Firecalc has that example of three different people retiring '71,'72'73. Always gave me a scare with one guy running out of money.
Sitting at the fancy sidewalk café, I overheard three young gentlemen, perhaps each around 40 years old. They were toasting to their success, having worked their IPO to a point where they were tired of working for the man.
Person A: “I checked my brokerage account this morning, and it turns out that I have right at 2.2 million. I figure that I need $100,000 each year to maintain my lifestyle.” (Does the math on his smartphone, 4.7% withdrawal rate) “That’s it! I am going to retire!”
Person B: Checks his brokerage account- 2.7 million. Does the math- 3.7%. “I agree! $100K is about what I figured I need also, I am also going to retire!”
Person C: Checks his brokerage account- 3.7 million. Does the math- 2.7%. “I agree! $100K is about what I figured I need also, I am also going to retire!”
What might their balances look like in 25 years? (Hint: look at the results chart on the FireCalc page)
The way the problem is presented on the FireCalc homepage suggests that the only variable is which year the people retired. The market dropped 19% from 1973 to 1974, and another 25% from 1974 to 1975. In my case study above, Person B would have 2.2 million one year later, and Person C would have 2.2 million 3 years later. The majority of the reason that Person A fails, is because they were right on the edge of being financially viable, and sequence of returns got them. Person B had just enough, and made it successfully. Person C had conservative numbers, and thrived. These numbers are roughly the numbers presented on the FireCalc home page, adjusted by CPI, then divided by 2.1. I added one year of expenses to Person B's portfolio, and 2 years to person C. This way they could all retire at the same time.
This would be the risk of having a 'magic number' that you hit just before a huge drop in the market, especially if all of your living expenses come from that account.
