Firecalc vs Fidelity RIP

[Huston55]

I use RIP but, have used only the free web version of Firecalc. I'm interested in the thoughts of those who've used both.

1. Which is more conservative?
2. Does Firecalc have as much flexibility and allowance for detail regarding expenses as RIP?
3. Can Firecalc model based on specific positions (stocks, funds, etc.) or just general asset class allocations?
4. Does Firecalc have as much "what if" capability as RIP?
5. Is there a way for RIP to use >90% success rate, other than significant remaining assets?
6. Which calculator do you prefer and why?

Hoping to hear from all who've used both tools.

 

[73ss454]

I use the calculator that gives me the best result. (heh)

 

[LOL!]

I have used both.

1. Neither is more conservative. They give the same answers.

2. FIRECalc does not care about expenses detail. I don't think you need to. However, you need to know what your expenses are.

3. FIRECalc does not let you enter specific funds and does not calculate your asset allocation for you. But so what? It has been shown that a broad range of ratios of stocks:bonds gives the same results once you are above a minimum percentage of stocks.

4. Yes.

5. Take all results with a big grain of salt. People like Wiliam Bernstein have shown that life is not more than 20% precise, so if you are at 95% or 90% or 85%, then things are pretty much the same.

6. I use both and have no preference. RIP has a nice year-by-year detail of withdrawals. Why not use Fidelity's Income Strategy Planner instead though?

 

[Huston55]

LOL- thx for the info. Pardon the questions embedded in the quote below...

I have used both.

1. Neither is more conservative. They give the same answers.

2. FIRECalc does not care about expenses detail. I don't think you need to. However, you need to know what your expenses are.
I find RIP's ability to distinguish btwn essential and discretionary expense useful. Can Firecalc do that?

3. FIRECalc does not let you enter specific funds and does not calculate your asset allocation for you. But so what? It has been shown that a broad range of ratios of stocks:bonds gives the same results once you are above a minimum percentage of stocks.

4. Yes.
Is the full capability version required? I didn't see this function in the online version.

5. Take all results with a big grain of salt. People like Wiliam Bernstein have shown that life is not more than 20% precise, so if you are at 95% or 90% or 85%, then things are pretty much the same.
I know the output cannot be more precise than the inputs and, as I understand Bernstein's work, that's essentially what he's saying. But, I have to admit that a 10% error band around a 100% number gives me more confidence than that same error band around an 85% number.

6. I use both and have no preference. RIP has a nice year-by-year detail of withdrawals. Why not use Fidelity's Income Strategy Planner instead though?

Fidelity Income Strategic Evaluator requires one to already be retired to give good results; I'm not quite there yet.

 

[rescueme]

I've stated my preference for RIP in a related thread/discussion:

http://www.early-retirement.org/forums/newreply.php?do=newreply&p=1117875

In answer to question #5, yes you can override the standard defaults to also give a 95% CI (1 in 20 failure) on RIP, in addition to the 50/75/90% estimates.

This is done by the "view additional what if scenerios" on the analysis tab, after getting the initial "Summary of Your Key Information" and running the script.

Also, be aware that the year-by-year detail result pages (which show initial expected portfolio estimate, expenses, income sources, and withdrawl rate) will use the 95% target for results giving you a much more conserative estimated results than the standard defaults.

 

[ERD50]

I have used both.

so if you are at 95% or 90% or 85%, then things are pretty much the same.

I agree with all except the above line.

Sure, we don't know that a past 90% scenario will play out to be 90% in future scenarios. But, a scenario that indicates a 95% success rate will certainly be more resilient than one that indicates an 85% success rate.

Even if we accept the 20% error estimate, that error would apply pretty much equally to all the scenarios. It doesn't justify saying that 95% and 85% are pretty much the same.

An analogy: We take two identical cars, with identical driver habits, - fill one with 8.5 gallons of gas, another with 9.5 gallons of gas. We could run multiple tests, driving the two cars together on a variety of traffic scenarios. We may only have ~ 20% accuracy in predicting how far they go, due to variations in the trip. But it is clear that the one with more gas will go further.

I really think Bernstein is talking in terms of absolute accuracy of these tools (does 95% mean 95%?), not their relative accuracy (is 95% > 85%?).

-ERD50

 

[Huston55]

In answer to question #5, yes you can override the standard defaults to also give a 95% CI (1 in 20 failure) on RIP, in addition to the 50/75/90% estimates.

This is done by the "view additional what if scenerios" on the analysis tab, after getting the initial "Summary of Your Key Information" and running the script.

Also, be aware that the year-by-year detail result pages (which show initial expected portfolio estimate, expenses, income sources, and withdrawl rate) will use the 95% target for results giving you a much more conserative estimated results than the standard defaults.

Thx much. Found that option and tried it; didn't like the result
But, nice to know.


ERD50 - I interpreted it the same way. (Note that I can't do multiple-quotes yet.)

I really think Bernstein is talking in terms of absolute accuracy of these tools (does 95% mean 95%?), not their relative accuracy (is 95% > 85%?).

 

[rescueme]

Thx much. Found that option and tried it; didn't like the result

It's not necessarily a fault of the software. Maybe it's just your plan that is not robust enough to survive a projected serious blow, either in investments, retirement income, or anticipated retirement expenses.

 

[samclem]

I really think Bernstein is talking in terms of absolute accuracy of these tools (does 95% mean 95%?), not their relative accuracy (is 95% > 85%?).

I assume we're all thinking about this (very fun) section from his "Retirement Calculator from Hell" series, Part 3.

So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.
History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).
A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.


Now, let’s return to the above table. The historically naïve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. 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.

So, he's clearly referring to absolute error in these calculators (I guess until they incorporate some type of political/cultural prognosticative element, or add ammunition as an asset class).

 

[Huston55]

It's not necessarily a fault of the software. Maybe it's just your plan that is not robust enough to survive a projected serious blow, either in investments, retirement income, or anticipated retirement expenses.

Yep, clearly not a stwe fault. What it does confirm for me, I think, is the value of the 4%/95% method, which adds to my success rate but, which RIP doesn't accommodate.

Samclem-
YEA BABY! Gonna party like it's [-]1999[/-] 4% SWR!

 

[ERD50]

I assume we're all thinking about this (very fun) section from his "Retirement Calculator from Hell" series, Part 3.

So, he's clearly referring to absolute error in these calculators (I guess until they incorporate some type of political/cultural prognosticative element, or add ammunition as an asset class).

Interesting viewpoint, but it isn't something that would sway me from a relatively conservative WR.

Just because the odds are somewhat high that we will experience something really bad in a 40 year retirement period, doesn't mean we wouldn't survive that period better with a little larger portfolio cushion. In fact, I'm thinking cash could make a really big difference for many bad scenarios. I recall my Dad saying that land was essentially worthless in the Depression, but if you had cash you could live like a king (deflation will do that for you, I guess).

Furthermore, I just plugged in a 4.4% WR into FC (86.5% success), and some of those failures come in year 20! So maybe the big calamity comes in year 30, and you've been broke for 10 years. Not my cup of tea.

Looking back to the history that I can remember - I just can't imagine thinking it would be good for someone in the 1970's to retire with a larger WR, thinking that some big-bang will happen, and I might as well spend the money now, since it won't make any difference with or w/o money in the next 40 years? That doesn't make sense to me. What is the significance of a 'near miss' in Oct 1962? So does that mean no one needed any money in Dec 1962? Tell that to the electric company, or the property tax collector, or the butcher or liquor store!

I have a lot of respect for Bernstein, but I think he's miss-applying statistics here.

edit/add: even the math doesn't work out. If he assumes 80% success in avoiding other calamities. that does not make a FIRECALC 85% - 95% success rate 'insignificant'.

.8 *.85 = .68
.8 *.95 = .76
.8 *1.0 = .8

I can't control the 'calamity' factor, I can control (to some extent) the FIRE factor. I have no interest in going from a 20% chance of failure outside my control, to a 32% chance of failure, when I can have some impact on that difference.

-ERD50

 

[samclem]

I have a lot of respect for Bernstein, but I think he's miss-applying statistics here.

edit/add: even the math doesn't work out. If he assumes 80% success in avoiding other calamities. that does not make a FIRECALC 85% - 95% success rate 'insignificant'.

.8 *.85 = .68
.8 *.95 = .76
.8 *1.0 = .8

I can't control the 'calamity' factor, I can control (to some extent) the FIRE factor. I have no interest in going from a 20% chance of failure outside my control, to a 32% chance of failure, when I can have some impact on that difference.

-ERD50

He's certainly talking in broad strokes (as he implies). If we disregard the potential that a larger nest egg might help you avoid another calamity (and, after all, an extra $100K in savings won't help much if Tehran puts a nuke on your town), Bernstein is saying that regardless of what you save, history says you'll come to grief in a big way in 20% of cases over a 40 year span. You can save a lot and have a miniscule WR, but you won't do better than that due to other factors.

Now, from a practical standpoint, I plan to behave just as you've suggested, cutting my chances of self-caused privation. But, if Bernstein's right and something else is really going to chop us down 20% of the time, and if we really believed it, might it be logical to spend at a higher rate in retirement? If we can only achieve 80% survival no matter what, and by counting every penny we can achieve 77% (3% attributable to financial failure, 20% to "other"), but if we could really live it up, double our withdrawals and wind up at 75% success--maybe that makes some sense. We've only increased our chances of going bust from 1:5 to 1:4 and we'd have had a lot more money to spend. I'm sure marginal utility theory works in here someway.

Taken to extremes: If there were a 75% chance that your money (and anything you could buy with it) would become worthless in 2013, would you spend your money in 2012 just as you plan right now? I probably wouldn't. Though I'd still need to worry about that 25% chance that the unthinkable doesn't happen (and keep money for that eventuality), I'd probably spend at a higher rate to enjoy what the money could buy while it still had value.

 

[Nords]

... or add ammunition as an asset class).

Well, golly, with all the recent technological improvements to ammunition, I'm not sure that we have an adequate performance history of this asset class. It may also exhibit a changing correlation over time with other asset classes like gold, MREs, and fallout shelters. It also seems pretty volatile to me, so I'm not confident that we're able to avoid a "Black Swan" event.

Maybe I should just ensure that I'm diversified among several different ammo, I mean, asset classes.

Taken to extremes: If there were a 75% chance that your money (and anything you could buy with it) would become worthless in 2013, would you spend your money in 2012 just as you plan right now? I probably wouldn't. Though I'd still need to worry about that 25% chance that the unthinkable doesn't happen (and keep money for that eventuality), I'd probably spend at a higher rate to enjoy what the money could buy while it still had value.

Same here. It reminds me of the citizens of the Weimar Republic spending all their marks on hard assets, or the workers of South American countries who were given extra-long lunch breaks so that they could spend their morning pay on groceries before inflation jacked them out of reach of their afternoon pay.

I don't think we'll ever find the one & only retirement calculator. ER forecasting will continue to be a bunch of different tools (using radically different methods) all pointing toward the same general result. Even discriminating between 3.5% and 4% may be a waste of time.

 

[Huston55]

I don't think we'll ever find the one & only retirement calculator. ER forecasting will continue to be a bunch of different tools (using radically different methods) all pointing toward the same general result. Even discriminating between 3.5% and 4% may be a waste of time.

Hey, just think of all the extra sconces you could buy with that extra 0.5%!

Seriously though, back to Firecalc questions.

For Q#4 above, what kind of "what if" scenarios does FC have?

Are there expanded capabilities if I "subscribe" to (pay for) FC?

 

[haha]

Bernstein is saying that regardless of what you save, history says you'll come to grief in a big way in 20% of cases over a 40 year span. You can save a lot and have a miniscule WR, but you won't do better than that due to other factors.

It's the old eat, drink and be merry approach, which if we were capable of we likely wouldn't be ERs. I believe that he is basically right-with many scenarios, unless we are world dictators, we will not be able to get much for our paltry and perhaps by then worthless money. But just as I cannot sleep til noon, I cannot ignore reasonable frugality. We are creatures of habit, and don't do all that well when we deviate from this.

Ha

 

[ERD50]

But, if Bernstein's right and something else is really going to chop us down 20% of the time, and if we really believed it, might it be logical to spend at a higher rate in retirement?

I'm still not 'buying it', though each person will apply their own world-view to the problem.

I'll make another analogy - let's say I've got a road trip to make in a car with some known mechanical problems. There's a 20% chance that I'll break down, and not make it to my destination by the time I need to be there.

So does that mean I don't bring enough money to buy gas for this trip, because I might not make it anyhow? Not for me - I need to prepare for as many reasonable scenarios as I can. One scenario is that I make it there, the other is I don't. It's a risk in one case (the car breaks down), why turn the other scenario into a risk also (that I run out of gas). To me, that sounds like heads I lose, tails I lose.

-ERD50

 

[Katsmeow]

RIP is nice but I can't find a place to set up expenses that vary from year to year? Is that hidden somewhere that I can't find it?

One of the things I like about Firecalc is I can set it up to have variable spending. In our case we will vary because we still have kids that we have spending for during the next few years and we also have some one-time expenses. Firecalc makes it easy to run scenarios with that.

With RIP I only found a place to put in one expense number which is really inaccurate in our situation.

 

[rescueme]

RIP is nice but I can't find a place to set up expenses that vary from year to year? Is that hidden somewhere that I can't find it?

You can certainly vary expenses year to year, decade to decade, or any period of time (by year, minimum).

Drop me a message to outline your requirement, and I'll tell you what you need to do...

BTW, you can do the same with variable income sources (such as spousal SS benefits from year 66-69) or even one-time expected events with much more instances of variations over FIRECalc.

 

[Huston55]

RIP is nice but I can't find a place to set up expenses that vary from year to year? Is that hidden somewhere that I can't find it?

One of the things I like about Firecalc is I can set it up to have variable spending. In our case we will vary because we still have kids that we have spending for during the next few years and we also have some one-time expenses. Firecalc makes it easy to run scenarios with that.

With RIP I only found a place to put in one expense number which is really inaccurate in our situation.

Kat-

Pls tell me how to vary yearly expenses in Firecalc.

 

[REWahoo]

See the note at the bottom of the Spending Models tab.

 

[chemist]

I have used both tools and prefer Fido RIP by far.

Some important differences:

1) FIREcalc does not consider taxes AT ALL. So you need to put in your expenses on a before tax basis. RIP looks at your various sources of income for each individual year, tIRA withdrawals, SS, Roth withdrawals, and CALCULATES your Fed and State tax. Big advantage to RIP.

2) The methodologies are completely different. FIREcalc uses actual market return series. RIP uses Monte Carlo approach. Therefore don't be surprised to get different results. I am not sure that one method is "better" than the other, both are widely used but be aware they use different methodologies.

3) If you donate to FIREcalc, you get the ability to vary expenses year by year. But only aggregate expenses. RIP lets you vary category by category - paying off your mortgage, Medicare Part B and Medigap kicking in, etc. The RIP then applies DIFFERENT rates of inflation to different budget categories, inflating health care expenses at a higher rate than general expenses. I find this more realistic.

So imho RIP is far superior but let's give Dory credit, he came up with FIREcalc on his own and FIDO probably spent millions on RIP. I think FIREcalc is a great little tool to do a quick and dirty when you are 40 and trying to see if it is possible to retire at 55. That is what I used it for. But when I was 55 I spent a lot of time with FIDO RIP before turning in my notice.

 

[obgyn65]

To answer your question I do not use Firecalc. Not sure how to use it. Would be interested in checking RIP. I much prefer this free online calculator Merrill Edge| See Where You Stand

6. Which calculator do you prefer and why?

Hoping to hear from all who've used both tools.

 

[GregLee]

I recall my Dad saying that land was essentially worthless in the Depression, but if you had cash you could live like a king (deflation will do that for you, I guess).

Farm land wasn't worthless. My father's family ran a dairy in the Depression, and my father delivered milk. Not much cash then, but no standing in breadlines, either.

 

[Huston55]

I have used both tools and prefer Fido RIP by far.

Some important differences:

1) FIREcalc does not consider taxes AT ALL. So you need to put in your expenses on a before tax basis. RIP looks at your various sources of income for each individual year, tIRA withdrawals, SS, Roth withdrawals, and CALCULATES your Fed and State tax. Big advantage to RIP.

2) The methodologies are completely different. FIREcalc uses actual market return series. RIP uses Monte Carlo approach. Therefore don't be surprised to get different results. I am not sure that one method is "better" than the other, both are widely used but be aware they use different methodologies.

3) If you donate to FIREcalc, you get the ability to vary expenses year by year. But only aggregate expenses. RIP lets you vary category by category - paying off your mortgage, Medicare Part B and Medigap kicking in, etc. The RIP then applies DIFFERENT rates of inflation to different budget categories, inflating health care expenses at a higher rate than general expenses. I find this more realistic.

So imho RIP is far superior but let's give Dory credit, he came up with FIREcalc on his own and FIDO probably spent millions on RIP. I think FIREcalc is a great little tool to do a quick and dirty when you are 40 and trying to see if it is possible to retire at 55. That is what I used it for. But when I was 55 I spent a lot of time with FIDO RIP before turning in my notice.

I've 'subscribed' to FIREcalc since the OP, and would have to agree with this post. I find RIP better for my situation: more flexibility on the expenses side, more accurate treatment of taxes (thus, more accurate net income answers), more 'what if' capability, and more tools to help make changes if you want (even though some of this is FIDO marketing, having the choices is useful).

Thx to all for your posts.

 

[Chuckanut]

For those of us who are acronymically challenged... What is RIP? What does it stand for? (Other than its use on tombstones.)