4% rule doesn't work in Firecalc?

[dallas27]

I'm sure we all know William Bengen and the 4.15-4.5 percent rule.

So one would expect if I put in firecalc any value (I used a million) and spending 4% of that (less than Bengen number) with a 0 expense total market portfolio of 50/50, 75/25, or even 100/0, that firecalc should confirm that Bengen was right and the portfolio should survive 30 years.

Instead, I consistently get a a handful of failures and a lot of almost.

So where is the gap?

 

[razztazz]

If I am not mistaken the 4% Rule, in all of its iterations, is only 95% survivable. Five percent always being assumed as an acceptable amount of risk.

 

[ERD50]

Yep, from wiki:

Based on his early research of actual stock returns and retirement scenarios over the past 75 years, Bengen found that retirees who draw down no more than 4.2 percent of their portfolio in the initial year, and adjust that amount subsequent every year for inflation, stand a great chance their money will outlive them...

A 'great chance' would be assumed to be less than 100%, or he would have simply said that their money will outlive them, no ifs/ands/buts. I don't think there is any gap at all, when you look at it in its entirety.

-ERD50

 

[photoguy]

So where is the gap?

Probably due to slight differences in data, portfolio (bond composition) and timeframe of available data (firecalc has more now). Firecalc also includes something like a 0.2% ER on funds by default.

I think Bengen used intermediate treasuries (5year?) and Firecalc uses "long interest rate" (not sure what duration this is).

 

[dallas27]

I think the Gap was I overlooked that the 4% was 95%-ish success rate. Otherwise, I set up firecalc correctly in line with Bengen's models.