Negative Average Spending Shortfall

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Senator
Posts: 5
Joined: Tue May 27, 2014 1:37 pm

Negative Average Spending Shortfall

Post by Senator »

I am using the standalone version, 04.01.02, Build date 02-22-2014.

When I run my plan, I get 100% probability of success. I also get a percent of Expenses Funded to be 98% - 285%.

What does a negative Average Spending Shortfall mean? I see numbers like -14%.

And if I have a 100% probability of success, when I check "Show Failures (time money ran out)", I get some years that it appears the plan failed. I would think 100% is just that, all years succeeded.

Any information as to how to interpret the results would be appreciated.

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

Re: Negative Average Spending Shortfall

Post by jimr »

Thanks for posting.

As a result of rounding, the planner's probability of success can display 100% even when there are a few failures. 10 failures in 10,000 simulation iterations is a probability of success of 99.9%. To get below 99.5%, you'd need 50 failures in 10k runs. I probably should have still rounded these down to 99% just to be more pessimistic.

A negative spending shortfall is a sign that the spending shortfall metric isn't useful in your particular plan due to the cash flow dynamics of the plan. This is usually the result of a plan that has highly varying cash flows during the retirement years.

Average spending shortfall is intended to be an indication of the severity of the failures that a plan experiences. Simulation iterations where the plan fails in the early years of retirement usually have a higher spending shortfall percent, while those that fail near the end usually have a lower spending shortfall.

In cases where income or expenses are uneven in retirement, the shortfall percent can theoretically turn negative. To see an example of this, click 'new plan' to start a new plan. Set the Taxable Portfolio to $1m and then enter annual retirement income of $80,000 starting at age 80. Run the plan a few times and notice that shortfall percent is usually negative.

This is because when when the plan fails, the algorithm that adds up the 'unfunded' expenses in the remaining years will actually find that income over the remaining years exceeds expenses, which turns the shortfall negative.

If your plan doesn't have uneven cash flows, or this explanation doesn't make sense, please post again.

Jim

Senator
Posts: 5
Joined: Tue May 27, 2014 1:37 pm

Re: Negative Average Spending Shortfall

Post by Senator »

Thanks!

The rounding makes sense. As a programmer myself, I would have done the same. Maybe add a decimal point for a percentage?

I do have a few variable income streams, but not much.
Retire at 56,
VA Disability now - end,
Rental Income at now-64,
Pension at 65 to end,
Lower rental income 65 to end,
Social security at 70 to end.

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

Re: Negative Average Spending Shortfall

Post by jimr »

Those uneven cash flows might explain it. In what years are the failures and how many are there?

Senator
Posts: 5
Joined: Tue May 27, 2014 1:37 pm

Re: Negative Average Spending Shortfall

Post by Senator »

I was trying to duplicate it, but could not. I must have changed a few things. But from memory, it was in the earlier years, between income streams.

If I see it again, I can post.

Senator
Posts: 5
Joined: Tue May 27, 2014 1:37 pm

Re: Negative Average Spending Shortfall

Post by Senator »

The years are 10 through 17. I have seen as high as -157%. And it give me a 99% probability of success. I sent a file if you want to look at it. Just rename the .txt to .frp. I could not upload a frp file, as I got an error.

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

Re: Negative Average Spending Shortfall

Post by jimr »

Did you send the file by email to info@flexibleRetirementPlanner.com? I didn't seem to get it and I don't see anything in my spam folder. Also, if the file has actual personal financial information in it, please change all dollar amounts and any sensitive cash flow names to protect your personal information.

Thanks,

Jim

Senator
Posts: 5
Joined: Tue May 27, 2014 1:37 pm

Re: Negative Average Spending Shortfall

Post by Senator »

I just sent it via email. Originally I attached it to the reply to upload the attachment.

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