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Fidelity adds new market type to RIP
Old 08-12-2016, 07:29 AM   #1
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Fidelity adds new market type to RIP

Fidelity has added a new choice in RIP for Significantly Below Average Market result

Definitions from Fidelity site:

Understanding Market Conditions

Significantly Below Average Market
A significantly below average market is defined as the 90% confidence level of estimated future balances and/or estimated future income. The 90% confidence level represents "significantly below average market conditions" with 10% of all hypothetical scenarios tested performing worse. This means that in 90 out of 100 market scenarios tested a hypothetical portfolio similar to yours performed at least as well as the results shown and 10 out of 100 performed worse than the results shown.

Below Average Market
A below average market is defined as the 75% confidence level of estimated future balances and/or estimated future income. The 75% confidence level represents "below average market conditions" with 75% of all hypothetical scenarios tested performing worse. This means that in 75 out of 100 market scenarios tested a hypothetical portfolio similar to yours performed at least as well as the results shown and 25 out of 100 performed worse than the results shown.

Average Market
An average market is defined as the 50% confidence level of estimated future balances and/or estimated future income. The 50% confidence level represents "average market conditions" with 50% of all hypothetical scenarios tested performing worse. This means that in 50 out of 100 market scenarios tested a hypothetical portfolio similar to yours performed at least as well as the results shown and 50 out of 100 performed worse than the results shown.

For more details review the Methodology.
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Old 08-12-2016, 07:56 AM   #2
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i remember worst case being 90% success rate since they made the changes quite a few months ago . iwish they had a 100% success rate option as a worst case .
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Old 08-12-2016, 09:27 AM   #3
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They used to have 95% success rate as an option. That was always the one I selected. 90% isn't good enough.
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Old 08-12-2016, 09:51 AM   #4
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Originally Posted by Live And Learn View Post
They used to have 95% success rate as an option. That was always the one I selected. 90% isn't good enough.

To each their own, but I'm happy to use a 90% success rate to an age I only have about a 10% chance of reaching. Combine the two and you're down to a 1% failure rate.

Think I'll run RIP at the 75% odds at a 10% chance of living and see what I can pull at a 2.5% chance of going broke when I get bored...
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Old 08-12-2016, 10:24 AM   #5
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They used to have 95% success rate as an option. That was always the one I selected. 90% isn't good enough.
I was hoping they'd bring the 95% back. Too bad.
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Old 08-12-2016, 10:34 AM   #6
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Originally Posted by Live And Learn View Post
They used to have 95% success rate as an option. That was always the one I selected. 90% isn't good enough.
Fidelity already views 90% confidence level as being very conservative. From the Methodology section:

Quote:
...the default confidence level is 90%, which we consider "very conservative" market performance. This means that in 90% of the historical market scenarios run, a target asset mix similar to the current asset mix of your selected account or of another target asset mix that you select for modeling purposes, as appropriate, performed at least as well as the results shown. Conversely, in only 10% of the historical market scenarios run, a target asset mix similar to the current asset mix of your selected account or of another target asset mix that you select, as appropriate, failed to reach the results shown. Fidelity uses this 90% figure so as to err on the side of a more conservative estimation of future market performance.
emphasis added
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Old 08-12-2016, 11:18 AM   #7
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So it looks the change is just the addition of the 75% level. Not sure what good that really does.
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Old 08-12-2016, 12:40 PM   #8
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The RIP tool is one of the most conservative calculators out there even at 90% confidence level. As far as I'm concerned there is no such thing as 100% confidence. You can look at 100% confidence based on past market performance runs using Firecalc. Worst case from a historical perspective is retiring in 1966, that's where the 4% rule was derived based on a 50-50 stock-bond portfolio. For me I choose to have a cushion from what Fidelity RIP is churning out even at 90% confidence.
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Old 08-12-2016, 01:01 PM   #9
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Looks like we're splitting hairs. RIP or any other calculator gets you in the ballpark. Just plan to stay flexible as we're in uncharted waters.
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Old 08-13-2016, 05:43 PM   #10
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The RIP tool is one of the most conservative calculators out there even at 90% confidence level. As far as I'm concerned there is no such thing as 100% confidence. You can look at 100% confidence based on past market performance runs using Firecalc. Worst case from a historical perspective is retiring in 1966, that's where the 4% rule was derived based on a 50-50 stock-bond portfolio. For me I choose to have a cushion from what Fidelity RIP is churning out even at 90% confidence.
+1
Before I retired, I rather religiously ran about 5 different calculators using only MC simulations. Now I run only two and infrequently. I've not been able to find any calculator either that's more conservative than Fidelity's (if anyone else has, please weigh in).

As to looking for 100% confidence in any calculator, see this by Pfau:

Forbes Welcome

Quote:
As William Bernstein pointed out in Part III of his “Retirement Calculator from Hell” series, post-1926 United States was fortunate to avoid experiencing any truly destructive political, economic, or military crises, which can wipe out a retiree’s wealth. A casual look through world history, though, suggests that such crises occur altogether too frequently.

Focusing solely on investment risk over a thirty or forty-year retirement while excluding these other risks will result in overconfidence. For this reason, Bengen suggests it is meaningless to think about portfolio success rates above 80%.
emphasis added

and this by Bernstein:

The Retirement Calculator from Hell, Part III

Quote:
A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.
emphasis in the original
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Old 08-14-2016, 04:26 AM   #11
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fidelity's is the most conservative even at 90% because :

it inflates health and long term care costs automatically by 5.50% .

it uses monte carlo simulations to find even worse case scenario's than historical

it automatically knocks about 15% off your balance first year to assume a downturn day 1 .

so at 90% it pretty much equates to others at 100% unless you manually start changing certain default parameters in the others
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Old 08-14-2016, 06:45 AM   #12
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fidelity's is the most conservative even at 90% because :

it inflates health and long term care costs automatically by 5.50% .

it uses monte carlo simulations to find even worse case scenario's than historical

it automatically knocks about 15% off your balance first year to assume a downturn day 1 .

so at 90% it pretty much equates to others at 100% unless you manually start changing certain default parameters in the others
I didn't realize this. I looked at my numbers and it works out to be about an 8% deduction for me at the start, but that may be based on my asset mix. Thanks for pointing this out. It makes me feel even better about my 140 score.
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Old 08-15-2016, 02:33 AM   #13
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i guess they must use a formula , it knocked 15% off our starting number . when we met with our financial team at fidelity i questioned that fact and they said it assumes a year 1 hit .

i retired last july , and i was amazed . i was like how did they know ha ha ha ha
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Old 08-15-2016, 04:32 AM   #14
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I am new to the Fidelity Retirement Calculator ..... Those that have been using this, do you find it good to base decisions on? Have the reports been accurate over time Knowing that there is one new one, how have the other two been for those that have been utilizing this tool ??
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Old 08-15-2016, 04:33 AM   #15
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i like it very much . it is as good a guess as it gets
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Old 08-15-2016, 04:55 AM   #16
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Is there a way to access the calculator without having an account at Fidelity?
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Old 08-15-2016, 04:57 AM   #17
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no but you can create an account and not fund it until they shut you down .
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Old 08-15-2016, 10:45 AM   #18
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I am new to the Fidelity Retirement Calculator ..... Those that have been using this, do you find it good to base decisions on? Have the reports been accurate over time Knowing that there is one new one, how have the other two been for those that have been utilizing this tool ??
No calculator is going to be absolutely "accurate" in forecasting retirement income. A calculator is best used as an educational tool, although I do keep the monthly reports (going back about a year now) and compare them. I use RIP as a guide.

As to your second question, I personally didn't like the new interface at first and still think it could be more user friendly, but I've grown used to it.
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Old 08-15-2016, 10:47 AM   #19
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no but you can create an account and not fund it until they shut you down .
I've had an unfunded account for more than a few years and have had no problems, not even email spam or junk mail. Schwab, OTOH, who I opened a free checking account with a year ago but never funded as I changed my mind, will not stop sending me junk mail.
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Old 08-15-2016, 06:14 PM   #20
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I am new to the Fidelity Retirement Calculator ..... Those that have been using this, do you find it good to base decisions on? Have the reports been accurate over time Knowing that there is one new one, how have the other two been for those that have been utilizing this tool ??

I have used it for planning for about 6 years. It seems to be the best one out there for allowing the detailed spending by category. The results have been consistent which is all I could ask.


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