There is NO history for retirement planning

[Gone4Good]

If you only had 3-4 years worth of data, you could potentially miss on bull/bear market cycles because you may not have noticed them to begin with.

I'll bite, once more.

The U.S. business cycle averages about 7 years. By your reasoning, the last 30 years only has 4 independent periods by which to judge the next 7 years. We therefore shouldn't have enough information to judge the business cycle. In fact, you seem to be arguing that the past 30 years doesn't have enough information to even see it because we, after all, only have 4 data points.. And yet, I can look at the last 30 years and not only see that a business cycle clearly exists, but I can also deduce pretty accurately its average length, and severity.

Following your argument to its next step; 30 years of data is no better in forecasting a 7 year economic period than 4 years of economic data is in forecasting a single year. That is clearly not true.

 

[smjsl]

The U.S. business cycle averages about 7 years. By your reasoning, the last 30 years only has 4 independent periods by which to judge the next 7. We therefore shouldn't have enough information to judge the business cycle. In fact, you seem to be arguing that the past 30 years doesn't have enough information to even see it. And yet, I can look at the last 30 years and not only see that a business cycle exists, but I can also deduce pretty accurately its average length, and severity.

If past 120 years had 4 clock-like events happening with a period of 30 years, then yes, it would raise the odds that next 30 years will looks the same way. It does not invalidate the fact that there could very well be other larger cycles in play, but regularity of the observations would certainly suggest that the nature of the markets is what you observe. Imagine you are in a market which goes up every period 5-6% as a straight line. Yes, after few observations, you would assume this is probably going to happen next time around too... but the more observations you have (whether it is measured as 1000 overlapping instead of 100 overlapping or 100 independent vs 10 independent), the more confidence you will have in your prediction.

In your example, if 30 years clearly shows to you 4 well-defined 7-year cycles, indeed you could be more confident in the prediction for the next 7 years. In reality, you might miss then a double-dip recession, a depression, or a very long expansion period (or a number of other possibilities that did not happen in this country but happened elsewhere).

I understand you are saying that at 120 year scale you see what drives the (say, 7-year) market cycles, but it does not mean you can see what drives larger cycles that affect 30-40 year spans. Miscellaneous larger events will probably affect these larger time frames (e.g. changes in rules / regulations relating to markets and to overall gov. system incl. taxation, economic expansions / contraction related to running out of resources, someone mentioned the gold standard) - point is not so much to list them as to acknowledge the fact that until we live through many of these larger events, we don't have enough data to know how larger cycles behave. Similarly, at 3-4 year scale, for example, I may notice seasonal cycles (e.g. christmas season for retail), but it does not mean it will be enough for me to know well what will happen over the course of the whole next year if all I had was 3-4 years worth of experience.

 

[GregLee]

And yet, I can look at the last 30 years and not only see that a business cycle clearly exists, but I can also deduce pretty accurately its average length, and severity.

You're putting us on. You look at the past and find a pattern, and describe it. Fine. But you've only told us about the past. That's not what we want to know about.

 

[martyp]

In my current job (which I am soon retiring from) I've looked into simulation modeling of our production line operation. If I use Monte Carlo calculations I'll some idea of the probability of a given state of performance of the line. However, the simulation will consider performance states that never really happen and therefore the probability of a particular state that isn't from that population is of limited value. I could also run the model using past performance data of our real production line but that is a limited data set. In the end modeling and estimation of future performance is a "best engineering knowledge" sort of thing. You do the best you can with the data you've got and plan to be flexible if things don't go the way you hoped they will go.

You also have to look at the rate of (significant) change of the system you are analyzing. Based on that time constant I put less significance to anything in particular that is very far out in time. I am pretty sure there will be a 2.0 earthquake somewhere on the planet earth in the next couple of hours. I am not all that confident there will be a 7.0 earthquake 1 mile from my house 10 years from now.

One way to use FIRECALC might be to take a contrarian point of view. See if your assumptions about your future plans have never occurred in the past. It's probably no more informative than looking at it the other way around but it might be a more psychologically conservative point of view. If you are nervous about risk and your flexibility to adjust to future events then this way of looking at things might keep you from making a decision outside your comfort zone.

 

[Gumby]

You really should take a step back and listen to yourself. You sound like Chicken Little, notwithstanding your disclaimer that you are merely pointing out uncertainty, not doom.

The simple fact is that all models are wrong; some models are useful. To me, and I suspect many others, FIRECALC is useful. Is it infallible? No. Is it the only thing upon which we do or should rely? No. It is a tool, one among many, nothing more and nothing less.

You have pointed out what you believe to be a flaw in FIRECALC. But Nords' question remains -- what are you going to do about it? At some point, you either need to take that step off the ledge, or not. If you want 100% certainty about the road ahead, you will never get it.

So there it is -- either retire or don't, it makes no difference to me. But for God's sake please stop whining.

 

[kumquat]

The articles linked here might provide some suggestions (especially number III). FireCalc only covers what happened in North America. What history would help you if you retired in approximately:
1913 - Germany
1916 - Russia
1938 - Germany
1948 - China
1955 - Hungary
1966 - Israel, Jordan, Egypt etc
1978 - Iran
2002 - Iraq

The black swan awaits us all. Doesn't mean he'll be at your door, but maybe....

 

[Gone4Good]

You're putting us on. You look at the past and find a pattern, and describe it. Fine. But you've only told us about the past. That's not what we want to know about.

Um, sure.

I'm betting we'll have another recession some time in the next seven years. Care to take the other side of the wager?

 

[Gone4Good]

The articles linked here might provide some suggestions (especially number III). FireCalc only covers what happened in North America. What history would help you if you retired in approximately:
1913 - Germany
1916 - Russia
1938 - Germany
1948 - China
1955 - Hungary
1966 - Israel, Jordan, Egypt etc
1978 - Iran
2002 - Iraq

The black swan awaits us all. Doesn't mean he'll be at your door, but maybe....

In most of those instances it wouldn't have really mattered if you were retired or not. Almost everyone ended up in the soup. So if I'm impoverished in all of those situations regardless of what I do, why even consider that data in my decision making process?

In fact, if you really think one of those situations is in store for us, one of the silliest things you could do is save money. Might as well go out and blow it on whatever floats your boat before it's all rendered worthless.

 

[traineeinvestor]

The biggest concern I have with Firecalc* is that it is US-centric and that, taken as a whole, the period covered was one of economic prosperity (notwithstanding a depression of moderate length in the 1930s, a modertate period of high inflation in the 1970s and other economic fluctuations along the way up). [As I have a limited understanding of statistics, I'm happy to sit back with my popcorn, observe the debate and pretend that I understand what people are talking about on that issue.]

Fortunately Firecalc is not the only reference point we have available - we can look to other countries during the same time period and at many points in history to see a much wider range of economic conditions ranging from the extremes of total wealth confiscation or destruction (e.g. Russia 1917), very long periods of deflation (e.g. Japan 1980 - ), a decline in population (e.g. the Black Death), war (e.g. WWII), hyperinflation (e.g. most of Latin America late 20th century), over reliance on a single commodity (e.g. Chad), a wide variety of manias (e.g. tulips) etc etc etc.

It does not take a lot of effort to:

1. understand that there is a huge range of issues that can adversely impact our personal finances; and

2. accept that there is no certainty about future returns for anything (including the much touted Tips, gold or farm land, being three widely advocated safe havens from financial uncertainty**),

and to plan accordingly.

While Max Gunther's comment was on chartists, IMHO it is applicable to financial planning in general: "chaos is not dangerous until it begins to look orderly".


* This is not a criticism - Firecalc is a useful tool but it should not be the only reference point for deciding the "how much is enough question" - and I don't recall anyone claiming that it was

** I am not suggesting that ether Tips or farmland are not good investments - only that some of their advocates place too much faith in them as a complete solution for my liking

 

[traineeinvestor]

In most of those instances it wouldn't have really mattered if you were retired or not. Almost everyone ended up in the soup. So if I'm impoverished in all of those situations regardless of what I do, why even consider that data in my decision making process?

In fact, if you really think one of those situations is in store for us, one of the silliest things you could do is save money. Might as well go out and blow it on whatever floats your boat before it's all rendered worthless.

If you think one of these situations is possible, then exporting both your savings and yourself would be a good starting point and I would still advocate saving as usual just in case the worst does not come to pass (but possibly changing the form of the savings - when society begins to collapse, having the resources to bribe people becomes important).

 

[kumquat]

In most of those instances it wouldn't have really mattered if you were retired or not. Almost everyone ended up in the soup. So if I'm impoverished in all of those situations regardless of what I do, why even consider that data in my decision making process?

In fact, if you really think one of those situations is in store for us, one of the silliest things you could do is save money. Might as well go out and blow it on whatever floats your boat before it's all rendered worthless.

That's the point I was getting at. Why do you think that one of these things won't happen to you? Bernstein's comment that any probability > 80% being meaningless applies. If 80% is good enough, why try for 99%.

 

[haha]

I doubt there is anyone on this site who doesn't understand exactly what OP is talking about, and also realize that in outline it is a valid criticism. But so what? Most of us have retired or will retire anyway, not because we think it will necessarily work out, but because we are getting tired of working or have already gotten tired of working. Most young people still get married, not because they are sure it will work out, but because they are tired of being single or they are in love or both.

I do believe that one who is actively working with certain skills will always be in demand, and always be able to support herself or himself. Doctors, dentists, abortionists and midwives, money lenders/pawnbrokers, skilled traders of goods in demand, pimps and prostitutes, soldiers, fishermen, farmers, cops (some of whom may become robbers)-these people and many others were ok in most political and economic cataclysms. Retired is a relatively weak position, but I don't think that should be a huge revelation to anyone here.

Ha

 

[Nords]

smjsl has convinced me that the future is quite hopeless and that I should just slit my wrists now, so at least that was useful.

You really should take a step back and listen to yourself. You sound like Chicken Little, notwithstanding your disclaimer that you are merely pointing out uncertainty, not doom.
So there it is -- either retire or don't, it makes no difference to me. But for God's sake please stop whining.

This reminds me of when Bongo2 went off the rails to tell us all that we should get back to work and make a useful contribution to society...

 

[chinaco]

OP,

There are no guarantees. These types of tools only offer insight into the problem. That is as good as it gets!

The way I intend to handle the risk is to use conservative mechanisms to create a base income that protects our basic lifestyle.

My general approach will be:

Base Income

1. Near term (next 5-7 years) - Bucket of high grade bonds and cash to provide income. Longer term
2. I have a Non-COLA Pension that DW has survivor rights.
3. DW SS at 62.
4. Delay my SS till FRA or 70 (whatever makes sense at the time)
5. Use part of our Nest Egg to buy other secure income (TBD) for the long-term:
   1. Annuity if rates are attractive.
   2. US Govt Bond Ladder (possibly split between TIPs and Reg Treasuries)
   3. Perhaps Bond Mutual Fund

Other (with remaining assets)

1. Use conservative (and diversified) stock and bond mutual funds. Divide the assets up into allocations for different periods during our life expectancy. But will use the assets as needed and make adjustments that makes sense at the time...

Our (DW and I) goal is to secure our lifestyle first. Investment growth is secondary. We will invest in the market, but do so conservatively to maintain purchasing power (guard against inflation). We will assume some stock market risk in hopes of getting a better return. But the base income will be as close as it can to a guarantee.

Money only means something if I can spend it... not just look at the account balance and admire it or shriek in horror!


I intend to make this as simple as possible for DW in case she survives me. I do not want to put her in a position to make mistakes or have to rely on some "Adviser".... worse case some insurance agent and their BS story (a rant for another time).


​

 

[Midpack]

You really should take a step back and listen to yourself. You sound like Chicken Little, notwithstanding your disclaimer that you are merely pointing out uncertainty, not doom.

The simple fact is that all models are wrong; some models are useful. To me, and I suspect many others, FIRECALC is useful. Is it infallible? No. Is it the only thing upon which we do or should rely? No. It is a tool, one among many, nothing more and nothing less.

You have pointed out what you believe to be a flaw in FIRECALC. But Nords' question remains -- what are you going to do about it? At some point, you either need to take that step off the ledge, or not. If you want 100% certainty about the road ahead, you will never get it.

So there it is -- either retire or don't, it makes no difference to me. But for God's sake please stop whining.

Amen!

Until the OP proposes something better, and he's been asked several times in this thread, he's just another [-]useless[/-] whiner...

 

[brewer12345]

I doubt there is anyone on this site who doesn't understand exactly what OP is talking about, and also realize that in outline it is a valid criticism. But so what? Most of us have retired or will retire anyway, not because we think it will necessarily work out, but because we are getting tired of working or have already gotten tired of working. Most young people still get married, not because they are sure it will work out, but because they are tired of being single or they are in love or both.

I do believe that one who is actively working with certain skills will always be in demand, and always be able to support herself or himself. Doctors, dentists, abortionists and midwives, money lenders/pawnbrokers, skilled traders of goods in demand, pimps and prostitutes, soldiers, fishermen, farmers, cops (some of whom may become robbers)-these people and many others were ok in most political and economic cataclysms. Retired is a relatively weak position, but I don't think that should be a huge revelation to anyone here.

Ha

Once again, Ha drops anchor on runaway nonsense.

 

[Gone4Good]

I doubt there is anyone on this site who doesn't understand exactly what OP is talking about, and also realize that in outline it is a valid criticism.

In "outline", as I understand it, he's saying that consulting 130 years of economic history to help inform future decisions is identical to consulting horoscopes. That's a form of nihilism that I think reaches too far, even in "outline."

 

[Gotadimple]

In "outline", as I understand it, he's saying that consulting 130 years of economic history to help inform future decisions is identical to consulting horoscopes. That's a form of nihilism that I think reaches too far, even in "outline."

Yes, or past performance is no guarantee of future results.

So, it's a risk.

But, then, so is stepping out your front door. Every day we deal with life as it presents itself to us. We can plan, but some unknown event can cause us to take a different path.

Do the best you can and move forward. If you don't feel the statistics provide comfort, then develop a different plan. Just be aware that fate/fortune/luck/kismet/(fill in the blank) will interrupt your best laid plans.

-- Rita

 

[FIREd]

Retiring is risky. If you are not ready to deal with such risk, then the conservative course of action is to keep working for as long as you can and keep saving as much money as you can. You'll have more options if/when the SHTF... To me, FIREcalc is like a shot of whisky before jumping off an airplane. It gives me a bit of confidence and courage but it won't save me if the parachute fails to deploy.

 

[smjsl]

I doubt there is anyone on this site who doesn't understand exactly what OP is talking about

Well, judging by the latest batch of responses, sounds like many don't. The question of whether firecalc and other research is all that useful given the length of the plan period gets oversimplified and misinterpreted as me whining about the sky falling somehow.

I'd like to thank martyp and traineeinvestor for interesting responses.

Since the number of useless responses is becoming too great though, not much point in continuing this thread. Sounds like I also touched a nerve with some forum members. Wrong crowd I guess...

 

[Nords]

Since the number of useless responses is becoming too great though, not much point in continuing this thread. Sounds like I also touched a nerve with some forum members. Wrong crowd I guess...

I'm guessing there's not going to be more constructive suggestions than "stay flexible" and "periodic reminders"?

If you're looking for the "right" crowd then maybe you could strike up a collaboration with Rodmail over at Raddr's board on this thread:
Raddr's Early Retirement and Financial Strategy Board :: View topic - In one convenient place, a life's supply of Doom and Gloom

 

[REWahoo]

Since the number of useless responses is becoming too great...

GIGO in action...

 

[Surfdaddy]

Well, judging by the latest batch of responses, sounds like many don't. The question of whether firecalc and other research is all that useful given the length of the plan period gets oversimplified and misinterpreted as me whining about the sky falling somehow.

I'd like to thank martyp and traineeinvestor for interesting responses.

Since the number of useless responses is becoming too great though, not much point in continuing this thread. Sounds like I also touched a nerve with some forum members. Wrong crowd I guess...

It just seems your arguments were a bit confrontational. Many posters agreed that the future is not the past. Hopefully all of us know that. FireCalc can tells us that, *in the past*, a certain strategy had an x% chance of succeeding. As Berstein says, there are so many political/environmental/cataclysmic events that could occur that frankly, the first assumption is that the world economy and situation goes on fairly similarly as before. And THAT is a big gamble. But as many posters asked, what suggestions might you have to change it? I think we should all agree that FireCalc saying a scenario as a 95% chance of success is not a predictor of the future. It is a statement about a strategy, backtested.

 

[jacob]

Relying on investments for income is risky, but so is relying on a job.

I think there's a danger of SWR studies to instill a false sense of confidence; much like a lot of other math as applied to the markets have instilled a false sense of confidence. Investing is not physics; it's not science, because it's not inductive. Its statistical treatment is an approximation.

I basically see SWR studies as a way of getting within the right range of numbers, that is, to ensure people are thinking 3-4% rather than the 10% or worse that get newbie FIRE dreamers all excited.

Pulling the trigger at the maximum SWR is certainly risky.

Personally, I put my faith in that historical interest rates regardless of what one invests in have been around 3% real return throughout most of human history (see A History of Interest Rates --- yeah, it's several hundred pages of riveting reading ). My job then is to get 2.5-3% real returns out of my portfolio for the next 60+ years. In that regard, I consider myself a capitalist, not a retiree on mathematical autopilot.

 

[haha]

Personally, I put my faith in that historical interest rates regardless of what one invests in have been around 3% real return throughout most of human history (see A History of Interest Rates --- yeah, it's several hundred pages of riveting reading ). My job then is to get 2.5-3% real returns out of my portfolio for the next 60+ years. In that regard, I consider myself a capitalist, not a retiree on mathematical autopilot.

This stikes me as a realistic way to look at it. However, it is not how retirees most commonly do frame it, at least it appears that way from my reading here.

Ha