FireCalc Success Rate?

[big-papa]

I use both Firecalc and FIDO's. As part of my annual self-checkup of things, I re-ran both of them with a "what if" scenario of retiring this year and looking at taking SS at ages 62, 67 and 70. Fido gave lower numbers than Firecalc did for ages 62 and 67, but they were pretty close by age 70.

The trends were different, however, with Fido showing an increase in expenses covered when going from 62 to 67, but about the same amount at age 70. Firecalc, on the other hand, shows reduced expenses covered going from 62 to 67 to 70. And, yes, I assumed the same tax bracket in Firecalc that I gave Fido.

It could just be an anomaly of my AA. I'm heavy in midcaps (not available in Firecalc) and Intermediate treasuries and TIPs (also not available in Firecalc), so I cobble something together sort-of similar.

And at this point, I'm also more likely to use a variable withdrawal method when the time comes, so I use these tools only as a guide since they don't really comprehend a bunch of different withdrawal methods.

 

[cooch96]

Bill Bernstein's words are worth considering:




The Retirement Calculator from Hell, Part III

+1. Anything over 80% seems like false confidence to me.

 

[DEC-1982]

I've been playing around with FireCalc, plugging in different numbers to see what effect it has. However, I'm not sure what "success rate" I should be aiming for. Is it foolish to retire with anything less than a 100% success rate? What would you consider a comfortable success rate? 90%, 80%, 70%, etc.?

Don't know FireCalc, but Fidelity Retirement Income Planner used to suggest going for a 90% success rate. However, I may be comparing apples (Firecalc) to oranges (FIDO RIP).

 

[big-papa]

Don't know FireCalc, but Fidelity Retirement Income Planner used to suggest going for a 90% success rate. However, I may be comparing apples (Firecalc) to oranges (FIDO RIP).

From RIP at Fidelity:
Significantly Below Average Market
A significantly below average market is defined as the 90% confidence level of estimated future balances and/or estimated future income. The 90% confidence level represents "significantly below average market conditions" with 10% of all hypothetical scenarios tested performing worse. This means that in 90 out of 100 market scenarios tested a hypothetical portfolio similar to yours performed at least as well as the results shown and 10 out of 100 performed worse than the results shown.

 

[folivier]

I check different withdrawal rates using Firecalc but also like to take my net worth and divide by 20 or more years to see how my yearly budget would stack up taking only principle and no growth. Gives me a good sanity check.

 

[Gumby]

I have tracked our actual spending for about 12 years. For planning purposes, I double that number. When FIRECalc still says 100%, then I feel good to go.

 

[LRDave]

+1. Anything over 80% seems like false confidence to me.

+2

To each her own, but I hope FireCalc results <100% are not the ONE thing holding someone back from harvesting the precious and finite fruits of retirement.

 

[mountainsoft]

I have tracked our actual spending for about 12 years. For planning purposes, I double that number. When FIRECalc still says 100%, then I feel good to go.

I'm curious how folks real world retirement income/expenses compared to their FireCalc estimations?

I've increased spending 10K per year, cut SS payments 75%, and FireCalc still shows a 100% success rate if I retire at 62 (wife at 57). In fact, the investigation section is says we could retire a year earlier and still have a 100% success rate.

In my own estimations, 62 was about the earliest that looked doable to me. I used an average 5% interest for IRA growth (before and after retirement), and the figures our pension and SS estimates give online. What does FireCalc know that I don't?

 

[REWahoo]

What does FireCalc know that I don't?

145 years of market history.

 

[Whisper66]

I'm curious how folks real world retirement income/expenses compared to their FireCalc estimations?

Retired 2 yrs.
Income -- Last year return on investments was -2.1%, this year +12.3%. We use 5% average return in our calcs so happy so far.
Expenses -- we run Firecalc yearly to estimate the maximum we can spend and be ok. It's more than we need / want to spend so have ended up about 80% of maximum allowable expenses in our first 2 yrs.

What does FireCalc know that I don't?

It's what FireCalc doesn't know that's important. It doesn't know your fears, concerns or confidence in your data....it simply runs a calculation based on your input and gives you the results. You get to then ponder those results while considering all those softer issues that are so important.

 

[Midpack]

Bill Bernstein's words are worth considering:

But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.

The Retirement Calculator from Hell, Part III

The misquote that just won't die...

Bernstein was not suggesting a WR with a success rate above 80% was a mistake. He was simply pointing out investment risk, like FIRECALC calculates isn't the only risk. Geopolitical risk may override investment risk. He's explained that many times since the Calculator articles (directly at the bogleheads forum several times), here's just one instance https://www.bogleheads.org/forum/viewtopic.php?t=64941

And if you just include the sentences that follow the one quoted above once again from Calc from Hell III, that's clearer.

And Bernstein has become decidedly more conservative since the Calculator articles were written 15 years ago.

As for the OP, it's very much a personal choice - you're the one who has to live with the decision, not anyone here. I've seen people comfortable with a 70% success rate and others who need 200% to sleep at night, and everything in between. There is of course no "right answer."

But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.

Mind you, this is not a call for wild abandon. The above table constrains the retiree desiring a theoretical 97% success rate (of portfolio survival) from spending more than 3% per year of the initial real amount of his nest egg. Taking the accident propensity of the species into account would allow him to spend about 4%. But if you believe that we’re about to encounter a bad returns sequence or simply wish to leave a few baubles to your heirs, you’re right back to 3% again.

So live a little, and enjoy your money, for tomorrow we may be consumed by the ghosts of Hitler, Lenin, and Attila the Hun. And at withdrawals of 3% to 4% of your nest egg, don’t spend it all in one place.

I wrote that before the term "black swan" became popular; basically, what I was saying was that if you are incurring a 20% risk of geopolitical catastrophe during your lifetime:

1) You shouldn't be fooled by a black-box output that tells you that you have only a 1% chance based on your numerical inputs and

2) It's probably not a good idea to reduce your consumption by a third (say by lowering your withdrawal rate from 3% to 2%) if the net effect is to lower your failure rate from, say, 23% to 22% (the 20% catastrophe risk, which you can't control, and the 2% or 3% "conventional overspending risk" you can control with your w/d rate.

Bill
---
What I meant was that at in a perfectly safe world, which we sure don't live in, your success rate beginning a 3% w/d at age 65 is very, very, high, in the region of 95%.

You can improve that by a percent or two--to say, the 97% region--by reducing your w/d rate to 2%.

But in a real world with a 20% lifetime catastrophe risk, why bother?

And, yes, I am making the point that there is almost nothing you can do about that 20% risk. Think about what happened in Germany in the 20s or Russia after 1917, when all financial assets became virtually worthless.

Bill

 

[Mdlerth]

Anything over 80% seems like false confidence to me.

A 1 in 5 chance of eating cat food and I'm supposed to sleep at night?

When I ran FIREcalc, getting from 80% to 100% success was two extra years in the sweatshop. False confidence maybe, but it'll do until the real thing comes along.

Besides, if I croaked the next day, those two years of forgone retirement would not have been a satisfying payoff anyway; I want twenty.

 

[Whisper66]

A 1 in 5 chance of eating cat food and I'm supposed to sleep at night?

I guess if you don't like cat food nor have no backup plan in the event of market downturns, then you shouldn't retire at that point. I think many of us that allow for 80% success rate recognize that adjustments along the way can overcome the potential bad market years. In my case, it's simply turning down the spending rate which is easy for us to do. Keep in mind that Firecalc runs the calculation under the assumption that no adjustments are made in the input you've given it. In my case, we can / will dramatically cut expenses if needed. In others I've read here, they would plan to take on part time work (for example). But each person needs to decide what they are comfortable with and how badly they would like to retire.

 

[NW-Bound]

A 1 in 5 chance of eating cat food and I'm supposed to sleep at night?

It depends on your lifestyle now. If you are currently eating filet mignon at one of those fancy steakhouses every week, taking a 4-week European travel each year, leasing his and her German autos, then yes, you have a lot of fat that can be cut out when the going gets tough. Just be prepared to cut back when the market does not cooperate. There are many grades of food between filet and cat food.

If you are currently eating ramen noodle and riding a bike or taking a bus, I would say that 80% success rate does not look too cool.

As for myself, I ran FIRECalc with my future SS entered in. I then aim to spend about 3/5 of that, yet still have my 2 homes, with plenty of overseas and RV travel.

If I up my lifestyle, then the above might not be true anymore, meaning my safety margin gets reduced. I may not like the luxuries enough relative to the smugness of under-spending.

 

[Curmudgeon]

I suppose it also greatly depends on
1) how long you expect your retirement to last - the longer it will last, the higher success rate you'd want
2) What backup plans you have, if any: Can you generate some extra income early on, if necessary, to protect against an early sequence of returns problem? Could you cut some spending if necessary, or are you already planning on a bare-bones budget?
3) Where we are in the market cycle. If FIRECalc shows 80% success, remember that many of those successful sims were ones that started when the market was at bottom. Many people feel we are near a market peak for both stocks and bonds - so the real success rate for FIRECalc would be much lower, if it only considered sims that began under similar market conditions. (I know, this argument relies on the concept of market timing. It's entirely possible that stock and bond markets are NOT peaking, and we will see explosive growth in the future.)

So, take these factors into account when determining what success rate is best for you.

 

[Mdlerth]

I guess if you don't like cat food nor have no backup plan in the event of market downturns, then you shouldn't retire at that point. I think many of us that allow for 80% success rate recognize that adjustments along the way can overcome the potential bad market years. In my case, it's simply turning down the spending rate which is easy for us to do. Keep in mind that Firecalc runs the calculation under the assumption that no adjustments are made in the input you've given it. In my case, we can / will dramatically cut expenses if needed. In others I've read here, they would plan to take on part time work (for example). But each person needs to decide what they are comfortable with and how badly they would like to retire.

So doesn't that constitute actually planning for a success rate higher than 80%?

I don't live extravagantly now, and I don't expect to in retirement. But neither do I intend to go hardcore frugal just to retire. For one thing, DW wouldn't stand for it. For another, it would be inconsistent with my vision of retirement, which is about freedom to do a bunch of stuff without a lot of external limitations like cost. I probably won't eat a lot of Wagyu or truffles, but I at least want the option. That's what success will mean for me. If I have to make a bunch of adjustments midway through, it suggests I didn't plan right.

 

[Whisper66]

So doesn't that constitute actually planning for a success rate higher than 80%? ....... If I have to make a bunch of adjustments midway through, it suggests I didn't plan right.

Our actual financial plan....the one based on our yearly runs of Firecalc...allows for us to spend up to the maximum amount Firecalc suggests is ok for the chosen probability of success. So yes, we are actually planning for that success rate. In fact this December, we looked at the budget and chose to make some very large one time expenditures because we were within the maximum expenditure allowed.

But we recognize FireCalc limits. Even if our calculation says we'd have 100% success, we would be prepared to make modifications in case past history (which FireCalc is based on) doesn't represent the future well. It's worth noting that some of the smart folks in this forum feel pretty strongly that the current very low interest rate environment and long term bull market is atypical. Some suggest one might want to put less faith in the historically based FireCalc probability of success. I respect that position but don't feel the concern level they do. No matter what the calculated probability of success, we will have modifications we can do to keep ourselves going.

 

[Taxman59]

For me, the % needed varies with age. When I was 5 years away from retirement, 80-90% was good enough. When I was about to pull the plug, 95+% was borderline. I ran FIRECalc for my son, we were happy that he was over 50%. At 25 yo, there are so many variables that just getting a reasonable target is important. As you approach the end of your w*rk life, a higher % is warranted. This is when OMY kicks in. When I finally pulled the plug, I wanted over 95%(I had 100%) so that there was no question about the decision (at least not a $$ question). Now, I will be happy with anything over about 80% success since the decision is irrevocable and I now look at the mortality factor covering the last few percentage points (between SSI, an annuity, and a good LTC policy, I figure we can live for a long time if the other funds don't last).

 

[mountainsoft]

I don't live extravagantly now, and I don't expect to in retirement.

Yep, that's the situation we're in. We live a simple life on a basic income. There will be significant work related deductions when retire, but there's not a lot of fluff in our spending. It's mostly bills and living expenses that will only increase over time. We won't have a lot of extra to cut back on if things get tight.

So even though FireCalc estimates 100% success, money-in doesn't equal money-out if we retired when it says we could. For me, FireCalc is more of a "second opinion" offering a bit of a confirmation that my own estimates aren't too far off.

I would rather err on the cautious side and be pleasantly surprised if things work out better, than push things to the edge and regret it later.

 

[audreyh1]

I use a different withdrawal method. % of remaining portfolio won't run out of money for withdrawal rates ~4%, but you might have your real income cut in a bit more than half at some point. If you have a lot of discretionary expenses, that's survivable. And even with the worst 30 year historic run, you would still have 56% of your portfolio left in real terms.

 

[Onward]

A 1 in 5 chance of eating cat food and I'm supposed to sleep at night?

His point, as I read him, is that you have at least a 1 in 5 chance of eating cat food regardless of what FIREcalc says.

 

[NW-Bound]

His point, as I read him, is that you have at least a 1 in 5 chance of eating cat food regardless of what FIREcalc says.

Yes.

I read the article by Bernstein long ago, and forgot what he wrote despite Midpack's post pointing this out again.

As Bernstein wrote

So live a little, and enjoy your money, for tomorrow we may be consumed by the ghosts of Hitler, Lenin, and Attila the Hun.

It is not really about the retiree eating cat food, but rather everybody including non-retirees has a 1-in-5 chance of having to eat his own cat.

 

[NW-Bound]

The above said, if things go really bad, like the proverbial REWahoo's asteroid strike, we are all in the same boat. In war, it's luck and resourcefulness that one needs to survive.

Knowing that, I still like to have a decent sized stash than not. In the 4-in-5 chance that everything is normal, I would hate to have to eat cat food while my neighbors do not.

 

[ERD50]

The above said, if things go really bad, like the proverbial REWahoo's asteroid strike, we are all in the same boat. In war, it's luck and resourcefulness that one needs to survive.

Knowing that, I still like to have a decent sized stash than not. In the 4-in-5 chance that everything is normal, I would hate to have to eat cat food while my neighbors do not.

Exactly. I just don't get the concept that since there are things we can't plan against, that we shouldn't plan at all? Makes no sense to me. You captured it, with a 4/5 chance that there isn't some outside catastrophe, I want to be comfortable. Seems stupid not to.

I can't think of anyone in the past couple generations that I know of that wasn't helped by having some money. There wasn't any world-wide or nation-wide catastrophe that hurt them regardless of their financials. Sure, some had health problems, and in most cases money helped (better care, more comfort, etc).

It just seems like rationalization to me. If someone is really in a position where they can't reach a 100% success, but wants/needs to retire anyhow, I think they would be better off by lowering their costs. Or maybe play the odds that the future economics won't be so bad, take a 5 - 6% WR, but have some kind of fallback plan to reduce spending drastically if things don't go well (SS + pension + small withdraws). That makes more sense than trying to say we have a 20% chance of money being useless anyhow. I sure don;t see that.

-ERD50

 

[Chuckanut]

There are variable withdrawal rate plans that help us to spend less when we have significant down years and spend more when things go very well. The whole idea is to ride out the ups and downs so that we neither run out of money early, nor deny ourselves many pleasures in life only to leave a huge pile of cash on the table at the time of death. The big negative of these plans is that at 'the end' one's heirs often get less than they would under a more simple withdrawal plan.

In effect they mechanize what most of us would do anyway, spend a bit more when times are good to enjoy some extras, spend a bit less when times are bad to protect our asset base. Supposedly, the structure of the variable withdrawal methods allows this to happen in a way that increases total spending while simultaneously preserving, if not improving, the chances of our portfolio's survival.