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Firecalc calculator sensitivity to asset allocation
Old 04-11-2011, 08:13 PM   #1
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Firecalc calculator sensitivity to asset allocation

I ran several asset allocation scenarios on Firecalc to see how my asset allocation would impact my lklihood of outliving my money, asuming a zero balance at life end and a roughly 4-4.5% withdrawal rate.

To my surprise, the calculator returned a 93.5% success rate at 90/10 (equity/bonds), and equally 94.4% for all scenarios 80/20, 70/30, 60/40. Then, at 50/50 the success rate falls to 92.6 and it's 90.7 for 40/60.

In all cases, the success range is very small, given the dramatic differnce in asset allocation. I would expect a much larger variation in success rates.

Is there something about the Firecalc calculator I'm missing? I'm also baffled about the optional detailed investment allocation in Firecalc. I don't see much sensitivity in these resullts either.

Have you experienced these these issues? Is there an explaination, or solution?

Many thanks!
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Old 04-11-2011, 08:19 PM   #2
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Try looking at the maximum and minimum account balances for the different scenarios. Although the end results may be similar, I think you'll find that the asset allocations that include more bonds achieve that result with less volatility, which is psychologically important for a lot of people (myself included.)
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Old 04-11-2011, 08:30 PM   #3
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Are you including other sources of income in FIRECalc such as SS or a pension? If not, you should see results similar to the following (30 year success rate shown in percent on the y axis, allocation to equities shown on the x axis) :
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Old 04-11-2011, 08:57 PM   #4
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Quote:
Originally Posted by REWahoo View Post
Are you including other sources of income in FIRECalc such as SS or a pension? If not, you should see results similar to the following (30 year success rate shown in percent on the y axis, allocation to equities shown on the x axis) :
That's what I get, too (what REW got). My interpretation is that 50:50 gives almost ideal results (give or take a few % points) with less volatility. When I start collecting SS at age 66 I may creep up to 55% equities but probably no higher.
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Old 04-11-2011, 10:42 PM   #5
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I had to go back and search, but we had some looks into this a while back, and the volatility isn't really that different across a range of AA's either.

A different spin on SWR, question.

Here's an excerpt, where I pulled the numbers ten years in (that seemed like a low point on both scenarios):

Quote:
FIRECalc: A different kind of retirement calculator

FIRECalc: A different kind of retirement calculator

So at the 10 year mark, with 80% EQ, your roller coaster has dipped from $1M to $410K.

And the 40% EQ/60% Bonds has had this gentle lazy-river-ride, down to... $431K! Not much difference, really.

-ERD50
If you slog through the thread, be aware there was some confusion over the spreadsheet output, we determined that those numbers were not inflation adjusted, so the graphs are about the best we can do.

-ERD50
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