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Old 12-02-2015, 07:23 PM   #61
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My question about the very premise of the question... When I run firecalc - I get a gazillion lines... Which one is the "prediction" or forecast?

Okay - I'll admit I'm being a tad snarky with that comment, but it was the first thing I thought of when I first read the subject/question. If you are asking if results are worse than historical past... that's legit... but firecalc shows you the full range.... and if you cut it close to the minimum 100% - some come VERY close to zero (no money).

I think in general this is a belt and suspenders crowd... we plan for the lowest/worst firecalc squiggly line, but hope for those lines that shoot to the mega-millions.
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Old 12-02-2015, 07:56 PM   #62
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... we plan for the lowest/worst firecalc squiggly line, but hope for those lines that shoot to the mega-millions.
Yet, people still get upset when someone, even if that is Bogle, says that the future may look like those lines that skim the zero axis, like an Exocet missile cruising 100 ft above sea level.
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Old 12-02-2015, 08:01 PM   #63
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The way I figure it, if Bogle is right my kids will be more mad at him than I will be.
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Old 12-02-2015, 08:04 PM   #64
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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?
I get what you're saying, yes it is a matter of semantics, and yes I do find value not only in Firecalc, but in other tools as well. In fact, in I find REWahoo's posts in another thread comparing his ten year results with Firecalc's most illuminating (educational?).

I find there's a lot of emotion (fear?) that goes into much of this planning because we all want it to work out (who doesn't?) and the guarantees just aren't there, no matter how many spreadsheets we concoct. Like all of life, all we can do is adapt, remain flexible, and alert. It will probably be some years before I personally can be a bit more relaxed about living off a PF, and I'm okay with that.

Gives me something to do in retirement and I find it much more interesting than doing crossword puzzles.
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Old 12-02-2015, 08:43 PM   #65
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Firecalc is just computing a historical mean failure rate given a portfolio and withdrawal rate. This is not a prediction.

But a historical mean is very useful in predicting what the mean rate may be in the future.

People who say firecalc is biased or optimistic really mean that taking the historical rate and using it as a prediction of the future is biased/optimistic.

I think we should be discussing how we evaluate future risk (and how it may differ from the past) and not going around in circles arguing about whether Firecalc is making a prediction or not.
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Old 12-02-2015, 09:11 PM   #66
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. . . 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 wouldn't say that annuities (a liability-matching tool) aren't advertised--quite the opposite. Anybody who seeks advice from a commission-based FA is probably going to hear about them.
The liability-matching proponents, new and old, have full access to the marketplace of ideas, they can preach as loudly as they want. Maybe they are being suppressed by a cabal of 'large investment companies." Maybe their ideas lack traction because they don't make sense for the majority of retirees. I'm happy to read their missives and evaluate them based on their worth.
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Old 12-02-2015, 09:21 PM   #67
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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?
Since you asked--I think we're probably in for a decade of rough sledding. But I think companies will keep selling useful things, earning money, and paying dividends--I'd like to benefit from that. I think interest rates will mean revert. I think PE10 will trend back toward historical norms (= low equity price appreciation for this period). But I don't know which assets will outperform/underperform and in which order, I don't know what inflation will do, and most importantly I don't know when "normal" will resume. But I will not shackle myself and family to investments guaranteed to yield zero/near zero real return in perpetuity to avoid a decade or so of volatility. I might just as well invest it all in gold, silver, ammunition, MREs or some other "head for the hills, things will never be right again" trend.
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Old 12-02-2015, 11:21 PM   #68
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But I will not shackle myself and family to investments guaranteed to yield zero/near zero real return in perpetuity to avoid a decade or so of volatility. I might just as well invest it all in gold, silver, ammunition, MREs or some other "head for the hills, things will never be right again" trend.
I don't really see the link between investing for capital preservation for essential expenses, and putting ones entire portfolio in risky assets like gold and silver, and I don't really get the whole MRE and ammunition analogy at all. That seems to be the extreme opposite of liability matching. How could you match ammunition or an MRE? I don't get that.

I am also not sure about the head for the hills idea. It seems to me the low returns for stocks and interest rates prediction are coming from fairly math and logic based formulas and trends graphed by mainstream investment gurus and writers, like Bogle, Shiller, Bernake, articles in THE Economist and Bloomberg, and the other financial experts mentioned in the previous link. But I do appreciate your taking the time to answer my questions.

On the mutual fund front, I think we can agree to disagree. I agree with Zvi Bodie that the reason we never hear about I-bonds (and this could be said for TIPS, too) is that financial advisers tend to push products with the highest profitability. Mutual funds may be great investments for many, but for the risk adverse they may not always the most logical choice for 100% of a retiree household's portfolio, We sure didn't hear about anything else (even annuities) from our retirement planning session with a mutual fund rep and the many unsolicited follow up calls.
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Old 12-03-2015, 09:16 AM   #69
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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 think we can agree on that one, and the fact that we choose to do with the data what we wish.
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Old 12-03-2015, 09:27 AM   #70
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.....On the mutual fund front, I think we can agree to disagree. I agree with Zvi Bodie that the reason we never hear about I-bonds (and this could be said for TIPS, too) is that financial advisers tend to push products with the highest profitability. Mutual funds may be great investments for many, but for the risk adverse they may not always the most logical choice for 100% of a retiree household's portfolio, We sure didn't hear about anything else (even annuities) from our retirement planning session with a mutual fund rep and the many unsolicited follow up calls.
I've looked at I-Bonds off and on and haven't found them to be particularly attractive. The current rate is 1.64%. I get 0.95% from my online savings and 5 year CDs are ~ 2.25% so 1.64% isn't particularly compelling. Plus, at best we could only buy $30k a year of I-Bonds and 1/3 of that would have to be paper through tax refunds. It just seems to be a lot of hassle and restrictions with minimal benefit. If there were no limits then I might consider them or even a ladder for 5 or so years of spending.

I think FAs tend not to push I-Bonds because of the above limitations as well as the fact that they don't get any comp on them.

BTW, it is risk averse, not risk adverse.
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Old 12-03-2015, 09:36 AM   #71
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In my ten plus years around here, we've discussed i-bonds and TIPs a fair amount...
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Old 12-03-2015, 10:38 AM   #72
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Personally, I'm shooting for a ~95% chance of success with FireCalc. But, I ran a more aggressive scenario that gets me an ~80% chance of success.

The first cycle to fail did so around year 18, with plenty more poised to do so soon after.

It seems to me though, that you should be able to see the train wreck coming well in advance, though. The failure cycles seemed to all have one thing in common...they'd start trending downward from the get-go, dropping lower and lower after every year. So it would seem to me that if you were falling into this type of rut, it might be a good idea to reduce your spending, go back to work, or do something to stop the crash.

None of the cycles appear to be humming along just fine and then crash to nothing in just a few short years. It's taking a decade or more for them to fail.
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Old 12-03-2015, 11:09 AM   #73
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I ran Firecalc with the standard investment option and then ran it with every other, and still got 100% with my lowest projected spending, Then I increased spending per trial till it failed, giving me an idea of my max spending - useful to know for years where I might have truly major expenses, etc. That's if I live 30 years or more - even 40 looked okay.

While my estimated spending doesn't leave me with a ritzy lifestyle, it leaves me enough. And that and leisure is a feast. Estimated included maxing out health spending to the full 6500 deductible and adding a 3K portion for major house repairs every year. In years where I don't spend much, I have the option for more optional spending,if I choose.

Perhaps its also wise to consider if the stock market and financial institutions crash to such an extent and for so long that they never recover (as they did after 2008), and Firecalc is completely off thereof, then I'll have more tangible things to worry about (food, water, possible civil unrest at the risk of being called a doomsday person). What may be intangible numbers in a portfolio may be less valuable after such a collapse than tangible things like a veggie garden, chickens and a well with a hand pump.
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Old 12-03-2015, 11:25 AM   #74
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...Perhaps its also wise to consider if the stock market and financial institutions crash to such an extent and for so long that they never recover (as they did after 2008)....
For a 60/40 balanced portfolio with dividends reinvested, from peak to trough and back was about 3 years during the great recession (roughly Oct 2007 to Oct/Nov 2010)... based on Vanguard Balanced Admiral growth of $10k chart.

VBIAX Vanguard Balanced Index Adm Fund VBIAX Quote Price News
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Old 12-03-2015, 12:25 PM   #75
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For a 60/40 balanced portfolio with dividends reinvested, from peak to trough and back was about 3 years during the great recession (roughly Oct 2007 to Oct/Nov 2010)... based on Vanguard Balanced Admiral growth of $10k chart.

VBIAX Vanguard Balanced Index Adm Fund VBIAX Quote Price News

As I said, if they crashed and *didn't* recover, as they did (recover) post 2008. Few of us are pumping our own water yet.
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Old 12-03-2015, 01:08 PM   #76
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I would have thought that 2000 would have been a bad time to retire, and one of the cycles that might be destined for failure. But, I just put the numbers into FireCalc, and for a 3% withdrawal rate the ending balance as of 2013 is about 8% higher than the start of 2000...despite two serious recessions in that timeframe.

Going to a 4% withdrawal rate, the ending balance is a bit lower, but not much...down about 3.3%.
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Old 12-03-2015, 02:58 PM   #77
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I would have thought that 2000 would have been a bad time to retire, and one of the cycles that might be destined for failure. But, I just put the numbers into FireCalc, and for a 3% withdrawal rate the ending balance as of 2013 is about 8% higher than the start of 2000...despite two serious recessions in that timeframe.

Going to a 4% withdrawal rate, the ending balance is a bit lower, but not much...down about 3.3%.
What asset allocation did you use?

If this is true (I'm going to do my ow run on it later) how can raddr's gloomistic numbers be right and so gloomistic? I know he used a 75/25% AA. Maybe that's the key?
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Old 12-03-2015, 03:08 PM   #78
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Oops...I goofed. I re-ran the numbers, and unfortunately, it's a bit more gloom/doom than I thought. Just keeping it simple, if you started off with $1M at the beginning of 2000, a 3% SWR would leave you at $735,735 at the end of 2013. A 4% would leave you with $504,039!

I found where my original goof was. I accidentally put in a starting balance of $2M, rather than $1M! So in my original post, what I thought was a 3 and 4% SWR were actually 1.5 and 2.0%, respectively!

As for the asset allocation, I just used whatever FireCalc defaults to. I kept it simple and didn't mess with that part.
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Old 12-03-2015, 03:40 PM   #79
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I wish I had the guts to use the maximum WR that Firecalc "allows" while still maintaining a 100% success rate. I could be living quite a glitzy life-style (relatively speaking). However, I live on significantly less. I don't even take future SS into account. If I considered SS, and went for a 95%, man - things would be stylin' here!

My theory is that if the SHTF (which, for me, it might), the longer I can live on less in the early stages of retirement, the more I'll be able to splurge when older. Alternatively, I could get so used to my frugal lifestyle that, by the age of 80, I could end up living in an even tinier place, eating cold beans out of a can, and imagining myself to be the luckiest guy in the world.

If this happens, the local cat rescue agencies are going to love the windfall when I cross the rainbow bridge to meet up with all my beloved animals
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Old 12-03-2015, 04:32 PM   #80
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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?
The way I look at this is as long as a 60/40 can return at minimum 0% real I'm all good since the money we have will last for the projected 35 years with zero real return, not even counting SS when it starts.

More importantly there's this quote from the Bogle prediction you linked:
Bogle predicts that a balanced portfolio (roughly half in stocks and half in bonds) should return around 3.5% for the next decade. Adjusted for inflation or in “real” terms, Bogle thinks a balanced portfolio will return 1.5%, barely increasing purchasing power.

But even with the worst predictions from the current doom-and-gloom crowd there are few saying a 60/40 will be less than zero, so any other risk-averse strategy such as liability matching is only going to do worse if you can take the (very small risk) that the minimum zero assumption is correct.

And assuming you can live with zero with your stash of course.
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