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Old 10-09-2008, 09:05 AM   #21
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Gotta remember that FC and other calculators are much better at thinking long term than most of us are. That dramatic difference between FIREing this month versus next due to market gyrations is dramatic only, in most cases, because we have a short-term perspective.

If you FIRE when the Dow is down this week, but it goes up by 20% next week, it feels huge. But move ahead 15 years or more and add in the hundreds of other gyrations that will take place, and that would be nothing more than a blip.
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Old 10-09-2008, 09:06 AM   #22
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The paradox (flaw) in using firecalc, or the standard 4% rule, or any method that doesn't take valuations into account, is discussed in this report.

http://www.kitces.com/assets/pdfs/Ki...t_May_2008.pdf
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Old 10-09-2008, 09:25 AM   #23
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The biggest problem with all the calculators is that none of them can tell you when you'll die or go into an extended care facillity.
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Old 10-09-2008, 09:43 AM   #24
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I remember a discussion with my advisor several years ago where he pointed out that planning my ER would be much easier if we knew when I would die.

To take some of the variables out of this in my case I decided the best approach was to be sure I had money to live the way I want until age 82. At that point I believe I will be OK should I need to be a ward of the state
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Old 10-09-2008, 10:15 AM   #25
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The paradox (flaw) in using firecalc, or the standard 4% rule, or any method that doesn't take valuations into account, is discussed in this report.

http://www.kitces.com/assets/pdfs/Ki...t_May_2008.pdf

Interesting read, and was exactly the type of thing I was thinking about. I poked around on his web site, found his blog, and was somewhat startled to see Rob Bennett's name pop up. Guess the guy might not be all wrong...

Interesting that a logical conclusion based on this type of research is that the minimum safe withdrawal rate from this is that the PE peak in the late 90's might reasonably result in a new historically low SWR.
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Old 10-09-2008, 11:27 AM   #26
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To me, though, that's the blind spot of FireCalc. If you're looking every day and seeing your percentage go from 85% to 95%, you might decide that 95% is good enough to pull the plug. But what if you got to that 95% because of a huge market runup? Maybe that means that current market conditions are more similar to those 5% failure cases than they are to the success cases.
...
And maybe, just maybe, more people happen to run FireCalc and think of pulling the plug during bull markets when things look really good.

FireCalc input is a point-in-time snapshot of your situation while, in fact, portfolio values can change rapidly -- October '07 to now, for example.

A portfolio that might have resulted in a 95% success rate for a given withdrawl rate in October '07 might have have lost value to the point that the same withdrawl rate would result in a 75% success rate using October '08 portfolio values. The main variable here is the starting portfolio value. If you run FireCalc when the market is at a peak or in a valley you may be using a portfolio value that is at an extreme that may not be seen again for some time. The hard part is to know, on any given day, what the market will do in the future. :confused:

This seems to be one flaw with using point-in-time snapshots of portfolio values. I would suggest a way to overcome this if I could.
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Old 10-09-2008, 11:36 AM   #27
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Rustward, see post #18 in this "Best of the Board" thread: Explain the 4% withdrawal rate

BTW, Dory36 is the guy who built FIRECalc.
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Old 10-09-2008, 11:56 AM   #28
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BTW, the gist of what I got out of the article was that the 4% (or thereabouts) strategy is that it is good for even the worst of market conditions. So, excepting historically bad markets, you should be good with that 4% no matter when you retire. But you may be able to raise that 4% safely to 5% in favorable market conditions, based on the P/E ratio. So someone retiring today might be pretty darn safe at 4.5% - 5%.

Of course, that article was focused on the survivability over 30 years, which just isn't long enough to cut it for this crowd. Pretty dumb to retire at 40 and be broke at 70.
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Old 10-09-2008, 12:03 PM   #29
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If failure rate is your major concern, and if you don't mind a rougher ride, you can also use a fixed percent of assets on hand as your annual withdrawal; on the downside you can set the minimal annual amount to be 95% of the prior year and still approach 100% survivability.

Some years will be better than others, but it works - see Bob Clyatt's book in the reading list for testing of this strategy.
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Old 10-09-2008, 12:23 PM   #30
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Rustward, see post #18 in this "Best of the Board" thread: Explain the 4% withdrawal rate

BTW, Dory36 is the guy who built FIRECalc.
Thanks. I got it, and am OK with it. Maybe I am trying to get too accurate, or maybe I am selfish ...
"If you retire into an UPturn, and your nest egg doubles in the first few years, then following the 4% rule for the next few decades will insure your descendants remember you fondly!"

We don't want anybody to remember us very fondly , just somewhat fondly. Actually if we were that fortunate we would probably give a lot away, but it would be nice to do that before we die rather than after.
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Old 10-09-2008, 12:30 PM   #31
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i'd rather be safer than sorrier. if i want more money now, i'll work for it (& i'm currently exploring that). if i wind up with "too much" money later, horror of horrors, as i can be a creative guy when need be, i'll figure some way to spend it down. worse comes to worst, i'm gonna have a very fancy funeral & a gorgeous tomb.
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Old 10-09-2008, 12:36 PM   #32
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...Actually if we were that fortunate we would probably give a lot away, but it would be nice to do that before we die rather than after.

True that.

I think I get more mileage out of giving money away than actually spending it. I'm not sure if that's good or bad.
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Old 10-09-2008, 01:41 PM   #33
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shotgunner, numbers-wise I'm in nearly the identical position you are. A couple of months ago FIRECalc and several other calculators I use said I was good to go, so I planned on an April 2009 retirement.

I haven't run the numbers again, but I doubt if they would be favorable. I haven't sold any stock so I own all the shares I did two months ago. Only that "market value" number has changed -- but that's the number I put into FIRECalc.

I have enough cash to support several years of retirement, and I'm convinced that in several years my "market value" number will have recovered. So even though FIRECalc might say no, I'm still planning on April.

I'll watch expenses more closely in the beginning than I had originally planned, in case I decide I need to stretch that cash.

The biggest risk is in retiring at a market peak and then having the market fall and being forced to sell equities for current income. I'm retiring in a market valley and hoping that there's a rise coming during the time I have cash to live on.

It's a risk, but I suppose retirement always is. The good news is that no one is depending on me, so the only one stuck eating cat food will be me.

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Old 10-09-2008, 01:57 PM   #34
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Single too

Thanks Coach I wish you well. I may not have mentioned it in a previous post but I am single also.

In my mind I sometimes contemplate worst case scenarios, I will bet I am not alone. If everything goes south it won't happen until my 70's. By then there may be room in a Veteran's or Masonic home for me.
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