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Old 12-02-2015, 11:23 AM   #41
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I think what OP may be looking for is somewhat addressed in the attached post REW has made about his own personal situation. He shows where his actual line tracks against all the Firecalc lines. I always found this encouraging.


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FIRECalc vs REW
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Old 12-02-2015, 11:43 AM   #42
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Originally Posted by Corporateburnout View Post
+1.

You will now get the rebuttal from the risk averse crowd that future interest rates will be lower, global economies are different, liability matching strategy and cutting expenses are the only ways for portfolio survival.

I will stick with my balanced portfolio and spend in retirement without worrying about drastically cutting expenses until the market drops by 50%.
The idea behind liability matching is not to grow richer than you are in retirement, but to avoid pushing a shopping cart under the overpass, by using liability matching for essential expenses. Anything needed for nice to haves like the around the world cruise can be invested in riskier assets. Interest rates are at historic lows globally and have been trending downward for decades:

"Government bond rates are at or near record lows all around the world. So are corporate bond rates, including junk bonds. Even the cost of equity capital is at or near an all-time low for most businesses. Whether you’re a government, a big corporation or a tiny startup, it has never been cheaper to obtain capital.

Interest rates of all kinds have been in decline since the early 1980s. For a while, that looked like a simple regression to the mean. The early '80s saw central banks tighten a lot, driving up rates in an effort to rein in inflation. But the decline that we’ve seen during the past 15 years or so -- and especially since the financial crisis -- goes way beyond a simple normalization. Something unusual is happening. "

Get Used to It. Low Rates Are Here to Stay. - Bloomberg View

Both Shiller and Bogle are predicting low investing returns for at least the next decade. Firecalc is based on a time when interest rates were higher and only takes one country's stock market into account. A 16 country historical look at equities gets less optimistic results. You can bet your retirement on historical returns if you you choose. I am not trying to change anyone's mind who wishes to use the 4% rule / mutual fund / Firecalc approach. I am just letting the risk adverse among us know what I wish I would have heard about myself years ago - there are other methodologies with less risk for funding retirement that are not well advertised because they are not as profitable for the large investment companies.
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Old 12-02-2015, 01:59 PM   #43
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Yes, I'll reiterate what I said. I would like to see how someone who used it a decade ago compares the result to where they are now.
Do a google search for Y2K retiree. Also take a look at these threads:

FIRECalc and the Hapless Y2K Retiree

Raddr's Early Retirement and Financial Strategy Board • View topic - Hypothetical Y2K retiree update
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Old 12-02-2015, 02:22 PM   #44
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Unfortunately, the answer to this question may be subject to survivor bias. I've been reading this site since 2006. I recall several people who ERd based on projections that included historical success on FireCalc, but no longer post. Some of them may have "failed" at ER.
WADR, that is a humongous jump to a conclusion. In that situation I would think that the member would have posted something about it.
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Old 12-02-2015, 02:22 PM   #45
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You can bet your retirement on historical returns if you you choose. I am not trying to change anyone's mind who wishes to use the 4% rule / mutual fund / Firecalc approach. I am just letting the risk adverse among us know what I wish I would have heard about myself years ago - there are other methodologies with less risk for funding retirement that are not well advertised because they are not as profitable for the large investment companies.
I am sure the risk averse group among us must have seen your posts that constantly preach the same themes as liability matching strategy, overhead reduction, low interest rates, Mutual funds industry profits etc..

Firecalc was not the only tool I've used before I pulled to plug. I've also used Fido RIP, I-Orp and Flexible retirement planner which use MC calculations as well. I like historical estimates like FIRECalc because so few assumptions are made and to give me an idea of how well my portfolio would have fared in the last 100 years with all the calamities that happened in that period and to quote Californiaman "to answer a simple question - are we anywhere near reasonable".

We both have very different approaches. I don't try to influence people to adopt my approach but you seem to constantly preach yours. I'm more of an optimist and don't believe in the gloom and doom of the US and global economies.
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Old 12-02-2015, 02:31 PM   #46
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You can bet your retirement on historical returns if you you choose. I am not trying to change anyone's mind who wishes to use the 4% rule / mutual fund / Firecalc approach. I am just letting the risk adverse among us know what I wish I would have heard about myself years ago - there are other methodologies with less risk for funding retirement that are not well advertised because they are not as profitable for the large investment companies.
...
[/B]We both have very different approaches. I don't try to influence people to adopt my approach but you seem to constantly preach yours. I'm more of an optimist and don't believe in the gloom and doom of the US and global economies.
I actually appreciate DLDS's posts on the subject. It isn't talked about very much otherwise, and I think it is an interesting alternative viewpoint.

I'm not afraid of volatility myself, but I still think this approach is worth considering. Maybe only to 'test' our own approaches.

Historically though, the market hasn't returned sub-zero real returns over an early-retirement length period. I'm not sure that long term investments like that are really that risky. But, if one feels more comfortable with inflation adjusted investments, and keeping withdraws to (Plan Years)/X, then why not?

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Old 12-02-2015, 02:53 PM   #47
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Granted, many of the discussions around these parts involve equities and bonds, but many here are landlords, have pensions, have annuities, have no mortgage, have a mortgage, etc. Some here use dividends only, some use total return, some have cash buried in a Maxwell House can out back...

We have followers of Bogle, Pfau, Dent, Talib, Kotlikoff, Schiller, Cramer...

There are bigwigs, dot-com millionaires, military pensioners, working stiffs...

And we're all above average!
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Old 12-02-2015, 03:18 PM   #48
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you forgot.... the sky is falling down too.
The other thing you forgot is that "this time, it's different"
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Old 12-02-2015, 03:59 PM   #49
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We both have very different approaches. I don't try to influence people to adopt my approach but you seem to constantly preach yours. I'm more of an optimist and don't believe in the gloom and doom of the US and global economies.
I am not sure what you want me to do - stop posting because I have a different opinion than you? Alternatively, we could continue have civil pro and con discussions of the different approaches in threads like this without negative labels like preaching, and people like ERD50, who may find my ideas of interest, can keep reading them and you can choose to ignore them.
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Old 12-02-2015, 04:03 PM   #50
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Alternatively, we could continue have civil pro and con discussions of the different approaches
I vote for this
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Old 12-02-2015, 04:08 PM   #51
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I actually appreciate DLDS's posts on the subject. It isn't talked about very much otherwise, and I think it is an interesting alternative viewpoint. ....
I agree but I have trouble getting enthusiastic about sub-optimal alternatives... perhaps I am too much of a capitalist.

Let's take a hypothetical 65 yo retiree couple with a $1 million nestegg that they need $40k a year from (inflation adjusted, so a 4% WR) and expect to live to be 100 (35 year time horizon).

At one extreme they could take their million and buy a COLAed annuity that would provide $40k inflation adjusted (actually they would need $1.04 million, but what is $40k between friends). However, they would then have nothing left and would be in a pinch if some financial emergency arose.

On the other extreme, if they invest in a 60/40 portfolio, Firecalc indicates:
Quote:
Here is how your portfolio would have fared in each of the 110 cycles. The lowest and highest portfolio balance at the end of your retirement was $-693,994 to $6,339,034, with an average at the end of $1,461,893. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 35 years. FIRECalc found that 11 cycles failed, for a success rate of 90.0%.
For the liability matching couple, they will get their inflation-adjusted payments for their joint lives, have no source for a financial emergency and their heirs get nothing whether they die early or live long.

For the 60/40 couple, there is some risk that they might run out of money, but also a much more significant likelihood that performance is favorable and they can spend more and/or leave more to their heirs and/or charities. Also, if they don't live to 100, but only live to 90, there is $0 to $4.1 million legacy that they leave behind. There is also some risk that they might live longer than 100 or that investment performance might be poorer than ever.

I guess that as an averages player, I'm comfortable with the risk and I wouldn't recommend the other extreme to anyone, but if people choose it with their eyes wide open then fine... after all, its their money and their life.
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Old 12-02-2015, 04:33 PM   #52
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can keep reading them and you can choose to ignore them.
Keep in mind that you responded to one of my earlier posts and not the other way around.
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Old 12-02-2015, 04:35 PM   #53
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At one extreme they could take their million and buy a COLAed annuity that would provide $40k inflation adjusted (actually they would need $1.04 million, but what is $40k between friends). However, they would then have nothing left and would be in a pinch if some financial emergency arose.
I don't think that would necessarily be a common liability matching approach. Liability matching does not preclude diversifying, so I doubt most households following this strategy would want to put their entire portfolio into a single private annuity. Other strategies include but are not limited to delaying SS, I-bonds, TIPS ladders, offsetting a fixed rate mortgage with a fixed income product, LTC insurance, etc.

Also, liability matching is only recommended for essential expenses - the money a retiree household needs for Medicare, food, housing, etc. The rest, the money for luxuries and non-essentials, can be invested in riskier assets depending on one's risk tolerance.
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Old 12-02-2015, 05:07 PM   #54
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I understand but was trying to keep the example simple. If this couple had $1 million and needed $40k from their portfolio for essentials whether they use inflation adjusted annuities, or a combination of inflation adjusted annuities, I-bonds, TIPS ladders of whatever, they will still likely utilize their entire $1 million.

Same result if 80% of their expenses are essential so the invest $800k in liability matching assets and $200k in a more risky portfolio vs a couple who invest $800k in a 60/40 portfolio and $200k in the same more risky portfolio. It just ends up being proportional because any overfunding earns the same return.
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Old 12-02-2015, 05:43 PM   #55
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If "people" (whoever they are) are using any tool as a "predictor", they are making a mistake. There are no guarantees.
Those people are YOU
Of course predictions aren't about guarantees... Predictions are forecasts, estimates. I think you are confusing the word prediction with fortune telling. I'm not. I'm using the strict definition of the term. Firecalc is a tool that crunches data to forecast (ie predict) the probability that your portfolio will last x number of years. It doesn't matter what it's based on. It's still a forecast tool whether it uses historical data or meaningless garbage. If you find value in the data it gives you, then you choose to use it to infer your own probability of success. If you didn't find value in firecalc's probability forecasts (prediction), then why use it?
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Old 12-02-2015, 05:57 PM   #56
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[...]Firecalc says I have enough? Should I trust it 90% or 80% ..
I think FIRECalc is pretty terrific. That said, I wouldn't (and didn't) base my retirement decision solely on the output of any one particular calculator. I think it's great input to the decision making process, though. I tried everything I could find before making my decision. For example I used lots of calculators, and ran my own computations and scenarios as well.

One caveat to the above: personally, if FIRECalc didn't give me a good likelihood of success, I would never, ever make the decision to ignore it and retire anyway. It is a bit more optimistic than I am because I tend to think that future market conditions may not be as good as they have been in the past. That's just my consistently worried nature shining through.
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Old 12-02-2015, 06:02 PM   #57
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Those people are YOU ...
You are just getting caught up in semantics. But that's OK, I'll play.


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Of course predictions aren't about guarantees... Predictions are forecasts, estimates. I think you are confusing the word prediction with fortune telling. I'm not. I'm using the strict definition of the term. Firecalc is a tool that crunches data to forecast (ie predict) the probability that your portfolio will last x number of years.
No, no, no. FIRECalc is a tool to analyze past data. A thermometer and log book are tools that are used to record past temperatures. But no one would claim that a thermometer can forecast (ie predict) a future temperature.

So don't say that about FIRECalc either.

Now, if you want to argue that the wording in the FIRECalc description could be read to say it is used to predict (it sorta/kinda says that, while at the same time it is saying it isn't - IMO), that's fine. I don't really care about the description. Maybe the author just didn't wordsmith that so well. I just use the tool.

FWIW, I think the comparison of the three retirees isn't well stated either. But that doesn't affect the usefulness of the tool.

Quote:
It doesn't matter what it's based on. It's still a forecast tool whether it uses historical data or meaningless garbage. If you find value in the data it gives you, then you choose to use it to infer your own probability of success. If you didn't find value in firecalc's probability forecasts (prediction), then why use it?
FIRECalc provides some data. What we do with it is up to us. For me personally, I feel more comfortable with the knowledge that a 100% historically successful portfolio means I would have survived the Great Depression and the inflation of the 80's. How else would I at least get that comfort factor?

But I still don't think of that as telling me anything about my 'probability of success' for the future. We don't know what the future holds. It only tells me the probability of the past. So you are making assumptions about what people are doing, and they are not always true.

Adding one other angle - for me personally, probabilities don't matter. I am one person. My success (as measured by FIRECalc) will be binary. I either run out of money before I die (FAIL), or I have a portfolio to sustain me for life (SUCCEED). Can I be thought of a both succeeding and failing, until we open the box?

Now, I sometimes say that one does not necessarily need to have a better idea to point out faults in something. But in this case, I think it is at least worth questioning.

So what do you do to plan for retirement spending?

-ERD50
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Old 12-02-2015, 06:31 PM   #58
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Yes, I'll reiterate what I said. I would like to see how someone who used it a decade ago compares the result to where they are now. People use it to see the probability of success in the future based on past returns. How's that different than seeing how one 'fared' historically? The idea underlying firecalc is that you are using it as a probability predictor of success in the future.

From Firecalc webpage:

Look closely at the phrase "then it is likely to withstand whatever might happen between now and the day you no longer have any need for your retirement funds." Still say they're not promoting it as a predictor??
If that doesn't promote the use of firecalc as a predictor, than what does? Get serious. The site is littered with references to using it as a predictor. Bottom line is people ARE using it as a predictor. Period.

You guys are too enamored with nitpicking semantics, that you miss the underlying point
If you had cared to read beyond making your point, you might have seen the very next few sentences from the section you quoted:

Quote:
If your retirement strategy would have withstood the worst ravages of inflation, the Great Depression, and every other financial calamity the US has seen since 1871, then it is likely to withstand whatever might happen between now and the day you no longer have any need for your retirement funds.
If you accept that assumption, then just tell FIRECalc how much you have and how much you'll be spending, and FIRECalc will tell you how often your strategy would have worked throughout history. Or what you need to change to make it all work.
How can FIRECalc predict future returns from past performance?
It can't. And it doesn't try.
Now anyone can choose to use FIREcalc as a predictor of future success, but if they state on this site that they are planning to do so, I suspect the majority of the response would be "Stop! It's not a predictor. It's just a historical calculator that gives you information that you can use while you make your own decisions." That's been my experience in the dozen or so years I've been reading this site.
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Old 12-02-2015, 06:39 PM   #59
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I'm just curious to those of you who think this time it isn't different, what do you think of the global decline in interest rates since the 1980's? Just an anomaly or stocks will be higher to make up for lower interest rates or something else?

I see articles on interest rates trending lower and people like Bogle (and Shiller, Grantham and Arnott) predicting lower stock returns, and they seem to make pretty logical conclusions:

John Bogle says you won't make much money from stocks - MarketWatch

What factors of Bogle's prediction do you think specifically are overly pessimistic? If you don't believe that Firecalc will be 100% accurate for future results do you discount your results further, like multiply the Firecalc results by another 50% or 80% or some other number to represent the probability that the future may not be like the past?
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Old 12-02-2015, 07:07 PM   #60
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I'm just curious to those of you who think this time it isn't different, what do you think of the global decline in interest rates since the 1980's? Just an anomaly or stocks will be higher to make up for lower interest rates or something else?

I see articles on interest rates trending lower and people like Bogle (and Shiller, Grantham and Arnott) predicting lower stock returns, and they seem to make pretty logical conclusions:

John Bogle says you won't make much money from stocks - MarketWatch

What factors of Bogle's prediction do you think specifically are overly pessimistic? If you don't believe that Firecalc will be 100% accurate for future results do you discount your results further, like multiply the Firecalc results by another 50% or 80% or some other number to represent the probability that the future may not be like the past?
I always assumed the future wouldn't be like the past. In my case I chose to be overly conservative before FIREing, doing things like not counting on SS at all, and building in a lot of wiggle room in my budget. Now while I have great hopes for new technology (cold fusion, anybody?) starting another big boom time, I would never base my DW's future on it. If it was just me I might be a little more daring, but I feel a responsibility to take care of her financially, as she has taken care of me in other ways.
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