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Old 07-13-2013, 02:06 AM   #21
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Originally Posted by youbet
Don't most posters here "conservatize" all the numbers?

Put SS in at a fraction of what is actually expected "just in case" the gov't changes the rules.

Exaggerate your spending "just in case" you decide you need to spend more than you have historically or that you dream you might in the future.

Understate your FIRE portfolio value "just in case" it turns out you're retiring at the peak of a bubble.

Leave out the value of non-financial assets such as your main home, summer home, Rolls Royce collection, bag of diamonds in the safety deposit box, rare and expensive artwork, major league baseball team, etc.

Assume your employer will not be able to pay your pension.

Then, after retirement, buckle down and try to not spend a penny. Boast about your low spending on the FIRE Forum as much as possible. Learn to enjoy the event of non-spending more than any activity money could buy.

With a huge but understated asset base, a huge but understated retirement income flow and a lifestyle which revolves around never spending a penny, your success rate might be OK for you to sleep at night.

That's how it works, no?
LOL great post, so funny
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Old 07-13-2013, 03:50 AM   #22
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Originally Posted by Katsmeow View Post
One issue is what if you retire, say, in June. Do you do Firecalc as if you retired on January 1 using the January 1 value and using your annual spending or do you use the June value or do you pretend like you are retiring on January 1 of the next year?
I think this is kind of missing the point of what Firecalc is all about. Firecalc doesn't tell you the exact point at which your portfolio will survive or not. It only tells what would have happened historically. In other words, it's a tool for rough estimation. No tool can be anything else when dealing with something as unpredictable as equity prices.

For this reason, (IMO only, of course) it's up to you how you do it.

I used the rough portfolio value at the time I retired but because I'm using a WR well below the 100% success rate (about 2.5%) it doesn't make much difference, as I have wiggle room.

That was a bit of a ramble. Hope it made sense.
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Old 07-13-2013, 10:51 AM   #23
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I took my total cash and investments at the time I retired as the denominator and my expected annual spending as the numerator.

I actually did two versions. One where my mortgage interest is included in the numerator and my mortgage was ignored in the denominator and another where I ignored my mortgage interest in both the numerator and the denominator (as if I paid off my mortgage just prior to retiring). The resulting WRs were about the same.

I retired 18 months ago. For fun, I also do the same calcs as if I retired today instead of 18 months ago. the numerator is the same but the denominator is much higher because Mr. Market has been kind.
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Old 07-13-2013, 11:33 AM   #24
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Quote:
Originally Posted by youbet View Post
Don't most posters here "conservatize" all the numbers?

Put SS in at a fraction of what is actually expected "just in case" the gov't changes the rules.

Exaggerate your spending "just in case" you decide you need to spend more than you have historically or that you dream you might in the future.

Understate your FIRE portfolio value "just in case" it turns out you're retiring at the peak of a bubble.

Leave out the value of non-financial assets such as your main home, summer home, Rolls Royce collection, bag of diamonds in the safety deposit box, rare and expensive artwork, major league baseball team, etc.

Assume your employer will not be able to pay your pension.

Then, after retirement, buckle down and try to not spend a penny. Boast about your low spending on the FIRE Forum as much as possible. Learn to enjoy the event of non-spending more than any activity money could buy.

With a huge but understated asset base, a huge but understated retirement income flow and a lifestyle which revolves around never spending a penny, your success rate might be OK for you to sleep at night.

That's how it works, no?
YES - but even then some of us aren't comfortable making the leap to freedom.
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Old 07-13-2013, 11:40 AM   #25
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That's how it works, no?
With some, yes, but I think if you look at the range of types we have on this forum, that definitely doesn't apply to everyone.
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Old 07-13-2013, 11:41 AM   #26
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Originally Posted by Major Tom View Post
Firecalc doesn't tell you the exact point at which your portfolio will survive or not. It only tells what would have happened historically. In other words, it's a tool for rough estimation. No tool can be anything else when dealing with something as unpredictable as equity prices.
+1

The idea that a 100% success rate is some type of guarantee is bogus. It just tells you what would have happened.

IMHO, tools like Firecalc, when used with conservative numbers, are a good reason for sleeping well at night. But, it's not a good reason for assuming 100% guaranteed, safe, sure, bullet proof retirement funding for the next 30-40 years. Nothing can guarantee that.
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Old 07-13-2013, 11:53 AM   #27
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+1

IMHO, tools like Firecalc, when used with conservative numbers, are a good reason for sleeping well at night. But, it's not a good reason for assuming 100% guaranteed, safe, sure, bullet proof retirement funding for the next 30-40 years. Nothing can guarantee that.
Hey, I want my money back!

Ha
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Old 07-13-2013, 11:56 AM   #28
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Hey, I want my money back!

Ha
Ha, like my garbage pickup services says "Satisfaction guaranteed or double your trash back. "
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Old 07-15-2013, 04:22 AM   #29
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For the same portfolio, the numbers in March 2009 would have been drastically different from those in late 2007.

Were they both the correct ones to use (assuming two retirees, one each starting on those dates)?
they are both right. take a situation like retiring in october 1987.

you had 26% evaporate in one day.

those that retired the day before set an swr based on very high stock valuations. that may require an adjustment downward if you just retired and markets stayed down.

on the other hand that person that retired the day after the plunge set their swr at a time stocks were at a low valuation. that can handle an adjustment upwards as markets recover.

retiring when valuations are high has consistantly led to worse equity performance the first 15 years.

lower evaluations have led to better performance the first 15 years.

where go the first 15 years usually sets the tone for the entire retirement period.
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Old 07-15-2013, 12:20 PM   #30
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they are both right. take a situation like retiring in october 1987.

you had 26% evaporate in one day.

those that retired the day before set an swr based on very high stock valuations. that may require an adjustment downward if you just retired and markets stayed down.

on the other hand that person that retired the day after the plunge set their swr at a time stocks were at a low valuation. that can handle an adjustment upwards as markets recover.

retiring when valuations are high has consistantly led to worse equity performance the first 15 years.

lower evaluations have led to better performance the first 15 years.

where go the first 15 years usually sets the tone for the entire retirement period.

So the "s" in swr means what? Safe, or Starting?

If you are allowing adjustments, then I agree that either number is OK to use -- in fact, you can use whatever makes sense to you as long as you adjust it when necessary.

Why refer to it as a Safe Withdrawal Rate if it has to be adjusted?
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Old 07-15-2013, 04:56 PM   #31
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theoretically it does not have to be adjusted but as you can see if you retired the day after the market crash in 1987 you would leave to much money unspent as time went on.

these swr systems are best used as a starting point and then adjusted dynamically.
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SWR calc approach.
Old 07-15-2013, 06:10 PM   #32
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SWR calc approach.

I was thinking of entering portfolio value as before tax (BT) and SS as BT.
I have some pensions in AT amounts and I will enter this as AT data. When spending level is calculated (BT) I will substract all AT income leaving the balance as a BT result. I will calculate the tax due on this sum of this BT result and 85% of my SS amount. The total tax will then be added on to my Expenses. I will then compare the Spending Level against the total Expenses (including the tax component).

Any thoughts if I'm doing something wrong. Thanks.
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Old 07-15-2013, 08:51 PM   #33
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I was thinking of entering portfolio value as before tax (BT) and SS as BT.
I have some pensions in AT amounts and I will enter this as AT data. When spending level is calculated (BT) I will substract all AT income leaving the balance as a BT result. I will calculate the tax due on this sum of this BT result and 85% of my SS amount. The total tax will then be added on to my Expenses. I will then compare the Spending Level against the total Expenses (including the tax component).

Any thoughts if I'm doing something wrong. Thanks.
If you do not have any BT figures for your pensions, then you don't have much choice other than to add the AT income to any BT income you expect, and run FIRECalc that way. Your taxes are expenses, so even though your pension income is lower due to being AT, your expenses will be lower too.

I would suggest using TurboTax or another tax program to help you to estimate taxes after retirement.
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Old 07-15-2013, 09:05 PM   #34
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Why refer to it as a Safe Withdrawal Rate if it has to be adjusted?
Why wouldn't you adjust it? The Firecalc SWR calculation is just an estimate at a point in time. If new information comes in, the right thing to do is to update your estimate. You could stick with the original estimate but it will likely be less accurate.
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Old 07-16-2013, 05:18 AM   #35
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If you do not have any BT figures for your pensions, then you don't have much choice other than to add the AT income to any BT income you expect, and run FIRECalc that way. Your taxes are expenses, so even though your pension income is lower due to being AT, your expenses will be lower too.

I would suggest using TurboTax or another tax program to help you to estimate taxes after retirement.

I prefer to work with AT money where possible since I definitely know what I have to work with. I tried the all BT approach and found that with the tax rates being piecewise linear it didn't take long to enter the 28% tax bracket and what I was paying in taxes was significant. I tried comparing BT approach to AT approach for sanity check but was unsuccessful with the non-linear nature of the tax rates. There may be a way to compare apples -to-apples but I haven't found it yet.
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