Creating a drawdown schedule with 90-93% success

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goixiz
Posts: 13
Joined: Sun Oct 25, 2020 12:42 pm

Creating a drawdown schedule with 90-93% success

Post by goixiz »

I like to use FRP to create a drawdown schedule
I am 53 (2020) and retired this year
I have the inputs all setup (as far as i know its accurate for investments) , using estimated inflation rate 3%(sd5%)

with stable spending i currently @ 85% success rate
BUT - I see i have $3.1 million dollars in @ age 94 in my portfolio. I do not need that much money at EOL.

How to create a higher success rate and lower the EOL value ??

Thank you

jimr
Posts: 634
Joined: Thu Feb 28, 2008 6:48 pm

Re: Creating a drawdown schedule with 90-93% success

Post by jimr »

It's actually very tough to accomplish what you'd like to do using a probabilistic model.

This is because the ending portfolio value shown is a median value, or 50th percentile value. It's determined by taking the ending portfolio values from all 10,000 simulation iterations or paths, sorting them, then choosing the 5,000th or middle value from the sorted list. This means half the paths through your retirement plan resulted in a lower ending value and half resulted in a higher ending value.

The problem with trying to build a plan with a high probability of success and a near zero ending portfolio value is that to get a high probability of success, your plan has to have a lot of margin in case things go really badly through some of the paths through the simulation. For example, a plan with a 90% probability of success means 90% of the time you'll have extra money left at the at the end of the plan, sometimes a lot of extra money. Of course, this also means 10% of the paths through the simulation ran out of money before the end of the plan (eg failed).

To get an idea of the distribution of ending portfolio values , you can click on the "show portfolio value bands" under the graph or you can mouse over the last (rightmost) bar in the graph to see the dollar amounts of the 10th and 90th percentile ending portfolio values (in addition to the median).

goixiz
Posts: 13
Joined: Sun Oct 25, 2020 12:42 pm

Re: Creating a drawdown schedule with 90-93% success

Post by goixiz »

Thanks for great explanation.

Is it possible to limit the flexible spending range

jimr
Posts: 634
Joined: Thu Feb 28, 2008 6:48 pm

Re: Creating a drawdown schedule with 90-93% success

Post by jimr »

Yes. That's in settings. Look for minimum and maximum percent of expenses to fund under Spending Policy Parameters.

goixiz
Posts: 13
Joined: Sun Oct 25, 2020 12:42 pm

Re: Creating a drawdown schedule with 90-93% success

Post by goixiz »

thank you

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