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Old 01-21-2013, 11:31 AM   #21
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I think your analysis sort of misses the point of the graph. The point of the graph is to show how 3 different people retiring in different economic conditions with the same amount of money would end up with vastly different results even if they all invested similarly and withdrew similarly. I think to get hung up on the one with $750k in 1975 would have had to have more in 1973 to end up with $750k in 1975 misses the point entirely. The big picture here is that you can't just determine portfolio survival based upon how much money you have and your asset allocation and withdrawal rate. What is happening in the overall market for your investments also matters.

If it makes it easier, just assume that each one of them came into their money only in the year that each of them retired.
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Old 01-21-2013, 11:59 AM   #22
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I think the point in that graph is that there are a lot of points of view.

Probably the intention in the FIRECalc introduction was indeed to show that different starting years produce different outcomes. However, there are other points to make about "when should I retire and how much do I need?". We all need to get our 2 cents in on this.
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Old 01-21-2013, 02:18 PM   #23
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Thanks for posting, I think real life examples are always good to see, and it's good that you are doing well.

And though that intro story from FIRECALC is important and illustrative, it is also misleading, I think. Here's the problem:

It infers that someone retiring in 1973 (red-fail), 1974 (blue-ok) or 1975 (green-winnah!) with $750,000 is an apples-apples comparison. But since the market declined in each of those years, the 1975 and 1974 retiree had a lot more in 1973 than the 1973 retiree. So I don't see it as apples-apples.

......

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Good point. I think the relevance depends on the question.

1) Would a person who hit 62 in 1973 help or hurt himself by waiting 2 years to retire? How much?

2) Were people born in 1913, who retired at 62 in 1975, a lot luckier than those who were born in 1911 and retired in 1973?

3) I have $750k and I'd like to retire today. Can I retire with an initial [$60k; $45K; $30k; $15k] withdrawal, adjust it annually for inflation, and expect my money to last longer than I do?

I think FireCalc is designed to answer question 3, and it does a reasonably good job.

I've seen people use results like FireCalc's to make claims about question 2, that I don't think are valid. The problem is the one you've identified, FireCalc does not look at before retirement returns.

Similarly, question 1 requires more than FireCalc for a meaningful answer.
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Old 01-21-2013, 02:25 PM   #24
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Earlier today I posted the chart Dory36 uses on the first page of FIRECalc to show how market performance in the first few years of retirement can affect portfolio survival. Bottom line: a bad start can be very bad news.

Not sure if this is of interest to anyone else but me, but I was curious to see how my actual numbers (adjusted to chart values) would look now that we've been FIRED for seven years:


The three examples (red, blue and green) adhered strictly to the 4% plus inflation adjustment formula while I definitely have not. With no pension or SS during the first three years of retirement, our withdrawal rate averaged 7.9% of our initial portfolio value. With both DW and I now on SS our withdrawal rate declined to 3.9% of our initial portfolio value in year seven.

Of course the jury is still out, but I am encouraged that my black line seems to be tracking closer to the path of the green than the blue or red - at least so far.
I've been retired for 6 years, and my personal graph would be much like yours. We're about flat if I use nominal dollars, but we're down if I use real dollars.

Of course, nothing went as planned. Medical expenses were way higher than anticipated, entertainment was way lower, I had a good short term consulting opportunity, we ended up helping relatives we'd never expected to help.

I'd always expected to defer SS, so the plan was that assets would drop in the early years. That part doesn't bother me. The way we spent the money is frustrating.
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Old 01-21-2013, 03:20 PM   #25
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Thats a GREAT graphy REW ! Thank you for sharing a "real world" result.

I'm really afraid of that red line so I only use 90% of my portfolio in Firecalc and other calculators. It makes me feel a little better but I'd rather see a 20% "contingency" when I do this stuff. I do suspect however that if I did get to a point where I could do a 20% contingency that I'd push my "desired level" to 25% ... and then 30% ....

Increasing that contingency is my way of betting against "bad timing". But how much is "enough" ? There's really no reasonable answer to that question ....
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Old 01-21-2013, 03:30 PM   #26
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Increasing that contingency is my way of betting against "bad timing". But how much is "enough" ? There's really no reasonable answer to that question ....
For some, hopefully not you, there will never be "enough". That leaves only a forced retirement from job loss or a health issue to decide for them. I was fortunate in that I got to make my own decision rather than allow 'rightsizing' or fate make it for me.
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Old 01-21-2013, 04:41 PM   #27
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Maybe I'm being too simplistic but I think this is sort of making a huge assumption and then is sort of missing the point of the graphs. ...

If it makes it easier, just assume that each one of them came into their money only in the year that each of them retired.
I'd say that rather than 'missing the point', I'm trying to make an additional point to put it in some perspective. And if you assume each one of them came into their money only in the year that each of them retired, then that is exactly what the graphs show. And as you point out, that happens for some (should we do a poll to see if we have any bank robbers? - I almost missed that one ).

My point is, that many (probably most?) of us built up a nest egg over many years. If you look at that graph as three individuals, with everything equal other than the year they retire (equal career income, equal amount saved, equal spending requirements, etc), and all three had a $750,000 portfolio in 1973, then my analysis (I think), makes sense. That $750,000 portfolio dwindled by 1975, and that guy that didn't retire in 1973 didn't dodge a bullet by retiring in a relatively safer 1975, he's going to be affected by starting retirement with a smaller portfolio, that was hit by the 1973-74 downturn.


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Originally Posted by Lsbcal View Post
I think the point in that graph is that there are a lot of points of view.

Probably the intention in the FIRECalc introduction was indeed to show that different starting years produce different outcomes. However, there are other points to make about "when should I retire and how much do I need?". We all need to get our 2 cents in on this.
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Good point. I think the relevance depends on the question.

1) Would a person who hit 62 in 1973 help or hurt himself by waiting 2 years to retire? How much?

2) Were people born in 1913, who retired at 62 in 1975, a lot luckier than those who were born in 1911 and retired in 1973?

3) I have $750k and I'd like to retire today. Can I retire with an initial [$60k; $45K; $30k; $15k] withdrawal, adjust it annually for inflation, and expect my money to last longer than I do?

I think FireCalc is designed to answer question 3, and it does a reasonably good job.

I've seen people use results like FireCalc's to make claims about question 2, that I don't think are valid. The problem is the one you've identified, FireCalc does not look at before retirement returns.

Similarly, question 1 requires more than FireCalc for a meaningful answer.
I agree. Well said.

A parallel to this, that always bugs me, is when a poster defends a large fixed income AA by pointing to a 40% drop in equities as 'proof' that equities are risky. That 40% drop is always measured from a peak. So again, unless you came upon a lump sum, and put it all in the market right at the peak, that 40% drop is not apples-apples to a fixed investment.

The fixed investment didn't have a big peak to fall from. It makes more sense to compare the equity drop to the cost basis of investments made over a long period of time, which is probably what most of us have done. Viewed that way, a 40% 'drop' might not have been a drop at all.

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Old 01-21-2013, 11:00 PM   #28
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Good point. I think the relevance depends on the question.

1) Would a person who hit 62 in 1973 help or hurt himself by waiting 2 years to retire? How much?
FIRECalc example's premise was that the person initially had $750K and was drawing $35K each year (adjusted for inflation thereafter). That's a high WR of 4.67%.

If this person had $750K in 1973, and not retired but waited two years, he would see his stash shrunken down to $440K, using ERD50's info. Then, if he retired in the midst of this gloom and still insisted on drawing $35K/yr, he would eventually be doomed. His initial WR would be 35K/440K = 7.9%!

However, if he readjusted his standard of living, and retired using the new lower portfolio value as the basis, meaning drawing only 4.67% X $440K = $20.5K, then he would be fine.

In most likelihood, he would be too scared to retire on such a battered portfolio, unless he lost his job.

He would hang on a few more years until the dust settled, and his portfolio recovered a bit. Then, he rode off into the sunset.
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Old 01-21-2013, 11:05 PM   #29
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In most likelihood, he would be too scared to retire on such a battered portfolio, unless he lost his job.

He would hang on a few more years until the dust settled, and his portfolio recovered a bit. Then, he rode off into the sunset.
I know a lot of people who took that course in 2008. There were many postponed retirements. Some of those people are still working, because they want to make damn sure they won't be the red guy.
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Old 01-21-2013, 11:22 PM   #30
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I know a lot of people who took that course in 2008. There were many postponed retirements...
Both of us retired recently, although our circumstances may not be identical.

In my case, it was not just that my portfolio in 2009 lost more than 30% from the top. I still enjoyed my work and also needed to have income to see my children through college. And yes, the fact that my portfolio recovered and surpassed the previous high in 2007 gave me the confidence to retire.

The irony of this, however, is that if we retire at the top of the market AND base our expenses on that peak value, we may be setting ourselves up for overdrawing our stash if and when the market ebbs again.

I still say that the best strategy is to be "agile and hostile" as Uncle Mick often said. Be prepared to cut back when the market turns south. And in good years, one should "rebalance" some equities into a new car or house remodeling one has been thinking about. I do not see myself spending the same amount year in/year out. I could if I had to, but my life would be boring.
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Old 01-22-2013, 12:30 AM   #31
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NWB, I was not referring to myself; I never had any plans to ER in 2008. You may recall my 5 year plan in late 2007 was to ER at the end of 2012......which I ultimately did. Our circumstances are quite different. I am not basing my decisions on the market. My planned SWR, which is significantly higher than last year's expenses, happens to be <2.8% of investable assets.
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Old 01-22-2013, 06:29 AM   #32
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I didn't mean to say that you delayed your retirement due to the market downturn. Me neither, as I was not thinking about early retirement at all until this forum rubbed off its bad influence on me.

But had the market stayed up, and if I were not supporting my children through college, I might have pulled the plug earlier. So, in my case, I will say that the market performance is one factor, though not the only one.

So, I have to caution myself against basing expenses on a good year in the market, and have to remind myself about the terrible trough I have just been through. My expenses are at 3.5% of current portfolio value, and I have decided I won't kick myself if it goes up to 4%. That extra 0.5% would mean quite a bit of additional travel, which may not happen at all.

On the other hand, I look at my expenses again to see if I can cut back. Perhaps I am kidding myself that I could if necessary, but at this point I am in a spending mode. I believe my expenses will follow Bernicke's glide path, and I want to start from a higher point before sliding down. If I spend less now, then cut back more in the future, gee, that may just make my children very happy when I croak and leave them that much money.
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Old 01-23-2013, 12:00 AM   #33
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Great job REWahoo !
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Old 01-23-2013, 02:09 AM   #34
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However, this brings us back again to the perennial question of "knowing" where we are in the economic or stock cycle, in order to base our spending.
But isn't that a problem very commonly faced. If people retire when they see that their assets have reached a critical number, they will almost always see that they reached this number on the way up, that is during an up cycle, not a down one. How common is it that someone has more than they need, perhaps much more than they need for a particular lifestyle and only retires when their portfolio declines to that amount. Very rare I expect.
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Old 01-23-2013, 06:30 AM   #35
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But isn't that a problem very commonly faced. If people retire when they see that their assets have reached a critical number, they will almost always see that they reached this number on the way up, that is during an up cycle, not a down one. How common is it that someone has more than they need, perhaps much more than they need for a particular lifestyle and only retires when their portfolio declines to that amount. Very rare I expect.
For someone who is saving at a high rate, the main reason a portfolio has reached a critical amount may have as much to do with the rate of saving than the point we are in the economic cycle.
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Old 01-23-2013, 06:38 AM   #36
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But isn't that a problem very commonly faced. If people retire when they see that their assets have reached a critical number, they will almost always see that they reached this number on the way up, that is during an up cycle, not a down one. How common is it that someone has more than they need, perhaps much more than they need for a particular lifestyle and only retires when their portfolio declines to that amount. Very rare I expect.
I also think it's more likely that people retire during an up cycle, although often the timing is determined by age, tenure, etc.

But it is a good caution for folks who are looking at retiring mostly because their portfolios have had several years of strong gains.

Wait - um, did I mention that I retired in 1999?

Ironically, we went through an Asian financial crisis in 1998 that made it look like I might have to wait to pull the plug, but by 1999 it was all better!
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Old 01-23-2013, 06:45 AM   #37
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It is far more likely that FI and retirement happen during the up cycle and not at the top, so many enjoy additional portfolio upside and only an unlucky few suffer the maximum portfolio decline.
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Old 01-23-2013, 06:46 AM   #38
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But isn't that a problem very commonly faced. If people retire when they see that their assets have reached a critical number, they will almost always see that they reached this number on the way up, that is during an up cycle, not a down one. How common is it that someone has more than they need, perhaps much more than they need for a particular lifestyle and only retires when their portfolio declines to that amount. Very rare I expect.
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For someone who is saving at a high rate, the main reason a portfolio has reached a critical amount may have as much to do with the rate of saving than the point we are in the economic cycle.
The typical aspiring FIREd has some target amount in mind that they are saving, investing and praying to reach. The usual process is to repeatedly run numbers through every retirement calculator one can find or create until reasonably certain what number they have to hit. Once that number is reached, the 'just one more year' syndrome strikes and retirement is delayed until a cushion (atop the target amount to which they have already added a cushion) is reached. Only then does the individual FIRE.

Once finally reaching that number the thinking isn't, "OK, once the economy tanks and the market declines, I'm pulling the plug."
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Old 01-23-2013, 07:27 AM   #39
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The typical aspiring FIREd has some target amount in mind that they are saving, investing and praying to reach. The usual process is to repeatedly run numbers through every retirement calculator one can find or create until reasonably certain what number they have to hit. Once that number is reached, the 'just one more year' syndrome strikes and retirement is delayed until a cushion (atop the target amount to which they have already added a cushion) is reached. Only then does the individual FIRE.
Hey, have you been reading my RE notes?!

Congrats on your black line and keeping your head thru the 2008 downturn.
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Old 01-23-2013, 09:09 AM   #40
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The typical aspiring FIREd has some target amount in mind that they are saving, investing and praying to reach. The usual process is to repeatedly run numbers through every retirement calculator one can find or create until reasonably certain what number they have to hit. Once that number is reached, the 'just one more year' syndrome strikes and retirement is delayed until a cushion (atop the target amount to which they have already added a cushion) is reached. Only then does the individual FIRE.

Once finally reaching that number the thinking isn't, "OK, once the economy tanks and the market declines, I'm pulling the plug."
Sounds about right.

And I'll just point out that a 'target amount' is fine w/regards to FIRECALC, you don't have to try to analyze the relative 'value' of that amount, or whether you might be retiring at a peak/trough or in between. The failures in FIRECALC are due to that target amount being at high valuations (and therefore in danger of a fall). The 'SWR' that FIRECALC would provide is already looking at your 'target' number as the worst case historically, so that buffer is already built in.

Historically, of course.


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