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Reasonable Probability?
Old 12-14-2004, 07:48 PM   #1
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Reasonable Probability?

Just wondering what you folks think is a reasonable chance of success rate to shoot for or to feel comfortable with when running FIRECalc? Obviously, I know the higher the better (though nothing is a 100% sure thing), but I think is 85% would be a reasonable scenario. Any comments, based on your own planning and/or experience, and reasons why would be appreciated. Thanks.
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Re: Reasonable Probability?
Old 12-14-2004, 08:38 PM   #2
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Re: Reasonable Probability?

Don't put too much trust into FIREcalc. It is just a
tool that shows the past .... not one that predicts
the future.

Cheers,

Charlie
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Re: Reasonable Probability?
Old 12-14-2004, 08:40 PM   #3
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Re: Reasonable Probability?

I think it depends on what resources you've got to fall back on. Are you including everything in that calculation? How old are you? Do you have marketable job skills that won't fade too fast if you need to go back to work? Is it only you that you have to support? Is your portfolio more diversified than the FIREcalc model (only S&P500 and some sort of US bonds)?

What you might want to do is consider what is the barest minimum that you would be willing to live on. Then run FIREcalc with that. What's the survival odds on that?

Personally, I'm looking to have enough to be in the high 90's. I don't include SS or similar in my calculations, my portfolio is more diversified than the FIREcalc one, I have another bucket of cash planned that I will use to buy a place to live at some point in retirement that I don't include in the withdrawal amount, and I plan to use a variable withdrawal system. I also have some skills that I could use to make money if worse came to the worst.
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Re: Reasonable Probability?
Old 12-15-2004, 04:16 AM   #4
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Re: Reasonable Probability?

I agree with Chuck-Lyn.
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Re: Reasonable Probability?
Old 12-15-2004, 04:57 AM   #5
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Re: Reasonable Probability?

Handgrenade wise - I love FireCalc.

Chuck-Lyn's admontion's apply - with us in the distribution phase.

I use 95%, underspend by 60%, recognize current valuations are historically high.

Old school - spend divs/interest and let the principle ride. In ancient times(accumulation phase), I saved/invested against 8% and 10% plan lines on K&E engineering graph paper.

Anywise - we're trying to lighten up and spend more in our old age.
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Re: Reasonable Probability?
Old 12-15-2004, 05:25 AM   #6
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Re: Reasonable Probability?

I'm pretty comfortable with the FIREcalc results I get on my own calculations.

Before I ever knew of FIREcalc or this website, my philosophy was to have a diversified portfolio and "try" to earn around 7% at retirement. I estimated inflation at 3% and I would draw 4%. My plan was to have $1mil from which I would draw $40K-$45K.

I have since adjusted that plan since it would probably take me until age 42 to get to the $1mil, and by then I may need $50K to $60K to live moderately. So, I have decided to keep being self-employed working from home at age 40 and just cutting down my hours to an average of 5 to 10 hours a week for the next 10 to 15 years that should give me at least half of my income needs, and draw the other half from my portfolio. The plan works very well in this case on $800K to $900K, and FIREcalc gives me a 96% success rate for 45 years.

You have proposed a withdrawal of 6.11% of your starting portfolio.

We looked at the 86 possible 45 year periods from 1871 until 2002, and the 45 partial periods from 1957 until 2002, starting with a portfolio of $900,000 and taking out $55,000 the first year, and the same amount after adjustments for inflation (PPI) each year except as follows:

Starting in year 22, the withdrawal was decreased by $10,000 (your Social Security; adjusted for inflation).

Starting in year 22, the withdrawal was decreased by $8,000 (spouse's Social Security; adjusted for inflation).

Starting in year 1, the withdrawal was decreased by $25,000 (adjusted for inflation).

Starting in year 15, the withdrawal was increased by $25,000 (adjusted for inflation).

Starting in year 25, the withdrawal was decreased by $10,000 (adjusted for inflation).

Your Success Rate is 96.2%
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Re: Reasonable Probability?
Old 12-15-2004, 05:38 AM   #7
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Re: Reasonable Probability?

"Handgrenade wise - I love FireCalc."

It's not a handgrenade to say that you love FIRECal, UncleMick. JWR1945 frequently makes use of FIRECalc in the research he does at the SWR Research Group board. So I think it is fair to say that the community's appreciation of FIRECalc is pretty much universal.

Problems arise only when FIRECalc is put to uses to which it cannot properly be put, given the way in which it was degigned. Chuch-Lyn stated things well. He said: "It is just a tool that shows the past .... not one that predicts." People need to keep that distinction in mind. It is an important distinction.
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Re: Reasonable Probability?
Old 12-15-2004, 05:52 AM   #8
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Re: Reasonable Probability?

On rereading your post, it occured to me that you might have meant to use the phrase "handgranade wise" in a different sense, UncleMick. Perhaps you meant that FIRECalc gets you "close enough for government work." If that's what you meant, then my earlier comments don't apply.

I don't agree that FIRECalc gets you close enough for all purposes. But that's a separate discussion that I don't see as being appropriate for this thread.

All I really wanted to say was "I like FIRECalc too. It has helped aspiring early retirees a lot." I don't want anyone getting the idea in his or her head that I think different.
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Re: Reasonable Probability?
Old 12-15-2004, 09:14 AM   #9
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Re: Reasonable Probability?

Like most others here, I don't believe in trying to put too fine a point on FIRE calculations. My inclination is to err on the conservative side...I use low-end assumptions about SS income etc. and then require a 100% success rate. Even then I plan to "under spend" slightly like unclemick2.

Factor in a little extra income from part time work like retire@40 and you have a buffered plan that can adapt to negative surprises like a long bear market. I feel we don't have the luxury of assuming too much about future investment returns. If things turn out better than expected you can always spend more!
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Re: Reasonable Probability?
Old 12-15-2004, 09:27 AM   #10
 
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Re: Reasonable Probability?

Quote:
Just wondering what you folks think is a reasonable chance of success rate to shoot for or to feel comfortable with when running FIRECalc? *Obviously, I know the higher the better (though nothing is a 100% sure thing), but I think is 85% would be a reasonable scenario. *Any comments, based on your own planning and/or experience, and reasons why would be appreciated. *Thanks.
Astroboy

The way I look at it, is if your portfolio survives a depression style meltdown (100% safe with FIRECalc), that is probably more safe than your health is. And is probably a better method of planning than anything else available.

Remember this is stocks losing about 85% of their value. This is a much safer bet than those trying to time the market (IMHO). Even ***** would be a lover of stocks at those valuations! - But of course if times get that rough, the Banks would probably default on his CDs and he have no money to puchase stocks.

There are a few here that think we will even have worse times than those of the depression. If I believed that, I would not live close to a metropolitian area, because your neighbors have to eat too.

My Grandparents firmly believed that we would have another depression in their lifetime. (We didn't - They died in the Mid 1980's). But for them they were correct, as their lifestyle pretty much was the same as it was in the 1930's - They had more on paper, but never realized the gains. - Truly sad.

Always remember that we are all dead in the long run. - keeping this in mind, shows you how to live!

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Retirement LBYM.
Old 12-15-2004, 10:12 AM   #11
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Retirement LBYM.

You can create your own 100% probability of success if you spend less than you make. But once you start cutting into your principle you have the difficult task of deciding when you're going to die.

In his five-part "Retirement Calculator from Hell" series, Bernstein believes that anything over 80% is misleading in its optimism.

http://www.efficientfrontier.com/ef/998/hell.htm
http://www.efficientfrontier.com/ef/101/hell101.htm
http://www.efficientfrontier.com/ef/901/hell3.htm
http://www.efficientfrontier.com/ef/103/hell4.htm
http://www.efficientfrontier.com/ef/403/hell5.htm

Jane also started a good thread on this last month-- http://early-retirement.org/cgi-bin/...332755;start=7
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Re: Reasonable Probability?
Old 12-15-2004, 10:48 AM   #12
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Re: Reasonable Probability?

Quote:
So, I have decided to keep being self-employed working from home at age 40 and just cutting down my hours to an average of 5 to 10 hours a week for the next 10 to 15 years that should give me at least half of my income needs, and draw the other half from my portfolio.
Inquiring minds (at least my inquiring mind) would like to know- what can you do from home for 5 to 10 hours a week that would provide half of your income needs?

If this is robust, you don't really need FIRE- you can meet all your needs on 10 to 20 hours a week, from home.

Sounds like a sweet deal to me.

Mikey
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Re: Reasonable Probability?
Old 12-15-2004, 11:02 AM   #13
 
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Re: Reasonable Probability?

Well, Mikey I don't know about 5 to 10 hours, but
I could duplicate my own current income only working
15-20 hours a week and just using local real estate.
I know I could because I have done it before. I would
do it too but I don't want to work at all.

JG
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Re: Reasonable Probability?
Old 12-15-2004, 01:20 PM   #14
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Re: Reasonable Probability?

Quote:
But once you start cutting into your principle you have the difficult task of deciding when you're going to die.
The problem with not cutting into your principle is that your heirs get to spend it, not you. There must be a happy medium.

I'm kinda taken with the health comment
Quote:
The way I look at it, is if your portfolio survives a depression style meltdown (100% safe with FIRECalc), that is probably more safe than your health is.
Probably the truth in my case.

arrete
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Re: Reasonable Probability?
Old 12-15-2004, 01:27 PM   #15
 
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Re: Reasonable Probability?

I do not currently plan to dip into our principle at all.
This may change. It's not that we do not have lots of
things to spend it on, or that we are hoarding for our heirs. It's just that the margin of error is so small
in our case.

JG
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Re: Reasonable Probability?
Old 12-15-2004, 01:33 PM   #16
 
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Re: Reasonable Probability?

Quote:
But once you start cutting into your principle you have the difficult task of deciding when you're going to die.
Nords,

Piece of Cake! - You'll be dead by the time you reach 110.

My principle will be half gone if and when I reach 90. By then spending it will be more difficult than hanging on to it! *- Have you people ever seen someone that is 90 years old!

Get a grip - you're not going to live forever!
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Ah, if only it was that easy.
Old 12-15-2004, 02:50 PM   #17
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Ah, if only it was that easy.

I try not to take myself too seriously (oops, too late), but if I screw up the financial planning during the next 20 years then I'll be very angry with myself in 21 years. *I can see the humor in your comments, but let me treat them as they could have been meant...

Quote:
Piece of Cake! - You'll be dead by the time you reach 110. :)
I might be! *But that's not the purpose of financial planning-- it's for the (very small) probability that I'll be ALIVE by the time I reach 110. *

Quote:
By then spending it will be more difficult than hanging on to it! *- Have you people ever seen someone that is 90 years old! ;D
I've seen a lot of 90-year-olds. *I'm descended from two of them (grandparents) who were quite physically active. *The other two grandparents went by accidents and my mother died of breast cancer-- not my risk factor. *My father's only 70 and he still hikes the Rockies 40-50 miles/week. *So before thousands of AARP members hurl their invective upon you, take a look at the NSGA Hall of Fame-- http://www.nsga.com/Merchant2/mercha...egory_Code=HOF . *It lacks a longboard category, but if Aileen Riggin Soule could join then there's a chance that I can too. *And I'd be interested in your thoughts on the books "If I Live to Be 100: *Lessons from the Centenarians" or Roy Walford's "Beyond the 120 Year Diet: *How to Double Your Vital Years".

As for infirmity or senility, I wish you could have seen my grandfather during his last 15 years-- but maybe you know someone like him. *He was fully in dementia from his early 80s but I believe those began the happiest 15 years of his life. *He wasn't aware of his condition because he certainly didn't know that he was no longer the person he used to be, but all of his long-term memories were intact and he loved remembering them. *He still had his sharp wit but he also developed a great personality and a much more playful side that I'd never seen before. *I guess Ted would be appalled at his lack of productivity but I had more fun with him during his last 15 years than we did during my first 25. *

I think I have to play the life game as though genetics, health, and medical technology are on my side. *I ignore them at my peril-- I want to be as worn-out at 120 as some people are today at 70. *And before anyone drags up canards about cybernetic lifestyles, I'll point out that Helen Keller, Doug Bader, Roy Walford, & Stephen Hawking lived/live very fullfilling lives. *

Spending it at 90 won't be any challenge-- it's horrifically expensive to support a staff of expert caregivers. *At that point in my life I want more choices than to just say "Well, the first 80 were pretty good. *Now, honey, where's that 9mm LTC policy you've been saving for me?" *I'm not asking for concensus, but I'd be more than happy to put anyone's leftover funds to work when they're done with them. *Or is that how Medicaid's supposed to work?

Quote:
Get a grip - you're not going to live forever! :)
I'm not planning to live forever, and no doubt my spouse isn't planning for me to live forever either. *But as th has pointed out before, it's not that difficult to design a portfolio that can live longer than we will. *I want the final 20 years to be as enjoyable as they can be-- and I can't negligently jeopardize that. *Luckily, most of the things that I regard as "fun!" are actually good for my health.

Here's a metaphorical financial-planning tale from my father-in-law, who worked at CBS and had to listen many times to this old radio veteran's story. *The veteran was sitting in some Podunk's broadcast booth in the 1940s where it was his job to give the time-of-day announcement. *He was kicked back in his chair with his feet on the desk, reading the sports pages and keeping an eye on the clock, when the janitor came into the room and started mopping the floor. *A few seconds later as the second hand reached the top, the announcer leaned over to the microphone and did his duty: *"This is CBS Radio-- the time is now 10 o'clock." *Then he clicked off the mike and started reading again.

The janitor observed the performance and asked "Is that your job?" *

The vet replied "Yep." *

The janitor said "Don't **** it up, man."
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Re: Reasonable Probability?
Old 12-15-2004, 02:55 PM   #18
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Re: Reasonable Probability?

I am probably doing it wrong but I love firecalc. It says that I can (at 95%) live forever and only get more and more millions. When I ask other retirement calculators, they say I will never be able to retire.
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Re: Reasonable Probability?
Old 12-15-2004, 03:02 PM   #19
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Re: Reasonable Probability?

Quote:
I am probably doing it wrong but I love firecalc. It says that I can (at 95%) live forever and only get more and more millions. When I ask other retirement calculators, they say I will never be able to retire.
Don't let these grumpy pusses get you down. After all, you ARE going to retire at some point, so you might as well get the best of it. FIRECalc is a good place to start and get an idea of what you need to do for your own circumstance. It's one way of looking at the possibilities of your retirement. Not the only way, but it should get you started.

arrete
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Re: Reasonable Probability?
Old 12-15-2004, 03:04 PM   #20
 
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Re: Reasonable Probability?

It pains me to say it, but (although he seems
to be a goldang liberal) I always understand what
Cut-Throat is saying. He almost always has a point and
gets to it. Nords, did you have a point in your post
responding to Cut-Throat? If so, I missed it. Or maybe you were just rambling.............
I do that sometimes myself

JG
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