal of retiring 15 or 20 years early I feel like that success rate needs to be 99% in order for me to consider quitting.
Unfortunately that will be rarely possible, assuming you mean no spending cuts and all of your retirement goals are met — it’s the other extreme from a 50% probability.

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Re: Kitces article on lower prob of retirement success ok

Post by Watty »

Kitces article on lower prob of retirement success ok
One thing that the article does not address is that most retirement models are based on a 30 year retirement and many people will not live the full 30 years. For example if someone retires at 65 and most models will assume that they will live to be 95, but a large percentage of people will not actually live that long.

If you want to target something like a 95% "success rate" then you really need to focus on the odds that you will actually run out of money before you die, not just before you turn 95.

This is one of the few retirement calculators that I have seen which tries to calculate the odds that you will end up, "Rich, Broke, or Dead".

https://engaging-data.com/will-money-last-retire-early/

One problem with it though is that it is based on the life expectancy of one person and for a couple the chances of one of them living the full 30 years is a lot higher than if you just look at one person.

https://www.kitces.com/joint-life-expec ... alculator/
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Re: Kitces article on lower prob of retirement success ok

Post by Triple digit golfer »

What am I missing here? A guy writes an article saying that you can retire with only a 50% chance of success and just adjust your spending down if the market isn't cooperative?

Well duh. Isn't that obvious? Just spend less!
Mathematically, of course it works. But practically, if people don't have the excess in their budgets, then it won't work.

Seems like just another way of saying retire with more than you'll need.
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Re: Kitces article on lower prob of retirement success ok

Post by TheNightsToCome »

Watty wrote: Sun Jan 10, 2021 8:14 pm
Kitces article on lower prob of retirement success ok
One thing that the article does not address is that most retirement models are based on a 30 year retirement and many people will not live the full 30 years. For example if someone retires at 65 and most models will assume that they will live to be 95, but a large percentage of people will not actually live that long.

If you want to target something like a 95% "success rate" then you really need to focus on the odds that you will actually run out of money before you die, not just before you turn 95.

This is one of the few retirement calculators that I have seen which tries to calculate the odds that you will end up, "Rich, Broke, or Dead".

https://engaging-data.com/will-money-last-retire-early/

One problem with it though is that it is based on the life expectancy of one person and for a couple the chances of one of them living the full 30 years is a lot higher than if you just look at one person.

https://www.kitces.com/joint-life-expec ... alculator/
The folks on this board are also likely to live longer, on average, than standard mortality tables would predict.
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Re: Kitces article on lower prob of retirement success ok

Post by am »

[quote="Triple digit golfer" post_id=5727260 time=1610328508 user_id=13599

Seems like just another way of saying retire with more than you'll need.
[/quote]

Yes agree. But many here retire with more than they need and plan on a 2-3% swr. I think it’s a good reminder for many us that it’s ok to retire earlier with less as long as your ok adjusting down to the usual conservative swrs that we hear mentioned here. But if there is a 1/2-2/3 chance of not having to adjust down, I’d rather do that then die with millions that will be squandered by my heirs.
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Re: Kitces article on lower prob of retirement success ok

Post by Tib »

typical.investor wrote: Sun Jan 10, 2021 7:11 pm
am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
It's an interesting look, but a couple of points:
They pay 1.2% in all-in weighted average fees

In this 95% probability of success scenario, that amount (Note: withdrawal not fee) is $6,769 per month ($81,228 per year), which, once we back out the $3,500 in Social Security income, amounts to an initial portfolio withdrawal rate of approximately 3.3%.
So that's what, 27% of your total withdrawals going towards fees? [1.2%/4.5% ie. fees + withdrawal]

Sure we can accept a lower probability of success, and failure won't kill us. What about reinvesting that 1.2% each year instead of paying the advisor. Surely the legacy will be more protected.
Agree. If I withdraw an inflation-adjusted 4% from my portfolio but pay an advisor 1% per year to manage it, the advisor is getting 1/4 of the pretax withdrawal. "Where are the customers' yachts?" Better to learn to manage your portfolio yourself, for as long as you can.
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Re: Kitces article on lower prob of retirement success ok

Post by Dottie57 »

WoodSpinner wrote: Sun Jan 10, 2021 7:29 pm
Dottie57 wrote: Sun Jan 10, 2021 7:04 pm
Marseille07 wrote: Sun Jan 10, 2021 7:00 pm
Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great. I was just reading that one today. The main point is also echoed frequently in here. Failure doesn’t have to mean you die broke and starving in an alley. Be flexible and adjust as you go. Or more to the point, make sure you have a plan that allows for flexibility if things go sideways.

For me, I’m seriously looking at the VPW spreadsheet to guide my spending levels into retirement. It will adjust annually with market changes, and looks like something that will work well for us.
VPW is good if you don't care to leave anything on the table. My concern is, VPW will run into a death spiral where your capital depletes so much to the point that you have to withdraw a high percentage of your portfolio just to survive; and there's no turning back at that point as you can't rebuild the portfolio.
My concern too.
Why do you say that? VPW or ABW will not go into a Death Spiral under any circumstances if you use these tools as intended and update at least yearly. What may happen though is the suggested spending may be lower than what you hoped for — if you don’t adjust then you could be in trouble.

WoodSpinner
I think I will probably need MORE money when older - For helpers, medicine, other healthcare.
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Re: Kitces article on lower prob of retirement success ok

Post by Watty »

zaboomafoozarg wrote: Sun Jan 10, 2021 7:16 pm Interesting article, but with the goal of retiring 15 or 20 years early I feel like that success rate needs to be 99% in order for me to consider quitting.
It would be good to be careful about fixating on the 99% success figure.

The problem is that there is only about a hundred years of usable investing data and it is even debatable if the older date is relevant today since the investing environment today is so much different.

When you only have 100 years of data and you are looking at 30 year investing periods that means that you only have 70 data sets. With that little data there will be a lot of noise in the data and it will not be very accurate so the difference between 99% and some other number may not really be reliable enough to depend on even if the data from a hundred years ago is still relevant.
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Re: Kitces article on lower prob of retirement success ok

Post by JoeRetire »

It's a good article and a good discussion about interpreting ("framing") analysis results for clients.

"However, in reality, for clients that are receiving ongoing advice and are able to adjust spending along the way, there’s little risk they would actually ever run out of money, at least assuming that they can and are willing to make the necessary reductions in spending in a subset of adverse (e.g., bear market) scenarios. For our hypothetical couple above, Social Security provided a ‘floor’ of $3,500 in monthly income. How close that floor gets to covering their truly essential expenses is likely an important factor in thinking about what probability of success to use."

If you are willing and able to live on what Social Security plus any pensions will provide for income, you can retire whenever you like and take whatever risk you like. Remember, that is a different number for a couple than for a sole survivor.
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Re: Kitces article on lower prob of retirement success ok

Post by JoeRetire »

zaboomafoozarg wrote: Sun Jan 10, 2021 7:16 pm Interesting article, but with the goal of retiring 15 or 20 years early I feel like that success rate needs to be 99% in order for me to consider quitting.
What matters is how much flexibility you have in your income desires. If you are willing to live on whatever your pensions and social security provides, you can retire whenever you like without regard to the "success rate" number.
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

Tharp's point is the same that many here, including myself, have been making for years now: 'failure' of something like the '4% rule' doesn't mean 'financial ruin'. Rather, it refers to 'the likelihood of needing to make downward spending adjustments', such as reducing your discretionary spending for a while. Further, even small but permanent adjustments can make a big difference over time, such as the fact that just taking a permanent 3% cut (basically foregoing one's inflation adjustment) after stocks had a negative year would have increased the 30 year SWR to 4.56%.
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

WoodSpinner wrote: Sun Jan 10, 2021 7:29 pm
Dottie57 wrote: Sun Jan 10, 2021 7:04 pm
Marseille07 wrote: Sun Jan 10, 2021 7:00 pm
Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great. I was just reading that one today. The main point is also echoed frequently in here. Failure doesn’t have to mean you die broke and starving in an alley. Be flexible and adjust as you go. Or more to the point, make sure you have a plan that allows for flexibility if things go sideways.

For me, I’m seriously looking at the VPW spreadsheet to guide my spending levels into retirement. It will adjust annually with market changes, and looks like something that will work well for us.
VPW is good if you don't care to leave anything on the table. My concern is, VPW will run into a death spiral where your capital depletes so much to the point that you have to withdraw a high percentage of your portfolio just to survive; and there's no turning back at that point as you can't rebuild the portfolio.
My concern too.
Why do you say that? VPW or ABW will not go into a Death Spiral under any circumstances if you use these tools as intended and update at least yearly. What may happen though is the suggested spending may be lower than what you hoped for — if you don’t adjust then you could be in trouble.

WoodSpinner
Correct. Also, there is no rule saying that you must withdraw what VPW or ABW says that you can. You can always withdraw less.
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Re: Kitces article on lower prob of retirement success ok

Post by MP123 »

Watty wrote: Sun Jan 10, 2021 9:24 pm When you only have 100 years of data and you are looking at 30 year investing periods that means that you only have 70 data sets.With that little data there will be a lot of noise in the data and it will not be very accurate so the difference between 99% and some other number may not really be reliable enough to depend on even if the data from a hundred years ago is still relevant.
Agreed. And I'll add that almost all of those data sets overlap very substantially. For example, the period from 1960-1991 isn't that much different than 1961-1992.
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Re: Kitces article on lower prob of retirement success ok

Post by Random Walker »

Dottie57 wrote: Sun Jan 10, 2021 9:19 pm I think I will probably need MORE money when older - For helpers, medicine, other healthcare.
I tend to strongly agree with you. My advisor consistently tells me that it generally doesn’t work out that way. The costs of healthcare and helpers is offset by lack of other expenses. Perplexes me a bit.

Dave
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

Random Walker wrote: Sun Jan 10, 2021 10:09 pm
Dottie57 wrote: Sun Jan 10, 2021 9:19 pm I think I will probably need MORE money when older - For helpers, medicine, other healthcare.
I tend to strongly agree with you. My advisor consistently tells me that it generally doesn’t work out that way. The costs of healthcare and helpers is offset by lack of other expenses. Perplexes me a bit.

Dave
In our MCOL area, the cost of a home health aide is around $27/hr. Hiring one at that rate for three 8 hours days a week would be a bit under $34k annually, about what we plan to spend on discretionary items in retirement anyway. By the time that we need an aide, I'll bet that we won't be doing much globetrotting.
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Re: Kitces article on lower prob of retirement success ok

Post by AlohaJoe »

Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great.
Whose articles are great? Michael Kitces didn't write the linked article. Some guy who works at Conscious Capital did.
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Re: Kitces article on lower prob of retirement success ok

Post by Random Walker »

willthrill81 wrote: Sun Jan 10, 2021 10:27 pm
Random Walker wrote: Sun Jan 10, 2021 10:09 pm
Dottie57 wrote: Sun Jan 10, 2021 9:19 pm I think I will probably need MORE money when older - For helpers, medicine, other healthcare.
I tend to strongly agree with you. My advisor consistently tells me that it generally doesn’t work out that way. The costs of healthcare and helpers is offset by lack of other expenses. Perplexes me a bit.

Dave
In our MCOL area, the cost of a home health aide is around $27/hr. Hiring one at that rate for three 8 hours days a week would be a bit under $34k annually, about what we plan to spend on discretionary items in retirement anyway. By the time that we need an aide, I'll bet that we won't be doing much globetrotting.
Yes, that’s exactly the sort of trade off my advisor describes.

Dave
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

AlohaJoe wrote: Sun Jan 10, 2021 10:35 pm
Normchad wrote: Sun Jan 10, 2021 6:56 pm His articles are great.
Whose articles are great? Michael Kitces didn't write the linked article. Some guy who works at Conscious Capital did.
Derek Tharp has written some other really good posts on Kitces' site, including the impact of various levels and types of spending adjustments and issues with most Monte Carlo analyses. He's got a Ph.D. now.
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Re: Kitces article on lower prob of retirement success ok

Post by marcopolo »

am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
Call me cynical, but this just seems like a long winded justification for very expensive ongoing financial advice aimed at keeping clients as captive hostages.

The article repeatedly talks about how keeping withdrawal rates higher, such as 50% failure rate, requires ongoing monte carlo simulations to make adjustment, which the authors will be happy to do for the client for only a 1.2% AUM (in their assumptions for Monte Carlo simulations)!

Seems to me, if instead, the client kept their expenses to 0.2% (or even lower), they would not need to take on the risk of 50% failure rates. They are only being put into that precarious position because of the hefty fees being charged by the financial advisers.
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Re: Kitces article on lower prob of retirement success ok

Post by dknightd »

I've never had much faith in either Monte Carlo schemes, or historical return methods, to predict what my retirement spending might look like. I consider them both useful, but flawed methods. But I can't think of a better method, so use them both. There are online resources that will do these calculations for no charge. We had an advisor (free from TIAA) also provide guidance, but this was mostly so my wife could see an expert came up with about the same numbers I did, and it was probably OK for me to retire. Yes, I know that TIAA WMA is not really free, it is hidden in the fees they charge, but that is a different discussion.

So far I've only made it part way through the linked article. I'm not the target audience. I'll probably read the rest of it. Maybe.

But I tend to agree with the thinking. If you have a client (even if that client is yourself) who can easily reduce their spending by 50%, and is willing to do so, then a 50% success rate is not an unreasonable target.

I have three spending numbers in mind when I do our planning.
1) comfortable enough for both of us, and, comfortable enough for one of us. When I claim SS in 7 years that will be covered. Wife's small pension, and our purchased annuity, are both dual life, to account for decrease in SS when one of us dies. I'm 90+% sure we will always be comfortable enough (I'd say 100%, but nothing is really 100%)
2) Wife's estimate of our needs. Which fortunately fell between 1) above, and 3) below. Both TIAA advisor and I agree we have a high probability of being able to afford this. Perhaps interestingly, and relevant, is that the TIAA advisor is NOT allowed to project a plan that has less than 85% chance of "success". Perhaps I should send him a link to the article, but TIAA is pretty conservative and I can not imagine them suggesting a client accept a 50% chance of "failure".
3) more than enough for both of us. I guesstimate a 75% chance of that. It really is only an educated guess based on Monte Carlo, historical returns, and how long we might live.

The interesting thing is the spending difference between 1) and 3) is about 20-25%. About the same difference between projected success and failure.

If I was a financial advisor, and had a client who was willing and able to reduce their spending by 50%, I might suggest that a 50% "success" rate was a reasonable thing to consider. As long as they could continue to pay me 1%
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds. Retired 9/19. Still working on mortgage payoff.
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

marcopolo wrote: Mon Jan 11, 2021 4:38 am
am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
Call me cynical, but this just seems like a long winded justification for very expensive ongoing financial advice aimed at keeping clients as captive hostages.

The article repeatedly talks about how keeping withdrawal rates higher, such as 50% failure rate, requires ongoing monte carlo simulations to make adjustment, which the authors will be happy to do for the client for only a 1.2% AUM (in their assumptions for Monte Carlo simulations)!

Seems to me, if instead, the client kept their expenses to 0.2% (or even lower), they would not need to take on the risk of 50% failure rates. They are only being put into that precarious position because of the hefty fees being charged by the financial advisers.
I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Kitces article on lower prob of retirement success ok

Post by dknightd »

willthrill81 wrote: Mon Jan 11, 2021 11:12 am

I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
I imagine some clients like to hear they can take out more than they can afford. I imagine some Financial Advisors do not care. I have a strange imagination.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds. Retired 9/19. Still working on mortgage payoff.
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

dknightd wrote: Mon Jan 11, 2021 11:22 am
willthrill81 wrote: Mon Jan 11, 2021 11:12 am

I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
I imagine some clients like to hear they can take out more than they can afford. I imagine some Financial Advisors do not care. I have a strange imagination.
Not that I think that this applies to Tharp, the author's article, or Kitces, but Hanlon's razor comes to mind.

"Never attribute to malice that which is adequately explained by stupidity."
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
59Gibson
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Re: Kitces article on lower prob of retirement success ok

Post by 59Gibson »

Triple digit golfer wrote: Sun Jan 10, 2021 8:28 pm What am I missing here? A guy writes an article saying that you can retire with only a 50% chance of success and just adjust your spending down if the market isn't cooperative?

Well duh. Isn't that obvious? Just spend less!
Mathematically, of course it works. But practically, if people don't have the excess in their budgets, then it won't work.

Seems like just another way of saying retire with more than you'll need.
+1 Nothing groundbreaking here. Good times= spend. Bad times=stop spending. The problem is everyone has an absolute min. where do you cut from there? P/T job, move to VLCOL,
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Re: Kitces article on lower prob of retirement success ok

Post by Wanderingwheelz »

dknightd wrote: Mon Jan 11, 2021 11:22 am
willthrill81 wrote: Mon Jan 11, 2021 11:12 am

I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
I imagine some clients like to hear they can take out more than they can afford. I imagine some Financial Advisors do not care. I have a strange imagination.
It’s been a lot time since I was a financial advisor but I don’t recall a single retired client that was using a plan to do anything other than use their dividends and interest. People tend to be very careful with their principal, understandably.

Obviously, there were those without a plan that were spending principal like crazy, but those folks typically were not dealing with assets they’d earned themselves. Windfalls are handled much differently than self-made “fortunes” however large or small. Three clients come to mind right away, and one inherited quite a bit when several McDonald’s were sold after her parents passing and another who was given a very large gift by her brother who was an executive at UPS pre-IPO. The third one I won’t even go into is was such a mess.
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Re: Kitces article on lower prob of retirement success ok

Post by Random Walker »

willthrill81 wrote: Mon Jan 11, 2021 11:12 am
The article repeatedly talks about how keeping withdrawal rates higher, such as 50% failure rate, requires ongoing monte carlo simulations to make adjustment, which the authors will be happy to do for the client for only a 1.2% AUM (in their assumptions for Monte Carlo simulations)!

Seems to me, if instead, the client kept their expenses to 0.2% (or even lower), they would not need to take on the risk of 50% failure rates. They are only being put into that precarious position because of the hefty fees being charged by the financial advisers.
I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
[/quote]

Certainly AUM fees, expense ratios, and taxes need to be incorporated into the recommended withdrawal rate. But current equity valuations imply low future expected returns for equities and current bond yields imply low future expected returns for bonds. An advisor using current expected portfolio returns compared to historical returns will end up recommending a lower withdrawal rate for those reasons too.

Dave
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Re: Kitces article on lower prob of retirement success ok

Post by Random Walker »

willthrill81 wrote: Mon Jan 11, 2021 11:12 am
marcopolo wrote: Mon Jan 11, 2021 4:38 am
am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
Call me cynical, but this just seems like a long winded justification for very expensive ongoing financial advice aimed at keeping clients as captive hostages.

The article repeatedly talks about how keeping withdrawal rates higher, such as 50% failure rate, requires ongoing monte carlo simulations to make adjustment, which the authors will be happy to do for the client for only a 1.2% AUM (in their assumptions for Monte Carlo simulations)!

Seems to me, if instead, the client kept their expenses to 0.2% (or even lower), they would not need to take on the risk of 50% failure rates. They are only being put into that precarious position because of the hefty fees being charged by the financial advisers.
I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
Certainly AUM fees, expense ratios, and taxes need to be incorporated into the recommended withdrawal rate. But current equity valuations imply low future expected returns for equities and current bond yields imply low future expected returns for bonds. An advisor using current expected portfolio returns compared to historical returns will end up recommending a lower withdrawal rate for those reasons too.

Dave
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Re: Kitces article on lower prob of retirement success ok

Post by Random Walker »

willthrill81 wrote: Mon Jan 11, 2021 11:12 am
marcopolo wrote: Mon Jan 11, 2021 4:38 am
am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
Call me cynical, but this just seems like a long winded justification for very expensive ongoing financial advice aimed at keeping clients as captive hostages.

The article repeatedly talks about how keeping withdrawal rates higher, such as 50% failure rate, requires ongoing monte carlo simulations to make adjustment, which the authors will be happy to do for the client for only a 1.2% AUM (in their assumptions for Monte Carlo simulations)!

Seems to me, if instead, the client kept their expenses to 0.2% (or even lower), they would not need to take on the risk of 50% failure rates. They are only being put into that precarious position because of the hefty fees being charged by the financial advisers.
I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
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Re: Kitces article on lower prob of retirement success ok

Post by willthrill81 »

Random Walker wrote: Mon Jan 11, 2021 11:44 am
willthrill81 wrote: Mon Jan 11, 2021 11:12 am I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
Certainly AUM fees, expense ratios, and taxes need to be incorporated into the recommended withdrawal rate. But current equity valuations imply low future expected returns for equities and current bond yields imply low future expected returns for bonds. An advisor using current expected portfolio returns compared to historical returns will end up recommending a lower withdrawal rate for those reasons too.

Dave
Yes, I'm not saying that all FAs who are advocating low WRs are doing so for selfish reasons. Rather, recommending 'higher' WRs does not seem to be something that a selfishly minded FA would do.
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Re: Kitces article on lower prob of retirement success ok

Post by geerhardusvos »

TheNightsToCome wrote: Sun Jan 10, 2021 8:34 pm The folks on this board are also likely to live longer, on average, than standard mortality tables would predict.
I disagree. There’s a “healthy life expectancy” box on the engaging data tool that is pretty accurate. Most people in this forum will probably die between age 80 and 90, and there will be some who are before and after that, but more likely before than after.
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Re: Kitces article on lower prob of retirement success ok

Post by marcopolo »

willthrill81 wrote: Mon Jan 11, 2021 11:12 am
marcopolo wrote: Mon Jan 11, 2021 4:38 am
am wrote: Sun Jan 10, 2021 6:51 pm https://www.kitces.com/blog/monte-carlo ... nimum-odds


Main takeaway is that we can accept a lower probability of success down to 50%, spend more initially as long as we are prepared to make downward adjustments if necessary in the future. I would like to know how kitces adjusts clients spending based on market returns and portfolio levels if adjustments need to be made. Seems to me to be a good way to start retirement (perhaps earlier) rather then spending less and ending up with 3x portfolio level at the end.
Call me cynical, but this just seems like a long winded justification for very expensive ongoing financial advice aimed at keeping clients as captive hostages.

The article repeatedly talks about how keeping withdrawal rates higher, such as 50% failure rate, requires ongoing monte carlo simulations to make adjustment, which the authors will be happy to do for the client for only a 1.2% AUM (in their assumptions for Monte Carlo simulations)!

Seems to me, if instead, the client kept their expenses to 0.2% (or even lower), they would not need to take on the risk of 50% failure rates. They are only being put into that precarious position because of the hefty fees being charged by the financial advisers.
I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
I think the stickiness of the client is more important than a marginally higher Asset amount.

Remember, the message is

"You can withdraw a little more, but ONLY if you stick with me on an ongoing basis to run these complicated simulations, otherwise you have a high probability of failure".

Of course, forgetting to mention that the high probability of failure comes from the high fees being paid.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Kitces article on lower prob of retirement success ok

Post by marcopolo »

willthrill81 wrote: Mon Jan 11, 2021 11:24 am
dknightd wrote: Mon Jan 11, 2021 11:22 am
willthrill81 wrote: Mon Jan 11, 2021 11:12 am

I would have thought that an FA charging an AUM fee would just recommend a super-low withdrawal rate, which is what most are doing right now, in order to keep the AUM fee high. Telling clients that they can withdraw more would be counter-productive to that.
I imagine some clients like to hear they can take out more than they can afford. I imagine some Financial Advisors do not care. I have a strange imagination.
Not that I think that this applies to Tharp, the author's article, or Kitces, but Hanlon's razor comes to mind.

"Never attribute to malice that which is adequately explained by stupidity."

You think the FAs are stupid?!?
I think that they think the clients are stupid.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Kitces article on lower prob of retirement success ok

Post by TheNightsToCome »

geerhardusvos wrote: Mon Jan 11, 2021 12:09 pm
TheNightsToCome wrote: Sun Jan 10, 2021 8:34 pm The folks on this board are also likely to live longer, on average, than standard mortality tables would predict.
I disagree. There’s a “healthy life expectancy” box on the engaging data tool that is pretty accurate. Most people in this forum will probably die between age 80 and 90, and there will be some who are before and after that, but more likely before than after.
Wealthier people live longer than the average person. The folks on this board tend to be relatively wealthy. Ergo, longer than average life expectancy for forum members.
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Re: Kitces article on lower prob of retirement success ok

Post by 59Gibson »

I'm just curious how an article like this can be reconciled with what is frequently seen on this board of 1.5-2.5%SWR for sometimes less than 30 years. Seems like a huge disconnect.
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Re: Kitces article on lower prob of retirement success ok

Post by Ben Mathew »

Failure rate calculations have never made much sense because it assumes a withdrawal strategy that does not make sense--withdraw a fixed dollar amount without adjusting for portfolio performance. A sensible withdrawal strategy will adjust to portfolio performance. Nobody fails. You just end up withdrawing more or less. So it's better to think about the distribution of withdrawal amounts -- e.g. at age 76, you will withdraw more than $58,000 +/- $8,000 with 90% probability.

For withdrawal strategies that adjust naturally to portfolio performance, see amortization based withdrawal (ABW).
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Re: Kitces article on lower prob of retirement success ok

Post by geerhardusvos »

TheNightsToCome wrote: Mon Jan 11, 2021 12:34 pm
geerhardusvos wrote: Mon Jan 11, 2021 12:09 pm
TheNightsToCome wrote: Sun Jan 10, 2021 8:34 pm The folks on this board are also likely to live longer, on average, than standard mortality tables would predict.
I disagree. There’s a “healthy life expectancy” box on the engaging data tool that is pretty accurate. Most people in this forum will probably die between age 80 and 90, and there will be some who are before and after that, but more likely before than after.
Wealthier people live longer than the average person. The folks on this board tend to be relatively wealthy. Ergo, longer than average life expectancy for forum members.
There have been some studies that show that being wealthy does potentially elongate life by 5-10 years from the median and average death numbers, which is significant, but that's 10 years more than ~78 years old. So 88 years old would be the maximum expected age preservation due to people having wealth. That doesn't necessarily speak to quality of life, but there is likely a correlation there too.

https://www.cdc.gov/nchs/fastats/life-expectancy.htm

Knowing your family genetics, history, and honestly looking at your own habits/lifestyle is still the best way to determine life expectancy, and this can be a highly individual thing and still very hard to predict. It's reasonable for most people who are healthy to expect to live to 85-92; I personally am budgeting for 90 years on this earth, but that bus could hit me tomorrow. Interestingly, I've seen on this forum people get nose bleeds over trying to ensure they have enough money until they turn 100, and yet they don't realize that either their genetics or many of the habits in their life are probably going to kill them long before they run out of money. Weird how people look at risk and what they focus on. I have known so many healthy, wealthy people who die in their 50s that I have my own thoughts on that.
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