Safe Withdrawal Rates and Life Expectancy, Part 3

The other day I wrote about safe withdrawal rates and life expectancy.  I've been working on this some more, and have many half-finished bits and pieces right now. I hope to write more about this in the coming weeks.  But I do have one more figure that fits in nicely with the story from the earlier post.

On the matter of failure rates, people are probably not only interested in the probability they can expect to run out of wealth during retirement.  They probably are also curious to know how long they might live without any remaining wealth.  If they only have to endure one year on just Social Security benefits, it might not be so bad as having run out with another 15 years left to live.  The following figure may be a bit confusing and I should try to think about how else I might present the info.  But what it shows on the x-axis are numbers of years.  And on the y-axis, it shows the probability that you will spend that many years of your retirement without any remaining wealth.  This version is for couples.  It is for a 40% stock allocation, and it is based on the same data as described in the previous entry linked above. I just included the numbers for the zero year case, to keep the scale nice.  Let me just describe the 9% withdrawal rate case to show how it works.  Then you can see about the rest.

With a 40% stock allocation, the failure rate is 85%. That means, 15% of retirees can enjoy making it through their whole retirement without running out of wealth.  As this is based on lifespans, though, unfortunately, most of that 15% are not so lucky after all, really, because probably both members of the couple died just shortly after retiring.  Then, just eye-balling it, you can see that about 2.5% of retirees should expect one year with no remaining wealth, about 2.8% with 2 years of no remaining wealth, and so on.  You can see, there are lots of cases with no wealth left for even 20 or more years.

I thought this figure is kind of interesting.