Day 315
Week 45 Day 7: Your Simulation Dashboard: The Numbers That Matter
After running your simulations, focus on five numbers: (1) Success rate (target: 85-95%). (2) Median ending balance (how much you leave behind in the typical scenario). (3) 10th-percentile ending balance (how much you have in a bad scenario). (4) Median failure age (in failure scenarios, when does the money run out?). (5) Maximum withdrawal rate at 90% success (your personal safe budget).
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Example dashboard: Portfolio: $1,000,000. Withdrawal: $42,000/year (4.2%). Allocation: 70/30. Horizon: 30 years. Success rate: 91%. Median ending balance: $1,800,000. 10th-percentile ending balance: $180,000. Median failure age (in 9% of failures): 92. Max withdrawal at 90% success: $43,000. Assessment: solid plan. The 9% failure scenarios are mild (run out at 92, Social Security covers essentials). You could safely withdraw up to $43,000.
How to interpret each number: (1) Success rate (91%): 91 out of 100 simulated retirements end with money remaining. This is in the 'good' range (85-95%). Below 80% warrants adjustment (reduce spending or work longer). Above 95% suggests potential underspending (you may be leaving too much on the table). (2) Median ending balance ($1,800,000): In the typical scenario, you die with MORE money than you started with. This is extremely common at 4% withdrawals -- the typical outcome is substantial wealth accumulation, not depletion. This raises the question: are you spending enough? The median outcome of the 4% rule is dying with 2-3x your starting portfolio. If that is not your goal (most people want to enjoy their money, not hoard it), consider increasing spending. (3) 10th-percentile ending balance ($180,000): In the worst 10% of scenarios, you end with $180,000 (not zero). This is the 'bad luck but not catastrophic' outcome. Combined with Social Security, this is sustainable. (4) Median failure age (92): In the rare scenarios where the plan fails, it fails late in life. Social Security, home equity, and reduced spending needs at 92 make this survivable. (5) Max withdrawal at 90% success ($43,000): This is your 'personal safe budget.' You can spend up to $43,000 and maintain 90% confidence. This number, more than any other, determines your annual lifestyle in retirement. Action items: (a) If success rate < 85%: reduce spending, extend working years, or increase savings rate. (b) If median ending balance > 3x starting balance: you may be underspending. Increase spending or front-load experiences. (c) If 10th-percentile ending balance < 0: your plan fails in bad scenarios. Reduce spending or add guardrails. (d) If median failure age < 85: failure scenarios are severe. Reconsider the plan.
The five-number retirement dashboard synthesizes decades of safe withdrawal rate research into an actionable framework. The insight that the median outcome of the 4% rule is approximately 3x the starting portfolio (Bengen, 2006; Pfau, 2012) reveals the tension between safety-first planning and optimal lifetime spending. Kitces (2012) observed that the 4% rule is a 'worst-case rule' designed for the 5% of retirees who experience the worst historical sequences. For the other 95%, it results in substantial underspending and a large unspent bequest. This is the 'retirement spending paradox': the safest plans are also the most wasteful of lifetime wealth. Blanchett and Frank (2009) proposed the 'mortality-weighted probability of failure' (MWPF), which weights the probability of portfolio failure by the probability of being alive to experience it. Under MWPF, the 'safe' withdrawal rate increases to approximately 5-6% (because the probability of needing money at age 95 is weighted by the low probability of living to 95). For practical planning, the dashboard approach balances safety and utility: a success rate of 85-95% is deliberately below 100% because achieving 100% would require extreme underspending. The 5-15% failure probability is accepted because: (a) failure scenarios tend to be mild (late-life, partial), (b) other resources (Social Security, home equity) provide a safety net, (c) guardrails and spending flexibility reduce the severity of failure, and (d) the cost of insuring against the last 5-15% (decades of underspending) exceeds the expected cost of the failure itself.
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