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Old 10-28-2008, 07:57 AM   #21
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Just to reiterate what others have said, starting with a 100% Firecalc success estimate is great but expecting it to stay at 100% when you recalculate in changed circumstances makes no sense. All Firecalc told you was that you can take a certain withdrawal rate for X years (30?) and you will be OK unless we enter an unprecedented downturn. If you go to all fixed at this point you will destroy any predictive value your original Firecalc estimate had. In effect, you will be starting over with a smaller, all fixed portfolio. Then you will need to recalculate and you will have a much smaller SWR.
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Old 10-28-2008, 08:10 AM   #22
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Originally Posted by shotgunner View Post
If the results in April are what I go with then I can have a larger withdrawal rate simply because I retired before the crap hit the fan? If so I can't get my head around that.
You should be able to go with the April withdrawal rate - provided the market downturn we are currently undergoing (or the following one ) isn't worse than anything we've seen since 1871.

It only makes sense if you understand how FIRECalc comes up with the numbers. Take a look at this explanation: How FIRECalc Works.

"FIRECalc factors in the historical volatility in the market, so you can see whether your financial plan is robust enough to stand up to the worst we've seen in the history of the stock market.

FIRECalc scores "100% safe" a financial plan that would have survived the Great Depression, and every other financial calamity we've encountered"

So, even if you had retired in April of 1929, just prior to the market crash in October of that year:

"If you get a "100% success rate" with what you have and what you plan to spend, this means that you would have been able to maintain your standard of living and not run out of money, despite the worst that we've ever seen, including the Great Depression."

Hope that helps.
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Old 10-28-2008, 08:31 AM   #23
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What is puzzling about wanting to see 100% projected success? Speaking for myself I want to have a sense of that kind of security.
My point is, there is very little value in lowering one risk area if you cannot lower all risk areas. Only a false sense of hope/security.

Uninsured losses (flood, theft, terrorism, war ... ) is another risk area ... insuring against "everything" is not possible. We need to live with some risks.
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Old 10-28-2008, 08:54 AM   #24
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Selling out of the market is not the same as 'Take all your money and go to Vegas'. I think Bogle is right. If you can't afford to loose another nickle, get out. To me this only makes since. Move your money from the stock market to a bond ladder, cd ladder or other fixed income investment. That does not mean you have to stay there.

While you may loose something on the upside, you should be able to sleep at night. If you are comfortable with the risk, stick with it, however, if you are over 65 and see a soup line in your future, if your portfolio goes down, then get out and sleep at night. I also agree with what others say about FireCalc. But, if it's wrong, none of them are going to send you any cash. They will be in the soup line with you.

As others have said, pose the questions:
Market stays the same - I'm good
Market goes up - I'm good
Market goes down - I like soup?

I am reminded of sage advice I have never been able to implement. It is not knowing when to buy that makes you rich, but knowing when to sell!
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Old 10-28-2008, 09:13 AM   #25
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For those of you who are young and building a portfolio this is a good time to study your risk profile. The OP ran Firecalc and was satisfied with a 100% likelihood of success (based on history). Now in a serious downturn, he is afraid he misjudged and may get out of the equities at a serious loss which will blow his approach and probably demand a significant reduction in SWR. If you think a period like this would make you panic if you were ERed and holding a substantial portion of equities, you need to move to a much more conservative portfolio (and consequent lower SWR) well before you ER. It is hard to predict how periods like this will make you feel. But look at the reactions many of the old-timers here are having to this market. It is probably a good bet to take a more conservative approach sooner than you might otherwise expect unless you are convinced you have a spine of steel or have your bases covered with a pension or SPIA.
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Old 10-28-2008, 09:23 AM   #26
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Originally Posted by REWahoo View Post
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*Actually, you can run FIRECalc after a really good year and use those numbers. Just be sure to reduce the length of time the money needs to last due to the decrease in your expected lifespan.
REwahoo, I don't understand this comment -- could you expand on it?

TIA, Coach
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Old 10-28-2008, 09:37 AM   #27
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I would never sell out of stocks right now as the OP is suggesting, but I dont understand why you cant re-run FireCalc any time you like.

If I retire with a $1M and a 30 time horizon and get a 100% success rate.....then 3 years later I have $700,000 and a 27 year time horizon, why cant I re-run it? I understand that FireCalc has already accounted for a possible 30% decline, but by re-running it, it would be the same thing as a different person running it with $700,000 and a 27 year time frame to see if its OK to retire.

FireCalc doesnt know if you are the same person or a new person. Either its 100% safe to retire with this particular amount of money and time left...or its not.

It would be nice though to have an option to run FireCalc and figure in the fact that the market has just experienced an X % decline. I think if OP figured that in, he would be back to 100% success rate.
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Old 10-28-2008, 09:38 AM   #28
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REwahoo, I don't understand this comment -- could you expand on it?
By definition, FIRECalc tells us the maximum amount we can withdraw from our portfolio annually and, based on the worst markets history has thrown at us, not run out of money for X years. Since FIRECalc tells us worst case, if your portfolio amount increases you can run the numbers again to get a new worst case withdrawal amount. If we trust the accuracy of FIRECalc when we had a smaller portfolio, why would we not trust the numbers when we have a larger portfolio?

Note that I am not advocating you or anyone else do this, merely pointing out how FIRECalc works and the logic behind it.
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Old 10-28-2008, 09:46 AM   #29
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I would never sell out of stocks right now as the OP is suggesting, but I dont understand why you cant re-run FireCalc any time you like.
Certainly you can re-run FIRECalc at any time with any number of variables. The point is, if you trusted the withdrawal rate you got with FIRECalc when you initially retired, what is the point of re-running the numbers right after a huge market downturn? Does the market history in FIRECalc include a 40% drop immediately before a second Great Depression sell-off? No, because it only includes actual market history.
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Old 10-28-2008, 09:50 AM   #30
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If I ran FireCalc exactly one year ago with $1M and a 30 year time frame......and I ran it again right now with those same figures, would I get the same result? I believe I would and I believe thats a major flaw. Theres no way a person could believe the chances of survival are the same coming after a 40% decline in the market as they were when the market was at an all time high.
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Old 10-28-2008, 10:02 AM   #31
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If I ran FireCalc exactly one year ago with $1M and a 30 year time frame......and I ran it again right now with those same figures, would I get the same result? I believe I would and I believe thats a major flaw. Theres no way a person could believe the chances of survival are the same coming after a 40% decline in the market as they were when the market was at an all time high.
FIRECalc can only tell us what market history says. It doesn't know whether we were at a market high or had just experienced a major decline when you ran your numbers. It only knows what the chances of survival were based on how the markets behaved from 1871 forward.

From the FIRECalc "How it works" page: FIRECalc "analyzes what would have happened if you retired in 1871, in 1872, in 1873 and so on. It then calculates how often your strategy would have panned out historically."
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Old 10-28-2008, 10:03 AM   #32
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Regarding running FC repeatedly and acting on the results, the risk is that you will raise your SWR when times are good, and maybe not be so fast to lower it when times are bad. As pointed out, FC's basic model is one of XX years at YY SWR come hell or high water.

So if you plan on relying on it periodically versus one-time-and-go, you should probably do so on a time basis or some other nonfinancial scheme, and be ready to adjust either down or up. Otherwise the cherry picking may leave you high and dry some day, perhaps in an era similar to what we have now.
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Old 10-28-2008, 10:06 AM   #33
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Keep in mind that FireCalc, while an excellent tool is STILL an algorithim, while LIFE is not........
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Old 10-28-2008, 10:06 AM   #34
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If you go to all fixed at this point you will destroy any predictive value your original Firecalc estimate had..
Actually, Firecalc did absolutely no predicting. It simply backtested your portfolio and other sources of income vs. a withdrawal rate and inflation. Any assumptions as to how this would apply to the future are made by the user, not by Firecalc!
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Re-running firecalc
Old 10-28-2008, 10:25 AM   #35
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Re-running firecalc

This is the way I look at using firecalc. It isn't "god" and capabable of telling you 100% safe or not. There is a flaw in its modeling capabilities...

If you re-run and adjust upwards when the market is good, even if you always goto 100% safe, you are slowly putting yourself into the position to experience the worst case scenario. (You will run out of money)

If you re-run and adjust downwards when the market is bad until you get 100% safe, you are slowly putting yourself into the "best case" scenario (you'll die very rich).

If you re-run and adjust both ways, you'll be doing alot of hand waving and very little valuable work.

That isn't the way the tool should be used, the "valid run" case would be to run it in the middle of a up or down run. (When the market has recently returned *average* returns). Running it at the top or bottom, will lead to best/worst case computations. (Still *possibly* valid, but either very safe, or very risky).

Running firecalc after a major loss to see if you are *still* 100% isn't really a valid test, firecalc has no method of seeing the market has just lost 40%, and by the "law of averages" must come back to average at some point.

Running firecalc after a major upturn to see if you are *now* 100% isn't really a valid test either. Once again firecalc can not tell that the market has just gained 50% in the last 3 years.

Thats the danger of using past data, to predict future, based on the present.

Unless firecalc looks at current (present) market to determine if we are above average, or below average (based on what? some number of years?) it can dangerously say you are 100%, when you may not be. Or less than 100% when you in fact still safe.


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Old 10-28-2008, 10:49 AM   #36
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Of course you can re-run the numbers as often as you want. The way I view it is that Firecalc looks at hundreds of possible historical scenarios and reports back whether you would have survived them. 100% means you would have survived anything history threw at you. If you ran it last year you know now that you are on one of those scenarios that involves a major down turn shortly after your start date -- scary place to be. But, if history is a good predictor, you will likely survive.

If you are going to re-run your numbers everytime the market takes a major turn there is an easier way -- simply choose your rate (e.g. 4%, 5%) and take that amount form your portfolio every year -- don't adjust for inflation, don't change anything, just ride the volatility. Don't just spend it all willy-nilly. Bank any excess in good years in a separate account to draw on in down years and hope for the best. You can't run out of money that way although you can get pretty low in a sustained bear.
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Old 10-28-2008, 10:57 AM   #37
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If you are going to re-run your numbers everytime the market takes a major turn there is an easier way -- simply choose your rate (e.g. 4%, 5%) and take that amount form your portfolio every year -- don't adjust for inflation, don't change anything, just ride the volatility. Don't just spend it all willy-nilly. Bank any excess in good years in a separate account to draw on in down years and hope for the best. You can't run out of money that way although you can get pretty low in a sustained bear.
And FC has an option to model your plan that way, capping the downside to 95% of the prior year balance (Clyatt's plan as presented and backtested in his book).

I have not found FC's approach to that strategy to be all that helpful when you're in "Clyatt mode" but maybe it works well for others.
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Old 10-28-2008, 11:46 AM   #38
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These are really scarey times and I think we all think about throwing in the towel but the smartest thing is probably to just hang in there . Just make sure you have a few years in cash .
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Old 10-28-2008, 11:57 AM   #39
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Keep in mind that FireCalc, while an excellent tool is STILL an algorithim, while LIFE is not........
Exactly - it should not be your only tool.

Good - rules of thumb X% of working salary needed in retirement
- 4% withdrawl rate

Better - Firecalc

Best - a personalized projection of your net worth based upon your specific expense budget, investment ratio, investment growth rate, social security, pension, etc projections and cash flow.

If a person is not doing their "Best" why not?
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Old 10-28-2008, 12:44 PM   #40
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. . . the "valid run" case would be to run it in the middle of a up or down run. (When the market has recently returned *average* returns). Running it at the top or bottom, will lead to best/worst case computations. (Still *possibly* valid, but either very safe, or very risky).
. . .
I believe I tried to say this in another thread recently and was unable to make the point as clearly as d has here.
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