Firecalc results in today's $

[ready53]

Are all of the inputs and results in Firecalc in today's (current) dollars?

 

[MichaelB]

The inputs are in today's current dollars. The outputs reflect inflation and asset growth.

 

[CardsFan]

The inputs are in today's current dollars. The outputs reflect inflation and asset growth.

You may be correct, but I have always interpreted this note to mean the values are in current dollars:

(Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

 

[MichaelB]

The output is the year-end portfolio balance for each year of the projection, along with a count of how many ye balances (and what %) fell below 0. Those portfolio balances are nominal, after applying historical asset market returns. So, in other words, they are future values - tomorrow's dollars, not today's.

 

[audreyh1]

This may be confusing to the OP. The output of FIRECALC is in current dollars = nominal.

What does "tomorrow's dollars" mean?

 

[REWahoo]

Here is how dory36, the guy who created FIRECalc, responded to the same question in 2006:

Uhhh... no, the ending portfolio balance is expressed in terms of the dollars as of the beginning of the retirement, not the end.

So in your example, the 1930 ending portfolio balance is expressed in 1901 dollars.

The reason for this is simply that the only thing meaningful to someone contemplating retirement is the current spending power of their assets. It only makes sense to relate all future results to the information known to the retiree prior to his decision.

So, the 1901 retiree, with a crystal ball, would know that his spending ability would be unchanged through 1930, and would also know how big a party that his survivors could have at the end.

The previous version of FIRECalc gave terminal portfolio balances in unadjusted dollars. This was not very useful, because it really didn't tell someone thinking of retiring what their ending portfolio was really worth. That's why in the revision the dollars were all adjusted to the dollar value as of the time of retirement.

Again, the philosophy is to work with what is known just before retirement, and not to report values that have no meaning without adjustments.

This certainly isn't perfect, because someone retiring on 40,000 a year in 1915 is certainly living a vastly different lifestyle than someone retiring on 40,000 in 2006.

However, if the 1915 retiree would wind up with, say, 400,000 at the end, he would reasonably expect to be able to spend 10 times his normal annual spending on his departure party at that point, regardless of the inflation during the previous years. The same would be true for the 2006 retiree.

Hope this clarifies --

dory36

The thread is here: http://www.early-retirement.org/forums/f36/portfolio-end-of-year-balance-22370.html#post414227

 

[Dash man]

Not knowing what will happen to the dollar in the future makes it impossible to develop a perfect application. Inflation can only be guessed, deflation is always a possibility, government devaluing the dollar may surprise us all one day, currency wars are always a concern. FIRECalc and other tools are useful, but users should never assume their ability to be 100% accurate. We can only hope they are close and re-evaluate at least annually to keep our spending vs income/wealth on a track to keep us financially secure until our last day here on Earth.

 

[audreyh1]

Here is how dory36, the guy who created FIRECalc, responded to the same question in 2006:



The thread is here: http://www.early-retirement.org/forums/f36/portfolio-end-of-year-balance-22370.html#post414227

I really like how FIRECALC does is, and I have modeled my situation quite a bit. For me, I can see the range of where my portfolio might be in 30 years, and do a few historical runs to see how my income might vary from year to year, and the numbers "make sense" because they are in current dollars, and because I know what my current income and current portfolio can do for me, so it's easier to understand projections in those same dollar terms.

P.S. I can see my previous post contains an error - ignore that comment.

 

[marko]

So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?

IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?

 

[Lewis Clark]

So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?

IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?

From the results page:
" (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.) "

 

[SecondCor521]

So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?

IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?

Yes, Yes, and No, respectively.

 

[audreyh1]

So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?

IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?

Yes. Buying power of $5M in today’s dollars.

 

[marko]

Yes. Buying power of $5M in today’s dollars.

Once again, audreyh1, thanks!

 

[NW-Bound]

Because FIRECalc's output is in today's dollars, if I get the average outcome which is already pretty darn good with my low WR, and then compounded with inflation, my chance of being a decamillionaire is pretty darn good (in nominal dollars, not today's dollars).

In fact, FIRECalc says I may become a decamillionaire in today's dollars too. Wow!

So, all I concentrate on now is to stay alive. Once I have just an ordinary lifespan, everything will fall in place. Can't ask for more than that. Lots of money to count in my old age.

 

[NW-Bound]

Have not run FIRECalc in a while. So, just did a quickie.

If I keep the same lifestyle, FIRECalc says the best case is I will die with $16M in 20 years. In the worst case, I still have what I do now. But these numbers are in today's dollars, so I would have a lot more in nominal dollars in 20 years.

Lemme see if I change the run to 30 years, even though I doubt I will live that long...

PS. Oooh, it looks a lot better in 30 years. I will try to hang on for that long to see it...

 

[Dtail]

Have not run FIRECalc in a while. So, just did a quickie.

If I keep the same lifestyle, FIRECalc says the best case is I will die with $16M in 20 years. In the worst case, I still have what I do now. But these numbers are in today's dollars, so I would have a lot more in nominal dollars in 20 years.

Lemme see if I change the run to 30 years, even though I doubt I will live that long...

PS. Oooh, it looks a lot better in 30 years. I will try to hang on for that long to see it...

Bolded - It is probably more than you have right now, as that can be a Firecalc quirk as we know.