Ultra Conservative Retirement Planners

[dex]

Thanks for the interesting dialog! I am in a learning mode and all input is appreciated - doesn't mean I would agree...
I heard Dave Ramsey (get out of debt guru) tell some gal that with a good growth stock mutal fund she could get 12% draw 8% and leave 4% for inflation - that was for 600k. Talk about optomistic. Firecalc is wayyyyy conservative compared to that comment. dog

I heard him recently and I was amazed at the returns he was telling people.
He has a good basic concept for the mass of people - no debt & get a budget.

 

[chinaco]

I heard him recently and I was amazed at the returns he was telling people.
He has a good basic concept for the mass of people - no debt & get a budget.

You are right. I was talking to a coworker that follows Ramsey. He take the thrifty advice about borrowing and expenditures... but he is going to a financial planner to help plot his retirement plan. I told him "Good idea".

 

[youbet]

I personally would favor a more conservative approach than that utilized by the Firecalc methodology. Firecalc defines "success" as not running completely out of money.

No. You enter the floor level of money defining failure as an option. It's in the instructions.

I believe it unrealistic to adopt a model which assumes that one must hang on to an equity-rich portfolio anywhere near such precarious position.

No. The user defines the percentage of equities in Firecalc. Check the instructions.

 

[youbet]

he is going to a financial planner to help plot his retirement plan.

Hmmmmm......sounds like out of the frying pan and into the fire!

 

[chinaco]

Hmmmmm......sounds like out of the frying pan and into the fire!

Understand... But if one is unsure how to proceed, and is not willing to spend time educating themselves, it is probably the next best thing. Better than flying blind.

I advised him to do a fee based advisor. He has a VG account. I told him to try that route.

 

[REWahoo]

I have always found that I learn much more from those that disagree with me.

It appears you are getting quite an education.

 

[2B]

I just had my first success in several decades of preaching trying to convince someone to fire their "planner" and take charge of their own destiny (with much lower fees and better returns). I showed him FIRECalc and how indexing would have beaten his "planner's" portfolio return he had been getting. The clincher was when he got a letter from his "planner" in response to his question as to when he could afford to retire that said he had to work approximately another 10 years -- he is now 63!

His FIRECalc run said he was very safe retiring now. "Planner" fired.

 

[chinaco]

I just had my first success in several decades of preaching trying to convince someone to fire their "planner" and take charge of their own destiny (with much lower fees and better returns). I showed him FIRECalc and how indexing would have beaten his "planner's" portfolio return he had been getting. The clincher was when he got a letter from his "planner" in response to his question as to when he could afford to retire that said he had to work approximately another 10 years -- he is now 63!

His FIRECalc run said he was very safe retiring now. "Planner" fired.

The planner probably meant for your friend to delay retiring for another 10 years until the planner is FI.

 

[brewer12345]

The Firecalc model defines success based on the "worst historical market performance". The worst market peformance ever experienced will never get better. Therefore SWRs calculated using this methodology, in the fullness of time, may go lower (market performance occurs which is worse than that ever previously experienced) but they will never go higher.

Um, yeah and? Firecalc is a helpful tool, but it has its limitations and cannot be substitued for judgement.

 

[haha]

No. You enter the floor level of money defining failure as an option. It's in the instructions.

This is true; but in several years I do not remember seeing anyone post "I have 4% SWR, with starting level of x and minimum touch level of x/2."

I used "advanced Firecalc" to model this and think it is a much more psychologically realistic approach. There was not much interest though, for the simple reason that is severely limits how high you can go with your withdrawals.

More posters seem to favor the idea that they will adapt to hardship on the fly, or that Bernicke or whoever will be correct and they won't need the amount of money that it currently appears that they need and they can still go on to draw their 4+% and get the hell out of the cube now rather than later.

Ha

 

[2B]

This is true; but in several years I do not remember seeing anyone post "I have 4% SWR, with starting level of x and minimum touch level of x/2."

I beg to differ -- Cut Throat has frequently mentioned his "trailer down by the trout stream" as a fall back option and others have talked about minimal cost of living options should things go bad.

More posters seem to favor the idea that they will adapt to hardship on the fly, or that Bernicke or whoever will be correct and they won't need the amount of money that it currently appears that they need and they can still go on to draw their 4+% and get the hell out of the cube now rather than later.

I am a believer in Bernicke. Spending will drop naturally even if assets would support a higher spending level. I agree with his approach and my personal experience with my parents and in-laws have both been consistent with his findings.

My personal FIRECalc runs would support a Bernicke withdrawl rate that is about 40% higher than my "straight" run. If I was a true believer, I'd be long gone but I am enough of a believer that I'm not waiting until I have a 95% SWR. FIRECalc says that's another 5 years in the future and I don't want to wait that long.

My personal plan has minimum living expenses "forever," a minimum portfolio level (long term care) and a "fun fund" for travel until I'm 75. If things go well, I can travel until I enter the "Shady Acres Retirement Home." If things don't go well, my travel is curtailed a little early.

Is FIRECalc perfect? Is it an accurate prediction of the market's future? The answer to both questions is a definite "no." We don't know what will happen in the future to the economy, stock/bond markets or our health. We are faced with an infinite amount of uncertainty but we all must decide for ourselves when we are willing to take the leap.

Those of us with large COLA'd pensions (not me) have a definite advantage over the amount of financial risk they will need to make to successfully RE. Those of us that have SS and only their personal assets have a harder decision with much greater risk.

I'd love to have the financial resources to be able to say I could buy 30 years of laddered Treasuries that would yield 5X my desired living expenses. However if I did, I'd ask myself why I w*rked so long before retiring.

 

[haha]

I beg to differ -- Cut Throat has frequently mentioned his "trailer down by the trout stream" as a fall back option and others have talked about minimal cost of living options should things go bad.

Well, you may be differing with someone, but not with me. You must not have read what I said.

Ha

 

[wabmester]

Well, you may be differing with someone, but not with me. You must not have read what I said.

Hey, I read what you said, and it took me a couple of passes to be able to parse it.

Let me try to translate "minimum touch level":

FIREcalc defines failure as running out of assets (by default). Ha defines failure as initial assets getting cut in half.

Was I close? Personally, I like the idea. It cuts the 4% WR success rate from 94% to 67% for the default case.

 

[haha]

Hey, I read what you said, and it took me a couple of passes to be able to parse it.

Let me try to translate "minimum touch level":

FIREcalc defines failure as running out of assets (by default). Ha defines failure as initial assets getting cut in half.

Was I close? Personally, I like the idea. It cuts the 4% WR success rate from 94% to 67% for the default case.

Not only close, but on the button.

Ha

 

[rmark]

"The Firecalc model defines success based on the "worst historical market performance"- note that should be "worst US historical market performance".

 

[wabmester]

"The Firecalc model defines success based on the "worst historical market performance"- note that should be "worst US historical market performance".

Domo arigato!

 

[2B]

"The Firecalc model defines success based on the "worst historical market performance"- note that should be "worst US historical market performance".

At the moment my personal portfolio rate of return YTD is just over 10% annualized. This is safely above the return of the S&P because of my foreign stock performance. The question becomes should we base our SWR on US or world market performance?

 

[rmark]

Here's a larger sample of historical geometric market returns copied from "Triumph of the Opimists". They suggest possibly using world returns to reduce country bias.

Real, Annual Stock Bond
geo sd geo sd
Australia 7.5 17.7 1.1 13.0
Belgium 2.5 22.8 -0.4 12.1
Canada 6.4 16.8 1.8 10.6
Denmark 4.6 20.1 2.5 12.5
France 3.8 23.1 -1.0 14.4
Germany 3.6 32.2 -2.2 15.9 (ex-weimar)
Ireland 4.8 22.2 1.5 13.3
Italy 2.7 29.4 -2.2 14.4
Japan 4.5 30.3 -1.6 20.9
Netherlands 5.8 21.0 1.1 9.4
South Africa 6.8 22.8 1.4 10.6
Spain 3.6 22.0 1.2 12.0
Sweden 7.6 22.8 2.4 12.7
Switzerland 5.0 20.4 2.8 8.0
UK 5.8 20.0 1.3 14.5
US 6.7 20.2 1.6 10.0 < 4% based on this
World 5.8 17.0 1.2 10.3

 

[Spanky]

Both calculators say that we have saved enough for retirement. However, we will wait 4 more years until our daughter completes college.

 

[wabmester]

Both calculators say that we have saved enough for retirement. However, we will wait 4 more years until our daughter completes college.

Spanky, you're golden! It's been a while since I tried the fido calc, but it basically told me that I could never retire. I forget what inputs I gave it, but even though FIREcalc gave me 100% success, fido suggested that I increase my bond allocation to go from 80% to 82% success or somesuch nonsense.

I played around with it for a while, and even though my WR was less than 3%, fido said "Sorry, you can't retire. Better luck next time."

What was the retirement term length you gave fido? I think I used 40 or 50 years.

 

[2B]

Just for grins I tried the AARP retirement calculator. The AARP calculator said I needed about twice of the assets to retire for the same income FIRECalc had me about 80% safe.

Now that is the most ultra conservative calculator I've ever come across.

 

[chinaco]

I know this subject has come up before... But isn't this in part an issue related to retirement expense needs? And isn't this the point of Laurence Kotlikoff (economics professor) and part owner of E$Planner. Your retirement assets are there to meet your needs and most of the Financial Service Companies over estimate needs. Partly due to reduced spending as one gets older!

I have not seen the software. But the claim is that is does a monte carlo simulation on assets. Probably not a lot that is new there... But where it may shine is in understanding youe expense needs.



http://www.esplanner.com/

 

[clifp]

I don't know if AARPs calculator is the most conservative but it is one of the lamest I've ever seen.
You have to make estimates about every thing inflation rate,expected returns now and when you retire etc.

But the kicker for me was when it asked for current retirement assets, so I type in my liquid net worth, and the stupid calculator said your retirement can't exceed a $1 million. I guess I am suppose to donate the excess to AARP or something.

 

[2B]

But the kicker for me was when it asked for current retirement assets, so I type in my liquid net worth, and the stupid calculator said your retirement can't exceed a $1 million. I guess I am suppose to donate the excess to AARP or something.

I did a ratio to make everything work. I thought it was pretty stupid but I guess I'm willing to overlook things I can work around.