10-20% failure rate? Well, what’s the failure rate for an annuity? There must be a nonzero risk that the company you buy from will go under. Similarly, how much is the premium when you purchase one over investing? (how much more money do you need?)
When they run the Monte Carlo analysis they assume fixed withdrawal rates. If you have sufficient assets outside the retirement funds to lower the withdrawal rate during down markets you can do a lot towards stretching the money. If during the periodic market corrections you can limit withdrawals to income only you can preserve capital. That’s my plan, to have sufficient assets in dividend stocks to live on the dividends alone if necessary.
That’s an enormous failure rate. Would you be comfortable with a 20% chance of being flat-ass broke when you turn 85?
It would be dumb to just take out 50k at the beginning of each year. Why not use 50k per year but take it out as you need it rather than in one lump sum each jan 1, so the rest of the money can continue to earn interest.
I would be comfortable with a plan with a 10 - 20% failure rate as I would monitor carefully enough to spot the chances rising (or, even, not falling) and modify my expenditure accordingly.
I retired at 52, three years ago. I have a 50-year plan (my wife is younger than I). Every January I monitor the returns from our investments, our expenditure, and set budgets for the upcoming year - and beyond, if necessary.
And there’s a chance you will drop dead, and a chance you’ll be healthy until 102. OTOH, none of the scenarios here discuss various countries’ old age pensions, social security etc.
(Although here in Canada, I think, never checked, that Canada Pension Plan only collects and pays on earned income. So if the OP stops working and lives off investment income at say, 40 years old, the pension will be a lot lower than the max. Social Security like that?)
My attitude is that once you need assisted living, the government will put you in there (if you don’t go voluntarily) and it will soak up all your available income, and then some; so they will take all your assets to pay for that, and whatever you can’t afford, the government will take.
A simple data point from family acquaintances - a nice assisted living home will cost about $50,000 a year in NJ, going up to about $80,000 for Alzheimer care. Are you prepared to starve your lifestyle now on the chance you will need that? Or try to save such a huge amount that you can pay that rate well into your ninth decade?
You can’t really plan for a total collapse of the market, George W Bush style. Just as you couldn’t plan for 1970’s and 80’s inflation, the early 80’s wildly swinging interest rates, or the risk of Argentina or Zimbabwe hyperinflation… or like the former Soviet Union, your civil service pension is today the equivalent of a cup of coffee and your savings are good for toilet paper.
All you can do is assume things will vary within reasonable range, plan for slightly less than average performance in the future, and hope that you will be pleasantly surprised. And don’t put all your eggs in one basket.
Any financial forecasting over about 5 years is as much hand-waving as anything.
As for accounting for inflation - don’t. DO all your calculations in today’s dollars, and simply adjust things like rate of return to be net after inflation. It’s too confusing to say “I’ll have a million dollar income, but a cup of coffee will cost $100.” We can’t easily relate to that. It’s far easier to say “I’ll have a $50,000 income equivalent.”
I suppose if you’ve got a budget with room for downward adjustment, you can accept a risk of not being able to live lavishly every year; you can put off that trip to Morocco for a year or two until the market recovers. But if you’re planning to retire on a shoestring budget, you don’t have room for downward adjustment in any given year, and so a 10-20% chance of not meeting your goals could see you out on the street.
True, but this thread at least started out asking about retiring very young (a 60 year retirement). I don’t think it makes sense to retire early if your budget has no leeway in it. Or if you are not prepared to go back to work if necessary,
It’s hard to monetize the investment, but I’ll make 6.5% overnight on the 300 Forever stamps I bought today. If you could figure out a way to scale up the business, that would guarantee retirement.