My financial planner told me today that I was a “FIRE but SWIM” Financially Independent Retire Eventually but Spend Wildly In the Meantime”. I’m retirement age. Could retire but don’t want to so should feel free to spend every penny of my salary frivolously!
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That’s an awesome situation to be in as long as you always maintain enough to retire should something unexpected happen.
Congrats.to you. That’s enviable.
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Yes. Planner ran one of those Monte Carlo things and said no worries even if I retired today so all salary is pure “ gravy” at this point. I feel very fortunate.
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We’ve run Monte Carlo simulations similar to the one maya mentioned (using retirement planning software from our financial institution, with some guidance from a free advisor).
It’s so cool - you can adjust variables (like date of retirement, possible inflation rate, low returns, etc.) and also include as many future costs as you want (e.g., new HVAC in 10 years, new car every 7 years, LTC estimated costs, etc.)
Wondered if anyone who has done this would like to share what ‘percentage of success of plan’ they are comfortable with?
Our software says between 80-99% is the green zone (aka ‘your money should be fine meeting your needs until death with some left over’).
Wondered what percentage others were looking at? Being super conservative I am thinking we should be at 92% or more…!
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I prefer 99% 
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I know, right? I keep telling my husband we have to think about taking care of 94 year old and 92 year old us. E.g., don’t want them eating beans from the Dollar Store (know this is unlikely … but my mind gravitates to worse case scenarios, relentlessly). lol
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Lol. I thank my kids these days when my wife or I travel Econ Plus or Business (not sure if we could have survived the trip to S. Africa on anything less than Business). My wife hates it when I say this because it implies to our kids they are getting something from us. Funny, I was the tough one when they were growing up and told them they were on their own after we paid for their college education.
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So you can live off your pensions now and not even have to touch SS? Plus you have various retirement accounts and over 100K liquid.
You say you are worried about inflation, but have you done the calculation on how much inflation will have to be until you have to start getting into retirement accounts? I have a feeling inflation would have to be 10% a year for like 5-7 years to make a difference.
I compare this to my Dad who back in like ‘09 when gas got to $4 a gallon was complaining up a storm. But he was retired at the time and drove about 6-8K miles a year. I told him gas would have to get to $10 a gallon to even start making a difference in your life.
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The biggie of course is the TBD need for big LTC expenditure (which could be for one or two people… many years worst case). Not sure what our “percentage” is. Just know that our financial advisor is comfortable with what we spend (and says we could spend more - though LOL, since he is fee-based he’d earn a bit more fee if we were misers). It helps a lot that our house is paid off, and we were able to defer one SS to age 70.
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My mother in law had a great deal of money but one of her kids was worried about running out because of her very high LTC expenses. What I’ve learned from my mother in laws care is that if you have that sizable an amount of money, even very high expenses won’t deplete it based on investment growth ( even figured at a low rate of return ) plus the tax savings from deducting cost of the care.
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These types of percentage estimates are only as accurate as the inputs, and as you mention much if the inputs are unknown. For example, you mentioned that you can adjust an input to control whether investment returns are low/high or whether inflation is low/high. I expect it’s easy to get a low or high chance of overall success by changing inflation adjusted investment return in the calc. However, to accurately estimate your chance, you need to know what is the actual distribution of possible inflation adjusted investment returns. There are many different possible approaches to estimate this, which will result in very different outputs.
For example, you could assume history will repeat itself and base future odds on having equal chance of the ~85 possible different 30-year retirement periods if you had started in all years from 1910 to 1995. This includes 2 especially challenging periods – retiring just before the Great Depression or retiring before 70s stagflation. So if you choose a combination of investments that did well during these 2 challenging events, you’ll get a high percentage. This might result in decisions like allocating a notable portion of portfolio to gold since gold did well during both events, which relates to fed going off gold standard during both events (went off gold standard in 1933, then became depegged from US $ in 1971). However this approach may not protect as well if the next severe and lasting market decline is notably different from the Great Depression or 70s stagflation.
Another approach could be using average and standard deviation of different metrics, rather than historical returns. For example, stock indexes have an average return of x and SD of y. Inflation has an average of m and SD of n. This would return consider that the next severe market decline could be worse than the previous 3 that are available (3rd is 2000s, which would not yet show up in 30-year retirement outcomes). However, this approach is inaccurate because the different variables like investment return and inflation are all correlated with each other, and none have a normal statistical distribution.
Another approach might be to use CAPE and similar stats to estimate chance of severe market decline over next decade. This would estimate increased chance of a severe and lasting market decline over historical returns since CAPE suggests market is currently propped up by speculation.
Retirement spending is also not well known. Few people plan on things like dramatically increased spending in retirement due to needing/wanting home nursing care, but it happens to many.
I could continue, but the point is no model can predict the future accurately, so you may get a wide range of different chance of failure percentages depending on what approach the model uses. As such, I’d take the specific numerical percentage output with a grain of salt and instead generally consider how well prepared you’d be for different potential outcomes, then add a margin beyond that to protect against unknowns.
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My in laws were very frugal.
When my fil went into the nursing home, found out that they can fund the nursing home with the interest that their investments make. No need to spend down any capital
I do wish that they would have spent more on travel and doing things for themselves. I guess it will be nice to inherit, when we are well into our retirement.
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We went to 3 different financial planners and they all said we were good to go. I did eventually go (I’m retired), but I still worry. Long term care can be really really expensive.
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I haven’t done any calculations on inflation, but we are in our mid-60’s, so conceivable could live another 25-30 years…. That’s why I am worried about inflation! And several years of skilled nursing home could wipe out our savings. But if I have anything to say about it, I will be choosing the “Death with Dignity” option if the medical prognosis is grim.
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Our approach is to do short term spurges, no long term commitment. If finances not looking good, we can cut down on vacations and meals out. We prefer not to have things such as a 2nd home that would commit us to double-upkeep expenses (though some clever investors do find ways to have rental cover expenses).
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My father spent the million dollars he got from selling his home in a few years on his care (assisted living plus aides).
I worry less about not having any money in the end, having lived through what happened with him. He now lives in a nursing home paid for by Medicaid, and his care is fine, even though he is basically broke.
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Ya know I used to assume that if needed I could (like my grandfather) flip to Medicaid nursing home patient when/if fund run out. These days I assume that will still be available 30 years down the road, but I’m not certain.
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I’m with you.
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My sister in law had heard so many stories like that and was justifiably worried. My husband and his brother had to explain to her that their mom was fortunate enough to have several times that ( the parents had told the sons who managed their $ but not her how much they had ) so even spending huge amounts on assisted living and aides wouldn’t spend down what she had because even at 5 percent growth her money was earning enough to cover her expenses
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Thank you, Data10, for the detailed information. I am not a statistical expert but my general understanding is that many of those variables are built into the Monte Carlo scenarios (program runs 1,000+ versions). My option to adjust for, say, ‘higher inflation’ is to turn the dial extra high on certain variables and see if even that more extreme scenario allows the plan to work.
LTC is a real open question. I saw my parents needing a lot of care (24/7 aides in my home for months, at the end) so I know it’s a real possibility. We plugged in some relatively large, anticipated numbers for each of us, but I know costs can be higher.
The question is, do you work longer during your healthy, go-go years (foregoing travel, etc.) in order to be extra prepared for the final years? It’s hard to know.
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