I posted in another thread more detail of the results of my scenario planning within MoneyGuidePro. It should give a good idea of the trade-offs involved in retirement planning. I will repost that here.
by nedsaid » Tue May 28, 2024 2:28 am
Okay, I am logged into MoneyGuide Pro and I scored a 93% score which is very good. This means out of 1,000 trials that I had 930 successes and 70 failures. In other words, I had money left over at death in 930 of the 1,000 trials. This scenario is built upon retiring at age 66 and 10 months, living to age 92, retiring on the money I am making now, earning 5.80% on my investments with a 59% stock/41% bonds and cash portfolio, and 2% inflation. The plan includes travel, buying a car, and home improvement projects. Here we go.
Looking over the trials, the worst case was running out of money in 2035. I would be only nine years into retirement and still be a relatively young 76 years old. Gosh, at 76 am I old enough to even be a Boglehead?![:wink:]( "Wink")
That means my portfolio only lasted about nine years in retirement. Best case, my net worth grows to eight times what it is now.
Let's do some scenarios. The program has a recommended scenario which takes my 93% score down to 90%, this score represents both needs and wants. This involves taking Roth conversions for 5 years and staying within my current tax bracket. The program seems to like the 90% number, at 93% I am probably too miserly. My needs are met with a 98% score and my needs and wants are met with a 90% score. Pretty darned good.
What happens if I have another 2008-2009 bear market scenario the year that I retire? The portfolio goes down by 21.73% in 2026 and by another
7.94% in 2027. The program assumes that I will still get the 5.80% return during my retirement but take a big hit up front. I still meet all of my goals but I wind up with a lot less money at death. A Great Recession loss of 30% brings my needs met score to 85% and my needs and wants score down to 47%. Wow. The vacation trips, the home improvement, and the newer car will have to wait. I won't be eating dogfood though.
What if inflation averages 4.0% instead of 2%. My needs met score goes down to 86% and my needs and wants score is down to 59%.
What if I get the nightmare 1973-74 scenario with a bear market and Stagflation? I don't want to think about it. With either a bad bear market or 4% inflation, I will get my needs met but the wants are questionable. With both, oh my gosh, that old Camry is going to have to last. With two bad scenarios at the same time, my needs met goes from 98% down to 47% and my needs and wants score goes from 90% down to 13%. No wonder why the 1970's was a bad time to retire.
If Social Security gets cut by 20%, my needs score goes from 98 to 95 and my needs and wants score goes from 90% down to 81%. Okay, I could live with just that.
Hopefully I don't face a 30% bear market hit at the time I retire, 4% inflation, and a 20% Social Security cut all at the same time. Two was bad enough but three is well...unthinkable. Wow. With the hat trick, three bad events happening at the same time, my needs score goes from 98% down to 29%, and my wants and needs score goes down from 90% down to 7%. Holy cow.
Before I get too depressed and the readers get too depressed, keep in mind my purpose is to show the scenario planning that these programs can do and to stress test the plan with negative events.
Okay, let's do a couple more by extending my lifespan. First, lets go from passing on at age 92 and get that out to age 95. My needs only score drops from 98% down to 95%, my needs and wants score goes down from 90% down to 84%. I can live with that. Let's say I make it to 100 like Taylor Larimore, move needs score drops from 98% down to 90% and the needs and wants score falls from 90% down to 74%.
Hopefully, others will find this useful as they do their own retirement planning.
by nedsaid » Tue May 28, 2024 2:28 am
Okay, I am logged into MoneyGuide Pro and I scored a 93% score which is very good. This means out of 1,000 trials that I had 930 successes and 70 failures. In other words, I had money left over at death in 930 of the 1,000 trials. This scenario is built upon retiring at age 66 and 10 months, living to age 92, retiring on the money I am making now, earning 5.80% on my investments with a 59% stock/41% bonds and cash portfolio, and 2% inflation. The plan includes travel, buying a car, and home improvement projects. Here we go.
Looking over the trials, the worst case was running out of money in 2035. I would be only nine years into retirement and still be a relatively young 76 years old. Gosh, at 76 am I old enough to even be a Boglehead?
That means my portfolio only lasted about nine years in retirement. Best case, my net worth grows to eight times what it is now.Let's do some scenarios. The program has a recommended scenario which takes my 93% score down to 90%, this score represents both needs and wants. This involves taking Roth conversions for 5 years and staying within my current tax bracket. The program seems to like the 90% number, at 93% I am probably too miserly. My needs are met with a 98% score and my needs and wants are met with a 90% score. Pretty darned good.
What happens if I have another 2008-2009 bear market scenario the year that I retire? The portfolio goes down by 21.73% in 2026 and by another
7.94% in 2027. The program assumes that I will still get the 5.80% return during my retirement but take a big hit up front. I still meet all of my goals but I wind up with a lot less money at death. A Great Recession loss of 30% brings my needs met score to 85% and my needs and wants score down to 47%. Wow. The vacation trips, the home improvement, and the newer car will have to wait. I won't be eating dogfood though.
What if inflation averages 4.0% instead of 2%. My needs met score goes down to 86% and my needs and wants score is down to 59%.
What if I get the nightmare 1973-74 scenario with a bear market and Stagflation? I don't want to think about it. With either a bad bear market or 4% inflation, I will get my needs met but the wants are questionable. With both, oh my gosh, that old Camry is going to have to last. With two bad scenarios at the same time, my needs met goes from 98% down to 47% and my needs and wants score goes from 90% down to 13%. No wonder why the 1970's was a bad time to retire.
If Social Security gets cut by 20%, my needs score goes from 98 to 95 and my needs and wants score goes from 90% down to 81%. Okay, I could live with just that.
Hopefully I don't face a 30% bear market hit at the time I retire, 4% inflation, and a 20% Social Security cut all at the same time. Two was bad enough but three is well...unthinkable. Wow. With the hat trick, three bad events happening at the same time, my needs score goes from 98% down to 29%, and my wants and needs score goes down from 90% down to 7%. Holy cow.
Before I get too depressed and the readers get too depressed, keep in mind my purpose is to show the scenario planning that these programs can do and to stress test the plan with negative events.
Okay, let's do a couple more by extending my lifespan. First, lets go from passing on at age 92 and get that out to age 95. My needs only score drops from 98% down to 95%, my needs and wants score goes down from 90% down to 84%. I can live with that. Let's say I make it to 100 like Taylor Larimore, move needs score drops from 98% down to 90% and the needs and wants score falls from 90% down to 74%.
Hopefully, others will find this useful as they do their own retirement planning.
Statistics: Posted by nedsaid — Sat Jun 01, 2024 11:06 pm — Replies 462 — Views 118877