Optimal certainty-equivalent spending retirements with DataNitro

He mentions near the end that you might want to annuitize.

This takes that into account - you don't spend all of your money until you have no chance of living another year.

(In this case, the assumption is that you might make it to 111 but will not make it to 112, which is not completely true but very accurate.)

If you assume that you always have a decent chance of living one more year, and you're not bringing in additional income, you essentially need to maintain a floor of savings and just live off the interest.

However (and unfortunately), this is a bad assumption. You can show that by calculating the distribution of ages for a human population that has nontrivial survival rates; they don't look anything like the actual human population.

(Explicitly: the survival rate falls off exponentially or faster. In other words, if you don't like 112 as a maximum age, you can assume 125 - that's 2 years older than the longest-lived human being.)

I don't know what country you are in, but if it's in the west you won't die penniless and homeless if you run out of money at age 90. Instead you'll be caught by the old age social safety net, which is generally far superior to the non-old age social safety. In the US, which is one of least generous, you'd be entitled to Medicare, Medicaid, Section 8, SNAP, social security and likely some state programs. So the downside risk to spending it all early, isn't quite as dire as you make it out to be.

There's a more subtle problem with the narrative of outliving your money being a major issue to worry about viz. increasingly high probabilities of cognitive and bodily decline. As your mind and body declines the hedonic benefits of money also decline. At the same time costs rise steeply making it more and more expensive to avoid the public care floor.

Just how much consumption are you willing to forgo in your healthy retirement years in order to spend your last year or two -- perhaps deep in dementia -- in a private room in a fancy nursing home rather than a shared room in a public one?

In this framework, if you have a floor income, your utility is negative infinity below that, and 0 at or above that income.

So basically run the same analysis with that utility function which is the CRRA function as risk aversion parameter gamma approaches infinity.

Alternatively, read Bengen's 1994 article - using historical data at that time, the number he came up with was 4% and a 50/50 stock/bond portfolio - http://www.retailinvestor.org/pdf/Bengen1.pdf

If you wanted to, you could segment your plan into a 'safe' withdrawal portfolio that puts a floor on your retirement income (assuming future is no worse than the past, which is of course not guaranteed), and one that maximizes spending/certainty-equivalent spending for some level of risk aversion.