Percentage of Remaining Portfolio spending plan

[nico08]

Hi:

I am considering using the Percentage of Remaing Portfolio spending plan when I enter into FIRE. My question is, based on historical data, how can I find out the lowest amount that I may have to spend in a bear market year? I see there is a line graph in FIRECalc that kind of addresses this, but I can't make out where the lowest annual spending amount falls. What are your thoughts as to how I can figure out the range of yearly expense budgets that would play out with the Percentage of Remaining Portfolio spending plan? I want to get a sense of a worse case scenario and see if it is something that I could live with.

Thanks.

 

[walkinwood]

One way to do it, though it is a bit tedious is to use the "Display the results of the retirement plan" option on the investigate tab & use different years. Try 1929, 1932, 1973.

You could also try the " inflation-adjusted end-of-year portfolio balances for every year in each of the cycles tested by FIRECalc" spreadsheet & compute your withdrawals.

I use this method of withdrawal & suffered a large reduction (IIRC, it was 27%) in the first year (2008). Luckily, we had enough head room in our expenses that we managed just fine - but had to trim vacations & some other discretionary expenses in 2009. Keeping a 'slush' fund that is outside of the calculations used to determine SWR could help ease the variations, though I haven't seen any studies or formulas that take that into account.

 

[REWahoo]

Try 1929, 1932, 1973.

...and 1965, 1966.

 

[nico08]

Thanks for the advice. For the investigate choice "inflation-adjusted end of year portfolio balances for every year in each of the cycles tested by FIRECALC", if I chose the 95% spending model, would I be viewing the best case/worst case by choosing different years and then reviewing column C? If so, are the numbers in column C basically the amount of what the withdrawal would be in the value of today's dollars?

One way to do it, though it is a bit tedious is to use the "Display the results of the retirement plan" option on the investigate tab & use different years. Try 1929, 1932, 1973.

You could also try the " inflation-adjusted end-of-year portfolio balances for every year in each of the cycles tested by FIRECalc" spreadsheet & compute your withdrawals.

I use this method of withdrawal & suffered a large reduction (IIRC, it was 27%) in the first year (2008). Luckily, we had enough head room in our expenses that we managed just fine - but had to trim vacations & some other discretionary expenses in 2009. Keeping a 'slush' fund that is outside of the calculations used to determine SWR could help ease the variations, though I haven't seen any studies or formulas that take that into account.

 

[Independent]

Thanks for the advice. For the investigate choice "inflation-adjusted end of year portfolio balances for every year in each of the cycles tested by FIRECALC", if I chose the 95% spending model, would I be viewing the best case/worst case by choosing different years and then reviewing column C? If so, are the numbers in column C basically the amount of what the withdrawal would be in the value of today's dollars?

Columns T and U show the nominal year-end portfolio and the inflation adjusted year-end portfolio. Eyeballing the results, column C appears to be nominal.

You can convert it to inflation adjusted by dividing by column B.

Note that FireCalc produces two spreadsheets. One is the detail for a particular year, the other is year end balances for every year. The "every year" version is in nominal dollars. But, you may be able to use it to determine which years you'd like to investigate carefully. If you're sufficiently handy with spreadsheets, you can convert into inflation-adjusted balances.

 

[shasta]

I personally adopted the 95% rule of equities are down.

This is my first year tho so can't comment.

 

[walkinwood]

Thanks for the advice. For the investigate choice "inflation-adjusted end of year portfolio balances for every year in each of the cycles tested by FIRECALC", if I chose the 95% spending model, would I be viewing the best case/worst case by choosing different years and then reviewing column C? If so, are the numbers in column C basically the amount of what the withdrawal would be in the value of today's dollars?

The way I read this spreadsheet, each row shows the inflation adjusted year end balances from year 1 (column B) to year 30 (Column AE if you put 30 in the "years" on the "start here" tab). From here, you can figure out your annual SWR as a percentage of that year end value. Column A is the starting year.

You can scan the tables to find the minimum that you'll get to - or use a minimum function. I'm not great at spreadsheets nor am I an expert on firecalc.