Dory - any interest in another 'little' Mod?..................

C

Cut-Throat

Guest
I have mentioned that it would be nice to have a 'flex withdrawal' feature in FireCalc.

After down market years, enter a Percent of less withdrawal amount. In up market years, enter a Percent of higher withdrawals. -

SG, played around with this and used expense fees as a Flexible Withdrawal amount.

Any thoughts on this? I'm sure there could be a lot of different variations of this idea, but in reality, it's probably what we'd do in down market years. This would have the benefit of consuming a portfolio in early years rather than later.
 
Cut-Throat said:
I have mentioned that it would be nice to have a 'flex withdrawal' feature in FireCalc.

After down market years, enter a Percent of less withdrawal amount. In up market years, enter a Percent of higher withdrawals. -
Click to expand...

I second this recommendation. Of course, it sounds hard to do, but so does the rest of the calculator... In any event, it would be interesting to see the impact of holding withdrawals steady (i.e. no inflation adjustment) and similar strategies in down years.

Don
 
I think it is doable -- the question is what approach to model. That's what stopped me a few previous times.

Say it's a down year -- what should the withdrawal be? Presumably some relationship to last year's withdrawal, inflation, the loss, or the like.

Can you suggest how the adjustment should be calculated?
 
Got a handly link?
 
Dory,

    Considering that it's published by Nolo, Bob is probably working on a book update.  I know a lot of the "95% system" was modeled on Zumma (sic?) financial-modeling software and the algorithms may already have been debugged.  I'd suggest sending him a PM (he has his profile set to send himself an e-mail) and collaborating.
 
dory36 said:
Page number?

:LOL: :LOL:
Click to expand...

I'd give it to you, but I've lent my only copy to my mother.

Actually, you should know I bought one...oh, no you can't tell who bought what, just what was bought using the partner link. Good, then you won't know that I bought some farting dog books, too.

(Actually, I really did buy "Make Easy Fast Money With Google" or some similar title. I'd normally avoid a title like that, but I liked the guys tips on his blog.)

_________________________________________________
And now for something completely different:

I checked Zunna's site, but the study doesn't seem to be public. I expect ESRBob would be helpful.
 
Nords said:
Dory,

    Considering that it's published by Nolo, Bob is probably working on a book update.  I know a lot of the "95% system" was modeled on Zumma (sic?) financial-modeling software and the algorithms may already have been debugged.  I'd suggest sending him a PM (he has his profile set to send himself an e-mail) and collaborating.
Click to expand...
I suspect he's away. I've sent a couple of PMs and no reply.
 
dory36 said:
I think it is doable -- the question is what approach to model. That's what stopped me a few previous times.

Say it's a down year -- what should the withdrawal be? Presumably some relationship to last year's withdrawal, inflation, the loss, or the like.

Can you suggest how the adjustment should be calculated?
Click to expand...

I was thinking that you could enter a percentage reduction of the previous year's withdrawal.

- For simplicity it could be just one input. A percentage that would reduce the previous year's withdrawal following a down year and increase the withdrawal after an up year.

But not cumulative, IOW - If you had 2 down years in a row, you would continue taking the smaller amount. Also, if you had 2 up years in a row, you would also take the same amount in the 2nd year.

So, this would give you 2 different withdrawals over the life of the portfoilo.

So, the results before might have been a SWR of $70K per year. This new method might yield an SWR of $56K - $88K - (uncalculated Example)
 
Why use the method SG used with the earlier version of FIREcalc:

SG did this by pumping up the Expense ratio by the % the user wanted to let float. So the "standard" case would be:

$1M portfolio, 30 years, 75/25, annual withdrawal of $40,000, ER of 0.18%

SG fooled the old FIREcalc by inputting:

$1M portfolio, 30 years, 75/25, annual withdrawal of $30,000, ER of 1.68%

In this case, the first $30,000 gets increased by inflation, while the dollar amount represented by additional 1.5% drifts around a bit, tracking the portfolio balance.

I think that's be pretty easy to code (or simply provide a pop-up window describing SG's method)

Cb
 
I added the 95% rule, as I understand it (and confirmed with ESRBob, but he is free to disavow any knowledge if I got it wrong...)

Simple rule:

Each withdrawal is the greater of x% of the CURRENT portfolio or 95% of last year's withdrawal. No inflation adjustments.
 
dory36 said:
Each withdrawal is the greater of x% of the CURRENT portfolio or 95% of last year's withdrawal. No inflation adjustments.
Click to expand...

dory
the way I was going to apply the rule is

Each withdrawal is the lesser of
(1) greater of x% of the CURRENT portfolio or 95% of last year's withdrawal.
(2) x% of the INITIAL porfolio adjusted for inflation

This rule allows for smoother withdrawals, staying thrift in good years whereas not hurting in bad years.
 
Dory:

You are doing a great job on FIRECALC.

If I could make but one little suggestion, it would be to put text labels on all of the graphs. If it isn't too difficult I would label each of the x and y axis. I would also suggest putting a title on each graph.

That's just good style for any graph.
 
WOW :D
Is this real?: Applying the 95% rule allows you to take upward from 9% of CURRENT portfolio value? That is what fireseeker says.
 
Well yeah, but remember that it takes the higher of 4% of the CURRENT portfolio or 95% of last year's withdrawal.

Since 4% of current will always succeed, a failure only happens when the market is in freefall and the 95% of previous year w/d puts you into the hold -- but the $$ available for spending in a 9% withdrawal starts getting down around to cat food levels by the end of 30 years.

That is the BIG difference between the 95% rule and the default FIRECalc behavior -- by default, your spending ability is preserved exactly as it was when you retired. In the 95% rule, there's no protection of your spending level. This can be fine, as long as you understand it and can live with fluctuations.

In Bob's book, he suggests withdrawals around the same 4% range to create a situation in which you are preserving your portfolio and keeping your spending in a reasonable range.

Make sure you run the model with the default "The success rate of your portfolio ..." and look at the spending by the end. I think in a default case except for 9% spending and using the 95% rule, there are ballpark 1/3 of the years when you'll be down around 1/4 to 1/3 of your original spending.
 
Yes there must be something amiss about the 95 percent rule. I get a potrfolio SWR of just under 4 % of my portfolio with the normal method. Using the 95% rule and the same parameters it jumps to just over 9% SWR.

I knew that the 95 % rule allowed for better SWR rates but an extra 5 percent is unbelievable.

If I recall correctly Bob Clatt's method lets the SWR go from around 4 percent to 5-5.5 percent
 
ESRBob's definition of success on the 95% rule is the "portfolios ended up at least as big as their starting values" (top of page 194).

FIRECalc's definition is the portfolio has at least a penny left at the end. Since a small percentage from a number always leaves something, in all but the most extreme caes, the 95% rule will always generate mostly successful percentages -- but if you are living on $150/year after 30 years, you might not consider it very successful!

I'm probably going to disable some features when the 95% rule is selected, as seeking an x% success rate just isn't meaningful in that situation. Or I might redefine success for that situation, and use ESRBob's definition.

When he and I discussed this at length yesterday, we thought the important information was perhaps not so much the remaining portfolio as the terminal spending ability. That's why a chart showing that is now on the default results page when the 95% rule is selected.
 
dory36 said:
Well yeah, but remember that it takes the higher of 4% of the CURRENT portfolio or 95% of last year's withdrawal.

Since 4% of current will always succeed, a failure only happens when the market is in freefall and the 95% of previous year w/d puts you into the hold -- but the $$ available for spending in a 9% withdrawal starts getting down around to cat food levels by the end of 30 years.

That is the BIG difference between the 95% rule and the default FIRECalc behavior -- by default, your spending ability is preserved exactly as it was when you retired. In the 95% rule, there's no protection of your spending level. This can be fine, as long as you understand it and can live with fluctuations.

In Bob's book, he suggests withdrawals around the same 4% range to create a situation in which you are preserving your portfolio and keeping your spending in a reasonable range.

Make sure you run the model with the default "The success rate of your portfolio ..." and look at the spending by the end. I think in a default case except for 9% spending and using the 95% rule, there are ballpark 1/3 of the years when you'll be down around 1/4 to 1/3 of your original spending.
Click to expand...

* I am not sure I understand. Are the withdrawal limited to x% of port. value (which then gives you 9% as possible)- Or are they limited to 4% (always 4%). But then how do you get 9% possible?

** Also - even though possible. I am not sure that the x%SWR w/ 95%-scheme rule applies to current portfolio value in this case but x% of initial port. value adj. for inflation. Drawing less in good time allows you to draw more in bad time (in this case 95% of previous year when the current port. value adj. for inflation is below the initial port. value.


During a stretch of bad time your withdrawal will decrease by only 5% over previous year, then 10% etc
 
Sorry -- the 4% was in the original definition from his book -- but the actual withdrawal you use is whatever you enter. I was flashing back to his writing.

The 95% rule does not adjust withdrawals for inflation, and it uses the current portfolio (see pages 187-188*), whereas the behavior of FIRECalc (except with the 95% rule checkbox selected) is to use inflation-adjusted withdrawals based on the starting portfolio.

Quite a different model. Default in FIRECalc assumes you want to be able to spend just as much each year. His rule assumes you'd prefer to tighten your belt when the market is in the tank.


(* - and to be sure, I asked him)
 
I think this option is a useful one to retain but it may need an explanatory blurb or pop up bubble to caution users. You can get 100% SWR rates on some pretty high initial withdrawals, but only because you are protected by increasing reductions in down cycles. The best way to use this calculator is to display the inflation corrected spending pattern under some of the bad cycle scenarios and think about whether you could live with the impact (e.g. a drop to 33% of original spending). Looking at the standard calculator, this one, and the reality approach gives you some very useful data to chew on -- but it also takes some serious thinking.

With a few good early years you could sock away some extra savings in nice secure CDs or MMs and use those funds to compensate for reductions during downturns. If Dory decides to model that the whole simulator may explode.
 
OK, I changed "success" in the 95% rule to match the book definition (ending portfolio at least as big in inflation adjusted dollars as the starting portfolio.) Lots or wording changes associated with that.
 
MasterBlaster said:
Dory:

You are doing a great job on FIRECALC.

If I could make but one little suggestion, it would be to put text labels on all of the graphs. If it isn't too difficult I would label each of the x and y axis. I would also suggest putting a title on each graph.

That's just good style for any graph.
Click to expand...
I am still debating this with myself. (Not sure who is winning... ;) )

I agree in general. The tradeoff is the layout. To allow two charts side by side, and still allow people to print the page without chopping off a lot of the right edge of the text and charts, they have to be fairly small. Text labels will make the charting area even smaller, so I might have to switch to a stack of charts instead of side by side.

I have been focusing on a lot of other aspects so far -- will probably address this soon.

Thanks --

dory36
 
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