FIREcalc - Has it measured up all these years?

[Midpack]

Quote:

Originally Posted by garyt I do think the fact that firecalc goes all the way back to the 1800's a bit worrisome. I think it'd be nice if you could start it at say 1950, or 1960 for example and have it run the 60 or 70 simulations from there.

You can.

Your concern along with several others above might be addressed by using the spreadsheet option, which displays the result data for 30 years at a time. You don’t have to look at early data.

Run your results with spreadsheets starting at 1987, 1957, 1927, 1897, 1871 or whatever periods you want to see - and look at exactly what periods failed. You may be surprised, there are some horrible periods way back too.

But again, FIRECALC isn’t predicting the future, it is simply showing how your portfolio would have fared in the past. It’s up to you to decide how that may compare to your actual future. Some here see the FIRECALC shows a 95% success rate at 4% withdrawal rate for their scenario, and conclude they need to limit withdrawals to 3% just to be safe.

If you’re expecting FIRECALC to predict the future you’re misguided, no calculator can predict the future...

[audreyh1]

I think for something like the worst 20 scenarios in my cases, 19 of them occurred before 1920 start date. 1965 was the exception and it was very low ranked in terms of worst.

For me having those bad early cases makes up for how rosy things have been overall in the US since WWII.

[photoguy]

Quote:

Originally Posted by Curmudgeon It's like telling a random person "Don't worry, only 6% of people in the US die from lung cancer each year". Those odds might be somewhat different if you know that person has been a smoker for 40 years - in which case the success rate is much lower.

You just described the difference between conditional and marginal probability.

You might think that a conditional probability is always better because it's accounting for more factors, but this isn't always the case. Especially when you don't have much data.

Bottom line is that you'll never get much more accurate than a rough ballpark estimate.

[xplorer]

We retired Jan 1999 at 48 yoa with our financial planner's blessing and doing our own prior due diligence. Started using FIREcalc in 2003 time frame as an annual check on our financial sanity among other free calculators. We ditched the financial planner in 2008, moved most investments to Vanguard and haven't looked back. We continue our annual recalculations with Firecalc and others and feel more confident today after 18 years in retirement despite the financial markets turmoil. I credit our success to committing to an investment plan (in writing) after much research then following the plan, asset diversity for protection and semi-annual or annual re balancing.

We like and continue using FIREcalc in our re-evaluations because it offers a degree of complexity that ensures we are honestly considering the various financial variables. It is also fun to look back and compare the annual runs. Granted we use other free calculators. I'm no expert but I feel confident that our total portfolio is performing near market indexes with a lot less risk than it was when we were paying an active manager.

The years from age 48 to age 66 were among the scariest because we watched our single highest expense, health insurance, rise to over $1,900 a month which was about $500 more a month than our original plans.

Good luck with your decision whichever way decide.

[Curmudgeon]

Quote:

Originally Posted by Midpack Optimism has nothing to do with it. FIRECALC shows how your portfolio would have fared from 1871 to present

Yes, of course. Hopefully everyone who uses FIRECalc already understands this.
But, the verbiage that I always see from people, including on this site and in this thread, runs along the lines of "FIRECalc predicts a 95% success rate". So the 'take-away' for many/most people is something they see as a probability statistic.

Quote:

Originally Posted by photoguy You just described the difference between conditional and marginal probability.

Exactly! I just didn't want to get all mathematical here .

The point is, we DO know some important things about a retirement which begins today: It is happening at a time when the stock market is at an all-time high. It is happening at a time when we haven't had a significant bull bear market in over 10 years. It is happening at a time when interest rates are at an all-time low.

So, my contention is, the conditional probability is a more accurate prediction of success rate here. And, I'm guessing that the conditional probability here is significantly lower than what FIRECalc is giving.

[ziggy29]

Quote:

Originally Posted by audreyh1 It is not a Monte Carlo simulator. It doesn't do any kind of random stuff.

This is what happens when you hurry and mess up an edit before hitting submit and leaving the house. I originally remember writing this before I screwed up my edits:

"It is basically a look at many combinations of past results, not a Monte Carlo simulator, ... "

Oops. Must have dragged my cursor before hitting backspace somewhere.

[Lsbcal]

I personally do not put much faith in very long ago results because the US and world economy have changed so drastically.

I take the information prior to the Great Depression of the 1930's with a huge grain of salt. Most of my analysis uses the post WW2 period to plan.

[harley]

Quote:

Originally Posted by Curmudgeon It is happening at a time when the stock market is at an all-time high. It is happening at a time when we haven't had a significant bull market in over 10 years. It is happening at a time when interest rates are at an all-time low.

The stock market spends a fair amount of time at all time highs. https://www.thebalance.com/dow-jones...e-1929-3306174

And I don't know what your definition of a significant bull market would be, since I don't think you can get to all time highs without one. I would say having the S&P up around 200% since 2009 would be considered a bull market.

Or maybe that was a typo. Not having a bear market in 10 years would make more sense.

But neither of these points makes any difference with Firecalc. If you use it for the purpose for which it was created, it gives you absolute information. If you are comfortable enough to retire based on the knowledge that your portfolio would survive 95% (or whatever) of the time over the past 130+ years, it has given you that information.

[Curmudgeon]

Quote:

Originally Posted by harley The stock market spends a fair amount of time at all time highs. https://www.thebalance.com/dow-jones...e-1929-3306174 Not having a bear market in 10 years would make more sense.

Sorry, that was a typo. Fixed.

Quote:

Originally Posted by harley But neither of these points makes any difference with Firecalc. If you use it for the purpose for which it was created, it gives you absolute information.

The "absolute information" it gives me is worthless. It tells me, for example, whether I would have been successful had I retired in 1917. Why would I care? I wasn't even born yet.

The purpose of (inferential) statistics is to look at historical data, and use it to make a prediction. If I flipped a coin 1000 times yesterday and got 492 heads and 508 tails, I can make a good prediction about what I will get if I flip the coin another 100 times. A prediction is not certainty - that is understood.

Similarly, when I run FIRECalc, I use it to get a prediction of the likelihood that my retirement - beginning this year, or some other year not covered by FIRECalc - will be successful. I know that this prediction is not certainty, however it is still meaningful.

If you're actually claiming that you ran FIRECalc to see what would have happened had you retired 50 years ago (the purpose for which it was created) - that seems like a pretty pointless exercise.

[harley]

Quote:

Originally Posted by Curmudgeon If you're actually claiming that you ran FIRECalc to see what would have happened had you retired 50 years ago (the purpose for which it was created) - that seems like a pretty pointless exercise.

No, of course not, and I'll thank you to not put words in my mouth. Running Firecalc will show you that if times are no worse in the future than they have been in the past, you would have a pretty good chance of running or not running out of money should you retire now/whenever. That's all it shows, and that's all it claims to show. It's useful for helping people understand how they would have fared in bad times past or in good times past. It could possibly help a person feel better or worse about their odds should they retire now/in the future. That's it. Obviously nothing will guarantee that things won't be worse in the future, but unless you plan to work until you die you have to pull the trigger at some point. Firecalc is one tool that can help you make that decision. Personally I think it's more useful in helping with the decision not to retire than to retire, but that's extremely useful too.

[Scuba]

I also like the Fidelity Retirement Income Planner tool. In addition, before we ER'd, we had a financial adviser review our portfolio compared to cash flow needs and confirm what they felt would be a safe spending level.

[garyt]

Quote:

Originally Posted by Midpack You can. Your concern along with several others above might be addressed by using the spreadsheet option, which displays the result data for 30 years at a time. You don’t have to look at early data. Run your results with spreadsheets starting at 1987, 1957, 1927, 1897, 1871 or whatever periods you want to see - and look at exactly what periods failed. You may be surprised, there are some horrible periods way back too. But again, FIRECALC isn’t predicting the future, it is simply showing how your portfolio would have fared in the past. It’s up to you to decide how that may compare to your actual future. Some here see the FIRECALC shows a 95% success rate at 4% withdrawal rate for their scenario, and conclude they need to limit withdrawals to 3% just to be safe. If you’re expecting FIRECALC to predict the future you’re misguided, no calculator can predict the future...

Thanks, I'll check that out.

[Midpack]

Quote:

Originally Posted by Curmudgeon The "absolute information" it gives me is worthless. It tells me, for example, whether I would have been successful had I retired in 1917. Why would I care? I wasn't even born yet.

You keep trying to suggest FIRECALC is something it explicitly claims it’s not on page one of the documentation.

Curmudgeon: Asked in post #6 above but again, what methodology do you recommend and use to plan for retirement spending? If you think FIRECALC is “optimistic” and “worthless,” surely you have a better approach for us.

For others reading this thread, here’s yet another good description below. No tool can predict the future (FIRECALC doesn’t claim to), you have to do that. Looking at the past just gives you a potential frame of reference. If you think the future will be worse than any period on the past, just use a lower withdrawal rate than FIRECALC suggests. If you think the future will be much worse, use a much lower withdrawal rate. You’ll have to make adjustments up or down during retirement anyway most likely.

Quote:

Originally Posted by harley Running Firecalc will show you that if times are no worse in the future than they have been in the past, you would have a pretty good chance of running or not running out of money should you retire now/whenever. That's all it shows, and that's all it claims to show. It's useful for helping people understand how they would have fared in bad times past or in good times past. It could possibly help a person feel better or worse about their odds should they retire now/in the future. That's it. Obviously nothing will guarantee that things won't be worse in the future, but unless you plan to work until you die you have to pull the trigger at some point. Firecalc is one tool that can help you make that decision. Personally I think it's more useful in helping with the decision not to retire than to retire, but that's extremely useful too.

[LRDave]

I've always wondered how many poor elderly souls that are living under a bridge and eating cat food have ruefully said to themselves: "Man, I wish I had run FIREcalc at a 3% withdrawal rate instead of 4%...."

[Andre1969]

I'm not sure about 2002, but I have a feeling that the cycle that started in 2000 might have the potential to be a failure cycle, at least for me. I ran a few cycles through Excel. They all started with $1M on 12/31/1999. For each year, I used my own personal rate of return. Using 3% inflation and a 4% withdrawal rate, there would be $247K left as of 12/31/2016. Using actual inflation (or at least the numbers I got from an inflation calculator), it would be around $300K. So, needless to say, this cycle wouldn't last much longer. Even though 2017 has been a great year so far, there just wouldn't be enough money left over to generate the gains needed to offset the withdrawals.

Using a 3% withdrawal rate, however, things look better. At 3% inflation, I'd have $692K left as of 12/31/16, and using actual inflation, it would be $731K. And at the rate 2017 is going, the market gains would easily offset the withdrawal.

However, I'd still wonder about the long term viability of 3% in this case. When you add in inflation, that $1M on 12/31/1999 would be around $1.4M on 12/31/2016, so roughly half of the starting portfolio is gone. And the 2017 withdrawal is now $43214 adjusted for inflation. Against a remaining value of $731K, what had started off as a 3% WR is now up to 5.9%. I have a feeling this cycle won't make it 30 years, as is. Of course, throw in social security, a little belt tightening during the lean years, it probably would.

[ERD50]

Quote:

Originally Posted by Andre1969 I'm not sure about 2002, but I have a feeling that the cycle that started in 2000 might have the potential to be a failure cycle, at least for me. I ran a few cycles through Excel. They all started with $1M on 12/31/1999. For each year, I used my own personal rate of return. Using 3% inflation and a 4% withdrawal rate, there would be $247K left as of 12/31/2016. Using actual inflation (or at least the numbers I got from an inflation calculator), it would be around $300K. So, needless to say, this cycle wouldn't last much longer. Even though 2017 has been a great year so far, there just wouldn't be enough money left over to generate the gains needed to offset the withdrawals. Using a 3% withdrawal rate, however, things look better. At 3% inflation, I'd have $692K left as of 12/31/16, and using actual inflation, it would be $731K. And at the rate 2017 is going, the market gains would easily offset the withdrawal. However, I'd still wonder about the long term viability of 3% in this case. When you add in inflation, that $1M on 12/31/1999 would be around $1.4M on 12/31/2016, so roughly half of the starting portfolio is gone. And the 2017 withdrawal is now $43214 adjusted for inflation. Against a remaining value of $731K, what had started off as a 3% WR is now up to 5.9%. I have a feeling this cycle won't make it 30 years, as is. Of course, throw in social security, a little belt tightening during the lean years, it probably would.

According to my research, 1999 is a bad start year (worse than 2000), but far better than 1966 (the worst) and 1973 (second worst).

-ERD50

[Lsbcal]

Here are the results from VPW for retirement at the start of 2000 with a 60/40 portfolio. The low was an inflation adjusted $617k and by the end of 2016 one would have $842k. I modified VPW here to use a 4% constant withdrawal rate.

[Ready]

Quote:

Originally Posted by Andre1969 I'm not sure about 2002, but I have a feeling that the cycle that started in 2000 might have the potential to be a failure cycle, at least for me. I ran a few cycles through Excel. They all started with $1M on 12/31/1999. For each year, I used my own personal rate of return. Using 3% inflation and a 4% withdrawal rate, there would be $247K left as of 12/31/2016. Using actual inflation (or at least the numbers I got from an inflation calculator), it would be around $300K. So, needless to say, this cycle wouldn't last much longer. Even though 2017 has been a great year so far, there just wouldn't be enough money left over to generate the gains needed to offset the withdrawals.

What AA are you using in this analysis?

[Andre1969]

Quote:

Originally Posted by Ready What AA are you using in this analysis?

I've been pretty much all in stocks and mutual funds for my whole investing timeframe. Not much in bonds, CDs, cash, etc. I don't know the percentage that was equities, but probably 90% or more over the years. So I've had some pretty wild swings. Anyway, I attached a screen shot of the graphs below; hopefully it shows. The numbers I mentioned in my earlier post were as of 12/31/16, but these graphs show 2017 as well. At the time I made them, I was up about 14% for the year, but we'll see how it closes out...

[Ready]

Quote:

Originally Posted by Andre1969 I've been pretty much all in stocks and mutual funds for my whole investing timeframe. Not much in bonds, CDs, cash, etc. I don't know the percentage that was equities, but probably 90% or more over the years. So I've had some pretty wild swings. Anyway, I attached a screen shot of the graphs below; hopefully it shows. The numbers I mentioned in my earlier post were as of 12/31/16, but these graphs show 2017 as well. At the time I made them, I was up about 14% for the year, but we'll see how it closes out...

It would be interesting to run your analysis at different AA figures to see how things would change. We know that being almost entirely in stocks starting in 1999 would be devastating looking backwards, but most of us are not that aggressive investors.