FIRE Calc vs TRowe Calc

[lbymfire]

I was playing around with the both the FIRE calc and the TRowe calc and noticed that the TRowe calc seems to give much more conservative results. On average I seem to be getting a 3.5% withdrawl rate (100% success) using the FIRE calc but only a 2.8% WR using TRowe. The methodologies seem similar as do the expected rates of return. I know small differences add up to a lot over time but as anyone looked at this before? Anyone know what the big difference is between the two calcs?

Thx

 

[lbymfire]

TRowe calc link:  http://www3.troweprice.com/ric/RIC/

 

[REWahoo]

I was playing around with the both the FIRE calc and the TRowe calc and noticed that the TRowe calc seems to give much more conservative results.... Anyone know what the big difference is between the two calcs?

My guess would be the primary difference is the motivation of the designers.

Dory has no dog in the fight; TRowe wants to encourage people to invest more, for a longer period, and with them.

 

[d]

among other things, more extreme situations are possible when simulated  than those which have been observed in the FIRECALC history, hence a lower SWR. (this does not suggest a deficiency for either.)  TRP also automatically adjusts (down) the equity exposure over time, which would/could/might also reduce the SWR.

 

[Dawg52]

Using TRP calculator with a 35 year run out, I can withdraw 13% more per month by using a 25/40/35 allocation over a 40/40/20 split. That seems a bit odd. 

 

[cute fuzzy bunny]

Primary difference is that the trowe price calculator uses monte carlo simulations, which are usually either more conservative or less conservative than reality, due to the lack of any market movement correlations from year to year.

Firecalc uses actual historical serial data, with the mysterious correlations intact.

 

[saluki9]

Primary difference is that the trowe price calculator uses monte carlo simulations, which are usually either more conservative or less conservative than reality, due to the lack of any market movement correlations from year to year.

Firecalc uses actual historical serial data, with the mysterious correlations intact.

yep, that's why I always like to test using both MC, rolling historical, and boostrap just to see the difference between the three

 

[cute fuzzy bunny]

I just spent a few minutes looking at how my portfolio survived the depression era and the 64-84 period. I would have made it through those.

Then I looked at what changes I'd have to make to my investing strategy to survive something much worse than that, and it was dramatically different and excessive. Taking that "fail safe" strategy and seeing how well it did during average to good times showed that I would be leaving significant money on the table by trying to insure against a worst than worse scenario.

There are plenty of scary things going on that could lead to "worse than the worst", but there have always been plenty of scary things going on and we made it through those.

With that in mind, further simulation/calculation/modelling seemed at best an interesting intellectual exercise of not much importance.

I also always remember that I dont have to outrun the bear, just be faster than the rest of its potential meals. Having my portfolio drop 50-80% in value wont matter much if i'm still in the top 1-5% of wealth holders.

 

[runnerr]

Does TRP take in to consideration Social Security, as I believe Fire does? Can someone explain?

 

[Alex]

My guess would be the primary difference is the motivation of the designers.

Dory has no dog in the fight; TRowe wants to encourage people to invest more, for a longer period, and with them.

BINGO!!!! TRP (and the rest of the 'financial industry') wants you to work forever! and keep putting money into their funds so they can profit.
PS - The employees at TRP probably use 'Firecalc' when figuring their own FIRE program!
EDIT - I just visited the TRP site and played with their calculator - IMHO the TRP program is a piece of junk compared to FIRECALC - don't waste your time!!

 

[Telly]

I gave up on the T Rowe Price calculator years ago.  It's brutal.  With a Monte Carlo sim, besides the sequence issues, someone had to setup the bounds on the returns used, both positive and negative.  And what was used to set those bounds?  Who knows?  And if we did know what the bounds were, would we agree with them?  What would we use as a standard?  Questions, questions...

As for I-Orp, I gave up on it almost as soon as I found it.  Good withdrawal planning to minimize taxes, but that's it.  The user has to put in returns rate.  How would we do that?  In that case, its not much better than your own spreadsheet.  Actually, mine's better! 

 

[donheff]

I used to use TRP until I found this group and Dory's Firecalc. But the impresssion I had with TRP is that 90% was considered a very high level of safety (presumably because it models a-historical runs). With Firecalc we are all looking for 100% survival against all historical precedents.

 

[rmark]

see "Selecting a program retirement planning" under "free publications" at http://www.analyzenow.com for a short complaint about monte carlo simulations.