What Does Opening Some Floodgates On Risk Look Like In A Retirement Plan Using a Longevity-Varying Simulator

I was running some tests on some new (spend shocks) and modified (future income streams) features of my simulator as a type of programming shakeout.  Some of what I found was kind of interesting.  For example, I ran two scenarios:

1. Base case.  This is my current personal plan which is very, very "trim" and conservative.  Spend rates are ultra low (think maybe 3% or something, sometimes less if I can, often more when I am not cautious).  Then, I have a step down function in the simulator for spending at age 68 (kids leave) and again at 85 (more likely than not to not be around or want to do a lot of big travel) to a very low level.  Returns are suppressed in the first 10 years, <1% fees, some taxes, etc. etc. 

2. Risk case.  Here I tried to open some floodgates on risk.  I know I am not isolating variables here but I wanted to see what happened for the sake of the software.  I kept everything else the same but I let spending go to a full 4% inflation adjusted spend from age 59 to 85 (you remember the 4% rule, right?). I also let there now be a variable for a 2% probability in any given year that there would be a 2x spending shock event (think NPV of long term care or something). 

Here is the result for the base case. 2% age weighted fail rate. 

Here is the result for the risk case. 28% age weighted fail rate. 

I know this is a little extreme and I knew opening the gates would blow out visual risk charts. For example, look at the lower left chart in the risk case.  The change in fail rates if one were to think about some of the longer longevity expectations a bit (blue is the risk case; black is the base case) gets pretty scary.  For a median longevity expectation (lets use 81) the fail rates might actually look acceptable in either case.  Even the regression lines on the lower right look ok at 81 (ignore the heat map for now) in the risk case.  Is any of this sustainable? Who knows.  In practice, most people adapt given enough info and advance warning. 

On the other hand this is where I think using median longevity or even 30 years in traditional retirement calculators can get really deceptive.  At that selected age (let's call it maybe 81 or 82 for me now) fail rates and retirement calculators still might give a plausible "ok" message.  But the whole point of retirement planning is that a little part of your brain has to hold out at least some kind of placeholder for the lower-order risk of surviving to 95 or 100.  What does 95 look like in the risk model (vs base)? Not so good, right?  I mean look at the heat map for 95 in the risk case.  The higher probability scenarios look like they have fallen off a cliff. That, my friend, will not be me. Michael Kitces has a really good article on this somewhere for which I did not have the energy to go look.  His generalized point is that really assertively low spending in early retirement is not some kind of soul-sucking penny pinching, it is actually a rational attempt to reserve for risk that accrues in buckets that are attached to later life.  I get it now better than I used to and I am very much less willing to take crap from other people about being conservative, on terms that are all my own, at 58 than I used to be.