No. of Recommendations: 9
So isn't the SOR risk really just "retiring on a showstring" risk?

I prefer to think of it this way:
For any given size of retirement pot, the person with that pot wants to have the lowest possible risk of outliving the savings.
The lowest risk of outliving the chosen income from withdrawals, which is pretty much always assumed to be proportional to the size of the retirement pot.
A millionaire and a multi-millionaire might both think a "4% rule" will work.
They will have very different absolute levels of income, but neither of them wants to withdraw too much...to have the withdrawal program fail.

Sure, the rich guy could withdraw 1% instead of 4%. He's rich. But I'm sure he or she doesn't want to.
Nobody wants to withdraw lots less than what they could get a way with.
So, everybody wants to cut off the extreme downside tails of the probability distribution.
Those are concentrated in the scenarios with poor returns in the first few years of retirement.
Truncate those tails, and you can expect to get much closer to the textbook withdrawal rate working [at any given assumed portfolio return rate].

My current thinking is that yes, you're right, you can't really count on the income during your retirement at all.
If you are, you're in the shoestring category.
Not that the observation helps much...if you are, you are. Not much you can do about it.
But the real reason you can't rely on income during retirement these days is that real rates of return on offer are simply too low.
You might beat the market, but nobody should PLAN on that.
The sad corollary of that is when yields are low, if you want to avoid longevity risk, you either have to buy
insurance against that risk or pick a withdrawal rate that assumes you'll live forever even at low portfolio returns.
OK, at the extreme, a 1% withdrawal rate is probably OK.
Even if you're in 100% cash, few people manage 100 years of retirement.

Jim
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