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Old 03-21-2015, 10:10 PM   #41
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Exactly. I would also argue that even if you have a 100% success under times of high valuations there would be more near misses than if valuations were better. So, if you increased your SWR after a good year you most likely will turn some of those successes into failures.
There will be more near misses, but not failures if you limit yourself to the historical records. A 100% success is reporting success under all periods. Let's use numbers to hopefully avoid ambiguity:

Let's say you started with a time period that reported 100% success at a 3.3% WR. If you were riding a specific historic cycle where your portfolio grew after inflation and withdrawals, you could then calculate a forward inflation adjusted withdrawal of 3.3% of this new, higher portfolio value, and it would not result in failure.

It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods. It can't possibly make any difference if you entered this period with that portfolio after 5 years of retirement, or if you entered this period with that portfolio as a brand new retiree. It just can't.

Of course, this is just a strict reading of the numbers. But I think if you are to use this tool, you should understand the limits of what it is telling you.

If we want to look at this in a more general sense, increasing your withdrawal will of course reduce your portfolio in relative terms going forward. It may bring you closer to failure, but you can't fail within that data set. Failure does not exist.

In real life, increasing the withdrawals adds risk to future unknowns, but that is true of any withdrawal method. Not touching principal is no guarantee, we don't know what will happen to dividend payers in the future, or how much principal there may be left to draw upon if the stuff hits the fan. There is no magic, we can only say that a conservative WR will extend a portfolio over an optimistic WR. And being conservative has the downside of possibly living more frugally than needed.

What's behind Door # 3 Monty?

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Old 03-21-2015, 11:08 PM   #42
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I'm not looking for a debate either, just trying to learn and challenge my own thinking. But I think you are over-generalizing to say many here 'swear by' FIRECalc.

I wouldn't be surprised if I have the highest number of posts on the subject, yet, I only look at it as something to give some insight and perspective. It's interesting to test different scenarios against history, to get some feeling for sensitivity. I think it's useful to a point, but 'swear by' the results? I feel pretty confident that the results are an accurate reflection of history, but we all know that only means so much.

We know the future may look different, but it seems useful to study history, and I think this is all most of us do with the historical report software.

-ERD50
No, I know you are not looking for debate, you just like to rehash things to perhaps reveal new angles. Neither are you hanging back and taking pot shots..You have a well articulated, easily understood position, and I don't want to oppose it

I make up my mind easily, and once I have done so I am generally not interested in further whatevers. I know you are well informed, and undoubtedly have good arguments. It's just that mine are good enough for me, and so I don't really want to expend further effort. Don't forget, I have relied on my methods to support me and previously my family for ~30 years. This is not reason for anyone else to use it, but selling my ideas to others is not important at all to me; it may even have a negative weighting.

The evidence is simple, but different people interpret it differently. This is good!

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Old 03-21-2015, 11:58 PM   #43
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It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods.
I think you are making a mistake here. The tool will tell you 100% success in all periods that are in the historic dataset. If history repeats itself, you are covered! But, your upcoming retirement STARTS now, so it covers periods that are NOT YET IN THE DATASET. The 100% success in the historic record is NOT a guarantee of 100% in the future. Moreover, a 100% success in FIRECalc with more near misses is not the same as a 100% success with no near misses. If all you see is 100%, you are not necessarily comparing two equal scenarios.
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Old 03-22-2015, 02:40 AM   #44
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I think you are making a mistake here. The tool will tell you 100% success in all periods that are in the historic dataset. If history repeats itself, you are covered! But, your upcoming retirement STARTS now, so it covers periods that are NOT YET IN THE DATASET. The 100% success in the historic record is NOT a guarantee of 100% in the future. Moreover, a 100% success in FIRECalc with more near misses is not the same as a 100% success with no near misses. If all you see is 100%, you are not necessarily comparing two equal scenarios.
Who here said anything about a guarantee? Or to blindly adhere to SWR withdrawal methodology?

Of course future data isn't "yet in the dataset" - but you and others have no basis to presume it's statistically different either (yet). Might be, might not.

FIRECALC tells what we might expect if history is any indication. From there we all apply safety factors (or not) beyond that as we each see fit. FIRECALC doesn't pretend to make those judgements, it's up to each of us. Some here didn't/won't retire until their FIRECALC success rate was closer to 200%* as a result...in case the future is different.

* assets twice that required for 100% success
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Old 03-22-2015, 06:46 AM   #45
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another datapoint that I look at with firecalc is the lowest value the the portfolio reaches @ 100% success rate.

If I am getting down to one or two years of expenses, I know my margin is small to failure. If it is large, there is already a buffer built in vs historical.

If the future is worse than historical, FC doesn't help much.
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Old 03-22-2015, 07:49 AM   #46
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why don't we just use 10% SWR because it just gives me more to spend?
There's no problem with this if you can live with the likelihood of reduced spending if the portfolio value falls. I am doing this but using 5%. I expect my allowable spending to vary - up and down - depending on market performance. I'm willing to live with this variation rather than do what some people do which is a "safer" <3%. I'd rather not potentially leave as much behind. My assets are also more than enough for a successful retirement. My variations will simply control my ability to spend on extras.
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Old 03-22-2015, 07:51 AM   #47
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I find it amazing when posters understand the same thing, but choose to disagree simply because they use different wording to express it. It is then no surprise when wars happen if they actually disagree.

About portfolio present value, yes, one should go beyond the "100%" result by FIRECalc and look at the chart to see how low it can be with a WR of 4%.

In real life, FIRECalc or not, if the present value gets anywhere near 50% of its starting point, people will start shaking in their boots, unless they are so old and perhaps already bedridden to not to care.
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Old 03-22-2015, 07:56 AM   #48
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There will be more near misses, but not failures if you limit yourself to the historical records. A 100% success is reporting success under all periods. Let's use numbers to hopefully avoid ambiguity: Let's say you started with a time period that reported 100% success at a 3.3% WR. If you were riding a specific historic cycle where your portfolio grew after inflation and withdrawals, you could then calculate a forward inflation adjusted withdrawal of 3.3% of this new, higher portfolio value, and it would not result in failure. It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods. It can't possibly make any difference if you entered this period with that portfolio after 5 years of retirement, or if you entered this period with that portfolio as a brand new retiree. It just can't. Of course, this is just a strict reading of the numbers. But I think if you are to use this tool, you should understand the limits of what it is telling you. If we want to look at this in a more general sense, increasing your withdrawal will of course reduce your portfolio in relative terms going forward. It may bring you closer to failure, but you can't fail within that data set. Failure does not exist. In real life, increasing the withdrawals adds risk to future unknowns, but that is true of any withdrawal method. Not touching principal is no guarantee, we don't know what will happen to dividend payers in the future, or how much principal there may be left to draw upon if the stuff hits the fan. There is no magic, we can only say that a conservative WR will extend a portfolio over an optimistic WR. And being conservative has the downside of possibly living more frugally than needed. What's behind Door # 3 Monty? -ERD50
That explains the inflation adjustment with firecalc well. As long as you keep your adjustments increases in line with inflation you should, according to firecalc, maintain 100% success no matter what valuations are. But when valuations are high and interest rates are low, I still maintain that firecalc will understate your failure rate if it shows one. I did a little research and found that firecalc was invented by a former member. I appreciate the work that went into it and enjoy using it and other calculators. Personally, my planning consisted of saving 25 times spending and investing to keep pace with inflation. I don't need any equities to do that. Any funds in excess of 25X are invested in equities. It's as good as any plan I have seen. No guarantees of course.
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Old 03-22-2015, 08:30 AM   #49
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My understanding is that Firecalc is a tool that should pretty much show the same results as the Trinity Study and Bengen's paper that essentially determined the 4% safe withdrawal rate.

In other words, Firecalc will do the same back-testing that the authors of the other studies did. There may be minor differences though to account for slight variations in the variables used.

Firecalc though let's you refine the model to account for things like retirement years, portfolio mix, expenses, etc.

To answer the OP's question again, Firecalc is "memoryless" in that the starting period and assumptions can be changed to account for different assumptions (fewer years to live, greater starting portfolio, different portfolio mix, and of course increased withdrawal rate) and if the results are acceptable then go for it!
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Old 03-22-2015, 08:37 AM   #50
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What's behind Door # 3 Monty?

-ERD50
An immediate annuity (perhaps coupled with a deferred annuity for longevity.)

Door number 4 is ammo and beans.

Door number 5 looks a lot like the opening scenes of "2001:A SpAce Odyssey"



(Seriously though, interesting thread.)
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Old 03-22-2015, 09:47 AM   #51
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I find it amazing when posters understand the same thing, but choose to disagree simply because they use different wording to express it. It is then no surprise when wars happen if they actually disagree.

About portfolio present value, yes, one should go beyond the "100%" result by FIRECalc and look at the chart to see how low it can be with a WR of 4%.

In real life, FIRECalc or not, if the present value gets anywhere near 50% of its starting point, people will start shaking in their boots, unless they are so old and perhaps already bedridden to not to care.
Yes... I am likely guilty as most. I have found that there are many people (maybe not on these boards) that will take a rule of thumb, output of a calculator, or the word of a FA and just run with it. I tend to like the Fido RIP calculator. I've calculated out 40 through 60 years with success (less than 4% WR).
The OP really may have a point assuming one believes Firecalc is a predictor of reality. If firecalc really just uses sequential segments of previous markets, the longer the time frame (40 or 60 years), the less segments there are to test.
I think people focus on success rate. However, the more interesting part how much is left over at the end at the 75% or 50% confidence level when you are 100% success. No, I'm not saying to used those withdraw rate. But if you plan for 50 years (whatever the number)... after say 10 years... you may find that not only you have more inflation adjusted money, but less years of planned life expectancy. In this case... increase spending. So why not every year when the pot of inflation adjusted money is higher?
I use these calculators to provide warm fuzzies... the feeling that there is a reasonable chance of affording ER. But as the life expectancy drops (years left)...estimations should be more accurate... both in dollars and life expectancy (possibly).
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Old 03-22-2015, 09:53 AM   #52
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If firecalc really just uses sequential segments of previous markets, the longer the time frame (40 or 60 years), the less segments there are to test.
If you don't know how FIRECalc works, you can get up to speed here: FIRECalc: How it works
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Old 03-22-2015, 09:55 AM   #53
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My understanding is that Firecalc is a tool that should pretty much show the same results as the Trinity Study and Bengen's paper that essentially determined the 4% safe withdrawal rate.
I think that study was for 30 year retirements. RE many not fit the 4% rule as well. But the thing to remember is there are also many cases where you end up with large portfolios.
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Old 03-22-2015, 10:36 AM   #54
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Quote:
It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods.
I think you are making a mistake here. ...
I'll be concise and factual - no, I'm not mistaken.

Now I'll add, I appreciate when people point out mistakes I make - that's how I learn. But in this case, I'm not mistaken.

Quote:
The tool will tell you 100% success in all periods that are in the historic dataset. If history repeats itself, you are covered! But, your upcoming retirement STARTS now, so it covers periods that are NOT YET IN THE DATASET. The 100% success in the historic record is NOT a guarantee of 100% in the future.
I fully realize that my postings on this subject are repetitive, yet, I add to that repetition by attempting to point out the plainly obvious in each post, that my comments are within the historical data set. I mean, really, how could it be otherwise? This gets to the point that I feel I will be attacked for being condescending, you can't win!


In that same post, I said (bold mine):
Of course, this is just a strict reading of the numbers...

but you can't fail within that data set.
And I mention something similar in every post I made to this thread (bold mine):

think about how a historical reporter like FIRECalc works,

Actually, that is not true (historically).

Historically, it has to work. If I had 100% success at all points in history, then I had... 100% success at all points in history!

We know the future may look different,

But when applied to the historical data,

... though clearly it is only a look at history

Was I unclear?


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Moreover, a 100% success in FIRECalc with more near misses is not the same as a 100% success with no near misses. If all you see is 100%, you are not necessarily comparing two equal scenarios.


I addressed this in my post as well (once again, emph mine):

Quote:
If we want to look at this in a more general sense, increasing your withdrawal will of course reduce your portfolio in relative terms going forward. It may bring you closer to failure,
If after a more careful reading, and attempt at understanding my posts, you have some supported reasons to inform me that my analysis of what FIRECalc tells us about the historical data is somehow flawed, misleading, or unclear, please help me by pointing those out, so I can clarify, or correct myself....


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Originally Posted by jabbahop View Post
another datapoint that I look at with firecalc is the lowest value the the portfolio reaches @ 100% success rate. ...
Agree, looking at the dips can be very informative. I suspect that many here have not fully appreciated how deep those dips can go, even with a conservative approach and variable withdrawals. I started a thread on this, probably years ago, try searching for 'scary dips'.

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If I am getting down to one or two years of expenses, I know my margin is small to failure. If it is large, there is already a buffer built in vs historical. ....
Well, one to two years is probably too late to react, but yes, a look forward is a prudent step. I think the modified-RMD type approaches are a valuable analysis. in overly-simple terms, if your life expectancy is not expected to exceed 15 years, you want at least 15x portfolio, conservatively invested.

bold mine...
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... If the future is worse than historical, FC doesn't help much.
Sure it does. It gives you something to use as a base. How you account for future unknowns is up to you.

If you plan to vacation somewhere, it can be helpful to know the average, and record high/low temperatures for the time you will be there. A new record may be set while you visit, and how you plan for that is up to you, but I sure would not ignore history - it is useful.

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Originally Posted by Gatordoc50 View Post
.... But when valuations are high and interest rates are low, I still maintain that firecalc will understate your failure rate if it shows one. ...
A thousand times, no! Again, this is not my opinion, this is fact (assuming no actual calculation or data table errors in FIRECalc).

The failures that are shown are from those bad periods. It doesn't understate them, it states them!


Quote:
Personally, my planning consisted of saving 25 times spending and investing to keep pace with inflation. I don't need any equities to do that. Any funds in excess of 25X are invested in equities. It's as good as any plan I have seen. No guarantees of course.
I'm curious if you can really expect the 25x portion to keep pace with inflation if not invested in some equities (that much in TIPS?). But if the above 25x is in equities, and is large enough, that would probably work (historically).

-ERD50
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Old 03-22-2015, 10:52 AM   #55
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Originally Posted by bingybear View Post
Yes... I am likely guilty as most. I have found that there are many people (maybe not on these boards) that will take a rule of thumb, output of a calculator, or the word of a FA and just run with it. I tend to like the Fido RIP calculator. I've calculated out 40 through 60 years with success (less than 4% WR).
The OP really may have a point assuming one believes Firecalc is a predictor of reality. If firecalc really just uses sequential segments of previous markets, the longer the time frame (40 or 60 years), the less segments there are to test.
I think people focus on success rate. However, the more interesting part how much is left over at the end at the 75% or 50% confidence level when you are 100% success. No, I'm not saying to used those withdraw rate. But if you plan for 50 years (whatever the number)... after say 10 years... you may find that not only you have more inflation adjusted money, but less years of planned life expectancy. In this case... increase spending. So why not every year when the pot of inflation adjusted money is higher?
I use these calculators to provide warm fuzzies... the feeling that there is a reasonable chance of affording ER. But as the life expectancy drops (years left)...estimations should be more accurate... both in dollars and life expectancy (possibly).
Yeah - run Firecalc every 10 years, decreasing the time period by 10 years. Sounds like a plan!

Of course, since I use % portfolio remaining, I don't do any inflation adjusting and get an annual reset. But I'll probably adjust up the withdrawal %, maybe every 10 years, or every 5 years once we cross 70. Haven't decided exactly how to do that yet.

I may consider using the IRS RMD tables once I reach 70.
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Old 03-22-2015, 10:57 AM   #56
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Yeah - run Firecalc every 10 years, decreasing the time period by 10 years. Sounds like a plan!

Of course, since I use % portfolio remaining, I don't do any inflation adjusting and get an annual reset. But I'll probably adjust up the withdrawal %, maybe every 10 years, or every 5 years once we cross 70. Haven't decided exactly how to do that yet.
The problem with adjusting up means I probably won't spend it unless I'm giving it away. I'm pretty sure that after 80 I won't have the desire to spend as much time on vacations as I want to now. Of course, I may spend more for every week than I do now.
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Old 03-22-2015, 12:09 PM   #57
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The problem with adjusting up means I probably won't spend it unless I'm giving it away. I'm pretty sure that after 80 I won't have the desire to spend as much time on vacations as I want to now. Of course, I may spend more for every week than I do now.
I don't have a problem giving it away and would be happy to give more, and feel a lot more comfortable giving more, as I get older.

I may not travel as much when I get older, but I expect to pay more to travel - assistance, first class airfare, taxis, private tours, etc.

Heck, I may decide to spend money on a lot more assistance at home too!

Right now I don't feel that I can adjust up my withdrawal %. When I'm older and have more market years under my belt, I may feel like I can.

We're not spending all we withdraw currently anyway, and that's with gifting as 20% of our budget. So it's kind of moot. But you never know the emergency or big ticket item that might have you pulling $200K+ from your retirement portfolio. We have room to do this as any time.
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Old 03-22-2015, 04:57 PM   #58
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I am assuming that when folks are discussing firecalc results they are referring to the default portfolio setting of Total Return or Mixed Portfolio which uses historic data. If you compare those results to the results one achieves using Bernstein's, Ferri's or others expected returns going forward, the differences are dramatic. I think they make a very strong case that future returns will be muted compared to historic returns. IOWs, using historic returns to determine your SWR going forward may lead to increased failures. Since that is what I believe, I would not increase my SWR after a good year just because rerunning firecalc gives me a successful result.


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Old 03-22-2015, 05:09 PM   #59
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Not our responsibility, but I worry about members who aren't able to sort fact from outright speculation here anyway.
  • There are many great posts (what we know),
  • others that ask good questions (what we don't know),
  • and others that are simply unfounded (what we don't know we don't know).
Unfortunately the latter might be hard to recognize by those who haven't worked through the nuts and bolts of retirement income planning themselves.

In this thread we have a few looking at present conditions (even exaggerating same) and making unfounded claims, who are for some reason unable or unwilling to review or compare to past history, or even address them when offered.

That said, FIRECALC doesn't try to predict the future, nor does it offer any guarantees - clearly stated in the supporting text. The future might be worse than the past (though the past isn't all rosy by any stretch), and it's wise to plan accordingly. But it's not a foregone conclusion as some would have us believe.

Good luck...
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Old 03-22-2015, 05:37 PM   #60
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Firecalc, from my understanding, tells you how you WOULD have done given historical info. I hope I have that right. It is but one tool to help guide you if you are in the ballpark based on historical information.

I think any plan should be flexible pending market conditions. Of note, I ran 2 scenarios. I like audreyh1's % of portfolio method. I had intended to use a fixed amount, inflation adjusted. Interestingly, they both gave 100% success for my numbers, but the fixed amount yielded a higher average portfolio amount. (3% WR/yr = fixed amount).

I also like Fidelity's RIP calculator. It tells you upfront that it assumes WORSE than historical averages for rate of return. So far that has been the toughest test for me to pass.
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