My "other issue" in retirement is "elapsed time", before I leave this wonderful world. I retired at 58, my family is fairly long lived, so I "figured" on the real possibility of 40+ more years. Then one can "do some math" about how to shepherd one's savings over that period. What has surprised me is how much my retirement fund has appreciated. I had "hoped" I could hold the number constant while living a reasonably comfortable life. That number has doubled, while I have lived a somewhat luxurious life.
I did get some inheritance from my parents which mostly went to paying off the condo. But my notion now is, if you retire "early", don't invest for "widows and orphans" entirely, include some Apples and Costcos in the mix, while holding back enough to "survive" five years. My wife is very frugal, as I was for decades, so at times we have to talk about whether to spend $$ on something like flying premium versus Comfort, or taking another cruise.
Anyway, don't be scared of having SOME "techie" stocks in your portfolios. Or maybe include XLK as an ETF etc.
Yeah, the math is about avoiding failure. It's not a prediction of how much you'll end up with. The various studies look at back-testing every retirement year and modeling the withdrawal rate such that you don't experience "failure", i.e. running out of money before the expected remaining lifetime ends.
That's considered "failure". But most of the expected outcomes are not just 'not running out of money', they're preserving or gaining money.
And the reason is simple. S&P 500 gains, on average, 10.5% nominal per year. Adjusted for inflation, it's closer to 7-8%. So if you're withdrawing, say, 4% per year [inflation adjusted every year], your returns should be close to double your withdrawal rate. So you
should be growing every year.
But that's when sequence of returns risk [SORR] comes in. If you retire into the teeth of a recession, it takes your number down because the S&P 500 in a bad recession can be >50%. And the recovery time isn't always fast. So if it drops 50%, your 4% withdrawal rate is now 8%... If you retired in say, 2000, or 2007, it gets dicey.
This is one reason I'm not trying to retire as soon as I can, I'm trying to retire as soon as I can afford a life with a fair bit of luxury... Because if a good portion of my projected spending is discretionary/luxury, I can tighten the belt significantly in a bad market and reduce my withdrawal.
Assuming I retire "early", I will also be modeling it based on that withdrawal rate covering health insurance and not factoring in SS, even though I'll be expecting Medicare and SS to pad everything down the road.
So my actual expectation is that I'll die with a lot more than I retire with.
