Risk of Ruin and Success Rates

Definitions

Success rate — The fraction of Monte Carlo trials where your portfolio ends the forecast period with a positive balance. If 200 of 200 trials end with money still in the account, success rate is 100%. If 180 end with money, 20 end empty, success rate is 90%.

Risk of ruin — The fraction of trials where the portfolio reaches zero before the forecast horizon ends. This is slightly different from 1 minus success rate, because some "failed" trials might end with small balances that didn't technically hit zero.

For practical purposes, they convey the same information. Horizons reports success rate directly.

What success rate captures

Success rate reflects the probability that your specific plan — given its assumptions, withdrawals, market model, and horizon — doesn't exhaust the portfolio.

It captures:

• Sequence risk (bad early returns).
• Longevity risk (if horizon extends long enough).
• Inflation risk.
• Market factor interactions.

It doesn't capture:

• Real-world retiree flexibility (many retirees adjust spending during bad markets).
• Non-portfolio wealth (home equity, collectibles, etc.).
• Social Security and pensions (if modeled separately; Horizons includes these).

What's a "good" success rate

Rule of thumb thresholds:

• >95%: very conservative plan. Often over-saving.
• 90–95%: conservative. Appropriate for low-tolerance retirees.
• 85–90%: standard target for most planners.
• 75–85%: moderate risk; acceptable with flexibility to adjust.
• <75%: fragile plan; material changes warranted.

But rigid thresholds mislead. 92% vs 88% success rate is probably within model noise. The direction of the number matters more than the specific value.

The success-rate trap

Two common misreadings:

Over-precision. Treating 91% as meaningfully better than 89%. Models have assumption error; these differences often reflect noise, not real differences.

Ignoring partial failure. A plan with 95% success and 5% catastrophic depletion (all of those trials end with $0 at age 75) is more worrying than 88% success with the failing trials just barely missing. Check the magnitude of failures, not just the count.

Magnitude of failure

If your plan fails, how badly? Important dimensions:

When does the portfolio run out?

• At age 95 (5 years short of a long plan): mildly bad.
• At age 75 (20+ years of spending left): catastrophic.

How much shortfall?

• $20k/year gap: manageable by cutting discretionary spending.
• $60k/year gap: real hardship.

Horizons reports "conditional tail expectation" or similar metrics showing the typical severity of failing trials, not just their count.

Improving success rate

If your plan's success rate is too low, four main levers:

Save more during working years. The most direct lever but limited by how much you can still save.

Delay retirement. Each additional year reduces the horizon and grows the portfolio. One of the highest-impact changes.

Reduce spending in retirement. Lower target spending = lower required portfolio. A 10% reduction in spending often translates to 20%+ improvement in success rate.

Increase allocation risk (for long horizons). Somewhat counterintuitive, but a portfolio with too little equity can actually have worse long-run success than a more aggressive portfolio because of inflation drag.

Delay Social Security. Higher guaranteed income reduces portfolio pressure.

Part-time work in early retirement. Even modest income dramatically improves outcomes.

The 95% fetish

Some retirement planning tools target 95% or 99% success rates by default, which often over-shoots for practical purposes.

Consider: 95% success means 5% failure. Over a population of retirees, 5% is substantial. But for an individual, 5% probability of a catastrophic outcome deserves weight.

On the other hand:

• Retirees are usually flexible; spending adjusts in bad markets.
• Non-portfolio assets exist (home equity, family support).
• Part-time work is usually possible.
• Extreme tail events may not look like historical extremes.

For most people, 85–90% success with spending flexibility is better than 95% success with rigid spending. Chasing 99% often means dying with far too much money unused.

Dynamic success rates

Real retirees don't blindly follow a fixed plan. They adjust:

• Cut discretionary spending in bad markets.
• Delay large purchases.
• Occasionally take on part-time work.
• Reduce gifting or charitable giving temporarily.

These adjustments dramatically improve effective success rates. A plan that looks like 85% success with rigid spending might be 95%+ success with realistic flexibility.

Horizons models some of this through the Budget Rules discretionary floor — in forecast scenarios, the engine reduces non-essential spending during deficit months.

Success rate vs lifetime spending

Different plans optimize different objectives:

• Maximum success rate: often means low spending, high allocation risk.
• Maximum lifetime spending: often means moderate success, spending aggressively.
• Maximum bequest: often means low spending, moderate allocation risk, lives off Social Security.

Picking the right plan depends on personal priorities, not just one number.

How Horizons uses this

The Horizons Retirement Readiness score includes Risk Resilience as a component, driven by the Monte Carlo success rate. The Retirement page shows success rate alongside median portfolio value and percentile bands so you see both dimensions — probability of survival and magnitude of outcome — at once.