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Old 12-21-2010, 08:32 AM   #121
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When playing with FIRECalc, I found that if one's setup outlasts a 30-yr period, it tends to survive a 50-yr period also.
We've talked about it before, but there is a bit of a problem with looking at longer cycles in FIRECALC. A 50 year period cannot include any data from 1960 onward. So you 'escape' the very bad inflationary period of the 80's in the analysis. So I'd be careful with that assumption of safety.

-ERD50
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Old 12-21-2010, 09:35 AM   #122
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That is an interesting point ERD50. I had always noticed same thing as NWB, if I made 30 then 50 was usually in the bag as well.

Thanks for ruining it for me.
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Old 12-21-2010, 11:22 AM   #123
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I set up a spreadsheet with income, expenses, etc. on a yearly basis. I can vary the % increase of inflation or SS individually, or the % return on investments. If you are comfortable doing spreadsheets, I think it's a worthwhile way to spend some time. It gives me comfort.

I do think my spending (except possibly for medical) will decrease when I get older (80 and up). Less energy for travel, less need for clothes - I'm already seeing that. Might eat less, you can never tell

My Dad is 90 and he eats badly (lives 1400 miles away, I can't help him). But he says he doesn't have a lot of appetite - my mother too, when she was alive, said the same thing. Smaller portions were enough. So maybe less on food.

More on having other people work on the house, though.
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Old 12-21-2010, 11:28 AM   #124
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I set up a spreadsheet with income, expenses, etc. on a yearly basis. I can vary the % increase of inflation or SS individually, or the % return on investments. If you are comfortable doing spreadsheets, I think it's a worthwhile way to spend some time. It gives me comfort.
Be aware that this 'comfort' can be terribly misleading as it omits the one of the "Big Three" portfolio killers - volatility. (Inflation and overspending are the other two...)
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Old 12-21-2010, 11:45 AM   #125
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Well long-term care is suppose to be a big thing.

At least if you believe people who are selling long-term care insurance, who are saying you need high 4-figure or even 5-figure sums per month to pay for care in your old age.

Investment advisors are touting these products because it makes people think they have to have more savings by the time they retire and the way to amass these savings is to hire these advisors.
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Old 12-21-2010, 12:56 PM   #126
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Be aware that this 'comfort' can be terribly misleading as it omits the one of the "Big Three" portfolio killers - volatility. (Inflation and overspending are the other two...)
I would say that Firecalc is a good tool and no one tool can identify all the risks.
For one thing it is very USA focused and the USA has not been rocked like much of the world in the past 100 years - think USSR dissolving, WWI, WWII, China's Cultural revolution, Argentina's economic problems etc - none too good for retirement.

If you think the USA is an empire in decline that aspect and affect is not in Firecalc either.

You have to try to assess all the risks and the benefits of retirement. When I retired 4.5 years ago I knew that there were going to be bad times ahead but I didn't know the severity of what just happened. The only change I would have made would be not buying a house.

I don't think we are out of the woods yet - maybe another 4-8 years of volatility then another secular bull market.
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Old 12-21-2010, 02:01 PM   #127
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Be aware that this 'comfort' can be terribly misleading as it omits the one of the "Big Three" portfolio killers - volatility. (Inflation and overspending are the other two...)
Yes - that's why I update it all the time. And watch it. So far I'm doing well with it. But I do pay a lot of attention to it.
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Old 12-22-2010, 05:32 AM   #128
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Curious if anyone has ever heard of a real life example of someone failing in FIRE when using a reasonable safe withdrawal rate, and if so how was it realized and handled?
Very good question.

I believe that investing strategies have to change depending on economic and market trends.

FIRE does some very long term averaging, and it's really good for that. In normal times one could do very well with FIRE.

Every now and then a perfect economic storm arrives and you know you have to bet against the worst case outcome. FIRE will sell you short in those times, so you have to cut and run.

The perfect economic storm involves global politics and trade on a scale never seen before, so is not represented in past performance.

We are probably in an outlier scenario, and it takes some chutzpah to chart one's own way in these times.
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Old 12-22-2010, 05:59 AM   #129
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4% is only for a 30-year period?

People on this forum are looking to retire in their 50s or earlier. So is 30 years enough?
Long Retirement discusses a 45 year retirement.
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Old 12-22-2010, 09:12 AM   #130
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RE:

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Originally Posted by ERD50
...
Also, remember that the historical data says that a 30 year 4% WR and a diversified portfolio means that you could see your portfolio drop to less than half what it was (in buying power) and still 'succeed'. I think most would be pretty frightened by that, and might go back to work or make other adjustments if that happened.

-ERD50
I think it would depend on my age, and how big the portfolio was in relation to my basic needs.

If I was 65 and lost 50%, that would be frightening.

If I was 95 and lost 50%, not so big a deal.
Well, I've been curious about this and I think I found a way to show it a bit clearer. I entered a $1M, 30 year portfolio into FIRECALC (makes it easy to convert spending to % SWR) and found a 3.6% WR reports one failure and 3.55% reports zero failures.

Then, to get a better resolution look at where the 3.55% - 30 year portfolio would be at the five year mark, I changed the time frame to 5 years. And out of all these successes, a number of them are below (or very near) the half-way mark. So if you retired @ 60, this is reporting that you definitely could see your portfolio drop to less than half at age 65, and you would definitely succeed - with no changes to your spending along the way (based on the worst case history in FIRECALC).

It might be frightening, but the people going with the default 4% WR would see even worse over that 5 year period (and of course, 5% of those scenarios fail historically). One should be prepared for it, because that is what has happened.

-ERD50
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Old 12-22-2010, 09:28 AM   #131
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One should be prepared for it, because that is what has happened.

-ERD50
But perhaps those folks did not have God on their side, or the Bernanke put to rely on?

Ha
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Old 12-22-2010, 10:19 AM   #132
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Hi ERD50, that was a good point you made about running FIRECalc to examine drawdowns. So I tried a similar approach, ran FC to get max spending with 98% success rate for 20 years (got 1 failure in 81). Then changed the spending level accordingly and the time to 5 years. Got a nice graph as you did.

Too bad FC doesn't have the option to output a chart in semilog form. Then we could more easily read off those drawdowns.
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Old 12-22-2010, 11:53 AM   #133
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Originally Posted by ERD50 View Post
We've talked about it before, but there is a bit of a problem with looking at longer cycles in FIRECALC. A 50 year period cannot include any data from 1960 onward. So you 'escape' the very bad inflationary period of the 80's in the analysis. So I'd be careful with that assumption of safety.

-ERD50
Firecalc uses data till 2009, I think.

You will not get any 50 year period starting after 1960, but the data in that time frame will be included in 50 year periods beginning before then.
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Old 12-22-2010, 12:11 PM   #134
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Firecalc uses data till 2009, I think.

You will not get any 50 year period starting after 1960, but the data in that time frame will be included in 50 year periods beginning before then.
Yes, that's true and I should have said it that way. It might be largely a moot point though in practice, since the bad periods at the start of a retirement are generally the causes of failures. So the 80's inflation cycle would hit about ten years into a 40 year scenario. We'd have to look more closely to see if those are among the first failures or not.

-ERD50
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Old 12-22-2010, 12:41 PM   #135
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Well, I've been curious about this and I think I found a way to show it a bit clearer. I entered a $1M, 30 year portfolio into FIRECALC (makes it easy to convert spending to % SWR) and found a 3.6% WR reports one failure and 3.55% reports zero failures.

Then, to get a better resolution look at where the 3.55% - 30 year portfolio would be at the five year mark, I changed the time frame to 5 years. And out of all these successes, a number of them are below (or very near) the half-way mark. So if you retired @ 60, this is reporting that you definitely could see your portfolio drop to less than half at age 65, and you would definitely succeed - with no changes to your spending along the way (based on the worst case history in FIRECALC).

It might be frightening, but the people going with the default 4% WR would see even worse over that 5 year period (and of course, 5% of those scenarios fail historically). One should be prepared for it, because that is what has happened.

-ERD50
Nicely done ERD50.

Based on reading zillions of posts here on the forum, it seems like there is a misunderstanding by some folks regarding "stability" of portfolio value over time and their ability to control it. FireCalc 100% success outcomes DO NOT mean your portfolio won't have wild dips and dives over your retirement and won't end with only a nickle left when you croak (on schedule!) in 30 years. And I think many over estimate the impact of temporary spending reductions on adding to stability.

And earlier version of FireCalc had graphical outputs which helped understanding this. I especially liked the graph which showed ending values by starting year. That's where I first noticed that the so-called Great Depression years were not the toughest starting years for a FIRE portfolio.
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Old 12-22-2010, 01:55 PM   #136
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One somewhat misleading sentence in the summary report for FIRECalc states (numbers with x's are my simplification of a dummy FIRECalc run) :
Quote:
The lowest and highest portfolio balance throughout your retirement was $1,xxx,xxx to $7,xxx,xxx , with an average of $3,xxx,xxx .
Actually this only refers to the end portfolio values and not to intermediate values.

To see this you can run it with 100% success rate and then rerun after checking the box in the "investigate" tab that says "Leave some money in the portfolio for my estate". Then put in something like $800,000. The portfolio will now have some failures at intermediate years before the end of the sequence.
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Old 12-22-2010, 07:16 PM   #137
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Are there people on the forum who've been doing a 4% (or around that value) for any length of time?

Say 10 years or more?

How did their actual portfolio compare to the FC output?

Or if not on the forum, anywhere?
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Old 12-26-2010, 12:17 AM   #138
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It is interesting that after a few days, no one has answered to the question posed above.

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Then, to get a better resolution look at where the 3.55% - 30 year portfolio would be at the five year mark, I changed the time frame to 5 years. And out of all these successes, a number of them are below (or very near) the half-way mark. So if you retired @ 60, this is reporting that you definitely could see your portfolio drop to less than half at age 65, and you would definitely succeed - with no changes to your spending along the way (based on the worst case history in FIRECALC).
Yes, you could see your portfolio losing more than half its initial value, and yet if you hang on, you may survive. Yes, if we trust that the future will be like the past. That will take a leap of faith that one simply will find difficult to take. Most of us would try to do something about it, like cutting back on the withdrawal rate. However, that withdrawal reduction would have to be more permanent than for just a few years before it can help rebuild the portfolio.

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Based on reading zillions of posts here on the forum, it seems like there is a misunderstanding by some folks regarding "stability" of portfolio value over time and their ability to control it...

... And I think many over estimate the impact of temporary spending reductions on adding to stability.
Yes, a temporary reduction would not help much. It has to be on a longer term to be effective.

Otar, in his book that is discussed in another concurrent thread, says that if your portfolio has reduced to a level such that your WR reaches 10%, even if good years follow that, history shows that the most the portfolio will last is only 19 years.

Otar provides another check to see if you retire into a string of unlucky years. If at the 4th year after retirement, if your portfolio is not higher than when you retire, the risk of it running out is getting higher.

But as many of us have asked, how do we know where we are in the stock market cycle to avoid setting off on the wrong foot to start out with? In Chapter 21, Otar suggests looking at the P/E to see if the market is overvalued or not. However, he adds that P/E ratio is just another thing to consider, and is not a fool-proof signal. To paraphrase it, a high P/E when you start your retirement is almost a sure thing you will be doomed, but a low P/E only reduces the risk and does not guarantee success.

At the end of Chapter 22, Otar makes the remark that his observations are based on the past, and "future outcomes will likely be less favorable for the retiree."

You've got to love that. "You pays your money and you takes your chances." All one can do is to increase his odds, but there is never any guarantee in life!
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Old 12-26-2010, 09:33 AM   #139
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Because FIRECalc said that I would be dieing with "money out the wazoo", I cranked up the spending to see where I would get a failed cycle.

It turned out that I would have to almost double my expected spending to get one failure! But for a frugal guy like me, that is an obscene spending level. Money does buy pleasure, but for me, that level is way past the point of diminishing returns. I would be throwing money away.

And then, I remember Bernicke's spending model, which I like a lot. It tapers off one's spending as one slides deeper into geezerhood, starting at the age of 56. Egads! I am almost there at that age.

Still, I turned that model on, as it fits me, a guy with few indulgences and no expensive habits. Yep, FIRECalc says I will die with lots of money again.

I am really not sure if I can buy this. Thirty years is a long time in this fast changing world. A black swan is likely to come along and chomp us to pieces. FIRECalc cannot model anything like that.

Oh well, I guess if that happens we are all going down the tube together, so I will always have company.
Yep! If that happens, save me a camping spot in the mountains of New Mexico
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Old 12-26-2010, 01:12 PM   #140
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Sure, I will try to reserve a slot with full hookup for you in the NM state campgrounds. But when SHTF, these spots would fill up fast and you'd better hurry on down. I don't know how long I will be able to keep them at bay.
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