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Old 08-20-2014, 10:25 AM   #41
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Many posters commented on the "$5M retirement stash", but that's not what OP's friends have.



I agree with earlier posters about the $2.7M being sufficient for most people, except for the couple's $100K expense. And the $36K SS at age of 70 is indeed low. The home equity is OK, but I suspect there's still some mortgage.

Bottom line: They should be able to cut their expenses by another $10K to $20K for a more relaxed retirement. If they can't, then they may still be OK, but may have some sleepless nights in the decades ahead.
A nice summary, something I can apply to my situation in 3 - 4 years if I decide to work that long.
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Old 08-20-2014, 10:44 AM   #42
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I am sure that this is the correct explanation. Nevertheless, is it not crazy? And thus a good reason to put less faith in the Firecalc machine?

Ha
Well, I wouldn't put full, unbridled faith in FireCalc, especially with as long of a time horizon I'm planning for. But, if I felt confident in other respects, and FireCalc backed up that feeling, I think I'd trust it. Of course, the future can always throw something at us that never happened in the past, so who truly knows?
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Old 08-20-2014, 11:17 AM   #43
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The odds of them both living until 90 are very small.

Firecalc might give them 99% chance of success at a 40 year retirement but I doubt they have anywhere close to a 99% chance of both living out a full 40 year retirement.

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Old 08-20-2014, 11:19 AM   #44
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I am sure that this is the correct explanation. Nevertheless, is it not crazy? And thus a good reason to put less faith in the Firecalc machine?

Ha
No, it is not crazy. It is true of any historical sequential data analysis - you simply cannot report on a 50 year sequence for years starting less than 50 years ago.

That's no reason to discount the value of FIRECalc and other historical reports. That recent data is included in the runs, you just don't get runs that start with those recent years.

All tools have limitations, and I feel that a historical look is valuable and provides information for one to utilize. I have a reasonable 'faith' that FIRECalc is providing reasonably accurate historical results - after that, I'm not sure how 'faith' plays into it - it's just data.

The way I approach this, is I've noticed that the 'safe' WR reported will decrease as the time horizon increases. But it appears to become (as one would expect) asymptotic and going out past 40 years isn't likely to make the number change much at all. I do believe we hit a 'forever' portfolio at some point (barring Civil unrest, asteroid attack, etc - which affect all assumptions). Each person can throw in as much buffer (or risk) onto that number as they see fit.

Doesn't history play into however you have formed your plans? Taking dividends only doesn't guarantee that those divs will keep up with inflation and/or that the portfolio won't drop significantly. And as we've covered before, a conservative WR isn't really much different than a div-only approach, the % are similar.

If the future is vastly different, well, I think all assumptions/methods/analysis are affected. What can we do, other than make our best estimates, think about a Plan B and C, and then go enjoy life?

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Old 08-20-2014, 11:34 AM   #45
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The odds of them both living until 90 are very small.

Firecalc might give them 99% chance of success at a 40 year retirement but I doubt they have anywhere close to a 99% chance of both living out a full 40 year retirement.

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Define 'very small' please.

https://personal.vanguard.com/us/ins...etirement-tool

That shows that there is a 42% chance that one of them will still be around past age 90 (assuming both age 50 now). That person will still want to have some money in their portfolio, no?

And a 50 YO male has an 18% chance to reach age 90, the female a 30% chance. I'm assuming that a 'both' would be 0.18 * 0.30 = 5.4% chance. And if that is true probability (I think it is), and not 'average', recall that half the people in that % group will live longer than 90.

I'm not sure how the bolded part plays into anything? Did you mean 1%? With a 30% chance that the female will live beyond 90, don't you think that should be a major consideration - shouldn't they plan for that possibility?

If I told DW that our financial plan was based solely on my life expectancy, and she shouldn't count on anything if she outlives me, I think that might be a self-fulfilling prophesy!

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Old 08-20-2014, 11:43 AM   #46
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Well, I assumed that if one of them passed away before age 90, that the survivor would not need as much from the portfolio (or is it true that two can live as cheap as one at any age??)

There is only a 38% chance that both of them will be alive past 80. Firecalc has given a 99% chance of the portfolio producing what they need to live on as a couple until age 90. It is probably very near 100% that it will be enough for one of them to live until age 90 or beyond. Probably they could also cut back a bit on the budget at age 80 if they are still running marathons and feeling like 105 is in the cards and make the portfolio last longer.

What are the chances their state is invaded by Russia? Perhaps we need to figure that in as well?
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Old 08-20-2014, 11:44 AM   #47
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No, it is not crazy. It is true of any historical sequential data analysis - you simply cannot report on a 50 year sequence for years starting less than 50 years ago.

That's no reason to discount the value of FIRECalc and other historical reports. That recent data is included in the runs, you just don't get runs that start with those recent years.

All tools have limitations, and I feel that a historical look is valuable and provides information for one to utilize. I have a reasonable 'faith' that FIRECalc is providing reasonably accurate results - after that, I'm not sure how 'faith' plays into it - it's just data.

The way I approach this, is I've noticed that the 'safe' WR reported will decrease as the time horizon increases. But it appears to become (as one would expect) asymptotic and going out past 40 years isn't likely to make the number change much at all. I do believe we hit a 'forever' portfolio at some point (barring Civil unrest, asteroid attack, etc - which affect all assumptions). Each person can throw in as much buffer (or risk) onto that number as they see fit.

If the future is vastly different, well, I think all assumptions/methods/analysis are affected. What can we do, other than make our best estimates, think about a Plan B and C, and then go enjoy life?

-ERD50
+1.

I'm also one of those who like 100% equities. Per FIRECalc, 100% equities is only a small step up in risk of failure and a giant leap up in final portfolio value. That's a trade-off I'm willing to make. And not just so I can pay estate taxes. That extra value will be available later in retirement, if needed. That increases late retirement safety. Yeah my portfolio is going to go up and down in wider swings, but the overall retirement success is still fine.
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Old 08-20-2014, 12:10 PM   #48
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Well, I wouldn't put full, unbridled faith in FireCalc, especially with as long of a time horizon I'm planning for. But, if I felt confident in other respects, and FireCalc backed up that feeling, I think I'd trust it. Of course, the future can always throw something at us that never happened in the past, so who truly knows?
The point I am trying to make doesn't relay on a future different from the past, but of course it is bound to be.

All I mean is that this odd result of a shorter time frame giving a less positive result shows that Firecalc results are not robust. They are very trip dependent.

Anyway, I should have learned by now to keep my doubts to myself.

Ha
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Old 08-20-2014, 12:10 PM   #49
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Well, I assumed that if one of them passed away before age 90, that the survivor would not need as much from the portfolio (or is it true that two can live as cheap as one at any age??) ...
OK, but now you are throwing in assumptions that are not part of the model, so they really need to be outlined.

Also, your assumption may very well be wrong in many cases. Aren't SS survivor benefits 50% of the deceased, or the survivor, whichever is greater? And single tax rates will be higher than MFJ, and this can have a big effect.

IF DW had to hire someone to do the repairs and DIY stuff I do, her expenses may go up. Though I won't be doing much of that at 80 I suppose. But that might be because we hired it out - so expenses can be higher in later life.


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What are the chances their state is invaded by Russia? Perhaps we need to figure that in as well?
Got a calculator for that?

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Old 08-20-2014, 12:15 PM   #50
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No, it is not crazy. It is true of any historical sequential data analysis - you simply cannot report on a 50 year sequence for years starting less than 50 years ago.
Yes, I know this and I agree. It is still crazy to much faith in something this trip dependent, or stated differently, lacking better robustness.

Anyway, the board needs at least one longtime ER who rarely if ever runs Firecalc.

Ha
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Old 08-20-2014, 12:30 PM   #51
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All I mean is that this odd result of a shorter time frame giving a less positive result shows that Firecalc results are not robust. They are very trip dependent.
This is indeed an odd inconsistency that should lead one to question how reliable is firecalc (or other tools). Anomalies like this happen all the time in modeling and is a sign that you have too little data and things can't be as precise as they appear.
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Old 08-20-2014, 12:39 PM   #52
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I agree. I would cut their live expectancy to 85. If you live beyond that, then you'll be a very old person with a limited income. (SS)


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Old 08-20-2014, 07:14 PM   #53
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...
Anyway, the board needs at least one longtime ER who rarely if ever runs Firecalc.

Ha
Agreed! There may already be too much 'group think' on this forum. I like to hear different perspectives.

I just thought your comment was a bit unfair to historical calculators, so I had to respond, that's all.

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Old 08-20-2014, 07:23 PM   #54
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This is indeed an odd inconsistency that should lead one to question how reliable is firecalc (or other tools). Anomalies like this happen all the time in modeling and is a sign that you have too little data and things can't be as precise as they appear.
It isn't an inconsistency or a reliability problem, it's just the way any similar data analysis would work. Tools are tools, they have limitations.

I'm not sure if the site explains this at all, I agree there should be some sort of warning. As a practical matter, 1966 is the 'killer', so running scenarios that are long enough to exclude 1966 to current ( ~ > 47 years) is where it can affect the results, giving 'better' outcomes for longer time periods. That 1966 'killer' isn't likely to change soon, or often.

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Old 08-20-2014, 09:04 PM   #55
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This is indeed an odd inconsistency that should lead one to question how reliable is firecalc (or other tools). Anomalies like this happen all the time in modeling and is a sign that you have too little data and things can't be as precise as they appear.
All models are wrong. Some models are useful.
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Old 08-20-2014, 10:31 PM   #56
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It isn't an inconsistency or a reliability problem, it's just the way any similar data analysis would work. Tools are tools, they have limitations.
I think we're just using different language to describe the same problem. There's no disagreement as to the specific cause. However, I would say that inconsistency is one of the limitations of firecalc.

To clarify my prior statements, the behavior at issue is the following:

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All I mean is that this odd result of a shorter time frame giving a less positive result shows that Firecalc results are not robust.
This is inconsistent with our logical expectations that a longer time frame should *always* have a higher probability of failure than shorter periods. How can it be otherwise when one is a superset of the other?

This type of anomaly happens frequently in modeling (e.g. the signs on a regression equation are wrong). One cause of this is not having enough data.

MC methods don't have this problem (longer time periods will always have higher failure rates) because they can simulate as much data as needed to get stable estimates. MC methods do have other issues though.

Note that I think Firecalc is actually a very useful tool despite it's inconsistencies or limitations. I do think that people over-rely on the number that it spits out treating it like its from an infallible oracle.
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Old 08-20-2014, 10:33 PM   #57
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All models are wrong. Some models are useful.
Yes totally agree. But it can be helpful to know how a model is wrong and why.
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Old 08-20-2014, 11:13 PM   #58
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I imagine they could scrimp by on $2.7 million and another half million in equity. What does Firecalc say on average they would probably still have at the end of 40 years? Probably a lot of money. I know quite a few people that retired in their early 50's with a lot less money than that and they seem to be doing just fine. My FIL retired at 53 and has more money now (at 77) than he did when he retired. Of course, he wasn't spending $100K either. I think a 99+% success rate means there's a pretty good chance they'll not only make it, but will leave somebody a lot of money.

But, just to make sure, they probably should work another decade or so.
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Old 08-20-2014, 11:18 PM   #59
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I agree. Working till 60 will make a big difference.


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Old 08-21-2014, 12:43 AM   #60
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... But, just to make sure, they probably should work another decade or so.
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I agree. Working till 60 will make a big difference.

What? Not just OMY ("One more year"), but OMD ("One more decade")? Gah!

If that does not scare them into reducing their spending, I don't know what would.
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