Possibility Of Failure (POF) Rates
Categories: Insurance
Obviously, given its name, not the cheeriest of numbers. Luckily, the possibility of failure rate doesn't apply to stuff like parachute making or genital reconstruction surgery. But it does present a relatively scary prospect nonetheless.
The POF rate applies to retirement. Specifically, the figure (also known, even more ominously, as the probability of ruin) tracks the level of risk that a person will run out of money in retirement. The measure take into account factors like life expectancy, the makeup of an investment portfolio, and the amount the retiree periodically withdraws.
The main goal of the POF figure is to test what a safe withdrawal rate would be for a particular retiree. That is, if the retiree keeps taking money out at the current rate, will there be any left down the road? Or will they run out of cash and have to live on expired cat food until they finally freeze to death in an alley?
