Firecalc question

[palomalou]

Stupid question, most likely: when I run it, under portfolio, I put only money (investments, cash), not our condo, because it appears on portfolio changes. But should it appear under "portfolio" on page 1, since it is a part of net worth? Thanks.

 

[MichaelB]

Stupid question, most likely: when I run it, under portfolio, I put only money (investments, cash), not our condo, because it appears on portfolio changes. But should it appear under "portfolio" on page 1, since it is a part of net worth? Thanks.

A good question. I wouldn’t include our home and would only look at investment assets. Our home is where we live and not an asset that will provide us with income.

 

[bloom2708]

Maybe inlcude a portion if a plan to downsize is included in your retirement scope.

 

[LateToFIRE]

Not a stupid question at all. Basically, you're asking how to incorporate home equity into your plan. Some folks will argue that you have to live someplace so don't include it anywhere. In my case, sure I need to live someplace, but I could live someplace a whole lot cheaper if I had to, plus I think would downsize anyhow when we reach our 80's.

So, basically, I do not include home equity in the portfolio amount, but I do include net proceeds from sale of the home at age 80 under the Portfolio Changes tab. FYI, I make some assumptions about the appreciated value of the home at that time, and subtract cap gains taxes, commission costs, and mortgage balance. I'll run FIRECalc with and without this item to see how dependent the result is on it. I basically assume that when/if we sell the house that we're likely going into a rental type situation that will have basically similar costs to owning the house and carrying a mortgage.

FIRECalc is not ideal for tweaking this level of detail. Which is why I also use Excel-based models that can be highly customized.

 

[mathjak107]

firecalc is about investing liquid assets so they can generate a safe , secure consistent income .

the home you live in can’t be rebalanced , you can’t spend the hall closet at the supermarket and you can’t swap one room for someone else’s room .

your home is an expense while you consume it yourself and until the day comes you can convert that house into an income stream , it plays no role other then to maybe provide cheaper housing then renting if even that .

 

[HI Bill]

...should it appear under "portfolio" on page 1, since it is a part of net worth? Thanks.

No non-invested assets (including homes, personal items, jewelry, cars, etc. and most depreciating assets should not be included. In FIRE planning, net worth isn't really relevant, only "net investable or net invested assets" that can generate earnings and be sold and spent. You'll always have to live somewhere.

 

[skyking1]

As LateToFIRE pointed out above, there is a tab for putting in any large in and out to the funds.
If you do have a plan on selling the big house and either renting or downsizing you can throw it in there.

 

[LateToFIRE]

No non-invested assets (including homes, personal items, jewelry, cars, etc. and most depreciating assets should not be included. In FIRE planning, net worth isn't really relevant, only "net investable or net invested assets" that can generate earnings and be sold and spent. You'll always have to live somewhere.

Every situation is a bit different. For example, I have substantial equity in my "retirement home". After a couple of decades, I expect, given the attractiveness of the property/community, and amortization on the mortgage, that even with conservative assumptions the home equity would grow to well over $1M. Given this is not a trivial asset, it belongs somewhere in the retirement plan either in the form of potential proceeds from sale, or as a back-up contingency for LTC. So, yes, we'll always need a place to live. But, no, we don't always have to live in a million dollar home. It is a relevant part of planning.

 

[Gumby]

The Portfolio Changes tab is for future additions to/subtractions from portfolio. I would put the value of my house there and use the date when I expect to sell and downsize/go to a CCRC.

 

[mathjak107]

firecalc is really about stress testing a portfolio of stocks and bonds to see the portfolio capabilities.

everything else just gets calculated as an income stream and added to the portfolio capabilities when the time comes

be it a pension , alimony , annuity , rental income , social security , etc , it just gets added to portfolio capability

 

[old medic]

Not a stupid question at all.... I do not include home equity in the portfolio amount, but I do include net proceeds from sale of the home at age 80 under the Portfolio Changes tab.

I would see this as the best option to use if you wanted to include the sale of anything thats not an invested asset.

 

[HI Bill]

Every situation is a bit different. For example, I have substantial equity in my "retirement home". After a couple of decades, I expect, given the attractiveness of the property/community, and amortization on the mortgage, that even with conservative assumptions the home equity would grow to well over $1M. Given this is not a trivial asset, it belongs somewhere in the retirement plan either in the form of potential proceeds from sale, or as a back-up contingency for LTC. So, yes, we'll always need a place to live. But, no, we don't always have to live in a million dollar home. It is a relevant part of planning.

Yes, your home belongs in your retirement plan (unless you plan to age in place), and may well substitute for LTC insurance. But it does not belong in any calculator that determines a success rate given a specified withdrawal rate (WR), unless it's a second home and you know exactly when you plan to sell it (or pre-determine to go into a care facility on a certain date). This is due to the SORR (sequence of returns risk).

Here's an example: For a 30-year retirement, let's assume that you have $3M in invested assets. If you withdraw 4% annually, your risk of running out of $ fails at the earliest at the 23rd year. But if $1m of these assets are actually your house, and you re-run FIRECALC with $2M, but still spending $120K annually, your first failure point occurs at 12 years. If you hit this sequence of returns and never faltered in following the 4% rule based on $3M, you could end up having to go back to w$rk and selling the house. Not the retirement most here want, nor plan for.

 

[Gumby]

FIRECalc has you specify when the value of the house will be added to your portfolio, which I believe addresses your issue. I have always put in the year I turn 85. But it really doesn't matter one way or the other. We're good to go with financial assets only.

 

[Koolau]

I've relayed before that I considered my Hawaii home as an asset (before I moved into it - and was renting it out.) My mainland home at the time was NOT an asset for FIRECalc purposes (just my convention.) BUT when I moved to Hawaii, suddenly, my Hawaii property value "disappeared" from my NW and my old mainland house was added as an asset - until I sold it a few months later. That made quite a difference in invested assets so it's fair to ask the question you asked. I think our convention here is usually NOT to include residence value, but YMMV.

 

[mathjak107]

net worth is very different than calculating a safe withdrawal rate from a portfolio.

net worth can include different assets for different reasons .

technically anything you can sell from your car or furniture or jewelry or old fishing gear can be part of a net worth statement.

but stress testing a portfolio for capability is something else

 

[LateToFIRE]

Yes, your home belongs in your retirement plan (unless you plan to age in place), and may well substitute for LTC insurance. But it does not belong in any calculator that determines a success rate given a specified withdrawal rate (WR), unless it's a second home and you know exactly when you plan to sell it (or pre-determine to go into a care facility on a certain date). This is due to the SORR (sequence of returns risk).

Here's an example: For a 30-year retirement, let's assume that you have $3M in invested assets. If you withdraw 4% annually, your risk of running out of $ fails at the earliest at the 23rd year. But if $1m of these assets are actually your house, and you re-run FIRECALC with $2M, but still spending $120K annually, your first failure point occurs at 12 years. If you hit this sequence of returns and never faltered in following the 4% rule based on $3M, you could end up having to go back to w$rk and selling the house. Not the retirement most here want, nor plan for.

Much as I appreciate FIRECalc, the danger with most of these calculators is gross over-simplification, leaning towards extreme over-conservatism. I don't see anything wrong with running both scenarios - that would give you an idea how much risk there is in relying on sale of the home. That's been my approach - fortunately my plan works with and without the sale. In real life, people adapt as unforeseeable circumstances unfold. The calcs simply tell us how prepared we're likely to be.

 

[MichaelB]

Much as I appreciate FIRECalc, the danger with most of these calculators is gross over-simplification, leaning towards extreme over-conservatism. I don't see anything wrong with running both scenarios - that would give you an idea how much risk there is in relying on sale of the home. That's been my approach - fortunately my plan works with and without the sale. In real life, people adapt as unforeseeable circumstances unfold. The calcs simply tell us how prepared we're likely to be.

FIRECalc is not like other calculators because it uses historical returns instead of MonteCarlo calculations. As to overly conservative, that is the user, not the model. We each define the level of risk we are willing to take. The fact that another may choose a more conservative approach does not make them wrong and you right, or vice versa.

I think it’s are to say most forum members understand it is a tool to help make an informed decision, nothing more, and that there are many more ingredients toma successful retirement, beginning with health.

 

[LateToFIRE]

FIRECalc is not like other calculators because it uses historical returns instead of MonteCarlo calculations. As to overly conservative, that is the user, not the model. We each define the level of risk we are willing to take. The fact that another may choose a more conservative approach does not make them wrong and you right, or vice versa.

I think it’s are to say most forum members understand it is a tool to help make an informed decision, nothing more, and that there are many more ingredients toma successful retirement, beginning with health.

I don't disagree with anything you stated - BUT from what I see, results are often presented in a way that obscures the fact that actual risk is relatively low. I don't think it's beneficial to scare the heck outta folks that they'll be eating cat food in retirement if they don't score +100%. That just isn't reality - just my opinion.

 

[MichaelB]

I don't disagree with anything you stated - BUT from what I see, results are often presented in a way that obscures the fact that actual risk is relatively low. I don't think it's beneficial to scare the heck outta folks that they'll be eating cat food in retirement if they don't score +100%. That just isn't reality - just my opinion.

I’m not sure what you are referring to. Discussions here about FIRECalc results are open, straightforward, and usually very helpful. There’s no misrepresentation or scaring anyone, risk is discussed in context. There are thousands of discussion along those lines if you care to search the archives.

I think your post is a straw man, in no way does it represent or characterize the typical or common discussion on retirement finance here.

 

[pb4uski]

I've never included our homes in retirement assets even though it is likely that at some point we'll downsize to one home or perhaps even sell both and enter a CCRC.

I know a couple who is in the process of selling their Florida condo and will then also sell their Vermont summer home and move into a CCRC near where one of their kids lives.

 

[mathjak107]

I don't disagree with anything you stated - BUT from what I see, results are often presented in a way that obscures the fact that actual risk is relatively low. I don't think it's beneficial to scare the heck outta folks that they'll be eating cat food in retirement if they don't score +100%. That just isn't reality - just my opinion.

the whole idea of a safe withdrawal rate is to pensionize an income that is safe , secure and consistent in good and bad times .

no one likes pay cuts .

firecalc is based around getting at least 90% of the rolling retirements we actually had to make it thru with no pay cuts , the worst of times to date .

so that is what a safe withdrawal rate is .if someone does not mind taking a pay cut if they are a poster child for a bad sequence and outcome then they can do as they like.

but a safe withdrawal rate strives to keep your income stable and adjusted for inflation

 

[Yipper]

I've relayed before that I considered my Hawaii home as an asset (before I moved into it - and was renting it out.) My mainland home at the time was NOT an asset for FIRECalc purposes (just my convention.) BUT when I moved to Hawaii, suddenly, my Hawaii property value "disappeared" from my NW and my old mainland house was added as an asset - until I sold it a few months later. That made quite a difference in invested assets so it's fair to ask the question you asked. I think our convention here is usually NOT to include residence value, but YMMV.

I do the same Koolau. Investment properties are considered assets that I typically include as portfolio adds at the approximate value and timing that I expect to liquidate them (for 'retirement calculator' purposes). Our principle residence is NOT an asset but I do consider it LTC insurance.

 

[CardsFan]

Re: Firecalc

Of all the (free) tools I came across while planning FIRE, Firecalc was the only one that made complete sense to me. Real data from the last 100+ years. Real SOR numbers because of this.

You can pick your risk level. It does not need to be 100% (though, I think most here go for 90-100).

Nothing is perfect, but for planning purposes, I think it is the best tool out there, due to its simplicity.

JMHO

 

[mathjak107]

for most of us when you combine a 90% success rate with the odds most of us won’t last until those ages planned for , that actually pushes the success rate odds higher passed 95% .

also to put in to perspective what the odds of failing at 4% is , those are the same odds of ending with 6 times what you started with .

so sequence risk goes both ways .

 

[LateToFIRE]

I’m not sure what you are referring to. Discussions here about FIRECalc results are open, straightforward, and usually very helpful. There’s no misrepresentation or scaring anyone, risk is discussed in context. There are thousands of discussion along those lines if you care to search the archives.

I think your post is a straw man, in no way does it represent or characterize the typical or common discussion on retirement finance here.

I think you are taking my comments very personally - that was not my intent. Agree that it would be difficult to generalize - so I take your point that perhaps I shouldn't. What I can speak to is my own experience. I am professionally knowledgeable in the areas of finance and securities - though retirement planning, as a subset, has represented a very steep learning curve as of late.

My overall experience, both on ER and other forums, and in using calculators both FIRECalc and many others, is that there is a perception among users that anything short of 100% conventional success is failure. It's taken me quite a bit of reading and observing to come to a decent understanding of just how narrowly defined the results of these calculators (and the interpretations) tend to be viewed.

Maybe there's no better way to present an analysis that is trying to capture hundreds of variables in a simple, digestible way. But, seems to me that a lot of nuance, which might be applicable to specific situations, can get lost.