Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
monte carlo vs. firecalc - or what is fido doing to me!
Old 03-09-2007, 05:21 PM   #1
Recycles dryer sheets
 
Join Date: Mar 2006
Posts: 206
monte carlo vs. firecalc - or what is fido doing to me!

This has been mentioned on the board before but without much comment.
I have run my numbers on firecalc with 100% success rate for 30 years. Last week I ran my numbers on Fido's retirement calculator. It says I will run out of money in 20 years.

That's quite a bit of difference. Any ideas, comments, warnings, would be helpful. I was feeling pretty safe before I ran this one. Job and DW's health require that we pull the plug at the end of this year but if I feel that my plan will not work then we are going to have to downgrade our spending - A LOT!!!!
__________________

__________________
I'm trying to find myself.* Have you seen me anywhere today?
Mysto is offline   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!

Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-09-2007, 05:38 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: E. Wash
Posts: 1,057
Re: monte carlo vs. firecalc - or what is fido doing to me!

Quote:
Originally Posted by Mysto
. Last week I ran my numbers on Fido's retirement calculator. It says I will run out of money in 20 years.
Mysto
Which one of Fidelity's calculators are you using. If you are using the full featured one--Income Planner, be sure to click the link for the details results and you can see the cash flows by year. I am only guessing but expect there is something Fido's model requires that is different than the way FireCalc works.
I have used the Fido Income Planner quite a bit and found it very helpful but you do need to play with each of the components so they match your situation. For eample, Fido does not allow you to capture your gain from your home equity from a downsize. I simply treated the gain as an inheriitance so it would not be taxed.
Speaking of tax, that is one variable that is captured in the Income Planner---does Firecalc work after or before tax?
Fido also will put you in touch with some one on their team to answer any questions--just be specific with them that you want help with the Income Planner.
Good Luck
nwsteve
__________________

__________________
nwsteve is online now   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-09-2007, 08:32 PM   #3
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Re: monte carlo vs. firecalc - or what is fido doing to me!

Are you running the MC for 99% success? If so try 90% and see if that is better. MC examines scenarios that may or may not have a basis in history. FC uses what has happened in the history of the market. Many believe 90% in MC is equal to 100% in FC.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-09-2007, 08:38 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
Re: monte carlo vs. firecalc - or what is fido doing to me!

if using fidelity retirement income planer, note that it will include taxes in your expenditures (it adds them), firecalc does not
__________________
d is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-09-2007, 08:41 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: monte carlo vs. firecalc - or what is fido doing to me!

Quote:
Originally Posted by Mysto
Job and DW's health require that we pull the plug at the end of this year
Then there are no "buts." You will be pulling the plug, so don't torture yourself.

"Do or do not. Don't try." - Yoda
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-10-2007, 06:22 AM   #6
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Re: monte carlo vs. firecalc - or what is fido doing to me!

Another possibility is the scaling back of monthly returns. Many financial firms (including the one that I work for) reduce the monthly returns (and sometimes increase the monthly Sdev) for asset classes in order to make our MC simulations more conservative.

I wouldn't doubt that Fidelity is working with a modified dataset in order to

1. Be more conservative
2. Entice you to save more

__________________
saluki9 is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-10-2007, 06:30 AM   #7
Recycles dryer sheets
 
Join Date: Mar 2006
Posts: 206
Re: monte carlo vs. firecalc - or what is fido doing to me!

Thanks for replies.

I am using full income retirement planner. I think I have it modeled pretty closely but I am going to spend some more time this weekend.

The taxes may play an issue but according to my calculations I have no tax exposure until RMD and I plan to do some "under the tax threshold" conversions during my initial 10 year "annuity".

I think I had to drop to a 60% confidence level to make it work on fido and that is quite a disparity from the 100% historical in firecalc. I was wondering if others have seen so much difference in their trials.

[quote
Quote:
Originally Posted by brewer12345
Then there are no "buts." You will be pulling the plug, so don't torture yourself.

"Do or do not. Don't try." - Yoda
Thanks Yoda ... uh I mean Brewer. We are going to "do" it. Now it becomes an investment (should we go to tinfoil hat investing with mostly TIPS and perhaps later an an**ty that would leave less for the kids and also a quality of life issue. How much can we spend during our early years. The firecalc life is pretty good the Fido life is pretty tight. Neither is cat food but I prefer travel to watching tv.
__________________
I'm trying to find myself.* Have you seen me anywhere today?
Mysto is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-10-2007, 06:51 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: monte carlo vs. firecalc - or what is fido doing to me!

Jeez Brewer, at least get the yoda quotes verbatim

"do or do not...there is no try"!

Problem here is that real return data demonstrates live correlations in year to year market data. When things are cheap and people arent scared anymore, they buy. When things are expensive and people are nervous of the prices, they sell. And all sorts of stuff in between.

MC uses random sets of data without any of these correlations. Therefore it could produce a 25 year run of bad returns that probably wouldnt happen in real life. Or a 25 year bull run.

Some do modifiers on the data results to form them into more realistic sets by shaping the returns over time. Big fat guesses if you ask me.

On the other hand, the historic data we use suffers from several maladies. It starts at the end of the civil war, excluding a fairly horrific period that preceded that war, and happens to be the start of a favorable period. As we've all figured out, starting out on a good note is a very good thing for returns. Secondly, many periods of historic data include decent periods of economic contraction and deflation...which we might see again but I wouldnt invest accordingly. Third, it includes a large chunk of data where the US was an emerging and developing market with higher returns than we'll probably see going forward as a mature market. Fourth, those returns are in the absence of world markets, very free trade, and the ability to easily and cheaply outsource. Fifthly (come on) investors over the last 50-75 years have been somewhat conservative having grown up in during the great depression and world war II.

Sooo...bottom line is that the future probably DOES have some big differences against past data and the patterns and correlations will change. But an MC scenario is both the worst-worst case and best-best case all rolled up into one.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-10-2007, 09:23 AM   #9
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Re: monte carlo vs. firecalc - or what is fido doing to me!

Quote:
Originally Posted by Mysto
T
I think I had to drop to a 60% confidence level to make it work on fido and that is quite a disparity from the 100% historical in firecalc. I was wondering if others have seen so much difference in their trials.
That seems to be too big a disparity to me. Try the T-Rowe Price MC calculator.
http://www3.troweprice.com/ric/RIC/

Run it for 99 and 90% survival. See how it matches FC.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-10-2007, 04:55 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: monte carlo vs. firecalc - or what is fido doing to me!

Quote:
Originally Posted by Mysto
I think I had to drop to a 60% confidence level to make it work on fido and that is quite a disparity from the 100% historical in firecalc. I was wondering if others have seen so much difference in their trials.
I have never heard of such a difference, I would suggest that you double check your inputs and reenter them in both calculators. Since FIRECalc doesn't consider taxes make sure you are comparing apples to apples.
__________________
jdw_fire is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-11-2007, 10:22 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: monte carlo vs. firecalc - or what is fido doing to me!

Yup, FIDO is telling me that my portfolio is exhausted after 43 years. That assumes a starting withdrawal rate of 2.38%.

The same plan modeled for a 1966 retiree (but excluding any income from social security assumed by FIDO) has a maximum withdrawal rate of 4.3%. I guess FIDO is assuming we have a perpetual 70's style economic meltdown - or at least that is what retirees should plan for.

Some other observations:

1) If you are still accumulating assets, FIDO assumes "poor market performance" during the accumulation stage. So you may (read probably will) end up with fewer assets at the start of retirement then you're currently planning on. This is a bad assumption on FIDO's part . . . if I have fewer assets then I want, I'm not going to quit my day job.

2) It also looks like FIDO is modeling "poor market performance" for the entire duration of the retirement period. For me that is 60 years. It's certainly possible we could have a 60 year bear market, but I'm not building a retirement plan assuming that possibility.

3) For a 60-year retirement horizon, FIDO says I need an initial WR of ~2%. Even with a 2% WR I still exhaust virtually all of my assets prior to my untimely death at age 100. If that's the case, I'll go the 100% TIPS route and call it a day.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-11-2007, 10:28 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Re: monte carlo vs. firecalc - or what is fido doing to me!

Well, Fidelity certainly has reasons to field a very conservative calculator. They make more money the more you save, and the longer it stays with them (i.e. if you wait longer to start making withdrawals). They may even believe (despite all the disclaimers on the calculator and on the site) they could be subject to lawsuits if the projectons aren't sufficiently conservative.

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-11-2007, 11:03 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: monte carlo vs. firecalc - or what is fido doing to me!

Deconstructing FIDO's assumtions*:

1) Inflation is pretty constant at ~2.5% per year.
3) Year 1 starts with a 10% portfolio decline.
4) Compound average annual NOMINAL returns for a 70% stock portfolio:
10-yrs 0.56%
20-yrs 2.20%
30-yrs 2.77%
40-yrs 3.98%
50-yrs 4.27%
5) Compound average annual REAL returns for a 70% stock portfolio:
10-yrs -1.77%
20-yrs -0.22%
30-yrs 0.42%
40-yrs 1.37%
50-yrs 1.68%

Moral of the story according to FIDO . . . buy TIPS.

* Based on one iteration. I don't know if the assumptions change with each "analysis"
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-12-2007, 08:54 AM   #14
Recycles dryer sheets
 
Join Date: Mar 2006
Posts: 206
Re: monte carlo vs. firecalc - or what is fido doing to me!

Here's an update. I tried entering my numbers into fido using a lump sum expenses (as opposed to the detailed expenses) It says my plan makes it - same as firecalc.

I called fido and talked to a very patient and helpful lady who checked the numbers. The difference was cpi. In a lump sum expense estimate they use a cpi of a little less than 3... but estimate at a 7% increase for health care that only appears if you use detailed expenses. That increase would take about 7 years off my plan according to her calculations.

As CFB has often stated - beware of personal cpi.

Having said all of that - the nice lady did explain that the scenario was (worst - worst) case down market.

Thanks for all of the input. I hope this will help others using the fido calculator.
__________________
I'm trying to find myself.* Have you seen me anywhere today?
Mysto is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-12-2007, 04:28 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: E. Wash
Posts: 1,057
Re: monte carlo vs. firecalc - or what is fido doing to me!

Quote:
Originally Posted by Mysto
The difference was cpi. In a lump sum expense estimate they use a cpi of a little less than 3... but estimate at a 7% increase for health care that only appears if you use detailed expenses. .
Mysto
Glad you were able to get some help. I spent a good hour with my Fido rep and learned a bunch about the complexity of their model. The health care wrinkle is, IMHO, an really important one since it helps address the issue most of us have are the least certain about and have little control over--health care.
As you use the Income Planner, play with the inflation assumption--really makes the portfolio move around. Move their Risk Factor--you can be either very conservative or aggressive or anywhere in between.
These assumptions drive the volatiity factor all over.
When all done, you do not have a definitive answer--more a sense of where your risk comes from. You only have to decide if you are comfortable with it.
nwteve
__________________
nwsteve is online now   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-12-2007, 10:00 PM   #16
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Re: monte carlo vs. firecalc - or what is fido doing to me!

Quote:
Originally Posted by Bikerdude
That seems to be too big a disparity to me. Try the T-Rowe Price MC calculator.
http://www3.troweprice.com/ric/RIC/

Run it for 99 and 90% survival. See how it matches FC.
For a 99% success rate, the best portfolio is 25/40/35 (stocks/bonds/cash). A higher equity allocation reduces success rate?
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-13-2007, 12:48 PM   #17
Recycles dryer sheets
 
Join Date: May 2006
Posts: 122
Re: monte carlo vs. firecalc - or what is fido doing to me!

I use the Fidelity planner as the "definitive" planner. Another interesting one is the

"Flexible Retirement Planner" found here: http://www.flexibleretirementplanner.com/

Personally, I don't use Firecalc at all. It doesn't compute taxes and it doesn't consider RMDs. These are two of the largest factors to consider in retirement planning.

The Fidelity planner gives you a year-by-year breakdown on taxes and RMDs.
__________________
hogwild is offline   Reply With Quote
Re: monte carlo vs. firecalc - or what is fido doing to me!
Old 03-26-2007, 03:00 PM   #18
Recycles dryer sheets
 
Join Date: Mar 2006
Posts: 206
Re: monte carlo vs. firecalc - or what is fido doing to me!

An update on the FIDO retirement planning tool.

First let me say that the tool is useful and the staff helpful however caution....

I found that the program automatically shows a loss the first year of retirement (as many as three) no matter what. They "assume" a newly retired couple will have "unexpected expenses".

Secondly, the tax calculations are fast and loose. I have an annuity for the first 10 years but the program shows it as total income and takes out taxes that I will not incur. There is no way to correct this problem.

The biggest problem I ran accross is their guidance on health care
http://personal.fidelity.com/plannin...svc_cost.shtml

This chart has been widely distributed and quoted and yet it is wrong. They indicate a charge for an "F" medigap plan but also include charges for part A and B deductable and part B co-pay. Both would be paid from a medigap plan. If there is a mistake there should I trust their other assumptions?

Bottom line - this planner is very very very conservative and has some bugs and errors. Proceed with caution on your own plan.
__________________

__________________
I'm trying to find myself.* Have you seen me anywhere today?
Mysto is offline   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
Question on Firecalc Monte Carlo macnjus FIRECalc support 15 11-24-2006 12:17 PM
FireCalc = Monte Carlo simulator DW FIRECalc support 1 11-19-2006 07:46 PM
Monte Carlo vs. Asset Allocation al4trade FIRECalc support 4 10-07-2006 10:45 PM
Isn't FireCalc and Monte Carlo simulations based on higher gains? modhatter FIRE and Money 17 10-02-2006 04:32 AM
monte carlo Mysto FIRE and Money 5 04-18-2006 07:34 PM

 

 
All times are GMT -6. The time now is 05:56 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.