FireCalc Success Rate?

[mountainsoft]

Quote:

Originally Posted by MichaelB These entries are for changes to your yearly income or outflow that affect how much you will need to withdraw from your portfolio each year

I guess I'm slow. That still doesn't sound like an annual figure to me.

Too bad the page doesn't word it clearer like "Annual Pension Income".

I know now, so it's all good.

[user5027]

You may want to try different scenarios; 1) with full pension and social security, 2) with a reduced pension and/or social security, 3) if married, the early death of you or your spouse. Some scenarios you may feel good with a 95% success rate, others you may want closer to 100%.

[Marc]

I am going for 80% success rate whether in FireCalc of Fidelity. Over two thirds of our spending is totally discretionary (travel) so I figure we will adapt as needed; no set withdrawal rate and inflation calculation.

Marc

[Whisper66]

Quote:

Originally Posted by Marc I am going for 80% success rate whether in FireCalc of Fidelity. Over two thirds of our spending is totally discretionary (travel) so I figure we will adapt as needed; no set withdrawal rate and inflation calculation. Marc

Like above, I was looking for 80 or better. We also. had a backup plan if things went south. We can cut our budget by a lot if needed with only little pain.

[Katsmeow]

The thing about success rate is that a big part of it depends on spending. How high a success rate percentage you want may depend upon how set you are on spending a specific amount of money.

I just ran Firecalc for 2017 (I run it at the start of every year). In our case, I enter yearly spending amounts as we still have a couple of years left in which I anticipate having higher spending amounts than what I anticipate long-term.

And, I got 100% success rate based upon our projected spending amounts. These include a reasonable amount of discretionary spending.

Then I kept moving up the long term spending number to see when I dipped below 100%. Given the amount of discretionary spending we have in there, I would probably be content with a 90% or so success rate although I actually have 100% right now.

However, I am mindful that things like SS can be cut in the future (or can grow at a different COLA than is present now) and some categories of spending may go up more than anticipated. By being closer to 100% I have more wiggle room in case those things happen.

[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]

Quote:

Originally Posted by Onward 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]

Quote:

Originally Posted by mountainsoft 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]

Quote:

Originally Posted by DEC-1982 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]

Quote:

Originally Posted by cooch96 +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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by mountainsoft What does FireCalc know that I don't?

145 years of market history.

[Whisper66]

Quote:

Originally Posted by mountainsoft 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.

Quote:

Originally Posted by mountainsoft 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]

Quote:

Originally Posted by Onward Bill Bernstein's words are worth considering: Quote: 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."

Quote:

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.

Quote:

Originally Posted by bogleheads 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]

Quote:

Originally Posted by cooch96 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]

Quote:

Originally Posted by Mdlerth 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]

Quote:

Originally Posted by Mdlerth 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.