New member

[llmorse]

Hi, I'm Linda from Western Mass. This is a great site. I have one question: Is this calculator correct if I don't want to leave an estate? In other words, I'm prepared to burn through all of my money by the time I die.

[dory36]

Hi Linda, and welcome! I'll try to give a summary answer, and I expect many others here will jump in as well.

Firecalc tries to show what could happen, and help you figure out how to reduce the chance your money will run out before you die.

Because of this focus, it's a very pessimistic tool, and if the economy in your remaining lifespan is anything better than the worst that we have ever seen, you will have a tidy sum in your estate.

But that doesn't mean you have to follow the plan for the rest of your life -- you can readjust whenever it suits you.

Let me give you an example.

Suppose you are planning to retire and you feel it is prudent to make sure you are financially prepared for the next 40 years. Using this tool or others like it, you determine that you can spend $40,000 a year, with adjustments for inflation, and still make it for 40 years.

After a few down years in the market, you are still living your planned lifestyle, because your spending ability has remained intact.

Then you get a few boom years in a row, and your portfolio really grows. At that time, why not recalculate? Using the increased portfolio, and the reduced number of years it has to last, you might find that $60,000 will still be safe.

The interesting thing here is that you get to maintain your lifestyle following bad years, and improve it following good years.

That sounds like "something for nothing", but all it is doing is reducing your likely estate.

There are other ideas bandied about here as well, so I encourage you to read more, ask questions, and enjoy your early retirement!

Dory36

[sgeeeee]

Hi, I'm Linda from Western Mass. This is a great site. *I have one question: Is this calculator correct if I don't want to leave an estate? *In other words, I'm prepared to burn through all of my money by the time I die. *

Linda,

I always say that not only do I want to burn through all of my money by the time I die, but I would like to make sure that the last check I write bounces.

Unfortunately, the first requirement to accomplish this is to know exactly when you are going to die. As long as there is a chance you may live another day . . . month . . . year . . . you have to have a sizeable nest egg to provide for that. The worst case situation that FIRECalc finds assumes that you run out of money right after the lifetime you have assumed (in the simulation) is over. If the future looks brighter than the worst case we've faced in the past, then you could end up with a large nest egg. As Dory points out, you can avoid building up too large a nest egg, by recalculating your maximum spending allotment periodically and increasing your lifestyle after good financial times.

[llmorse]

Got it, Salary Guru. Thanks. And one more. Does FIRECALC assume that dividends are reinvested? In my particular case, I've got the whole wad in one very broad mutual fund, but now that I'm retired I don't reinvest anymore as I'm in the "withdrawal" stage. :-/

[dory36]

Yes, the assumption is that dividends are reinvested.

At first blush, I am not sure it makes a whole lot of difference, since most of us withdraw more per year than we make in dividends per year.

[JWR1945]

Until the last four or five decades, dividend yields routinely exceeded 4%, often by a large margin.

Have fun.

John R.

[JWR1945]

Here are the dividend yields of the S&P500 from 1871 to 2002 in a series of posts.

1871 5.86%
1872 5.42%
1873 5.92%
1874 7.08%
1875 7.21%
1876 6.73%
1877 8.19%
1878 5.82%
1879 5.08%
1880 4.01%
1881 4.28%
1882 5.41%
1883 5.52%
1884 6.34%
1885 7.17%
1886 4.58%
1887 3.99%
1888 4.68%
1889 4.37%
1890 4.09%

[continued]

[JWR1945]

Two more tables of dividend yields:
1891 4.55%
1892 4.02%
1893 4.29%
1894 5.71%
1895 4.90%
1896 4.43%
1897 4.27%
1898 3.72%
1899 3.30%
1900 3.57%
1901 4.27%
1902 3.95%
1903 3.92%
1904 5.19%
1905 3.70%
1906 3.40%
1907 4.22%
1908 6.38%
1909 4.45%
1910 4.39%

1911 5.07%
1912 5.16%
1913 5.16%
1914 5.68%
1915 5.63%
1916 4.72%
1917 5.96%
1918 9.43%
1919 7.22%
1920 5.98%
1921 7.11%
1922 6.36%
1923 5.75%
1924 6.02%
1925 5.24%
1926 4.80%
1927 5.20%
1928 4.43%
1929 3.46%
1930 4.47%
[continued]

[JWR1945]

Continuing with dividend yields. Notice that they have been very high at times.
1931 6.05%
1932 9.56%
1933 6.98%
1934 4.18%
1935 4.86%
1936 3.49%
1937 4.15%
1938 7.01%
1939 4.11%
1940 5.07%
1941 6.38%
1942 7.88%
1943 5.85%
1944 5.18%
1945 4.77%
1946 3.70%
1947 4.69%
1948 5.69%
1949 6.16%
1950 6.81%
[continued]

[JWR1945]

These are the most interesting decades for us. The 1960s were a hazardous time for retirements. Dividend yields steadily trended lower.
1951 7.01%
1952 5.84%
1953 5.39%
1954 5.72%
1955 4.34%
1956 3.78%
1957 3.82%
1958 4.34%
1959 3.16%
1960 3.22%
1961 3.26%
1962 2.93%
1963 3.28%
1964 3.00%
1965 2.92%
1966 2.94%
1967 3.41%
1968 3.08%
1969 3.02%
1970 3.50%
[continued]

[JWR1945]

Price changes affect effect dividend yields immediately. Dividend amounts vary slowly.
1971 3.35%
1972 2.97%
1973 2.67%
1974 3.54%
1975 4.99%
1976 3.80%
1977 3.95%
1978 5.22%
1979 5.13%
1980 5.14%
1981 4.66%
1982 5.68%
1983 4.77%
1984 4.28%
1985 4.41%
1986 3.81%
1987 3.14%
1988 3.54%
1989 3.44%
1990 3.28%

1991 3.72%
1992 2.94%
1993 2.85%
1994 2.67%
1995 2.83%
1996 2.26%
1997 1.95%
1998 1.61%
1999 1.30%
2000 1.17%
2001 1.22%
2002 1.38%

Dividend yields have stayed below 3% for a decade.

Have fun.

John R.

[dory36]

Never try to sneak an off the cuff "numbers" reply past JWR1945! He'll bombard you with wadded up dusty dryer sheets!

I was talking about the dividends as a percentage of the total portfolio, which would be anywhere from the values you posted to zero, depending on the individual's mix.

Dory36

[JWR1945]

This was fortuitous. I don't always have dryer sheets on hand.

One thing that I did while making modified versions of the Retire Early Safe Withdrawal Calculator was to calculate dividend yields and the composite rates of dividends and interest for any portfolio that I am examining. I can make similar tables for composite accounts (such as 80% stocks and 20% commercial paper) quite easily. Putting the numbers into a table for posting is the hardest part.

[Should there be any doubt, many of my investigations have led to dead ends. I put in these calculations as part of an investigation into cause and effect that failed.]

I will not hold back a dryer sheet that I have if it is needed.

Have fun.

John R.