Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
FIRECALC & WR's
Old 02-29-2012, 01:11 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,977
FIRECALC & WR's

Just for fun, I did a classic 4% SWR age 65 scenario to show what year to year withdrawal % would actually be for average, best case and worst case. Illustrates how wildly results can vary if a retiree were to just blindly follow the 4% rule without regard to asset balances (not that anyone would) - and how pinning down a bulletproof number in advance is out of the question. I was just curious to see the result in this format, thought maybe others might...

First chart is withdrawal rates for each year (expenses inflated by 3% each year) starting with 4% SWR and following the classic withdrawal methodology. Second chart is corresponding asset balances, same chart as FIRECALC provides except only showing 4 cases instead of all.

The point is not to examine the results, as much as comparing best, worst and average cases.

Assumptions:
Retired age 65
Plan duration 30 years (age 95)
Nest egg $1MM
Expenses $60K/yr initial ($40K withdrawal, $20K Soc Sec starting age 65)
Inflation 3%
FIRECALC probability of success 94.6%
Default asset allocation & returns
Attached Images
File Type: gif WR.gif (31.0 KB, 76 views)
File Type: gif Assets.gif (29.3 KB, 66 views)
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-29-2012, 01:57 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,708
Just curious here (don't want to set off a storm)... but I'm wondering how much faith folks here put into Firecalc.

I find it to be a fantastic tool and it confirms the results of other calculators, but some posters seem to take the results as 'gospel'. Sort of "well, I ran my inputs through Firecalc and it says that I'm good, so I'm on my way!..."

To me, it is a guide that tells me if I'm in the ballpark or out in the weeds. When a calculator tells me that in 30 years I could have between a $400K or $14,000,000 balance, there has to be a lot of room for error. No?
__________________

__________________
marko is offline   Reply With Quote
Old 02-29-2012, 02:06 PM   #3
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,913
Quote:
Originally Posted by marko View Post
Just curious here (don't want to set off a storm)... but I'm wondering how much faith folks here put into Firecalc.

I find it to be a fantastic tool and it confirms the results of other calculators, but some posters seem to take the results as 'gospel'. Sort of "well, I ran my inputs through Firecalc and it says that I'm good, so I'm on my way!..."

To me, it is a guide that tells me if I'm in the ballpark or out in the weeds. When a calculator tells me that in 30 years I could have between a $400K or $14,000,000 balance, there has to be a lot of room for error. No?
I would NEVER take results from any retirement calculator as gospel. Even though I think FIRECalc is one of the better ones available, I only regard it as a double check. If FIRECalc didn't give me a good result, it would be a huge red flag for me, in other words. FIRECalc is a bit optimistic for my tastes (but then, I tend to be pretty cautious).

I always recommend running one's scenario through FIRECalc as a doublecheck, but I don't think that is all there is to retirement planning.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 02-29-2012, 02:08 PM   #4
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,123
Quote:
Originally Posted by W2R View Post
(but then, I tend to be pretty cautious).
........

Ahem. Uh, sorry. Lost my head there for a minute.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-29-2012, 02:09 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,977
Quote:
Originally Posted by marko View Post
Just curious here (don't want to set off a storm)... but I'm wondering how much faith folks here put into Firecalc.

I find it to be a fantastic tool and it confirms the results of other calculators, but some posters seem to take the results as 'gospel'. Sort of "well, I ran my inputs through Firecalc and it says that I'm good, so I'm on my way!..."

To me, it is a guide that tells me if I'm in the ballpark or out in the weeds. When a calculator tells me that in 30 years I could have between a $400K or $14,000,000 balance, there has to be a lot of room for error. No?
I'd suggest you start a thread to explore that question. That's not what this thread was for at all...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 02-29-2012, 02:34 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,708
Quote:
Originally Posted by Midpack View Post
I'd suggest you start a thread to explore that question. That's not what this thread was for at all...
Ok. Sorry. I've always had a problem with tangent control.
__________________
marko is offline   Reply With Quote
Old 02-29-2012, 02:48 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,366
Midpack - I'm not clear on what you want to explore. Yes, the two Firecalc charts present the data in different ways, but I would draw equivalent conclusions from each. Should that not be the case?
__________________
GrayHare is online now   Reply With Quote
Old 02-29-2012, 03:19 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,977
Quote:
Originally Posted by GrayHare View Post
Midpack - I'm not clear on what you want to explore. Yes, the two Firecalc charts present the data in different ways, but I would draw equivalent conclusions from each. Should that not be the case?
Not meant to be a revelation. Just two ways of looking at the same thing as you say. I think everyone knows how wildly different assets would grow for best and worst case, or residual $ after 30 years.

Viewing same as actual withdrawals for each year following the 4% SWR methodology is easier relate to IMO, that's why I did it. Imagine withdrawing at more than 10% yr after yr for the last half of retirement - and not running out of money as the worst case shows. Who would have the nerve, not me, even though you'd have a 95% chance of success based on past history. OTOH, imagine withdrawing less than 1% for many years, while still building a considerable nest egg, with no need to reduce spending at any time. Just puts the huge divergence in potential outcomes in perspective more clearly for me. Maybe I'm the only one. Luck of the draw is an understatement IMO.

And again, I realize no one would mindlessly follow the 4% SWR methodology without regard for outcomes as they develop.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 02-29-2012, 03:20 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,450
To me it just reinforces that flexibility is a key aspect of retirement and being able to dial down expenses if investment results lag is important.
__________________
pb4uski is offline   Reply With Quote
Old 02-29-2012, 03:26 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,692
Quote:
Originally Posted by Midpack View Post
...(snip)...
Assumptions:
Retired age 65
Plan duration 30 years (age 95)
Nest egg $1MM
Expenses $60K/yr initial ($40K withdrawal, $20K Soc Sec starting age 65)
Inflation 3%
FIRECALC probability of success 94.6%
Default asset allocation & returns
Here are a few questions about the inputs that I've wondered about for my own case:

1) Assuming our retiree owns his house (no mortgage), wouldn't a good plan B be to assume he could sell at 85, then rent and live on the balance + SS? In that case, couldn't he just run the simulation for 20 years and assume that it's pretty much worst case?

2) Before 1930 the stock market allowed extreme equity leveraging by individuals. Today that is not done much and probably not by most retirees. So I've always run my simulations starting around 1925 but payed particular attention to the "retire in 1968" line which I think is close to worst case for current history. I noticed the worst case in OP's simulation was 1906 (I think) -- maybe just too long ago to realistically take into account with current economics? This is probably a very debatable point but just thought I'd mention it.

3) When I run FIRECalc I use the CPI inflation rate. Did the above just use a straight 3.0%? If so I think it is too optimistic. Post WW2 inflation was high as was the 1970's.
__________________
Lsbcal is online now   Reply With Quote
Old 02-29-2012, 03:55 PM   #11
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,375
Quote:
Originally Posted by Midpack View Post
I'd suggest you start a thread to explore that question. That's not what this thread was for at all...
When did that ever stop us !
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Old 02-29-2012, 04:56 PM   #12
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,129
Quote:
Originally Posted by marko View Post
When a calculator tells me that in 30 years I could have between a $400K or $14,000,000 balance, there has to be a lot of room for error. No?
The philosophy behind Firecalc is clearly stated on the main page. Anyone who would expect such a tool to provide a very narrow range of specific outcomes needs to do a bit more reading.
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is offline   Reply With Quote
Old 02-29-2012, 05:18 PM   #13
Recycles dryer sheets
IBWino's Avatar
 
Join Date: May 2006
Posts: 423
I find it interesting that the worst-case and best-case scenarios start only 6 years apart: worst - 1969, best - 1975.
__________________
IBWino is offline   Reply With Quote
Old 02-29-2012, 05:28 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
Quote:
Originally Posted by IBWino View Post
I find it interesting that the worst-case and best-case scenarios start only 6 years apart: worst - 1969, best - 1975.
ditto
__________________
d is offline   Reply With Quote
Old 02-29-2012, 05:52 PM   #15
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,129
Quote:
Originally Posted by IBWino View Post
I find it interesting that the worst-case and best-case scenarios start only 6 years apart: worst - 1969, best - 1975.
I'm not sure if that's interesting or downright scary
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is offline   Reply With Quote
Old 02-29-2012, 05:55 PM   #16
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,534
Firecalc, is kind of like a GPS, good for general directions, in general, but you still need to exercise some common sense.

Can I get an Amen ?
__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 02-29-2012, 06:04 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,977
A m e n !
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 02-29-2012, 06:22 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Feb 2012
Posts: 1,104
I like the Firecalc a lot in that it shows the variability we all (should) know about. I'm new here but not to these calculators. I've used the Fidelity one, and what I like about it is that it accounts for what is yet to be taxed (IRA's etc) as well as state taxes and gives you a detailed cash flow based on their worst case. Yes, you can see what would happen in 9/10, 3/4, and 1/2 scenarios, but the Firecalc gives you a more graphic view of the spread.

I think what the spread the firecalc shows is that the first few years (well, if you're retiring really young more than first few) you better be willing to be flexible. I wouldn't want to have it figured to the nearest $100 a month and go into what we went into in 2008.

Anyway, good board, like all the thoughts here.
__________________
H2ODude is offline   Reply With Quote
Old 02-29-2012, 08:59 PM   #19
Thinks s/he gets paid by the post
Live And Learn's Avatar
 
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,689
I've run my numbers throught FireCalc, Fido, Vanguard and my own homegrown spreadsheet. I like to "compare and contrast". I'm starting to get some consensus (worst plan has my portfolio depleted in 30 years, age 80, best has me depleted in 38 years). My conclusion is that my portfolio will be depleted somewhere in between. As long as my SS will cover roof and food at age 80 then I'm ok with ER. (BTW - when I talk about SS I assume no future earning and only a 65% payout on the number I get from the SSA website).
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11

ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
Live And Learn is offline   Reply With Quote
Old 03-01-2012, 10:33 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,692
Any thoughts on my questions above particularly question #1?

Repeated here:
Quote:
1) Assuming our retiree owns his house (no mortgage), wouldn't a good Plan B be to assume he could sell at 85, then rent and live on the balance + SS? In that case, couldn't he just run the simulation for 20 years and assume that it's pretty much worst case?
Or alternately, as that lower red line on the original chart showed poor results at year 20, couldn't the retiree just sell the house and rent to increase their disposable income? I'm assuming the house has some pretty decent market value and has been maintained and is in a decent local.
__________________

__________________
Lsbcal is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
$900 per month for food & toiletries Retire2013 Other topics 42 02-26-2012 01:06 PM
Weird at&t, bell south & lucent tax question Amethyst FIRE and Money 35 02-21-2012 05:19 AM
Wills & instructions for loved ones ronocnikral FIRE and Money 55 02-20-2012 04:34 PM
Did some !&%^!!#$% person help you to retire early? Chuckanut Life after FIRE 60 02-16-2012 08:56 AM
Rental Income in FIREcalc jkern FIRECalc support 3 02-10-2012 01:38 PM

 

 
All times are GMT -6. The time now is 11:12 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.