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Trust FIREcalc enough? Other models
Old 05-04-2016, 03:39 PM   #1
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Trust FIREcalc enough? Other models

If I plug in the following info:

Age: 42
Spending: X
Portfolio: 20X
Retirement age: 62
Savings from now til retirement: 20% of gross
SS: 67 (using a number about 25% less than current predictions, to account for means testing)

I get a 100% success rate at every age, including age 62, 67, 70, 80, and 100. The minimum portfolio size in real dollars is 35X.

Is this good enough? Are there other models I should look at?

Obviously nothing is 100%, and with stocks and bonds trading at very high valuations, I tend to be pessimistic about future returns. But I don't want to delay early retirement forever, or it's just 'retirement.'
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Old 05-04-2016, 03:42 PM   #2
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The future is uncertain and unknowable. FireCalc is a model that helps you plan. When things change you can change your life plan. If FireCalc says you are at 100% it doesn't mean that you could never ever outspend your money. It just means that using the data FireCalc has that you would be good to go based on historical data.

So using the FireCalc model (past as prologue) it looks like you are in very good shape.

If you have 20X your spending now (including taxes and healthcare etc.) then you are well on your way.

Yes we are in a bubble. Yes it may affect us with lower returns and maybe portfolio deflation. Things could get grim. But probably they won't.


So get on with your life and enjoy yourself. It looks like you have the money thing covered. The rest is up to you.
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Old 05-04-2016, 04:30 PM   #3
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As above... unknowable future .

At 25-30X you are pretty safe... much safer than most humans... from financial disaster. At 35X you're a bit safer than the humans that are much safer.

During that time you risk from cancer, heart attacks, and car accidents stays about the same as similar humans though so consider all risks .

The other thing that factors highly is transaction costs, taxes and inflation. The first you can control a lot, the second a little and the third not at all (as far as I know).

Returns are similar.. they will be what they will be and it's hard to predict and harder to change. Probably lower going forward, but who knows.

I try to focus on "total life risk" and once $ risk drops below other risks I would not focus on it so much.

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Old 05-04-2016, 05:01 PM   #4
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During that time you risk from cancer, heart attacks, and car accidents stays about the same as similar humans though so consider all risks .


I try to focus on "total life risk" and once $ risk drops below other risks I would not focus on it so much.

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Well said.
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Old 05-04-2016, 06:48 PM   #5
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Maybe I'm missing something, but if you're only 42 years old and you already have 20X your annual expenses saved, and continue to put 20% of your savings away for another 20 years, how could Firecalc possibly find anything less than 100% success?

We know Firecalc predicts 95% success at a 4% SWR, so if you already have 20X your annual expenses, you only need to get to 25X to get to 95% success. With 20 years of returns and savings ahead of you, I don't think anyone on this forum would question your ability to plan for a retirement by 62, if not much sooner.

So stop worrying and spend some of your money while you can enjoy it!
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Old 05-04-2016, 07:17 PM   #6
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I get your drift, but making money last 40 or 60 years is different than making it last 30.

Seems like we could mostly get in trouble if we have a prolonged period of poor returns, but that could happen to anyone at any time. Or if we raise our spending a lot.
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Old 05-04-2016, 07:36 PM   #7
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As for the other models, I like i-orp. You give it your current state, your retirement timing, and it gives you an annual spend value. That, vs you saying what your spend needs to be, and the model telling you when you'll run out.
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Old 05-04-2016, 08:02 PM   #8
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Even without contributing a dime more, the rule of 72 says that your money will double to 40x over 20 years with a real return of 3.6%.

However, if you don't save at all, that 20% is going to expenses, effectively reducing your current savings to much less than 20x to about 16x.
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Old 05-04-2016, 08:05 PM   #9
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Is this good enough? Are there other models I should look at?
As pointed out by others, your input should result in 100% success on matter what tool you use.

To answer your question: I highly trust Firecalc. What I don't trust is my input / use / full understanding of any tool. Therefore I run my numbers on other tools. The other one I trust as much as Firecalc is I-ORP. If you put your numbers in I-ORP, I think you will find you could spend ~2X and still not run out of money (if I understood your input). The benefit of running I-ORP is you can get a feel for how much "cushion" you have on the yearly expense side. So in years of bad returns, you have an idea about if it would be easy to cut expenses to a level you are comfortable with or not.

One thing all this discussion thread may be telling you is that you may not have to work until 62 if your assumptions continue to hold water over time and you don't wish to continue working that long. Nice to have a choice, good position to be in!
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Old 05-04-2016, 08:52 PM   #10
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Yeah, I think transaction costs, taxes and flexibility are probably more interesting to look at.

By example.

Let's pretend the numbers are 50K and 1m. That's a 5% WR which is not super safe... but not the end of the world.

That said... let's say you pay 2% on total assets, that's 20K which is 2/5 of your 50k income. At that fee level it's super risky. Let's say it 0.8%... that's 8K which is a lot less risky.

Similarly let's say that the 50K just barely covers mortgage, utilities, food, healthcare and any other critical expenses. Then it's more risky.

Let's say in that 50K is a 20% discretionary allocation for vacation, restaurants, massages or whatever else.

So... that 20X at 2% fees and 0% discretionary spending looks ultra risky... but that same 20X with 0.8% fees and 20% discretionary looks pretty safe.

The exact same market returns in the exact same pile of loot have vastly different risk profiles and spending outcomes.

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Old 05-04-2016, 09:02 PM   #11
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Firecalc is my favorite tool for many reasons. But you need to understand some aspects of it

- Asset allocation: It defaults to 75% equities. If you are more conservative (or more aggressive) you'll want to adjust that.
- Spending is the GROSS (before taxes) number. It includes your taxes you owe, it includes your grocery bills... It should be the whole number, not adjusted to subtract out other income streams.
- Other income streams - make sure you check or uncheck whether they are inflation adjusted.
- Be aware that very long retirement years (first page) might drop some bad start years that are more recent. I was planning for a 40 year retirement - but also ran a 30 year retirement just to make sure I got the more recent bad years (sequence of returns risks.) If you run it for a 50 year retirement you'll drop quite a few significantly bad start year cases.
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Old 05-05-2016, 04:19 AM   #12
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I prefer Monte Carlo simulation to Firecalc. I have an FA who accesses Financeware's program. Warning: results can vary with the competence of the inputter/operator.

Financeware's motto is to help you achieve your goals without unnecessary sacrifice (living below what you could afford, working longer than needed) and avoid too much investment risk. Their goal is not to provide 100% "success", which by definition means you've unnecessarily sacrificed, but keep you in a comfort zone of 75-85%, reviewing the plan regularly (annually) to make adjustments as needed.
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Old 05-05-2016, 10:01 AM   #13
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Fidelity's tool, discussed often on this forum, has a setting for lower than historical returns, so can provide a more conservative view than firecalc:

https://www.fidelity.com/calculators...uidance-center

cFIREsim is firecalc only with the capability for more inputs:

Crowdsourced Financial Independence and Early Retirement Simulator/Calculator
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Old 05-05-2016, 10:46 AM   #14
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I've used FIRECalc, cFIREsim, Fidelity's RIP (or whatever it's called now), i-ORP, and some others. So... a combination of historical and Monte Carlo. They all provide roughly similar results, but each with it's own twist. I also use my own Excel-based deterministic model for basic planning, tracking, decision-making, and what-if's. Unlike the online "black boxes," I fully understand all the assumptions, methods, calculations, and interrelationships. I'm well aware of it's shortcoming WRT sequence of returns risk, which is why I also run the numbers through FIRECalc et al. from time to time.
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Old 05-05-2016, 11:09 AM   #15
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Nowhere near as scientific as the other ones but I play with this "fast and dirty" calculator all the time... it helps if you have a firm grasp of your expenditures and return percentages built up over time that you can plug in...

Future Value of an Investment Account Calculator
Future Value of an Investment Account Calculator

Calculator Use
Calculate the future value of an investment account that has periodic deposits, withdrawals, and a constant interest rate compounded daily. For example, a retirement account. If you only have an account that you will draw from then you can leave deposits at $0.
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Old 05-05-2016, 11:18 AM   #16
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I get your drift, but making money last 40 or 60 years is different than making it last 30.
It sure is.

One laborious way to model a 60 year retirement in FIRECalc is to use two consecutive 30 year runs. You can make this as conservative or as optimistic as you'd like. The most conservative way to do this is to use the worst outcome of the first 30 year run as your starting point for the next 30 year run.

So if you start with a $1MM portfolio, a $30K WR rate and a 60/40 equity allocation FIRECalc says your worst starting year is 1902. If you download the details for 1902 you'll see that your constant dollar portfolio would have declined to $773K and your CD withdrawal amount is still $30K.

Now run a second 30 year trial with a starting portfolio balance of $773K and $30K withdrawals and you get a "success rate" for the second 30 years of 96.6%

What this says is that a 3% WR is 96.6% successful after a 60 year period that includes the two worst 30 year periods from the last ~120 years.
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Old 05-05-2016, 11:21 AM   #17
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Fidelity's tool, discussed often on this forum, has a setting for lower than historical returns, so can provide a more conservative view than firecalc:

https://www.fidelity.com/calculators...uidance-center
My understanding is that Fidelity's downside scenario models a situation where market returns are in the bottom declie of historic market returns. I didn't know there was an option to choose a more rigorous stress case than that. Where is that option found?
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Old 05-05-2016, 11:47 AM   #18
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It sure is.

One laborious way to model a 60 year retirement in FIRECalc is to use two consecutive 30 year runs. You can make this as conservative or as optimistic as you'd like. The most conservative way to do this is to use the worst outcome of the first 30 year run as your starting point for the next 30 year run.

So if you start with a $1MM portfolio, a $30K WR rate and a 60/40 equity allocation FIRECalc says your worst starting year is 1902. If you download the details for 1902 you'll see that your constant dollar portfolio would have declined to $773K and your CD withdrawal amount is still $30K.

Now run a second 30 year trial with a starting portfolio balance of $773K and $30K withdrawals and you get a "success rate" for the second 30 years of 96.6%

What this says is that a 3% WR is 96.6% successful after a 60 year period that includes the two worst 30 year periods from the last ~120 years.
Thank you, that is very helpful. I will do the same with my portfolio.

I ran Kotlikoff's ESPlanner which says to stop saving (!).

I will do Fido's at home, as it looks like I need to log in to use it.
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Old 05-05-2016, 12:27 PM   #19
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Another simulator to consider is the Otar Retirement Calculator, OTAR - ORC

otar retirement calculator

I liked the fact that it forced me to examine monthly and yearly expenses in a very detailed fashion, rather than assuming some generic value. So far my actual spend has followed what I forecasted, to include allowances for "unexpected" expenses.

In my case, being debt free going into early retirement has been a blessing, so to speak. YMMV, everyone's expectations and situation is different.

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Old 05-05-2016, 12:52 PM   #20
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It sure is.



One laborious way to model a 60 year retirement in FIRECalc is to use two consecutive 30 year runs. You can make this as conservative or as optimistic as you'd like. The most conservative way to do this is to use the worst outcome of the first 30 year run as your starting point for the next 30 year run.



So if you start with a $1MM portfolio, a $30K WR rate and a 60/40 equity allocation FIRECalc says your worst starting year is 1902. If you download the details for 1902 you'll see that your constant dollar portfolio would have declined to $773K and your CD withdrawal amount is still $30K.



Now run a second 30 year trial with a starting portfolio balance of $773K and $30K withdrawals and you get a "success rate" for the second 30 years of 96.6%



What this says is that a 3% WR is 96.6% successful after a 60 year period that includes the two worst 30 year periods from the last ~120 years.

I like this! Very good. Thank you for sharing. I will definitely try it that way.


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