FIREcalc - Has it measured up all these years?

[DawgMan]

I am a couple years out from ER and have played with FIREcalc a few times and on the surface, can see how it can give you the self confidence to launch when most of those colorful lines are a good bit above the 0 and it spits out a 90% + success rate. It appears it has been around since 2002? Curious, for those of you who used FIREcalc back in 2002, how has it faired relative to it’s projections? I know that it’s not much of a window compared to a 100 yr history, but I suppose I am after the answer to the question... do you have the same confidence in the calculator that you did in 2002? Have you found other calculators, tools, formulas that you prefer today or cross check with FIREcalc? I know it’s not the end all/be all, but FIREcalc still seems to reign on this site. Just curious to what other tools those of us close ER should be considering.

 

[REWahoo]

...for those of you who used FIREcalc back in 2002, how has it faired relative to it’s projections?

Not sure how to answer this question. I can only say FIRECalc said if the 30 years following my retirement were no worse than the previous 130 I had better than a 95% chance of not running out of money before I ran out of me. After 12+ years of retirement it appears that will probably be the case.

 

[braumeister]

I retired in 2001, so I didn't have the benefit of FIRECalc. Didn't discover it (and this forum) until much later. So I can't answer the question directly, but I did have enough confidence to pull the plug. I just did the math and peered into my crystal ball.

Obviously, a calculator can't give you confidence, but it can certainly bolster your own confidence. FIRECalc does an excellent job at that.

 

[Curmudgeon]

Not a direct answer to your question, but here's my concern with firecalc, especially with the 'percent success' metric:

If it runs 130 simulations, and (say) 7 fail, it says your success rate is 95%. The trouble is, that is 95% of ALL recent scenarios, even scenarios that bear no resemblance to the current status. For example it might include years that are very much like 2009 (when the stock market had just fallen significantly). However, if you're beginning your retirement now, you're in a situation where the stock market is high (measured by objective measures such as P/E, etc.), and the bond market is also likely high. If firecalc did it's simulation by only selecting start years that looked something like today's situation, it might only do 20 simulations, and find that you failed in 7 of them - so, more like a 65% success rate.

Now, of course I can't predict the markets, and I can't claim I have a way of finding other starting points that are 'similar' to the current status, but I feel that the statistics provided by firecalc may - under current conditions - be optimistic.

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.

 

[REWahoo]

Not a direct answer to your question, but here's my concern with firecalc, especially with the 'percent success' metric:

If it runs 130 simulations, and (say) 7 fail, it says your success rate is 95%. The trouble is, that is 95% of ALL recent scenarios, even scenarios that bear no resemblance to the current status. For example it might include years that are very much like 2009 (when the stock market had just fallen significantly). However, if you're beginning your retirement now, you're in a situation where the stock market is high (measured by objective measures such as P/E, etc.), and the bond market is also likely high. If firecalc did it's simulation by only selecting start years that looked something like today's situation, it might only do 20 simulations, and find that you failed in 7 of them - so, more like a 65% success rate.

Now, of course I can't predict the markets, and I can't claim I have a way of finding other starting points that are 'similar' to the current status, but I feel that the statistics provided by firecalc may - under current conditions - be optimistic.

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.

I see why you chose your screen name...

 

[Midpack]

Now, of course I can't predict the markets, and I can't claim I have a way of finding other starting points that are 'similar' to the current status, but I feel that the statistics provided by firecalc may - under current conditions - be optimistic.

Optimism has nothing to do with it.

FIRECALC shows how your portfolio would have fared from 1871 to present - which by the way includes two World Wars and the Great Depression plus many other wars and dozens of recessions. It’s up to you to decide how the future will unfold, how it may compare to the past, and decide what safety factor and withdrawal rate/method you need to sleep at night. FIRECALC doesn’t predict anything, clearly stated on the site.

“How can FIRECalc predict future returns from past performance?
It can't. And it doesn't try.”

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.

Not a valid analogy for your POV, unless we’re all smokers...

What are the tools you use to plan for a 30 year retirement?

 

[SpinDr]

In answer to what other types of retirement calculators are available. There are a bunch! Outside of FireCalc I've used Financial Engines, Vanguard Nest Egg Calculator, T Rowe Price Future Path, Market Watch Retirement Calc, Fire Sim Calc, and the Schwab Retirement Calculator. All have their merits but still really love the FireCalc interface and flexibility.

 

[REWahoo]

Give this a look: The Best Retirement Calculators - Can I Retire Yet?

 

[Sunset]

OP - first off I want better than a 90% chance. To me 95% is the minimum.

When I retired, I simply used the 4% rule, guessing that it was enough $$ to live, as I didn't really know exactly what my costs were per year.
Since then I ran a bunch of calculators and they all said it was fine.

I have found it enlightening and freeing to actually record my expenses on my phone each day as I make them. It's easy, takes a few seconds and gives me a really accurate view of my expenses.

Without truly knowing your expenses, how can you possibly say $X is enough ?

 

[audreyh1]

Firecalc includes an absolutely horrible period from 1871 to 1920 that is far worse than anything post 1920, including the 1929 crash and great depression.

So I don't worry too much if the post World War II years have been far rosier, because that's not all Firecalc is using.

Still - it is historical, like REWahoo said. Is it possible that the next 30 years includes a period worse than the last 145? Of course it's possible.

Some things are out of our hands. We can only prudently prepare. We can't guarantee anything.

 

[Huston55]

Give this a look: The Best Retirement Calculators - Can I Retire Yet?

+1 Darrow’s retirement calculator (RC) reviews are among the best available.

FYI he’s currently working with a colleague to develop his own RC for Android devices, to be released later this year. I think you can stay updated on this via his blog, linked above by REW.

 

[Onward]

Whenever I hear about a new retirement calculator, I go try it. I've tried dozens.

I keep coming back to FIREcalc.

 

[samclem]

No future market performance can invalidate the information provided by FIRECalc, since it is backward-looking and doesn't attempt to forecast the future.

A question that I think is perhaps more important: "Have you been able to stick to your asset allocation and withdrawal plans in the face of market turmoil and unsettled world events? Did the historical information/perspective provided by FIRECalc prove useful in helping you avoid panic, or did you lose faith in the relevance of the information from FIRECalc ('this time it is different')?

 

[ziggy29]

It's important to remember what it is -- it is basically a Monte Carlo simulator, using historical data to project what the future would look like IF the future was like the past. It does not claim the future will be like the past.

As I look at it, "past performance is no guarantee of future results", but IMO it's probably a better predictor than anything else out there.

 

[REWahoo]

It's important to remember what it is -- it is basically a Monte Carlo simulator, using historical data to project what the future would look like IF the future was like the past.

Quibbling maybe, but by definition a Monte Carlo simulation uses random data/outcomes. FIRECalc uses, as you said, historical data and the sequence of return implication is a significant differentiator from purely random outcomes.

 

[Doc Holiday]

Is it a Monte Carlo simulator? I thought MCs were using random data production based on a set of parameters, e.g., inflation range of 1-4%. Market return 2-16%, etc. The multiple lines are multiple iterations of those values randomized but no correlation to actual history.
I thought FIRECalc is using historical data, running you through 30 year cycles starting every year in the past from 1870.
I’m sure smart people here can educate me.

 

[audreyh1]

It's important to remember what it is -- it is basically a Monte Carlo simulator, using historical data to project what the future would look like IF the future was like the past. It does not claim the future will be like the past.

As I look at it, "past performance is no guarantee of future results", but IMO it's probably a better predictor than anything else out there.

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

 

[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.

 

[Ready]

I had a review with my financial advisor at Vanguard this week since it had been a couple of years since my last one. It's free, just a service they offer to clients who maintain a minimum balance.

He ran my savings through their monte carlo simulator, and the numbers came out a bit lower than Firecalcs, which means that at least a few of the random simulations they generate produce a sequence of returns that are worse than the worst returns and inflation in stock market history (or at least since 1871).

So if you want to be even more conservative than Firecalc, try using Vanguard's calculators and see what their numbers tell you. I'd say if you can get to 100% with their calculator using a spend rate that you are comfortable with, you are ready to call it a day.

 

[Alan]

I always considered Firecalc as a “backcaster” and used it along with 2 “forecaster” tools, one from Financial Engines and one from Fidelity to help make my decision on when to retire. The forecaster tools I ran used Monte Carlo simulation to generate random data looking forward while Firecalc used historical data to see how I would have fared in the past.

Only 7 years into retirement but so far so good and this year we are both now eligible for SS so have extra income streams available.

 

[Midpack]

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]

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]

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.

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.