100% success and how complicated can it be?

[RobbieB]

Yes, I think you are making this too hard for yourself.

 

[HI Bill]

My question is if I know how much our income is, how much our expenses will be, and what % I want to draw, does it really matter if I don't need to draw any more than 3.5%? Isn't that the number you need to stay at or under and you will "never" run out of money?

We will have two SS incomes and a pension. We would maybe want to draw up to 5% the first couple of years as we will be moving halfway across the US and then back to 3-3.5% from then on.

Depends on your inputs and particulars (age, time to retirement, time to SS/pensions, AA, etc.). So, if you have less than ~15 years to SS/pension (which is the case, at your current ages of ~61 and 68), you can easily spend >3.5% until SS/pension kicks in. Because Firecalc assumes that you're withdrawing a lower percentage of your invested assets after the 'fixed income' kicks in, the SORR goes down significantly. Look at the first line that goes below zero $ on the graph. How many years after retirement is that? Then add in SS/pension. The success rate should then go to 100%, if you're adequately prepared.

In my case, I'm starting with a 4.7% withdrawal rate at age 54. I have a 100% projected success rate, as I only have to make it 16 years to when SS kicks in. If the SHTF, then I can always lower my withdrawal rate, as my spending budget is ~50% discretionary. If I'm even, or up at age 70, I'll use VPW (variable percentage withdrawal) to spend more.

Yes, Firecalc is a model, and yes, we could encounter a worse sequence of returns than ever encountered in prior history. We'd all be in a heap of trouble, as likely, the world economy would have also tanked, and maybe even had WWIII. Point is, at 100%, you should be good, for all things you can reasonably plan for. Even if you doubled your assets, if we hit hyper-inflation, it won't matter.

 

[Jerry1]

I think the most value in a tool is that you have to develop a plan and you have to understand many of the variables in order for it to be meaningful. No, it's not predictive, but going through the process gives you a roadmap. Easy example is inflation. If you projected 3% inflation and we're seeing 6% for actuals, then you'll know you have to address it. It may be obvious, but some of the other's aren't. What if everything is as planned, but we get that 25% clip in SS. In doing a model, you might have modeled that and given some thought to how you would deal with that.

Bottom line, I think the models are useful to the process but I agree, they are no guarantee and they are not predictive (nothing is).

 

[OldShooter]

... I don't equate Firecalc 100% as a guarantee of safety, but I do view 100% as safer than 95% or 80%.

Well, the good news is that there will never be enough data to show which of us is right.

Consider this, though: A set of parameters which, given to FireCalc on 1/1/2007 produced a 100% number but just barely. Now rerun those parameters three years later. I'd expect, and I think you would too, that the result would be quite a bit below 100% due to the Great Recession now being in the history dataset.

Which number is correct? Both of them, because "correct" can only mean that the FireCalc rules and algorithms were properly applied to the parameters and the history dataset.

Which number is the better prediction? No one knows.

 

[HI Bill]

Well, the good news is that there will never be enough data to show which of us is right.

Consider this, though: A set of parameters which, given to FireCalc on 1/1/2007 produced a 100% number but just barely. Now rerun those parameters three years later. I'd expect, and I think you would too, that the result would be quite a bit below 100% due to the Great Recession now being in the history dataset.

Which number is correct? Both of them, because "correct" can only mean that the FireCalc rules and algorithms were properly applied to the parameters and the history dataset.

Which number is the better prediction? No one knows.

While you are technically 100% correct, the point of the tools is to have something that will help you make a decision, rather than gut instinct. No one can know your expiration date, market returns, inflation, etc., over the next 30 to 50 years.

So, you have a choice. Either go with the best models available, or work until the day you die, reducing the likelihood that you never run out of money. The point of the calculators is to give you the best prediction available (of your success rate, or not running out of money, based on past performance, not predicting future performance, which is impossible), so that you can decide whether to retire now, later, or never. Without a tool, you're likely be significantly more or less conservative than you really need to be, either retiring way to early, or working way too long.

OldShooter, what alternatives to the models would you suggest?

 

[ncbill]

I agree wth the financial pundit who asserts there are too many potential uncertainties in one's life to make anything above 80% 'success' meaningful.

 

[rodi]

I found it very useful to run my plan/numbers through many calculators. Some of the more conservative ones made me relook at things.

I used firecalc, i-orp, fidelity RIP (which has been revamped), Quicken lifetime planner, and every other one I could come up with. Fidelity, especially if you dig down into individual expenses, and set different inflation rates (higher for medical, for example) can be useful. I found i-orp interesting for how it looked at tax implications, roth conversions, etc. Variable return calcs were also interesting.

When I thought I had a solid plan - I presented it here... and got some helpful (although I was a tad unhappy about it) advise... Again - once I absorbed the message and tweaked the plan, I was grateful for the input.

Some of the things to consider: lifetime expectations. Perhaps your FA has you living to 120 years old. Or considers dying with less of a nest egg than when you retired a failure. (Vs dying with $10 being a successs because your money lasted.) Or perhaps the FAs plan has a super high inflation.

Good luck.

 

[dirtbiker]

Agree. That's why I mentioned that this was the effective WR% when using Firecalc's default AA which is 75% stocks.

Duh! I missed where you said that. Carry on. lol

 

[RunningBum]

Well, the good news is that there will never be enough data to show which of us is right.

Consider this, though: A set of parameters which, given to FireCalc on 1/1/2007 produced a 100% number but just barely. Now rerun those parameters three years later. I'd expect, and I think you would too, that the result would be quite a bit below 100% due to the Great Recession now being in the history dataset.

Which number is correct? Both of them, because "correct" can only mean that the FireCalc rules and algorithms were properly applied to the parameters and the history dataset.

Which number is the better prediction? No one knows.

Like I said, 100% success rate is not an iron clad guarantee.

I'm not talking about comparing 100% or any other success rate at one point in time to a rate at a different time. What I meant was, at a given point in time, 80% is less safe than 100% at that same point in time.

So I don't see how any of the points in your post apply to what I wrote in the quoted post. It may apply to other posts in this thread.

 

[dirtbiker]

Well, the good news is that there will never be enough data to show which of us is right.

Consider this, though: A set of parameters which, given to FireCalc on 1/1/2007 produced a 100% number but just barely. Now rerun those parameters three years later. I'd expect, and I think you would too, that the result would be quite a bit below 100% due to the Great Recession now being in the history dataset.

Which number is correct? Both of them, because "correct" can only mean that the FireCalc rules and algorithms were properly applied to the parameters and the history dataset.

Which number is the better prediction? No one knows.

And this is why when I read stories on here about people in their 30s or 40s retiring very early without much fudge room, it makes me nervous for them. I'm hoping to have a comfortable margin of error, even if it means working an extra few years. I know this runs contrary to the RE part of FIRE, but outliving my money is a worst nightmare situation for me.

 

[HI Bill]

but outliving my money is a worst nightmare situation for me.

Outliving my wife, or my health are my worst nightmare. I can always spend less.

 

[Dtail]

Well if one doesn't use calculators and goes by their extensive spreadsheet, which could just have more variables than the typical calculators, in the end the decision to FIRE could then be based on the results of that spreadsheet whereby the comfortableness with those results is more likely based on some historical analysis of those variables in the first place.

 

[OldShooter]

... The point of the calculators is to give you the best prediction available ...

Oooh ... I think you will not find that even the calculator makers say that. From the Firecalc home page:

"How can FIRECalc predict future returns from past performance?
It can't."
​

... OldShooter, what alternatives to the models would you suggest?

As H. L. Mencken said many years ago: “For every complex problem, there is a solution that is simple, neat and wrong.” And Einstein: “Everything should be made as simple as possible, but not simpler.”

A retirement decision is not simple and anyone who does not understand the limitations of inductive reasoning is in danger of overconfidence.

So the potential retiree can use the calculators, sure, but he/she must understand their limitations. He/she must also read, consult, and understand that the retirement voyage is probably going to be more like shooting the rapids than rowing across a pond. Definitely not FIRE and forget. And definitely not one with smooth and predictable yields and withdrawal needs.

In the end, sorry, it is a gut decision though hopefully one made with an educated gut.

Change subject: IMO the best of the retirement gadgets that I have seen is ESPlanner (ESPlanner Inc.). It is not easy to use and it (wisely IMO) does not purport to give yes/no answers. For those who like this sort of thing I'd encourage you to give it a look. Larry Kotlikoff, its originator, is the real deal and not a huckster. I have talked to him on the phone about ESPlanner and found him to very passionate about the tool. Both the user manual and a sample report are available on line.

 

[RunningBum]

Yes, I think you are making this too hard for yourself.

I don't know what your story is, but I don't think your methods are very realistic for most of us.

 

[enjoyinglife102]

I use the calculators in an attempt to improve my educated guess, but with so many moving parts constantly moving, I never lose sight of the fact that it is a guess requiring lots of flexibility. OldShooter brings up some great points. Look at the collapse of the Japanese market; 30 years later and it's still down 50% from it's high. What calculator calculated that?

 

[Camas Lilly]

Give us your numbers.* What are your expenses, your pension, your SS and your nest egg. With that, we can at least see if you’re in the ball park.* There is a big difference between FireCalc (100%) and an advisor (25%).* With that base information we should be able to tell which one makes sense. *
**
Personally, I think you should try the Fidelity program.* I’m not sure if it’s available to non-Fidelity members though.* If you have any money with Fidelity, I’m sure you can use it and even get help from them if needed.* I found it very helpful and pretty straight forward.

*
**
OK here goes:*
**
DH – Turning 68 next month, retired at 63.5, drawing SS early + Pension income. *
Myself – Just turned 61, still working, retiring in 2020 if I can pull it off (2021-was the original plan but trying to move it up due to age differences). *
**
Income (all pre-tax) Two SS, One Pension, One Draw 3.5% *
**
DH Pension:*** $29,271 *
DH Social Security: $21,186 (minus Medicare) *
My Social Security: $15,780 (age 62, 2020), $17,250 (age 63, 2021) *
(nothing taken out of mine for Medicare as I have that figured into the budget since it will change) *
**
Investments: using $310,000 for calculations, DH $210,000, Mine $105,000. *
RMD – flexible here. DH RMD = $7,022; or $11,274 = 3.5% on both our investment. - Figuring I will need the latter.*
**
Gross Income: $77,511 (Ret.2020) - $78,981 (Ret.2021), using 3.5% both our investments *
Gross Income: $73,259 (Ret.2020) – $74,729 (Ret.2021), using his RMD only (approximately 3.5%) *
Have some other Investments for play ($60,000 cash and investing), but not counting those *
**
Expenses – Budgets are somewhat padded *
Budget 1: $87,500 All inclusive, upper end *
Budget 2: $76,500, Middle of the road, more realistic *
Budget 3: $71,111, We could do without too much problem if needed *
**
AA right now: Stocks 85%, Bonds 15%*
(Cash 10% or $30,000 outside of the $310,000, not really counting on as moving expenses are unknown at this time, also could use as start of cash flow model. Additional $30,000 play investing money, not counting) *
**
Figuring to age 90. DH will not live that long, 85 max. *
**
Did I leave anything out? Clear as mud?*
*

Hmmm, where did all the * come from?

 

[Dtail]

Does the Pension have a COLA?

 

[Camas Lilly]

Does the Pension have a COLA?

yes.

 

[SecondCor521]

Consider this, though: A set of parameters which, given to FireCalc on 1/1/2007 produced a 100% number but just barely. Now rerun those parameters three years later. I'd expect, and I think you would too, that the result would be quite a bit below 100% due to the Great Recession now being in the history dataset.

I'm not the person you were addressing above, but I would not expect that, and I think you're mistaken if you expect it.

A "100% number but just barely" means that it succeeded in all cases but nearly failed in the worst case historical scenario. Generally speaking, the two scenarios that come up as worst case in history is the Great Depression of the late 1920s/early 1930s, and the stagflation of the late 1960s/early 1970s.(*) To the best of my knowledge the Great Recession is not even close, particularly since the stock market has done very well since then.

Since the Great Recession does not present a new historical worst case, it would follow then that the "100% number but just barely" would continue to be a "100% number but just barely" and not "quite a bit below 100%" that you expect.

(*) The specific worst case will depend on the particular input data chosen. In my case Stagflation represents the worst case.

 

[Dtail]

yes.

You state that the expenses are padded, but choice #2 is more realistic.
Does that mean realistic but padded or just realistic?

Have you included potential lumpy expenses like a new roof/new cars, etc in the budget?

 

[Dtail]

I'm not the person you were addressing above, but I would not expect that, and I think you're mistaken if you expect it.

A "100% number but just barely" means that it succeeded in all cases but nearly failed in the worst case historical scenario. Generally speaking, the two scenarios that come up as worst case in history is the Great Depression of the late 1920s/early 1930s, and the stagflation of the late 1960s/early 1970s.(*) To the best of my knowledge the Great Recession is not even close, particularly since the stock market has done very well since then.

Since the Great Recession does not present a new historical worst case, it would follow then that the "100% number but just barely" would continue to be a "100% number but just barely" and not "quite a bit below 100%" that you expect.

(*) The specific worst case will depend on the particular input data chosen. In my case Stagflation represents the worst case.

Agree with the above.
Minor point - many folks state that inflation is our greatest worry as retirees, but is it a major worry if one's personal inflation rate is much lower?
In this case, wouldn't one receive the advantages of higher rates on the Fixed side, but not the negative inflation concerns?

 

[Jerry1]

You’re not at 25%, but you’re not at 100% either. With budget #3, you’re probably close to 100%, but with budget #1, you’re not in a good place. Probably something like 75%. So, hard to tell what happened with your financial planner model but my guess is a very conservative market assumption (no growth) and using budget #1.

You said the pensions are COLA’d. Do your expenses include taxes? According to your first post, your budgets do include healthcare. Assuming the healthcare is a large number, modeling how that changes as you go onto Medicare will help a lot.

 

[SecondCor521]

Agree with the above.
Minor point - many folks state that inflation is our greatest worry as retirees, but is it a major worry if one's personal inflation rate is much lower?
In this case, wouldn't one receive the advantages of higher rates on the Fixed side, but not the negative inflation concerns?

I'm not sure.

For me my biggest worry (and it's not particularly a big one, but still my biggest) is whether we'll ever get stagflation again. But stagflation is both high inflation and low investment returns.

I did measure my personal rate of inflation, and over the past 10 years it seems to run about 0.5%, or about 25% of the stated inflation rate. I think the main reason for this result is that my largest expenses were fixed or declining (taxes, child support, and mortgage). Over the next few years, with kids in college, I expect it will be higher.

I think the real question is how the real rate on stocks compares to the real rate on bonds. With low personal inflation, it would logically tilt the ratio towards bonds.

 

[Camas Lilly]

You state that the expenses are padded, but choice #2 is more realistic.
Does that mean realistic but padded or just realistic?

Have you included potential lumpy expenses like a new roof/new cars, etc in the budget?

Budget #2 allows for about half unexpected lumpy expenses and carry over unspent from previous year or draw for emergencies.

Padded. Made sure I had adequate discretionary spending and rounded that up a bit. I may find we don,t need as much but DH likes to spend a lot of time in the hardware stores...so wanted to make sure I am not chasing him around. He gets $500/month to spend on what he wants, usually auto, tools, lawn and garden, as he does now -in addition to another $250 budgeted monthly for lawn and garden. (More than what we are doing now)

 

[Camas Lilly]

You’re not at 25%, but you’re not at 100% either. With budget #3, you’re probably close to 100%, but with budget #1, you’re not in a good place. Probably something like 75%. So, hard to tell what happened with your financial planner model but my guess is a very conservative market assumption (no growth) and using budget #1.

You said the pensions are COLA’d. Do your expenses include taxes? According to your first post, your budgets do include healthcare. Assuming the healthcare is a large number, modeling how that changes as you go onto Medicare will help a lot.

Yes I think I had to come down to about $75000 before it started to work. Sounds like I was on the right track anyway.

Yes. I figured everything in gross figures. Think I added 12% for tax to expenses. I have three different adjustments to healthcare with lower and upper end premiums. Used the highest one, so costs will drop with Medicare. Also figuring 18 months on Cobra and 18+ months purchasing HC.

Forgot to add Pension is 100% to survivor.