Using FireCalc after retirement
Hi all,
Apologies if this is a repeat and/or dumb question, I couldn't immediately see what I was after knowing in the thread list. So, scenario: if I use Firecalc and come up with a 'number' for my retirement, and then live that financial life for 1 year. The stock market just happens to dip by 15%. I come back to Firecalc 1 year later with my reduced portfolio and my number of retirement years 1 year less. I input those numbers. Should/would I expect to generate the same result i.e. same number of successful cycles? I'm not sure if the tool can really be used this way, but it'd certainly be handy/reassuring if it could be! Thanks 
Quote:
Well, Firecalc doesn't "know" you used it previously and each year one uses it , it is a fresh start. Thus, your results will be lower than your original input, but conceptually you are now reretiring into a lower valued market and thus the market results going forward will have more likelihood of reaching the higher squiggly lines. 
The test is different than your original test, but it is hard to say whether the success rate will be different from the original. It is certainly not guaranteed to stay the same.
Running the test with a 1year shorter life expectancy than the original test, and a different start value than the original test, is not just a simple subset of the original scenario. The whole process is stochastic so things change in unpredictable ways when initial conditions change. 
This is the oft discussed conundrum. Many here hedge by taking say, 4%, of their portfolio value as of a yearly date. That way you are adjusting for lean years and fat years.

It's often useful to occasionally look through FIRECalc's own documentation:
https://www.firecalc.com/intro.php 
Quote:
I'm just trying to clarify the implications of that in my mind. Assuming that it simply doesn't take into account the market level we're at currently, and just uses the data it has independently, wouldn't that be a fatal flaw if one tries to use it 'in motion' so to speak? Taking it to an extreme, if after year 1, our imaginary retiree was unfortunate enough to experience a 1929 monumental recession, wouldn't FIREcalc after that year 1 still be modelling with data including the scenario of what just happened last year i.e. another 75% (or whatever it was) drop? Thereby blowing what appeared to be our retirees very sound plan to smithereens (assuming he/she was trying to achieve 0 cycle failure). Likewise, sitting where we are now, doesn't FIREcalc assume as equally likely a fourfold market gain in the next 10 years than it did when were sitting in 2008? i.e. is it being too optimistic? I'm sure I'm just missing a basic tenet of the calculator here, sorry for the disorganised thought! 
Quote:

Quote:
Perhaps the answer just is " don't use the tool this way"? 
You can run a RIP calculation every year of your retirement if you want, and it is not an invalid thing to do, whatever "invalid" means. A RIP tool is not a prediction of the future, it is a whatif scenario of the past and in that context, one "whatif" is as valid as another.

Quote:
So remember that 1928 included surviving the 1929 drop. It's already baked in. If you recalculate in 1929, you are mostly doublecounting. It's a little hard to get your head around (it was for me). But remember that FIRECalc bases the numbers on the worst scenarios. Follow the squiggly lines, and you see very many of the rise and rise and rise. FC is being conservative. So the 1928 retire is told he can only take X% to survive. Now in 1929, his adjusted withdrawal % is much higher due to the drop, but history says he survives. The % withdraw will go up as the market dips, but that was already accounted for. So the 1929 retiree running these numbers gets an overly conservative number, because now whatever $ he has are 'worth more', but FIRECalc doesn't try to account for this (there's no 100% sure method), it's all based on worst case. ERD50 
Quote:

I just deducted 25% of our savings and when it said we would still be 100% , I was happy.
But the reality is if the market tanked more than 15% I'd start getting worried. 
Quote:
Since it uses historical information, if you are using a 30 year retirement for example, the information from 20092017 is built into a retirement starting in 1987. The Bengen 4% withdrawal concept is probably best used to initially calculate if one is in a good place in order to retire. There are very few folks who actually follow this withdrawal concept year after year including the inflation increase, as this type of spending is not typical of a real retirement spending pattern. Thus as Travelover mentioned, more folks are gravitating to a more variable withdrawal pattern, which rewards up markets, but reins in the spending to an extent in down markets. Quote:

Run some different scenarios using an Excel spreadsheet with both your budget and your overall holdings. Should either give you piece of mind or a plan B

I rerun the calculations every year just to see how they would change. I think most of us take a look at FIRECalc from time to time just to see how the numbers look based on current net worth. But in theory we shouldn’t have to, since as others have said the sequence of returns risk is already baked into the results.
Realistically if the market tanks most of us will pull back spending a bit, and if the market soars, we may loosen the purse strings a bit. Try running the scenario where you ask for a spending level that will give you a 100% success rate. That is the withdrawal rate tha should withstand even the worst cycles in stock market history. 
Quote:
1929 is historically the worst 30year sequence in the last 100 years. If the OP did a FireCalc run of $1mm starting value and it passed 100%, then we know the 1929 sequence succeeded with a starting value of $1mm. If the OP now wants to test his remaining 29 of retirement after 1 year of retirement, his starting value for FireCalc is whatever his actual assets are at the end of his first year of retirement (let's call that X), so he puts that in to FireCalc and it runs all 29year sequences with that starting value. But the 30year sequence stating in 1928 with a starting value of $1mm (the original run) is not equivalent to a 29year sequence starting in 1929 with a starting value of X, unless the performance for 1928 is exactly equal to the performance of his actual first year of retirement. Now if his actual performance in the first year of retirement is better than the performance of 1928, he has nothing to worry about, he will pass at 100% still. But if the performance is worse, you don't know what will happen unless you run FireCalc with the actual asset value at the end of his 1st year of retirement. As it is, the market fell about 12% in 1928 so if the OP's actual first year is better than that, he has nothing to worry about. But this was an easy case: 100% success on the initial, preretirement run of FireCalc, and retesting after just one year of retirement. If someone had less than 100% success on the initial run, and/or retested FireCalc after say, 5 years of retirement, it would be more complicated  the success rate could indeed change. In particular, if in the preretirement run the only sequence of years that failed was the 1929 sequence, and the actual performance of year1 of retirement was positive, when retesting FireCalc, the number going into the terrible 1929 sequence will be much higher than it was on the initial run and it could succeed on the rerun, which would put the remainder of his retirement at 100%. 
Quote:

Quote:

Quote:

[QUOTE=TwoByFour;2144291]The bolded part is not really right, although it might not matter.
1929 is historically the worst 30year sequence in the last 100 years. If the OP did a FireCalc run of $1mm starting value and it passed 100%, then we know the 1929 sequence succeeded with a starting value of $1mm. If the OP now wants to test his remaining 29 of retirement after 1 year of retirement, his starting value for FireCalc is whatever his actual assets are at the end of his first year of retirement (let's call that X), so he puts that in to FireCalc and it runs all 29year sequences with that starting value. But the 30year sequence stating in 1928 with a starting value of $1mm (the original run) is not equivalent to a 29year sequence starting in 1929 with a starting value of X, unless the performance for 1928 is exactly equal to the performance of his actual first year of retirement. Now if his actual performance in the first year of retirement is better than the performance of 1928, he has nothing to worry about, he will pass at 100% still. But if the performance is worse, you don't know what will happen unless you run FireCalc with the actual asset value at the end of his 1st year of retirement. As it is, the market fell about 12% in 1928 so if the OP's actual first year is better than that, he has nothing to worry about. But this was an easy case: 100% success on the initial, preretirement run of FireCalc, and retesting after just one year of retirement. If someone had less than 100% success on the initial run, and/or retested FireCalc after say, 5 years of retirement, it would be more complicated  the success rate could indeed change. In particular, if in the preretirement run the only sequence of years that failed was the 1929 sequence, and the actual performance of year1 of retirement was positive, when retesting FireCalc, the number going into the terrible 1929 sequence will be much higher than it was on the initial run and it could succeed on the rerun, which would put the remainder of his retirement at 100%.[/QUOTE] Bolded  isn't one then effectively using Firecalc in the classic Bengen 4% scenario, but actually is really bringing into concept a "% of remaining portfolio" scenario? Not sure of my comment, but asking. 
All times are GMT 6. The time now is 05:19 PM. 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000  2019, vBulletin Solutions, Inc.