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Doesn't make sense, 3rd & final question
Old 07-18-2013, 08:14 PM   #1
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Doesn't make sense, 3rd & final question

Even though I've been retired for 10 yrs, my initial attempt with FIRECalc resulted in 54 of 116 cycles failing. This didn't make sense given that 95% of my annual living expenses comes from pension and SS. My own spreadsheet shows my WR from the portfolio never hits 1%. Anyway, on the Other Spending tab, if I enter actual pension date (2003) and SS date (2010) I get the results stated above and the low, high and average portfolio balances look pretty bad. Even the high balance barely exceeds current balance.

However, if I change the starting dates for pension and SS payments to 2013, then there are no failing cycles, the low balance matches current balance plus the average balance looks reasonable.

Now, I understand that FIRECalc assumes current date if you are already retires, but there are no special instructions regarding pension/SS starting dates. What is FIRECalc doing when the starting dates for other income is many years prior to when it assumes retirement begins??
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Old 07-18-2013, 10:39 PM   #2
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Does any of this suggest that perhaps Firecalc should not be the lodestar guiding people through retirement? That perhaps simpler more transparent things should be at least consulted?

I have been retired a long time, and only ran Firecalc a few times, years after I had retired. I found it interesting, but I can't see what is inside it, and I am wary of things that I don't understand, as well as for the strong possibility that some of these things as well as other random events can rise up to bite me just when and where I do not want to be bitten.

The way I see it, if someone can pay all his bills and accruals, with a good margin, with income from prudent investments that were not chosen solely or even mainly for having high yields, and that show every likelihood of increasing over the years, that person is likely as secure as anyone can be without a very secure job or generous, indexed, secure, pension. That is the common sense goal I choose when was about 35 and decided I had better get serious about the fact that I had a family, and was not too crazy about the workaday world.

If I had it to do again, I would take the same approach.

But of course, as always, ymmv..

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Old 07-19-2013, 07:18 AM   #3
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Originally Posted by larrytbm View Post
Anyway, on the Other Spending tab, if I enter actual pension date (2003) and SS date (2010) I get the results stated above ...
FIRECalc takes only current or future dates. Entering any year prior to the current results in excessive failures.

A known, frequently discussed bug...

Strange Firecalc Results
Same result with and w/o SS
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Old 07-19-2013, 07:32 AM   #4
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FIRECalc takes only current or future dates. Entering any year prior to the current results in excessive failures.

A known, frequently discussed bug...
How hard can it be to add a note on the Income tab similar to the one on the Retired? tab?

"FIRECalc assumes your retirement begins this year."

That should be a lot less effort and of greater help that just frequently discussing a bug. It would also provide greater confidence to new users.
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Old 07-19-2013, 07:52 AM   #5
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I can't understand why anyone would want to enter a past date in Firecalc anyway - water over the bridge.
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Old 07-19-2013, 08:02 AM   #6
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I can't understand why anyone would want to enter a past date in Firecalc anyway - water over the bridge.
Right, that just adds uncertainty to things. Since you know where you are today, enter that.

But it should throw up an error message.

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Old 07-19-2013, 08:07 AM   #7
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But it should throw up an error message.
+1

Sadly, it 'throws up' bad results instead...
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Old 07-19-2013, 11:39 AM   #8
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I can't understand why anyone would want to enter a past date in Firecalc anyway - water over the bridge.
Well have you considered 1) nothing in FIRECalc says do not enter a past date and so w/o knowing the software, an individual (in this case me) enters the actual dates. Instead of the old saying, garbage in - garbage out, with FIRECalc it is garbage in - good data out. But guess I was supposed to know that. And then, 2) how about maybe to compare your actual results of the past 10 yrs to all the historical cycles, just to see if they were close to best, worst or about average.
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Old 07-19-2013, 12:20 PM   #9
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Originally Posted by larrytbm View Post

Well have you considered 1) nothing in FIRECalc says do not enter a past date and so w/o knowing the software, an individual (in this case me) enters the actual dates. Instead of the old saying, garbage in - garbage out, with FIRECalc it is garbage in - good data out. But guess I was supposed to know that. And then, 2) how about maybe to compare your actual results of the past 10 yrs to all the historical cycles, just to see if they were close to best, worst or about average.
I don't know that firecalc was designed to cover past time travel, but if you are looking just for a caveat to be added to the program's text that it is limited to present and future scenarios, you could PM the owner. I don't know if other free calculators would do the calculations you're interested in? If not, there might be a reason for it.
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Old 07-19-2013, 12:30 PM   #10
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I can't understand why anyone would want to enter a past date in Firecalc anyway - water over the bridge.
A classic thought process error for a programmer. I remember asking someone who had called about an error in a program. He was doing something outside of what he was supposed to do with the program. When I asked him why he was doing that, the answer was "Well, it didn't stop me".

I learned then you have to account for every possible thing a user can imagine to do.
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Old 07-19-2013, 02:50 PM   #11
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Originally Posted by larrytbm View Post
Well have you considered 1) nothing in FIRECalc says do not enter a past date and so w/o knowing the software, an individual (in this case me) enters the actual dates. Instead of the old saying, garbage in - garbage out, with FIRECalc it is garbage in - good data out. But guess I was supposed to know that. And then, 2) how about maybe to compare your actual results of the past 10 yrs to all the historical cycles, just to see if they were close to best, worst or about average.
I agree with you that it isn't unreasonable to make an entry like that, I can see where someone would try to enter the state they were at 5 years ago, and nothing stops you or warns you. Especially for someone first trying it out.

However, as I posted earlier, I do think it makes more sense to take where you are today, that is a known. Otherwise the algorithms will make certain assumptions for the past 5 years. Actuals are better, when available.

Regardless of these faults/flaws, shortcomings, I do think FIRECALC is the best tool out there. I do wish the owners would make some updates. I'm not a fan of MonteCarlo, I like the FIRECALC tests against actual historical data better.

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Old 07-19-2013, 07:35 PM   #12
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However, as I posted earlier, I do think it makes more sense to take where you are today, that is a known. Otherwise the algorithms will make certain assumptions for the past 5 years. Actuals are better, when available.

-ERD50
5 or 10 year old data is just as accurate as present data, so what would cause the algorithms to make assumptions any less valid with 10 year old data? If you only use present data, then it seems kind of hard to judge the validity of the results.

Anyway, anyone know of why 10 year old data that is input today would cause a problem? I took my portfolio value from 10 years ago along with my expenses for 2003. Entered pension and SS amounts at their original amounts but with appropriate adjusted dates. Also constant spending and 3% inflation (which is what I use in my own spreadsheet). Out of 131 ten year cycles, only 6 exceeded my present portfolio value. And in real life, my portfolio has taken several unplanned hits (taxes for Roth conversions, financial aid to child, house rebuild after 2011 fire). This 'test' would mean that the past 10 years has to be one of the six best investment cycles since 1871. One of the six best, really?
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Old 07-19-2013, 07:54 PM   #13
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Old data is OK, as long as you start the initial portfolio and the spending in the same year. As this is really meant for early retirement planning, the software writer assumes that incomes such as SS and pension will start in the later years, or at most at the same time as the initial portfolio and expenses.

I think what you did above was correct. But it may be difficult to enter in the exact composition of your portfolio to one of the FIRECalc portfolio models.

In addition, FIRECalc assumes that the retiree will rigidly rebalance his holdings once a year (at Jan 1st perhaps). If you are a market timer instead of a robot rebalancer, you may do worse or better. In this case, perhaps you did better.

Many posters here have discussed how their own portfolio has been holding up very well over the Great Recession period, despite having WR's that we would not call low. Some used mostly just Wellesley and/or Wellington mutual funds. Apparently, some active mutual funds navigated through that treacherous period very well.

I hope someone will post a link to these past threads.
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Old 07-19-2013, 08:30 PM   #14
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5 or 10 year old data is just as accurate as present data, so what would cause the algorithms to make assumptions any less valid with 10 year old data? If you only use present data, then it seems kind of hard to judge the validity of the results.
Maybe I'm simply not following you, but how can any past estimates based on portfolio amounts at that time be better than the present actual? It seems to me, that by definition, they can only be as good if they matched the present exactly (to the penny), which would be rare, and one would expect the past guesses to be low ~ 1/2 the time, and high the other half.

OK, so theoretically, the one cycle that matches your actual start year should match, if, as NW-Bound mentioned, you were in the exact same indexes and re-balanced exactly the same. But why bother when you already know what your values are?

Quote:
Also constant spending and 3% inflation (which is what I use in my own spreadsheet).
Well, IMO, if you use constant inflation, you've totally bypassed the value of FIRECALC. FC runs through the historical data - when did we ever have rock-steady 3% inflation? It seems to me that trying to make any comparison of this with historical periods is senseless, since you changed the historical inflation component, which has been one of the big portfolio killers. I could have done fantastic starting retirement in 1973 if I could have managed 3% inflation entering a time of double-digit inflation. I bought some CDs paying over 11% in the 80s. You can't get those when inflation is 3%.

The whole point of FC is to see how you might do going forward, why enter past data? Start with where you are today and look forward. You already know where you have been.

Analogy - I'm on a car trip, and I get to my destination and am starting my return. I already know my miles and gas consumption, so I can calculate my actual mpg. Why would I go back and try to use a tool to 'predict' what mileage I would get on the first leg of the trip, if I already know it?

-ERD50
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Old 07-19-2013, 08:46 PM   #15
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I think that the OP is trying to get a feel for the most recent 10-year period that we have just been through, in comparison to other periods in history, and to his own experience. I do not see anything wrong with that.

However, in the past threads that I mentioned, posters said that their expenses were varying all over the place. By cutting back in scary periods and splurging in good years, perhaps they have helped themselves to "buy low, sell high" and that helped the outcome.

The OP also mentioned that his portfolio took some unexpected expenses. Well, that is not the simple constant spending that FIRECalc assumes, so exactly when did these expenses occur?

And then, the inflation factor from June 2003 to June 2013 is 27%. The OP needs to correct his portfolio down to 78.7 cents on the dollar, before he compares it to FIRECalc results as the latter are all inflation adjusted.

All the above to say that any financial modeling, FIRECalc included, is just to give one a "feel" for what to expect. FIRECalc's value is in pointing out to us that even a simple spending model can still result in a wide range of outcome as historical data suggests. There are so many other unknowns in life. FIRECalc would not know if you have a pension with Detroit, for example, nor can it model that.
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Old 07-19-2013, 09:02 PM   #16
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I think that the OP is trying to get a feel for the most recent 10-year period that we have just been through, in comparison to other periods in history, and to his own experience. I do not see anything wrong with that. ...
OK, but then I guess I am really not following. If you run a 10 year profile in FC, it runs every 10 year profile from 1871/1880 up through 2003/2012. What does that tell you about the recent 10 years, they are all lumped together?

Use the start year function of 2003 to analyze that period. Compare with your actuals, compare with the rest of the lines on a full output.

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Old 07-19-2013, 09:27 PM   #17
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Yes, using FIRECalc's exported spreadsheet is a better way to examine the last 10 years data. It does say that it is for 30-year terms only. However, one can use 1983 as the start year, then cut out the last 10 years to study.

I myself have not done the above. That data export makes FIRECalc a great tool for historical data analysis. As I personally use FIRECalc more for a "retirement prognosis", I have not analyzed any particular past period in detail.
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Old 07-20-2013, 08:40 AM   #18
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My goal is to 'calibrate' my spreadsheet to FIRECalc and vice-versa, maybe a better statement would be to get a feel for the differences. Having my own spreadsheet for the past 20+ years, I cannot shift any significant portion of my decision making to another tool without calibrating it against a known tool. Just that simple.
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Old 07-20-2013, 11:20 AM   #19
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My goal is to 'calibrate' my spreadsheet to FIRECalc and vice-versa, maybe a better statement would be to get a feel for the differences. Having my own spreadsheet for the past 20+ years, I cannot shift any significant portion of my decision making to another tool without calibrating it against a known tool. Just that simple.
OK, I misunderstood.

However, I would not expect good correlation if you are using a fixed inflation rate. Make that annual rate match the past 10 year actual (for each year, not an average), and then use the 10 year subset that matches that year range, and see how you do. Adjust actual spending to match each year. Again, w/o the same indexes and re-balancing, the correlation will suffer.

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Old 07-20-2013, 11:43 AM   #20
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I have a pension, 401k and likely future SS. I have built an expected spending profile in future dollars. My pension is not cola'd. I have projected SS benefits in future dollars.
I have projected expected 401k withdrawals in future dollars to cover expenses with a small margin. I then converted the projected withdrawals from the 401k in future dollars to present day dollars as input to Firecalc. All of the above use the same basic asinine parameters for inflation and stock and bond returns.

The only thing I use Firecalc for is for the portion of my expenses that I intend to fund from the 401k. Works great and avoids some of the problems mentioned above.

The only thing that Firecalc gives me is a somewhat dubious warm fuzzy about my plan.
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