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Old 05-13-2010, 06:24 PM   #21
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Surely, if you re-set every year it is impossible to "fail"
In this case a failure would be needing $600 but only being able to withdraw $500.
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Old 05-13-2010, 06:30 PM   #22
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I agree it's not cumulative. A reset is not the same as starting over either though.
If you do the calculations for 30 years initially and then reset and then do the calc for 30 years again, it would be similar to having done 31 years initially. If the second calc is done for 29 year sit should be okay.

Of course trying to game this to the max is going to backfire.
The idea here is that you have a certain lifespan left maybe 30 years. So if you reset some number of years out the new span should be the adjusted lifespan. In that case after 1 year the 29 year span you refer to would be appropriate.

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Anyway, why not download the SP500 or DJIA data and just run a spreadsheet given an adjusting strategy. It's not that tricky.
You can do that. There are many many variations on variable withdrwal rates.

Keep in mind though that you just may have some fixed expenses that must be paid every year. If the markets really drop then a variable rate scheme may not provide enough income. You just may be burning through the nestegg if the markets work against you. Imagine being old, poor, and desparate.

here's some thought provoking analysis:

(FAQ archive): Bernstein's "Retirement Calculator from Hell" articles
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Old 05-13-2010, 06:32 PM   #23
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In this case a failure would be needing $600 but only being able to withdraw $500.
Usually failure means going broke before you die.
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Old 05-14-2010, 08:08 AM   #24
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First of MC calculations are garbage in garbage out calculations. The data that goes in are historical rates which are not future rates.
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FIRECALC uses a model... Past is Prolog. Of course they aren't future rates - for that model you need to see the swami.
Not all MC programs (nevertheless, your hesitancy is valid):

Monte Carlo Planning FAQ

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Quantext's Monte Carlo uses historical data on every stock or fund in a portfolio to derive statistical parameters that describe each asset. This is quite different from Style Analysis. Our simulation models calculate forward-looking risk and return measures for each portfolio component and account for both market risk and non-market risks and correlation effects explicitly.
For indepth explanation read this:

http://www.quantext.com/TrueDiversification.pdf
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Old 05-14-2010, 08:27 AM   #25
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You are all aware that FIRECalc uses actual history, not Monte Carlo simulations, right?

FIRECalc: How it Works
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Old 05-14-2010, 08:37 AM   #26
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You are all aware that FIRECalc uses actual history, not Monte Carlo simulations, right?

FIRECalc: How it Works
Okay, my wheels seem to have come off the track again. The chart at that link looks suspiciously like it was "Monte Carlo" generated:

firecalc.JPG

I know that MC is not mentioned in the link but what exactly does "uses actual history" mean and how, then, is it used to sniff out future scenarios?
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Old 05-14-2010, 08:46 AM   #27
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I know that MC is not mentioned in the link but what exactly does "uses actual history" mean and how, then, is it used to sniff out future scenarios?
I think if you read the "How about describing FIRECalc step by step?" section in that link it will be clear.

FIRECalc makes no claims as to predicting the future, only showing what would have happened to your portfolio had you retired at any point in the past - after 1871, that is.
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Old 05-14-2010, 10:03 AM   #28
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Attachment 9223

I know that MC is not mentioned in the link but what exactly does "uses actual history" mean and how, then, is it used to sniff out future scenarios?
Without getting into the metaphysical, nothing can really sniff out future performance. In Firecalc, each of what appears to be a simulated MC run is actually a "real" run of your numbers starting at some point in the past. For example, a bad run might have started in 1930. Firecalc shows you how you would have fared in the best of times and the worst of times historically. The underlying assumption for planning purposes is that things won't be far worse than the worst run in history. That is why you can get a "zero risk" return. All that means is there is no previous 30 year (or whatever you entered) period during which a portfolio like you input would have failed under the withdrawal approach you specified. Of course, since the future may not be like the past, we still get nervous when Wall Street implodes, Greece goes belly up, a pandemic threatens...
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Old 05-14-2010, 10:22 AM   #29
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The underlying assumption for planning purposes is that things won't be far worse than the worst run in history. That is why you can get a "zero risk" return. All that means is there is no previous 30 year (or whatever you entered) period during which a portfolio like you input would have failed under the withdrawal approach you specified.
Okay, got it. Sort of a "The more things change, the more they stay the same" style of risk aversion.
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