|
06-12-2006, 07:26 AM
|
#1
|
Dryer sheet wannabe
Join Date: May 2006
Posts: 11
|
FIRE Calc vs TRowe Calc
I was playing around with the both the FIRE calc and the TRowe calc and noticed that the TRowe calc seems to give much more conservative results. On average I seem to be getting a 3.5% withdrawl rate (100% success) using the FIRE calc but only a 2.8% WR using TRowe. The methodologies seem similar as do the expected rates of return. I know small differences add up to a lot over time but as anyone looked at this before? Anyone know what the big difference is between the two calcs?
Thx
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 07:30 AM
|
#2
|
Dryer sheet wannabe
Join Date: May 2006
Posts: 11
|
Re: FIRE Calc vs TRowe Calc
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 07:37 AM
|
#3
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
|
Re: FIRE Calc vs TRowe Calc
Quote:
Originally Posted by lbymfire
I was playing around with the both the FIRE calc and the TRowe calc and noticed that the TRowe calc seems to give much more conservative results.... Anyone know what the big difference is between the two calcs?
|
My guess would be the primary difference is the motivation of the designers.
Dory has no dog in the fight; TRowe wants to encourage people to invest more, for a longer period, and with them.
__________________
Numbers is hard
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 07:53 AM
|
#4
|
Thinks s/he gets paid by the post
Join Date: Apr 2006
Posts: 1,490
|
Re: FIRE Calc vs TRowe Calc
among other things, more extreme situations are possible when simulated* than those which have been observed in the FIRECALC history, hence a lower SWR. (this does not suggest a deficiency for either.)* TRP also automatically adjusts (down) the equity exposure over time, which would/could/might also reduce the SWR.
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 09:28 AM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,072
|
Re: FIRE Calc vs TRowe Calc
Using TRP calculator with a 35 year run out, I can withdraw 13% more per month by using a 25/40/35 allocation over a 40/40/20 split. That seems a bit odd.*
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 10:23 AM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
|
Re: FIRE Calc vs TRowe Calc
Primary difference is that the trowe price calculator uses monte carlo simulations, which are usually either more conservative or less conservative than reality, due to the lack of any market movement correlations from year to year.
Firecalc uses actual historical serial data, with the mysterious correlations intact.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 10:48 AM
|
#7
|
Thinks s/he gets paid by the post
Join Date: Feb 2005
Posts: 2,032
|
Re: FIRE Calc vs TRowe Calc
Quote:
Originally Posted by Cute Fuzzy Bunny
Primary difference is that the trowe price calculator uses monte carlo simulations, which are usually either more conservative or less conservative than reality, due to the lack of any market movement correlations from year to year.
Firecalc uses actual historical serial data, with the mysterious correlations intact.
|
yep, that's why I always like to test using both MC, rolling historical, and boostrap just to see the difference between the three
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 10:55 AM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
|
Re: FIRE Calc vs TRowe Calc
I just spent a few minutes looking at how my portfolio survived the depression era and the 64-84 period. I would have made it through those.
Then I looked at what changes I'd have to make to my investing strategy to survive something much worse than that, and it was dramatically different and excessive. Taking that "fail safe" strategy and seeing how well it did during average to good times showed that I would be leaving significant money on the table by trying to insure against a worst than worse scenario.
There are plenty of scary things going on that could lead to "worse than the worst", but there have always been plenty of scary things going on and we made it through those.
With that in mind, further simulation/calculation/modelling seemed at best an interesting intellectual exercise of not much importance.
I also always remember that I dont have to outrun the bear, just be faster than the rest of its potential meals. Having my portfolio drop 50-80% in value wont matter much if i'm still in the top 1-5% of wealth holders.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 07:43 PM
|
#9
|
Recycles dryer sheets
Join Date: Apr 2005
Posts: 118
|
Re: FIRE Calc vs TRowe Calc
Does TRP take in to consideration Social Security, as I believe Fire does? Can someone explain?
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 08:16 PM
|
#10
|
Full time employment: Posting here.
Join Date: May 2006
Posts: 696
|
Re: FIRE Calc vs TRowe Calc
Quote:
Originally Posted by REWahoo!
My guess would be the primary difference is the motivation of the designers.
Dory has no dog in the fight; TRowe wants to encourage people to invest more, for a longer period, and with them.
|
BINGO!!!! TRP (and the rest of the 'financial industry') wants you to work forever! and keep putting money into their funds so they can profit.
PS - The employees at TRP probably use 'Firecalc' when figuring their own FIRE program!
EDIT - I just visited the TRP site and played with their calculator - IMHO the TRP program is a piece of junk compared to FIRECALC - don't waste your time!!
__________________
Oh, you hate your job? Why didn't you say so? There's a support group for that. It's called EVERYBODY, and they meet at the bar.--Drew Carey
|
|
|
Re: FIRE Calc vs TRowe Calc
06-12-2006, 10:43 PM
|
#11
|
Thinks s/he gets paid by the post
Join Date: Feb 2003
Posts: 2,395
|
Re: FIRE Calc vs TRowe Calc
I gave up on the T Rowe Price calculator years ago.* It's brutal.* With a Monte Carlo sim, besides the sequence issues, someone had to setup the bounds on the returns used, both positive and negative.* And what was used to set those bounds?* Who knows?* And if we did know what the bounds were, would we agree with them?* What would we use as a standard?* Questions, questions...
As for I-Orp, I gave up on it almost as soon as I found it.* Good withdrawal planning to minimize taxes, but that's it.* The user has to put in returns rate.* How would we do that?* In that case, its not much better than your own spreadsheet.* Actually, mine's better!*
__________________
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time
|
|
|
Re: FIRE Calc vs TRowe Calc
06-13-2006, 06:17 AM
|
#12
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,329
|
Re: FIRE Calc vs TRowe Calc
I used to use TRP until I found this group and Dory's Firecalc. But the impresssion I had with TRP is that 90% was considered a very high level of safety (presumably because it models a-historical runs). With Firecalc we are all looking for 100% survival against all historical precedents.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
|
|
|
Re: FIRE Calc vs TRowe Calc
06-13-2006, 10:52 AM
|
#13
|
Recycles dryer sheets
Join Date: May 2005
Posts: 444
|
Re: FIRE Calc vs TRowe Calc
see "Selecting a program retirement planning" under "free publications" at http://www.analyzenow.com for a short complaint about monte carlo simulations.
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|