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Portfolio end of year balance
Old 07-28-2006, 12:22 PM   #1
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Portfolio end of year balance

Are the end of year portfolio balances in FIRECalc results expressed in today's dollars, or future dollars? I've tried searching for a clarification, but don't find anything.* I'm guessing they are today's dollars, but I would like to confirm that.* Thanks in advance!
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Re: Portfolio end of year balance
Old 07-28-2006, 12:56 PM   #2
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Re: Portfolio end of year balance

They are in "today's" dollars for the end of each period.* *For example, for the 30-year sequence 1901-1930, the ending balance is in 1930 dollars.

The average of all the ending balances for each sequence is given at the end of the run.* *That number is fairly meaningless since inflation was different in each period, but it can be used as a relative measure for different runs.* *(I.e., you can't interpret the number in today's dollars or any other dollars for that matter.)
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Re: Portfolio end of year balance
Old 07-30-2006, 08:09 AM   #3
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Re: Portfolio end of year balance

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
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Re: Portfolio end of year balance
Old 07-30-2006, 09:37 AM   #4
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Re: Portfolio end of year balance

I mistakenly thought it was the balance at the end of the designated retirement period (e.g. 35 years). The number you might use, for example, to see what your estate would be for inheritance purposes.

Sounds like your assumptions are reasonable, Dory. Maybe just a little wordsmithing of the explanatory text would do the trick.

Another miniscule suggestion: the setting for the "save as link" checkbox is not passed to the link it self, so you have to keep rechecking it under each new saved scenario. Thanks.
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Re: Portfolio end of year balance
Old 07-30-2006, 11:46 AM   #5
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Re: Portfolio end of year balance

Quote:
Originally Posted by Rich_in_Tampa
I mistakenly thought it was the balance at the end of the designated retirement period (e.g. 35 years). The number you might use, for example, to see what your estate would be for inheritance purposes.

. . .
If you want to make sure you leave today's equivalent of $1M, for example, to your heirs, you can run FIRECALC and include a 1-time $1M expense in the final year of the simulated sequence. This will cause FIRECALC to subtract an inflation adjusted $1M from the portfolio in the final year of the simulation. This, of course, reduces your survivability and SWR. The result tells you something about your SWR and/or required initial portfolio amount if you want to leave your heirs something.
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Re: Portfolio end of year balance
Old 07-30-2006, 12:27 PM   #6
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Re: Portfolio end of year balance

Quote:
Originally Posted by dory36
The previous version of FIRECalc gave terminal portfolio balances in unadjusted dollars.
Ugh. I was confused by your use of the term "inflation adjusted." An adjustment can be either up or down. For example, the principal value of TIPS get an inflation adjustment every six months.

I wonder if there's a better term. How about "all values are in terms of the dollars as of the beginning of the retirement period."
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Re: Portfolio end of year balance
Old 07-31-2006, 04:39 AM   #7
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Re: Portfolio end of year balance

Quote:
Originally Posted by Rich_in_Tampa
Another miniscule suggestion: the setting for the "save as link" checkbox is not passed to the link it self, so you have to keep rechecking it under each new saved scenario. Thanks.
Better -- I just took that option out altogether, and instead make the link always available, in the standard "show success rate" processing. (For reasons that have only to do with how I coded things, it would be a lot more work to make the link available with the other options, so that will have to wait...)

Quote:
Originally Posted by wab
I wonder if there's a better term. How about "all values are in terms of the dollars as of the beginning of the retirement period."
Good idea - done!

dory36, whose &^%* dog decided I should get up early this morning...
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