Did your RE if FireCalc said no??

[DangerMouse]

I've run our number thru Firecalc and it gives us a less than 95% chance of being successful if we RE now. We could FIRE on about $10k less a year than we would like.

The way that DH and I are feeling is we have had enough and we want out now. We are at 92% of our target and feel if it came to it, we could always go and work at the Australian equivalent of Home Depot for 10 hours a week to make a bit of extra income if needed. As we have a national health system we don't have to worry about medical premiums getting out of control. Also the other added benefit is we will qualify for an Australian pension at 65 if we managed to blow all the money we have.

So I am wondering if anyone out there ran the numbers, had FireCalc tell them no but did it anyway and it's all worked out.

 

[twaddle]

I RE'd before I even heard of FC, but I think this is an interesting question. I probably would have stayed retired if FC gave me 95% odds, but I would have looked for additional income streams to add another layer of safety.

To me, the lack of stress is a HUGE benefit of retirement. Having a margin of safety is a stress reducer.

 

[Nords]

I've run our number thru Firecalc and it gives us a less than 95% chance of being successful if we RE now. We could FIRE on about $10k less a year than we would like.
So I am wondering if anyone out there ran the numbers, had FireCalc tell them no but did it anyway and it's all worked out.

What exactly does "No" mean? Less than 95%? 90%? 99.99%? Bernstein's calculator from hell series of articles claims that anything over 80% is cannonball polishing.

Most people do what you've done-- reduce your FIRECalc spending (and your quality of life) until you have a high-enough success rate to let you sleep at night. Do those FIRECalc runs also include the pension you'd draw at age 65?

Another option would be tweaking your portfolio mix to see if you can achieve a higher success rate with a higher concentration of higher-return (higher-volatility) assets like small-cap value stocks. Again that's a big sleep-at-night issue for investors, especially before you start drawing the govt pension.

Other choices would be:
- keeping your withdrawal below 4%, or
- running your scenarios on other calculators like FinancialEngines or ESPlanner or I-ORP,
- considering a higher initial withdrawal rate (and reducing it when the pension kicks in) or
- using ESRBob's 4%/95% method in "Work Less, Live More".

But the answer to your question is "not really". When we exceeded our minimum number for our expenses then we knew we could make the leap, which I did a few months later upon achieving retirement eligibility.

 

[Sam]

What exactly does "No" mean? Less than 95%? 90%? 99.99%? Bernstein's calculator from hell series of articles claims that anything over 80% is cannonball polishing.

Ditto.

FIRECalc never says no. It reports the chance of success for the worst possible case.

 

[Martha]

How much fluff in the budget? I sure wouldn't want to have to cut the budget to bare bones to get a high survival rate.

 

[retire@40]

How much fluff in the budget? I sure wouldn't want to have to cut the budget to bare bones to get a high survival rate.

Yup, a retirement budget should be based on realistic expected amounts.

Bare bones is what you could fall back to in case the worst-case happens.

Put the cost of the dessert you've been eating all your whole life in your future food budget too. Chances are that some parts of your lifestyle will not change that much.

 

[Rich_by_the_Bay]

Agree with the gist of the above comments, and would add...

1. IMHO you should never make THE decision based on any single calculator, even Firecalc. 100% does not mean you can retire, and 75% does not mean you can not retire. There is more likelihood that some unforeseen factor (good or bad) will have far more impact than FC being a few percentage points off.

2. You can use the percent of nestegg withdrawal method and never run out of money. You will have to make adjustments to your expenses some years but ESRBobs 95% rule helps there, too.

It's been a while since I've done a serious FC run, but I remember finding myself gaming it inadvertently when I didin't "believe" the results. For example, if the success rate was 100%, I'd say to myself, well SS may not be paying that much when I retire, or maybe an 8% return is unrealistic; when it would show a result that was too low, I'd rethink SS and my ROI estimates.

So overall, I just learned to think of it as a tool to help clarify my assumptions. I've discounted its role in my overall decision, but find it very useful for comparing scenarios, and discovering the outer limits of my assumptions. If you really need to retire or move on for emotional reasons, find a way to do it, FC aside.

 

[twaddle]

If you run FC's default scenario (4% at 30 years), it gives you 94.3% success rate.

That doesn't sound too bad until you realize that:

1) Failure means running your assets down below zero. That's not just failure, that's a catastrophe. A more reasonable definition of failure might mean having your assets cut in half. That's probably when most people would start thinking seriously about unretiriing.

2) You are making a guess about your lifespan. What if you're way low?

3) 94.7% success means 6 different sequences failed. Would you really feel comfortable to see that your plan for the future has already failed 6 times in the past?

 

[DangerMouse]

Thanks everyone for their responses.

By Firecalc saying no, I meant to say it said less than 95% - it comes in at 88%. However, I did build my own spreadsheet which more accurately captures my expected returns than Firecalc does. I use 8% for my equities side of the portion and 5% for the cash and it shows a better success rate. We are also not as vulnerable to the market as we have had 44% of our portfolio in cash for a long time and intend to leave it there. We currently are able to get 7% on our money at the bank. Australia historically has higher interest rates payable than the US as our mortgage rates are always higher - currently 7-8%.

I have left the plan to run until we are 100 in my own spreadsheet. If I reduce our expenditure by $5k a year that gets us thru until we do turn 100. That said, no-one in my family seems to make it out of their 60s, father died in his 50s, 3 out of 4 grandparents died in their 60s, mother is in her early 60s and not likely to make it to her 70s.

As I mentioned, social security system is different in Australia. If our assets fell below $523k we would be eligible for a pension in Australia. Everyone is eligible for the same amount with no regard to how much you put in. Current pension is $880 per month per person. If we are retired we would be getting medical at minimum cost - ie $5 per prescription. If we get below a certain amount and need to move to a nursing home the government pays the bond. Add in we have no children so are not concerned about leaving anything behind, so if we buy a house there is always the option of a reverse mortgage. So things are not quite as grim in Australia for retirees as they are in the US.

The area we are intending to move to is one of the more remote areas of Australia and as such it is very easy to pick up casual work. I'm thinking even if we left here and went back to Australia and worked in the Aussie Home Depot for a year that would give our portfolio time to grow to our projected target. The money we would earn at HD would be low stress and "fun" for people like ourselves used to sitting on our butts in front of computers all day. I know retail can be hard, but the area we are looking at is a very low stress environment, people like to enjoy life and work is just a place you go to earn your money.

 

[Meadbh]

I think you just answered your own question.

Firecalc is just a tool based on historical US returns. You live in Australia. Your supports and investments are different. Above, you have listed many variables that alter the equation. You say your spreadsheet is accurate and takes you to age 100. Run it by some knowledgeable contrarians to test whether your assumptions leave out any likely catastrophies. If it still passes the test, why not follow your instincts?

 

[Bigritchie]

If I could get 8% returns from a bank, I would not even screw with the market.

 

[DangerMouse]

There is also an added advantage if we do work part-time for the next 5 years or so (we are only 45).

If we earnt $10k each a year, we could salary sacrifice $4k into our retirement savings, this amount would be tax advantaged. Our employer would match 9% of our earned income into our retirement savings account. If we do not have earned income we can not contribute to retirement savings. We could then pay $1k out of our after tax earnings into our retirement account with the advantage of that being the government would match that $1k contribution with $1.5k.

Doing this would give us an extra $10k a year, plus increase our retirement savings by $15k.

 

[Nords]

If I could get 8% returns from a bank, I would not even screw with the market.

Eh, not so fast.

In 1982 I had a checking account paying 10% and people were MISERABLE.

 

[Lusitan]

By Firecalc saying no, I meant to say it said less than 95%

Yes, I'd do it.

If had access to national healthcare and a FIREcalc success rate at 88% with any decent amount of "fun" spending in my budget, I'd FIRE if I emotionally/physically felt it was time to do so. As you've said, trimming back on some of the fun spending money and/or picking up a few hours of work part time could cover any shortfall.

 

[FinanceDude]

Eh, not so fast.

In 1982 I had a checking account paying 10% and people were MISERABLE.

My first car loan was in 1982, and because I had GOOD credit, the finance rate was "only" 19%.........

 

[W2R]

My first car loan was in 1982, and because I had GOOD credit, the finance rate was "only" 19%.........

When looking for a house in Carlsbad, California in 1980, we found that 30-year fixed financing from the builder was over 21%.

Pretty amazing from a 2007 point of view!

Since my ex was a Vietnam vet, we got a Cal-vet loan for 5.6% instead, later that year when we finally bought (California state loan program for veterans only). Non-vets were up a tree without a paddle.

 

[OAG]

I "retired" from the Military in 1979, so of course I did. But to be truthful I was looking for a good job after 1979, but never really found it. Did so some stuff but still considered myself "retired" (I like to say my wife was retired when she met me (boy, that took some guts to say, hopefully, I will not regret it); so there was just some wonderful child care and little "financial" support from that arena). I did not know about "firecalk" at that time, but did have a rudimentary knowledge of mathematics that did help me immensely. From what I have seen of using "Firecalc" and knowing the situation back in 79, it would have told me to not retire as there was about a "0" percent of success. IAE (in any event) it all worked out just fine.