Retirement Calculators

[ohfrugalone]

What is the difference between the Free Monte Carlo Based Calculator at Flexible Retirement Calculator.com and the FIRECALC?

Is one more accurate than the other?

[LOL!]

Neither is particularly accurate. One uses MonteCarlo methods to come up with scenarios while the other simply uses historical numbers to come up with scenarios.

Remember: You cannot predict the future with accuracy nor with precision. You can only guess.

[Midpack]

After years of trying to find the best retirement calculator (including my own in Excel), I've realized they're all worthwhile but none are "accurate." There are too many uncertainties (investment returns, sequence of returns, inflation, longevity, future taxes, future healthcare, future SocSec/Medicare, pensions/annuities risks, bequests, to name some of the biggies). If nothing else, the FIRECALC output graph shows how wide the range of potential outcomes has been, and there's no reason to think it will be more predictable in the future.

Use them all (it's an excellent learning experience to help you realize how all the variables impact the outcome), compare the results, and know that they're all plausible but none are right. Most will be in the same ballpark, those that aren't are most likely wrong (I'd be very wary of the most optimistic ones). In the end, determining your "number(s)" are relatively simple - it's the execution thereafter that's difficult. The 4% SWR is good place to start to estimate your required nest egg (simply 25X your first year retirement expenses) - but by no means would I blindly follow the associated decumulation method. My target is 35X or about 3% SWR. If you want to shoot for more or less, that's fine as long as you know the risks/contingency plans.

Life is uncertain, doesn't change when you retire...

[rs0460a]

Quote:

Originally Posted by Midpack The 4% SWR is good place to start to estimate your required nest egg (simply 25X your first year retirement expenses)

For that reason, I use/like Fidelity's Retirement Income Planner (RIP) - the "full" version, not the "MyPlan" quick & dirty calculator on their web site.

The RIP planner is more detailed in its input parameters, allowing you to define expenses in a more "finite" manner. Yes, it takes more time, but once you have the input, it is always available for modification. Additionally, the inflation rate for medical expenses is "elevated" than the normal inflation rate (which can be changed) to show that as a separate "class" for increase in expenses.

Other "changable" input criteria that can be changed is modifying the existing AA to a more/less "risk", and impact of other sources of income (such as a SPIA ).

What's more important is the output report (35 pages) which shows the projected withdrawl % (along with expected RMD's), year by year.

In my plan (for example), by drawing down my rollover/ traditional IRA's (of course, Roths not expected to be used), and delaying SS till age 70 (my DW at age 62), I can tell that very little taxable RMD's will need to be taken. Assuming a portion of SS remains "tax free ", I can use that as my main souce of income in the future, and insure that my DW get's the maximum SS benefit (assuming I pass first).

Most interesting is that the report shows that even though I exceed the "magic 4%" in the early years of retirement (up to age 70), after I start drawing SS, our withdrawl drops below 4% and stays there till the end of the plan (age 95 for both of us).

I use RIP, along with VG's F.E., FIRECalc, and Quicken's planners. All I look for is "consensus" in the outcomes and all are similar (for a 35 year plan) with the exception of F.E. which does not allow you to state a plan period (it uses traditional life expectancies - you can't override it). That tends to make F.E. more "generous" in its annual withdrawl forecast.

Being only in retirement 18 months, I can't see if the "original plan" is going to work (ask me in 35 years ). Additionally, I've already adjusted my "base plan" from 18 months ago due to "life changes" that have come up in early retirement (yes, I do leave that base report as a reference, but every year, it will become more and more "outdated", as expected).

- Ron

[Alan]

These days I only use 2 calculators - Firecalc and the Fidelity RIP since they use different methods. I also used to use the Financial Engines calculator but once you retire it assumes you buy an annuity (I think) so loses its usefulness.

[2B]

My anal-retentive engineering background forces me to try just about everything I find plus I've developed several Excel spreadsheets with different approaches. What I've learned is that there is a sort of convergence of the results that tend to support each other. None are perfect but overall they all pretty much go to the same spot. For this forum FIRECalc is pretty much accepted as a "good" calculator.

I see several significant risks. The first is that all the converging calculators may be wrong. No one can predict the future so I have a large cash/fixed income stash that will cover me for 8 years without adjusting my spending and effectively for 30 years with SS and my pension if I convert to my minimal (but still nice )lifestyle budget.

The other risk is that our equity performance and lifespan will conspire to have me die with a massive amount of assets left. The goal isn't to make my children rich. I don't see any point in living on a 2 or 3% SWR since that is the formula for dying rich.

Since I see little risk of total poverty in old age, I plan on using my equities to fund fun and travel in the time remaining. Good stocks equals good trips. Poor stocks will reduce traveling or target less expensive locations.

I leave out nuclear attack and total economic meltdown. There isn't anything that can be done to impact these (at my level) so why worry about it?

[RonBoyd]

It would be nice if there was some magic pill that could let us sleep at night without worrying about our finances. Monte Carlo predictions are not such a thing. Recognition that MC is merely another tool in your FP arsenal is required and, as such, the chosen program needs to be FULLY understood before use. Each Monte Carlo program, by the way, is different than any other because of the individual programmers. Consequently, MC has a serious problem in that like its human creator it cannot 1) predict the future with any degree of accuracy and 2) resist opinion and bias (inserted by the particular author).

A good start to your investigating a solution to your question may be found in the chapter called "Monte Carlo Mania" by Robert D. Curtis in the book "Retirement Income Redesigned."

or even a simple Google search.

[youbet]

Quote:

Originally Posted by Midpack If nothing else, the FIRECALC output graph shows how wide the range of potential outcomes has been, and there's no reason to think it will be more predictable in the future.

For me, that's been the most valuable outcome of dozens of hours toying with FireCalc. Back-testing many scenarios again historical data showed that all methods I was using that involved some rate of average returns and some rate of average inflation were totally bogus.

2B quote

Quote:

Since I see little risk of total poverty in old age, I plan on using my equities to fund fun and travel in the time remaining. Good stocks equals good trips. Poor stocks will reduce traveling or target less expensive locations.

I generally agree, but with this caveat...... I believe I'm 7 - 8 years older than you and have been RE two+ years. With the current state of the markets and a few unanticipated expenses, DW and I have been looking at trimming discretionary spending back a tad, particilarly plans for semi-wilderness and international travel. At arms's length, this seems sensible and relatively painless. But actually it isn't painless at all. We'd grown quite accustomed to looking forward to these activities and were fairly deep into the planning and are surprisingly disappointed despite the fact the budget cut still leaves us living comfortably and with some discretionary money to spend.

Anyway...... just a comment ..... You may find trimming discretionary spending is more painful than you anticipate if it means trimming activities you know you may not feel up to doing by the time finances "get better."

Your comments regarding the disparity/risk of either dieing with lots of unspent money or running out of money while still alive and kicking are right on. For example, we're looking at cancelling plans for a fly-in canoe trip to Quetico Provincial Park that will cost a couple kilobucks. The risk is that we may not feel like participating in that adventure in the future (at 61, my knees already kill me on long portages) yet if/when things turn around, we may die with lotsa money left and cancelled discretionary spending for nothing! That seemingly uncontrollable variable is where I spend most of my planning time. Not knowing the future makes planning a real pita!!

[2B]

Quote:

Originally Posted by youbet Your comments regarding the disparity/risk of either dieing with lots of unspent money or running out of money while still alive and kicking are right on. For example, we're looking at cancelling plans for a fly-in canoe trip to Quetico Provincial Park that will cost a couple kilobucks. The risk is that we may not feel like participating in that adventure in the future (at 61, my knees already kill me on long portages) yet if/when things turn around, we may die with lotsa money left! That seemingly uncontrollable variable is where I spend most of my planning time. Not knowing the future makes planning a real pita!!

I can't say what I'd actually do in your situation but I can only give you my current thoughts. I think I'd error on the side of spending too much now and risk not having the money for luxuries when I'm 70 or older. Again, my plan is to cover my base expenses with a very secure cash bucket and rely on equities for the luxuries. I'm inclined to take more of a risk with this and not worry if things go too far off track. Maybe I wouldn't do everything I'd wanted to do but I hope I wouldn't cut out the "maybe last opportunities."

I'm surprised the current market is disturbing you that much. I'm down overall about 6% YTD and maybe 10% from the peak. If only equities are considered, it's probably not quite double those numbers. As bears go, this isn't too bad. Of course it's not over till its over.

[youbet]

Quote:

Originally Posted by 2B I think I'd error on the side of spending too much now and risk not having the money for luxuries when I'm 70 or older.

Generally, that's what we've been doing. We've just been thinking of doing some trimming...... But I did want to point out for us that trimming discretionary spending is more painful than we anticipated. Before RE, we assumed cutting back on "luxuries" (as you put it) would be no big deal. After all, we're not working and still have a comfortable lifestyle, right? Now that we're there, it turns out that when the discretionary spending is travel or entertainment, we both cringe at the thought of crossing them off the list! That is, talking about cutting discretionary spending seems more painful in actuality than in planning!

Quote:

I'm surprised the current market is disturbing you that much. I'm down overall about 6% YTD and maybe 10% from the peak. If only equities are considered, it's probably not quite double those numbers. As bears go, this isn't too bad. Of course it's not over till its over.

I'm down a little more than that. I was running a fairly risky/volatile AA for a geezer plus I took a significant hit due to the sad performance of my former employer. We also had a few expenses we voluntarily shouldered involving my handicapped grandson. Still, we're far from panic'd. I'm talking about cutting some travel and toys the average American retiree would have never had on the list in the first place. We consider ourselves quite fortunate given our humble beginnings, etc.

I'm just saying that it seems like cutting those "luxuries" is a little tougher in actuality than we thought it would be during our planning stage years ago! But, believe me, we're still having fun and are doing fine!

[haha]

Quote:

Originally Posted by youbet ... But I did want to point out for us that trimming discretionary spending is more painful than we anticipated. I'm just saying that it seems like cutting those "luxuries" is a little tougher in actuality than we thought it would be during our planning stage years ago!

I find this easy to understand. People don't like to give up satisfactions. As we get older and experience more loss in our lives, a "temporary giveup" may not be so temporary, unless we believe in reincarnation.

I even hate to keep a food budget. Satisfaction feels good, and those of us with money tend to feel that we ought to be satisfied.

One purpose of participating on this board for me is to keep dragging me toward greater frugality, to counterbalance my internal drags toward spending.

Ha

[Nords]

Quote:

Originally Posted by ohfrugalone What is the difference between the Free Monte Carlo Based Calculator at Flexible Retirement Calculator.com and the FIRECALC?

Getting back to the math lesson, here's a brief summary:
- FIRECalc uses history. Since we don't have a very long history of sequences of 30-40-year returns, it does the best it can with what it has. It also can't accurately model the returns of recent asset classes (like REITs or commodities) because we don't have very lengthy historical info. FIRECalc can't predict how you'll do, but it can tell you how you might have been affected by the Depression or 1966-82 or 2000-2002.

- Monte Carlo calculators run a bunch of different annual returns over your portfolio. Some let you tweak/limit the parameters, others use randomly-sorted historical data, others make it up. The drawback of Monte Carlo is that it doesn't account for the correlation of a series of returns as the stock market runs up a bull or reverts to the mean. MC sees nothing "wrong" with having +28% returns in one year followed by -25% returns the following year. So the wilder swings of MC's returns generator means that SWRs are generally lower-- about 3-3.5% instead of FIRECalc's 4%-- and success rates are generally lower.

- Raddr's MC calculator attempts to factor in the correlated-returns phenomenon.

- As has been mentioned, Financial Engines assumes you buy an annuity at retirement (for fixed withdrawals). However it also has a tremendous number of parameters to tweak, and is probably the best existing calculator for experimenting with specific funds & asset allocations.

- FIRECalc has a couple enhancements for MC and for ESRBob's "4%95%" variable-withdrawal rule. Bob's rule is described in his "Work Less, Live More" book but I think FIRECalc is the only calculator that models it.

- Another version of the genre, ESPlanner, offers even more parameters to tweak than FE and will allow for "consumption smoothing" (variable withdrawals) over retirement. It's probably the most detailed of the calculators but a lot more work-- and it's easy to lose sight of the "garbage in, garbage out" caveat.

Quote:

Originally Posted by ohfrugalone Is one more accurate than the other?

Aside from the lower returns/success of MC calculators, we're gonna have to get back to you on that one posthumously.

You might also want to read Bernstein's perspective on "The Retirement Calculator From Hell".

You might want to start with FIRECalc and see how you're doing. If there are no warning signs then move over to a robust MC calculator like FE, or use the planners at T. Rowe Price or Fidelity. If you're still good to go then you could dig into the nitty-gritty with ESPlanner.

Of course if you get failures on two or three of the calculators then you'd probably try to figure out what to change, and then see how that turns out in the other calculators.