Spend to Zero

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Syner01
Posts: 1
Joined: Thu Sep 05, 2024 9:39 am

Spend to Zero

Post by Syner01 »

how to spend to zero in simulation? not looking for an account balance or a low one at the end of the run. prefer the model focus on my retirement spending vs keeping a balance at the end.
jimr
Posts: 848
Joined: Thu Feb 28, 2008 6:48 pm

Re: Spend to Zero

Post by jimr »

FRP isn't really "trying" to have a positive portfolio value at the end of the plan. It just works out that a plan with a high probability of success is very likely to have a large portfolio balance at the end. In a sense, the large ending portfolio value gives the plan the cushion that allows it to show a high probability of success.

As an experiment to (hopefully) understand this better, you could do a series of planner runs where you manually adjust the annual retirement spending amount up or down between each run to try to find the spending level that results in a probability of success that's exactly equal to 50%. Usually when the probability of success equals 50%, the ending portfolio value will be close to zero. (You'll probably want to set the spending policy to stable during this test to keep things simpler).

Unfortunately though, this means if a retiree actually tried to retire with this spending level, they'd end up running out of money at least half of the time before the end of the plan.
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