Financial Engines vs. FIREcalc

[tlockwood]

Has anyone ever compared Financial Engines results to FIREcalc? I have always been impressed with Financial Engines which Vanguard makes available to me as part of my account. I haven't tried FIREcalc myself yet to compare.

[REWahoo]

It is a bit like comparing apples and oranges. Financial Engines is primarily an accumulation tool - it assists you in how much you need to save and grow your portfolio to reach an amount that can be annuitized to give you your target annual income.

FIRECalc is primarily a tool for seeking a withdrawal rate that, when viewed against actual historical market performance, will not result in you running out of money until you run out of you.

But don't take my word for it, read up on how FIRECalc works here: http://firecalc.com/intro.php

[LOL!]

I've tried to use Financial Engines to recommend funds and asset allocation. It always spits are the same garbage: switch to about 80% Vanguard Intermediate Bond Fund, 10% Vanguard GNMA and 10% random index stock funds. It does not even come close to any of the standard recommended asset allocation portfolios such 60:40 stocks:bonds with the stocks divided among domestic:international and also divided among large:mid:small capitalization and value:blend:growth.

Of course, firecalc is making no asset allocation recommendations whatsoever.

[Corporateburnout]

Quote:

Originally Posted by LOL! I've tried to use Financial Engines to recommend funds and asset allocation. It always spits are the same garbage: switch to about 80% Vanguard Intermediate Bond Fund, 10% Vanguard GNMA and 10% random index stock funds. It does not even come close to any of the standard recommended asset allocation portfolios such 60:40 stocks:bonds with the stocks divided among domestic:international and also divided among large:mid:small capitalization and value:blend:growth. Of course, firecalc is making no asset allocation recommendations whatsoever.

If you adjust FE risk level to around 1.0 it will give a recommendation close to a 60/40 mix.

[LOL!]

Quote:

Originally Posted by Corporateburnout If you adjust FE risk level to around 1.0 it will give a recommendation close to a 60/40 mix.

OK, I adjust my desired risk level downwards and it gives me more equities?

[Brat]

IMHO having more bonds (beyond a certain point) doesn't decrease your risk.

[chinaco]

Quote:

Originally Posted by Brat IMHO having more bonds (beyond a certain point) doesn't decrease your risk.

Depends on the type of risk you want to decrease.

[GLM]

I use Financial engines too - it gives an easy read out of our nest egg as it grows. One major difrence is that it assumes you are going to invest the balance at retirement in an annuity for a single individual. Not my plan.

So while it gives one way of calculating accumulation ( monte carlo vs fire calc's historical data ) it will not work for me in retirement. I look at it as the odds of hitting our escape number goal . Apples and oranges- different but both good fruits for different appetites and moods.

Also I find Financial engines recomendations are very conservative and somewhat limited . Some of our investments are locked in specific funds , and some the program will not recognise making recomendations of limited value. For someone wanting basic, easy , decient low cost guidance it seems adequate.

[Brat]

Back in FE's good old days (my accumulation phase when I could get a Stanford grad assistant on the phone) it recommended a couple bond funds I found 'stinky' (for lack of a better term).

IMHO it is not the end-all of investment guides, but it is very useful.

I really, really, like FE because I am one of those weird folks who love analysis, BUT, even mathematicians are not driven by these engines. As statisticians are well aware, the analysis may point you to problems and give hints about solutions... informed judgment is what produces results.

I would no more buy/sell a home based on Zwillow's 'Zestimate' than I would choose a fund only on the basis of Financial Engine's advise.

[Olav23]

FE does have a pretty good pedigree, or moniker, or whatever. The founder is William Sharpe, the guy that brought you that little stat on morningstar called the Sharpe Ratio

Then again, 2 nobel prize winners in economics ran the long term capital management hedge fund...

[tlockwood]

Now that I have looked at FIRE Calc it seems to that there are two big differences:

1) Financial Engines uses annuities to take into account how long you are likely to live. FIRECalc you have enter how many years you need the money to last.

2) FIRECalc uses actual historical data while Financial Engines is trying to predict the probabilties of the inputs based upon their research

Using the same data and withdrawl amounts FIRECalc gives me a 89% chance of not running out of money while Financial Engines predicts greater than 95% chance of not running out of money.

Both useful tools, but I agree they are very different ways to try to figure out safe withdrawl rates. FIREcalc seems more conservative and easier to understand.

Thanks for the feedback.

[magellan_nh]

The thing that strikes me about Financial Engines solution is that (as ReWahoo said before) their analysis is only interesting during the accumulation phase of retirement.

The FE solution stops the Monte Carlo Simulation the year you retire, and then uses a fixed return model to calculate the draw down phase.

IMHO, that makes the tool less interesting for anyone past their 20s or 30s.

I have no idea why they chose to limit the tool so much. It would have been so much more useful if they had let the darn thing keep simulating through retirement.

Jim

[Brat]

Maybe they haven't tested their engine for that phase.