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Old 07-15-2012, 01:13 PM   #21
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Originally Posted by CJHorne View Post
What you just described IS Monte Carlo analysis. That's how it works.

This is far superior to saying...on average these mutual funds have gone up 6% per year, so I am going to project my assets forward over the next 10 years by 6% per year.
No, Monte Carlo does not use actual data in the sequence it historically occurred. For each scenario Monte Carlo would select returns based on a provided distribution of returns (which could be based on historical returns) and random points within the distribution and it would run numerous scenarios (some of which would "fail" and some of which would "pass").
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Old 07-15-2012, 01:14 PM   #22
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I'd say the priority for the OP is to come up with a budget so they can realistically plan for future income requirements.

I too believe in personal responsibility and LBYM and have saved carefully, but I also think that social insurance programs are vital parts of a modern society, so I have one of the differing opinions the OP mentions. Social insurance programs to provide health insurance and income should be funded by progressive taxation to redistribute wealth.

I'd say the OP is well placed for a successful retirement as long as he can successfully navigate any gap between retirement and the start of Medicare. The $100k income requirement sounds attainable assuming a 4% WR from the $1.5M, the $7k pensions a year and a couple of SS checks.

Nun,

Thanks for the encouraging comments on my situation.

I thought about responding with some remarks on socialized medicine, but I don't think this is the place to have that debate. I recognize there are different views with people who are passionate on both sides and it is not an easy problem to solve.
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Old 07-15-2012, 01:15 PM   #23
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CJ, the FIRECalc link I provided above gives a description of how the program works. Give it a read and see if you still maintain it uses Monte Carlo...
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Old 07-15-2012, 01:19 PM   #24
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No, Monte Carlo does not use actual data in the sequence it historically occurred. For each scenario Monte Carlo would select returns based on a provided distribution of returns (which could be based on historical returns) and random points within the distribution and it would run numerous scenarios (some of which would "fail" and some of which would "pass").
Thanks for giving me this insight. Having just looked at Firecalc briefly, I did not pick up on that nuance. I'd have to look at Firecalc a little more to make any meaningful comment. What I do know is Monte Carlo analysis is far superior for projecting retirement readiness than using an approach like Quicken, where you use a historical return of X% and project it forward.

I'll post a comment on this at a future date, although it may be a while until I have the time...vacation is over and back to work tomorrow.
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Old 07-15-2012, 01:23 PM   #25
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......Using 2% for an average return will give you conservative results, but why not just use Financial Engines and get the most realistic results possible?
Just to be clear, I do not use a 2% average return. I haircut the historical average return for my AA by 2% (from ~7.5% to 5.5%) in the deterministic analysis. I also look at Financial Engines.
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Old 07-15-2012, 01:25 PM   #26
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Just to be clear, I do not use a 2% average return. I haircut the historical average return for my AA by 2% (from ~7.5% to 5.5%) in the deterministic analysis. I also look at Financial Engines.
Thanks for the clarification.
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Old 07-15-2012, 01:27 PM   #27
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CJ, the FIRECalc link I provided above gives a description of how the program works. Give it a read and see if you still maintain it uses Monte Carlo...
I'll give it a look in the near future.
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Old 07-15-2012, 02:28 PM   #28
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Originally Posted by CJHorne View Post
Nun,

Thanks for the encouraging comments on my situation.

I thought about responding with some remarks on socialized medicine, but I don't think this is the place to have that debate. I recognize there are different views with people who are passionate on both sides and it is not an easy problem to solve.
Agreed.

To prepare for my ER I have been tracking my expenses with an iPhone app. Whenever I spend or pay a bill it gets entered immediately. I now know my major expenses and I'm confident that I can produce that from post ER sources.
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Old 07-15-2012, 10:39 PM   #29
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CJ, the FIRECalc link I provided above gives a description of how the program works. Give it a read and see if you still maintain it uses Monte Carlo...
I read the link and agree FIRECalc does not use Monte Carlo analysis and appears to be, as claimed, a different kind of retirement planner. Amazing that running the numbers for my situation, I get the exact same results as Financial Engines. Thanks for educating me.
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Old 07-15-2012, 10:42 PM   #30
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Thanks for giving me this insight. Having just looked at Firecalc briefly, I did not pick up on that nuance. I'd have to look at Firecalc a little more to make any meaningful comment. What I do know is Monte Carlo analysis is far superior for projecting retirement readiness than using an approach like Quicken, where you use a historical return of X% and project it forward.

I'll post a comment on this at a future date, although it may be a while until I have the time...vacation is over and back to work tomorrow.
pB,

I read the link on how FIRECalc works and agree you are correct.
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