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Old 08-21-2014, 06:08 AM   #61
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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.
Well, the inconsistency with Firecalc is pretty easy to explain. Let's say you put in a 50 year timespan. Then, it's only going to look at 50 year periods of 1964-2014 (or does it have to wait until 2014 is complete?), 1963-2013, 1962-2012, and so on. It simply can't model 1965-2015, 1966-2016, and so on, because those timeframes aren't complete yet.

However, if you put in a 40 year timeframe, then it will show 1974-2014, 1973-2013, etc. Well, the later half of the 60's were not good years, as the economy pretty much peaked in 1965 and stocks went stagnant, and inflation started to tick up. And the 70's were downright tumultuous.

One way to sort of predict a longer retirement though, would be to plug in, say, your 30 or 40 year timeframe, but then look at where most of the plots end. If you have a 100% chance of success after, say, 30 years, but 5 of those plots end close to the zero mark, then there's a good chance that those might dip below zero after a few more years. Well, there are 114 30 year cycles in the Firecalc program. So, discount those 5 as failures, just to be safe, and your success rate is really 95.6%.

Just for kicks, I re-ran my own numbers, for what I consider my most likely scenario, which is retiring in 2020 at the age of 50. Here's the variables. Currently 44, planning it out to age 100, or the year 2070. I know that's probably overkill, but you never know. I have one Grandfather who will be 100 if he makes it to October 24 of this year.

Anyway, I have a 96.6% chance of success, for this 56 year cycle, ending in 2070. But, here's what happens when I shorten it...
96.8%: end at 2065 (51 years)
93.9%: end at 2060 (46 years)
94.2%: end at 2055 (41 years)
96.3%: end at 2050 (36 years)
98.2%: end at 2045 (31 years)

Now, for that final, 31 year scenario, only 2 out of 113 cycles failed, so it seems good at first. However, looking at the plots, it looks like 3 or 4 are getting pretty close to zero at the end of 31 years, so there's a good chance they'd fail not long after. And overall, it looks like maybe 10-15 have my portfolio at less than the starting balance, so it's very possible they could keep trending downward.
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Old 08-21-2014, 07:24 AM   #62
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Yes totally agree. But it can be helpful to know how a model is wrong and why.
.. so that modifications can be made to the model.
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Old 08-21-2014, 07:27 AM   #63
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.. so that modifications can be made to the model.
They are underway.

Every year another year of data is added. In another 100 years FIRECalc will be almost twice as accurate as it is today.
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Old 08-21-2014, 09:05 AM   #64
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There may already be too much 'group think' on this forum.
And too many dancing emoticons following the +1s.
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Old 08-21-2014, 09:59 AM   #65
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...

Anyway, I have a 96.6% chance of success, for this 56 year cycle, ending in 2070. But, here's what happens when I shorten it...
96.8%: end at 2065 (51 years)
93.9%: end at 2060 (46 years)
94.2%: end at 2055 (41 years)
96.3%: end at 2050 (36 years)
98.2%: end at 2045 (31 years) ...
If you would like a little better look at that, use the "Investigate" tab set to "Adjust Spending Level for XX% success". That will calculate to the dollar, which gives better resolution. With success rates, your output is quantized by these low # of failures going just above/below success/failure. But the point is the same.


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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. ...
Yes, I think it's just semantics at this point, so hopefully I won't belabor it beyond this, but...

I still don't think it is proper to describe this as 'inconsistency'. I agree that the results are different from what most would expect, but that is a problem of expectations, not the tool. The tool simply cannot give a 50 year run on less than 50 years of data.

It's a little like saying a 1/2" wrench is inconsistent because it doesn't work on a 3/4" bolt head. Tools do what they do, people need to understand how to use them. If the 1/2" wrench doesn't work reliably on 1/2" bolt heads, then it is inconsistent.

And it isn't an anomaly in FIRECalc, because it is doing exactly what it should with those inputs (I'll agree that it could be seen as an 'apparent anomaly').

I'll re-iterate that there should be (I assume there isn't, I have not checked) an explanation, and/or warning on this. It is not an obvious thing at all, I got caught by it at first, so the user needs some education about how the tool works.

OK, I'll try to be done now.

-ERD50
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Old 08-21-2014, 10:43 AM   #66
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And too many dancing emoticons following the +1s.
+1
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Old 08-21-2014, 10:48 AM   #67
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+1
-1 .


....could not resist . But I am surprised we don't use "-1" reply too often (not at all). Are we all too agreeable?
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Old 08-21-2014, 10:50 AM   #68
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This kind of questions keeps popping up here every so often: how much can we trust FIRECalc and the other method, i.e. Monte Carlo simulation? We need to remind ourselves that both are simply ways to project the past into the future, hence there is really no guarantee, no matter how desperate one wants an absolute assurance.

Fifty or forty years is a long time, and things happen at a faster pace now, it seems. I still remember when China surpassed Japan as the 2nd economy of the world. Look where we are now. According to the IMF, in 2013 US GDP was $16.8 trillion, China's $9.2 T, and Japan's was $4.9T. China's GDP is nearly double that of Japan's already. And per capita, it is still low, so they have a lot of room to grow.

With things evolving at such a drastic pace, here we are worrying about 98% or 100% FIRECalc success rate. Come on! There's a lot of uncertainty in the days ahead, and there's no calculator to address that. How much to put in international stocks, how much in domestic? The optimal composition may not be the same as it was in the past, or may it? Who knows?
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Old 08-21-2014, 11:09 AM   #69
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This kind of questions keeps popping up here every so often: how much can we trust FIRECalc and the other method, i.e. Monte Carlo simulation? We need to remind ourselves that both are simply ways to project the past into the future, hence there is really no guarantee, no matter how desperate one wants an absolute assurance.

Fifty or forty years is a long time, and things happen at a faster pace now, it seems. I still remember when China surpassed Japan as the 2nd economy of the world. Look where we are now. According to the IMF, in 2013 US GDP was $16.8 trillion, China's $9.2 T, and Japan's was $4.9T. China's GDP is nearly double that of Japan's already. And per capita, it is still low, so they have a lot of room to grow.

With things evolving at such a drastic pace, here we are worrying about 98% or 100% FIRECalc success rate. Come on! There's a lot of uncertainty in the days ahead, and there's no calculator to address that.
Many here are choosing to go with the odds and don't get why others would invest only in safe assets. For some of us cowards or minimalists here minimizing losses is more important than trying to maximize potential gains, as in the diminishing marginal utility of wealth concept.

If a retiree can retire comfortably with $1M in savings but having less means going back to work, then keeping that first $1M is more important than even excellent odds in Firecalc or some other planning tool for gaining a second or third million. The second or third million might not be as important to some as the first.
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Old 08-21-2014, 11:50 AM   #70
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Many here are choosing to go with the odds and don't get why others would invest only in safe assets. For some of us cowards or minimalists here minimizing losses is more important than trying to maximize potential gains, as in the diminishing marginal utility of wealth concept.
Nothing wrong with either side of spectrum. Everyone should have their own comfort level on financial risk/reward.

But it raises my eyebrows when one gives an opinion which is from one end of the spectrum without qualification. I can't resist my temptation to check such opinions. This thread digressed a bit when a newbie to the forum suggested (without any specific explanation) that $5M in asset it not enough for the OP's friend to retire ($100k expense, couple eligible for SS). I think several of us gave counter opinions and/or examples why it is enough. My rule of thumb on giving opinion/advice on this forum is that, if I am not an expert, don't give one b/c there are whole lot of others here who are better qualified. (a mild rant, I know)
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Old 08-21-2014, 11:53 AM   #71
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My rule of thumb on giving opinion/advice on this forum is that, if I am not an expert, don't give one b/c there are whole lot of others here who are better qualified. (a mild rant, I know)
Are you sure you're qualified to give advice on giving advice?
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Old 08-21-2014, 11:57 AM   #72
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Are you sure you're qualified to give advice on giving advice?
Damn! I screwed up, didn't I? It will happen again.
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Old 08-21-2014, 12:13 PM   #73
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Many here are choosing to go with the odds and don't get why others would invest only in safe assets. For some of us cowards or minimalists here minimizing losses is more important than trying to maximize potential gains, as in the diminishing marginal utility of wealth concept.

If a retiree can retire comfortably with $1M in savings but having less means going back to work, then keeping that first $1M is more important than even excellent odds in Firecalc or some other planning tool for gaining a second or third million. The second or third million might not be as important to some as the first.
Does safety mean 100% in bonds or an annuity? I do not believe so, same as many people here.

For protection against inflation in exchange for zero chance of gains, perhaps 100% TIPS may be OK for people who are absolutely risk averse. Fine by me, but I see so many other risks in life that we have little control over, so why sweat this one?

For me, with a 3.5% WR off a diversified portfolio and a willingness to buy low/sell high rebalance when the market dips and bounces, and with SS equivalent to 3% of portfolio waiting for us at 70 (only 12 years away), I am spending a lot more time now to look for travel ideas.

Just topped off my motorhome with 45 gallons of the $3.29/gal gas at Costco. Genset started up within 1 sec of flipping the switch. I am all set to drive off tomorrow in the general direction of the northeast. Me worry? After the serious health problem that I had in the past couple of years, the future uncertainty about money is not that important anymore.

Excuse me, but I need to go pack "stuff" into that motorhome. Food, warm clothes (for where we are headed), books, electronics, etc... See y'all later.
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Old 08-21-2014, 12:24 PM   #74
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I don't give much advice, here or anywhere, and everyone's situation is different. But I will retire on way less than $5M, so it can be done...
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Old 08-21-2014, 12:52 PM   #75
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Does safety mean 100% in bonds or an annuity? I do not believe so, same as many people here.

For protection against inflation in exchange for zero chance of gains, perhaps 100% TIPS may be OK for people who are absolutely risk averse. Fine by me, but I see so many other risks in life that we have little control over, so why sweat this one?

For me, with a 3.5% WR off a diversified portfolio and a willingness to buy low/sell high rebalance when the market dips and bounces, and with SS equivalent to 3% of portfolio waiting for us at 70 (only 12 years away), I am spending a lot more time now to look for travel ideas.

Just topped off my motorhome with 45 gallons of the $3.29/gal gas at Costco. Genset started up within 1 sec of flipping the switch. I am all set to drive off tomorrow in the general direction of the northeast. Me worry? After the serious health problem that I had in the past couple of years, the future uncertainty about money is not that important anymore.

Excuse me, but I need to go pack "stuff" into that motorhome. Food, warm clothes (for where we are headed), books, electronics, etc... See y'all later.
I am glad to hear your health is better these days NW-bound and you can enjoy the motor home again.

I tend to agree with you on non-COLA annuities or long term bonds, except maybe a long term bond ladder capturing a rolling average of positive real rates of return. A non inflation indexed annuity might work well if it was offset with a fixed 30 year mortgage.

I think Zvi Bodie considers only those safe assets to be those indexed to inflation - SS, TIPS, I honds, COLA pensions and inflation adjusted annuities.

The main factor I see is real interest rates, not necessarily high inflation. If inflation is at 10% and credit union CDs are paying 12% then inflation may not be an issue even holding safe assets CD ladders. Have real interest rates on "safe" assets generally been positive? Longer term TIPS yields prior to the current Fed policies of low interest rate have generally been ~2% + inflation.

How have credit union CD ladders fared historically compared to a 60/40 portfolio during high inflation periods? I don't know, just asking.
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Old 08-21-2014, 04:14 PM   #76
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So NW-Bound is becoming NE-Bound? What is this world coming to?
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Old 08-21-2014, 06:31 PM   #77
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I am taking a break from packing the RV and will not drive off until tomorrow, so can hang around to BS some more.

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The main factor I see is real interest rates, not necessarily high inflation. If inflation is at 10% and credit union CDs are paying 12% then inflation may not be an issue even holding safe assets CD ladders. Have real interest rates on "safe" assets generally been positive? Longer term TIPS yields prior to the current Fed policies of low interest rate have generally been ~2% + inflation.

How have credit union CD ladders fared historically compared to a 60/40 portfolio during high inflation periods? I don't know, just asking.
My memory is fuzzy, but during 1980-1981, my credit union at work was paying 14%+. But at the same time, my 30-yr mortgage was also at 14%. I was young and just starting out on my career, and did not have a whole lot of money to invest, so did not follow the economic news much.

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So NW-Bound is becoming NE-Bound? What is this world coming to?
And before you know it, NW-Bound may become a socialist too.




Just joking. There's little chance of that.
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Old 08-21-2014, 07:20 PM   #78
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...


And before you know it, NW-Bound may become a socialist too.




Just joking. There's little chance of that.
Too bad, here I was thinking between your being very capable and my being very needy there would be a perfect match!
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Old 08-21-2014, 07:39 PM   #79
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Financially capable? I often mention here that my modest motorhome is not just for travel, but also my housing of last resort. It's my security blanket, to assure me that I will not be sleeping under a bridge, no matter what happens. And I am half-serious (wife does not want to hear it though).
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Old 08-21-2014, 07:51 PM   #80
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Financially capable? I often mention here that my modest motorhome is not just for travel, but also my housing of last resort. It's my security blanket, to assure me that I will not be sleeping under a bridge, no matter what happens. And I am half-serious (wife does not want to hear it though).
NW you can be like Steinbeck and do "Travels with Charlie" with your motorhome
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