Sorry for thread creep but I'm confused. If I input my assets, pensions, and yearly expenses etc. what does 4% rule - or any other percentage rate - have to do with it? Wouldn't the projected expenses be the only thing that matters?
Sorry for thread creep but I'm confused. If I input my assets, pensions, and yearly expenses etc. what does 4% rule - or any other percentage rate - have to do with it? Wouldn't the projected expenses be the only thing that matters?
The FireCalc portfolio tab defaults to long-term corporate bonds.
Source: https://www.bogleheads.org/wiki/Trinity_study_update
Source: Safe Withdrawal Rates for Retirement and the Trinity Study
Before concluding that the claims are completely wrong based on Firecalc, you need to review the Trinity study and Bengen's papers and then figure out what to adjust in the Firecalc model: the asset classes used.although it is said over and over that the 4% safe withdrawal rate is based on the worst of times , unless you go 100% success rate it really isn't .
it failed the 4 or 5 worst of the worst case scenario's at the acceptable 95% level . to me that is not really safe at all .
if i was building a house i would build it to withstand hurricane sandy being i live in nyc .
95% would be like not only building it to withstand sandy but 3 or 4 less powerful hurricanes too . kind of self defeating in a way doing that .
don't you want to at least start out being able to withstand the worst of the past ?
While the 4% estimate is based on the worst historical cycles, it does depend on the the growth that followed. However, in the most likely outcome, the person who used the 4% WR (95% case) will end up so flush with $ because the likely case will be much better since the method is based on high levels of certainty.Unless you have a proven Crystal Ball, what other options do you have?
I would not go so far as to say it's a 'guess' - anyone can guess. It is a number derived from past cycles. Look at the description on the FIRECalc page, with their analogy to temperatures - we don't guess that it will be hot in the summer and cold in the winter here in the Midwest, it's based on historical cycles. Yes, we can get lower lows and higher highs, records are made to be broken.
And the 4% 'rule' isn't based on the 'growth of the last 116 years', it is based on the worst cycles in those 116 years. In most other cycles, the 4% is way conservative. IIRC, even 6% survives 50% of the time.
-ERD50
Even if you go 100% based on historical data, it does not really provide 100% guarantee that it will work out for you. We could always have a worse downturn in the future. But reducing the WR will increase likelihood of success.although it is said over and over that the 4% safe withdrawal rate is based on the worst of times , unless you go 100% success rate it really isn't .
Sorry for thread creep but I'm confused. If I input my assets, pensions, and yearly expenses etc. what does 4% rule - or any other percentage rate - have to do with it? Wouldn't the projected expenses be the only thing that matters?
Not trying to nitpick, but for clarification FIRECalc uses history, not random ups and downs as the basis for calculations. Although you can select a monte carlo option in FIRECalc, it was designed to use actual investment return history - and the associated sequence of returns - and that is what separates FIRECalc from most other retirement calculators.Really, just put your numbers and estimated life into firecalc and see the % of success. Or use other good monte carlo retirement analyzers.
Not trying to nitpick, but for clarification FIRECalc uses history, not random ups and downs as the basis for calculations. Although you can select a monte carlo option in FIRECalc, it was designed to use actual investment return history - and the associated sequence of returns - and that is what separates FIRECalc from most other retirement calculators.
Bengen is still writing. Here's his current article:
http://www.fa-mag.com/news/is-4-5---still-safe-27153.html?section=47
fidelity uses monte carlo projections . firecalc and fidelity are pretty close . fidelity is a bit more conservative , but then again it inflates healthcare at 7% and long term care costs at 5.50% as well as the monte carlo scenario's try to find even worse outcomes
Consider the 30 something RE who might use 60 or 70 year retirements. I would not expect 1966 to fail with a 60 to 70 year retirement run on firecalc as there is not enough data to back test using a 1966 RE date and 60 or more years.
is bold a typo?If you're planning a retirement of more than 30 years, it's still good to run FireCalc using 30 years, or even a shorter timeframe, to see how the results are.
In my case, for example, I'm 46 now, planning on retiring at age 50-51, and I'm plotting it out to age 100, just in case. So, essentially, 54 years. FireCalc gives me a 98.9% chance of success if I retire at 51, and want to live off of $60,000 per year. 91 or 92 cycles succeeded, meaning only one failed.
However, if I reduce it to 40 years, from 54, I now get a 96.2% success rate. This time, 102 out of 106 cycles succeeded, and 4 failed. If those cycles failed after 40 years, they're certainly not going to rebound by the 54 year mark. I'd either have to go back to work, reduce my spending, rob a bank, etc.
Tightening up even more, to 30 years, bumps my success rate to 100%...all 116 cycles passed. HOWEVER...4 of those cycles are about to run out of money at the 30 year mark. They won't survive another year or two at $60K per year. And there's a good number of other cycles that are coming a bit too close for comfort...probably wouldn't make it another 10 years at $60K per year.
Even knocking the timeline down to 5 years shows some interesting results. That would take it out to 2021, the year I want to retire. FireCalc has 141 five year cycles, and naturally they all succeed. However, according to FireCalc, my balance in 2021 could be anywhere between $767,868 to $3,221,134, with an average of $1,633,01. Well, if I only have $767K by the time I'm 51, I don't think I'm going to be too comfortable pulling the plug, and living off of $60K per year. I imagine that would end up being one of the cycles that proves to be a failure, in the long run.