FireCalc: Anyone UNDER 100% ??

[Andre1969]

OP, It might be useful to use tools like Firecalc to estimate how many years of w*rk are needed to get from sub 80% success to 90%-100%. A few years vs decades can have a huge impact on your perspective.

I have a graph that I update once per year, with various success rates on it. The year I want to retire is along the X-axis, (ranging from 2019-2033), and the amount I want to live off of per year is on the Y-axis (currently ranging from $30K to $100K, and going up in $5K increments).


To get from sub-80% to 95% or greater,seems to take about 2-3 years. For instance, If I wanted to live off of 100K per year, my graph says that I'd have a 79.6% chance of making it if I retire at 53, an 85.7% chance of making it at 54, a 93.9% chance of making it at 55, and a 96.9% chance of making it at 56.


Ideally, I'd like to see at least a 95% success rate, but 93.9% is probably close enough!

 

[Offgrid Organic Farmer]

I am on a federal pension. I bring in more than what it costs to support my family.

So if I were to use FireClac it would surely rate me somewhere around 120%.

I am investing the surplus into rental real estate which should provide us an additional income stream, about twice larger than my pension.

 

[Mdlerth]

Shooting for >100%

Sure, 80% success is no different from 100%... 4 out of 5 times.

But I have six decades of data which say that when the odds are fifty-fifty, I lose 90% of the time. So for me, 80% probability of success isn't good enough. I am targeting 100% plus a cushion.

Statistics deal with populations and sample sets. Out of one million chances, X percent will succeed, 1-X will fail, etc. But I don't have a million chances. I have only one retirement and it had better be successful.

***
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There is some great stuff here:

3- I had a very good sense of what my expenses were; I've had my checkbook online since MacMoney and tracked even small cash outlays. However, my expenses never matched my plan.

This is my biggest concern. I know what my current expenses are, but they reflect being stuck in the salt mines for the best hours of each day. Once DW and I have lots more free time, we will undoubtedly undertake more activities, most of which won't be free. They might not all be expensive, but they won't be free.

4- I had been planning for early retirement before I got laid off but expected to do it a few years later. I would have liked additional cushion, especially when the market dropped last year. I've always held on through downturns before and did this time too, but it was more stressful than when I had real income coming in. My feelings were a surprise to me, because I had done the math before retiring and knew what I could expect to "lose" in a downturn.

People change; that includes me. My confidence in my own plan varies every day. I could hand in my notice feeling great about my plan, but I am certain I won't know how good I'll feel about it the on day I clock out.

5- When I worked, I never budgeted, because my desired lifestyle fit within my income. I haven't quite figured out yet whether I need to be on a budget now or not. There are some days when I feel I should be cautious about even small outlays and I really wish I could spend without even thinking about it like I used to, but there are also days when I trust the numbers.

This also is bullseye. DW & I don't operate under a rigorous budget. What we do is know what "fits" within our regular spending pattern and keep to that. When an extraordinary, i.e. "lumpy", expense looms we have a special discussion about it and figure out to to fit it in. This was an essential skill when we were young and poor, and it just kind of evolved into part of our daily approach to spending. Impulse buys, when they occur, are sufficiently infrequent or sufficiently minor that they are negligible as far as our overall spend pattern.

But I love the idea of not having to worry about every single purchase. The following inner monologue was excerpted from my recent trip to the grocery store. "Do we need more mushrooms? I'm not certain but I think we're running low. I'm in the produce section right now, and portobellos are on sale. Hmm, $2.99 a pound. That's a good price. They're not on the list, but I think I'll pick up a few anyway. We'll eat them before next Tuesday anyway, and life is short."

P.S. Note that there is a big difference between 3 ounces of mushrooms once a month and a new suit, rifle, computer or trip. A buck and a half is a rounding error; a thousand bucks isn't.

 

[NW-Bound]

I have not run FIRECalc for a while. Just now, looked at my spending for the last 12 months, and found that we are doing WR of about 2% if this spending rate continues. Do I need to run FIRECalc with that?

Several factors caused my WR to drop: my stash growing, no major expenses like home repairs and upgrades, no medical bills, my wife starting to draw her SS, etc...

Still feel no need to blow more dough, or craving for anything.

... I love the idea of not having to worry about every single purchase. The following inner monologue was excerpted from my recent trip to the grocery store. "Do we need more mushrooms? I'm not certain but I think we're running low. I'm in the produce section right now, and portobellos are on sale. Hmm, $2.99 a pound. That's a good price. They're not on the list, but I think I'll pick up a few anyway. We'll eat them before next Tuesday anyway, and life is short."

P.S. Note that there is a big difference between 3 ounces of mushrooms once a month and a new suit, rifle, computer or trip. A buck and a half is a rounding error; a thousand bucks isn't.

But who's to say that some nice mushrooms bring less pleasure than a new suit? Happiness is all very subjective.

By the way, should one not increase his mushroom consumption from once a month to once a week if he enjoys it so much? Maybe, maybe not. Eating too much of anything, then it becomes mundane and boring. See how things are never that simple?

 

[Sunset]

OP - Are you really keeping a record of your expenses, so you know exactly what the money is being spend upon ?
How are you accounting for the very occasional expenditure: roof, car, medical emergency, etc.
Knowing the real numbers, makes any move you do a more certain success.

If I retired with a 75% firecalc success, I'd take up sky-diving

 

[Red Badger]

But under what assumptions? What % of the budget is discretionary? In my budget, 54% is discretionary. I still worked to get to 100% because I don't want to have to cut my discretionary income in retirement, no matter the sequence of returns. The reality is, though, I'd likely cut the discretionary spending by 20-50% if the markets hit a really bad SOR.

Also, all of the assumptions and inputs matter. If one's willing/able to cut their level of spending, then 82% is not too bad. If their budget is barebones, and there's no contingency, then keep wo$rk@ng.

It was important for me to pull the rip cord when I did. We're a little below our comfort level (~90-95%). But we have a ton of discretionary items that we can whack if SOR looms large. For us, it was an easy trade off. Freedom over stuff.

 

[MarieIG]

There is a thread floating around on the Board somewhere - 23 years of frugal retirement. The author is now up closer to 30.

But the key there is frugal.

How frugal do you want to be? Also, how financially savvy is spouse?

After 50 years, will there be a pot of $ left if spouse needs to go into CCRC; and if son needs care?

I sense that you are tired/ stressed. Can you step back and take a one year sabbatical without loosing your business connections? Does it have to be all or nothing?

 

[Brett_Cameron]

My use of Firecalc:
I have a projection to my age 86 with income, expenses, inflation, life&family changes, etc. Best guess, all of it on these assumptions.
That is a 24 year projection from present time. It used to be a longer projection.
So, for each year , I run a firecalc up to that time in the future. A total of 24 runs. As opposed to one run with duration 24 years.

I record the Firecalc success rate for each year.
The results show that the longer into the future I project, the greater the deviation from 100% success I get. Makes sense to me. Oh, I am 100% for each year until the last on that is 98%. Good enough for me.
Just sharing what I do. No revelations here.

 

[Sojourner]

So for me, 80% probability of success isn't good enough. I am targeting 100% plus a cushion.

Same here. As a younger retiree (late 40s when I FIREd), I feel like I need to be pretty conservative in my budgeting and projections, so I want a tool like FIRECalc to give me a 100% historical chance of success based on an annual spend that is a good bit higher than my anticipated/budgeted spend. I would not have left my lucrative career to embark on 40+ years of life with zero earned income if FIRECalc had given me only an 80% chance of success based on my anticipated annual spend.

 

[TheHobbit]

What SWR are you using in the 75% to 82% success rate?

There are a variety of analyses showing 100% is massive overkill (e.g. spending goes down as you age, budgets almost always elastic etc.). It’s quite the opposite: are you feeling that unlucky. It’s great if you want to leave giant pile to your heirs (which may just get squandered within a couple generations... in the best case scenarios), but there’s little defensible math to support the 100% Firecalc SWRs.

 

[DireWolf]

FireCalc is using all available years in its historical simulation. Not all years are created equal. We are currently at a very high 10 year CAPE. Instead of comparing against all years, compare against all years with, say, CAPE over 20. Instead of an 80% rate, you might not even be 50%. 5% WR at a CAPE this high seems incredibly risky.

 

[Rianne]

FireCalc is using all available years in its historical simulation. Not all years are created equal. We are currently at a very high 10 year CAPE. Instead of comparing against all years, compare against all years with, say, CAPE over 20. Instead of an 80% rate, you might not even be 50%. 5% WR at a CAPE this high seems incredibly risky.

What is CAPE?

 

[Dtail]

What is CAPE?

https://www.multpl.com/shiller-pe

 

[Dtail]

FireCalc is using all available years in its historical simulation. Not all years are created equal. We are currently at a very high 10 year CAPE. Instead of comparing against all years, compare against all years with, say, CAPE over 20. Instead of an 80% rate, you might not even be 50%. 5% WR at a CAPE this high seems incredibly risky.

Possibly a whole other discussion. CAPE does have some forward looking value, but how many times has it been correct since it was developed in the 90's?

 

[Cessna152]

What is CAPE?

Based on context, Cyclically Adjusted Price/Earnings.

An article from 2017 explains:

https://finance.yahoo.com/news/robert-shiller-interprets-what-the-cape-ratio-says-about-the-market-today-102737135.html

 

[SnowBound]

Still working and Lord willing, will be the Class of 2024 if near 100% with one DD still in college. Once she is graduated and if it is past 2024, 85% is good for DW & me.

REMEMBER: No matter what, pay yourself first.

SECOND THOUGHT: Saved money works 24/7. I work hard, but lazy saved money out works me.

 

[Jerry1]

To the OP, I would use a couple more retirement calculators. The one I like besides FIRE Calc is the one from Fidelity. The main point is that by using more than one calculator, you’ll see and understand differences between them that matter.

If you’re just now coming to think about early retirement, I’d start doing a lot of work around what retirement would mean. Of course there is lifestyle, but just focusing on finances, there is taxes, social security, health insurance, inflation which is closely aligned with spending and your need to really understand your budget. It took me a couple years (no full time of course) to get comfortable with my numbers.

For what it’s worth, if I knew I entered everything correctly and completely into FIRE Calc and was not at 100%, there’s no way I’d consider retiring. In fact, I forget if FIRE Calc shows a success rate over 100%, but you can impute a higher than 100% outcome by using conservative assumptions.

 

[Dtail]

To the OP, I would use a couple more retirement calculators. The one I like besides FIRE Calc is the one from Fidelity. The main point is that by using more than one calculator, you’ll see and understand differences between them that matter.

If you’re just now coming to think about early retirement, I’d start doing a lot of work around what retirement would mean. Of course there is lifestyle, but just focusing on finances, there is taxes, social security, health insurance, inflation which is closely aligned with spending and your need to really understand your budget. It took me a couple years (no full time of course) to get comfortable with my numbers.

For what it’s worth, if I knew I entered everything correctly and completely into FIRE Calc and was not at 100%, there’s no way I’d consider retiring. In fact, I forget if FIRE Calc shows a success rate over 100%, but you can impute a higher than 100% outcome by using conservative assumptions.

Firecalc only shows success rates up to 100%, but one can effectively input a higher success rate by calculating maximum spending.

 

[NW-Bound]

After entering all the pertinent info, you can tell FIRECalc to look for the highest spending level that results in 100% success rate (the stash depleted at the end of the retirement period, which is usually 30 years).

Suppose FIRECalc says you could spend $100K/year, but you choose to be conservative and spend only $80K.

Some posters then say that their success rate is 100/80 = 125% which is not correct in the probabilistic sense, but we know what they mean.

 

[KCGeezer]

At 43, I’d definitely want 100% (plus a cushion or two). At 63, 95% for plan A and I sleep just fine.

 

[Turbo29]

Yep, there's at least one popular online guru who notes that "success" over 80% is meaningless...there are simply too many uncontrollable variables in our lives.

I think this is it:

The hard part, of course, is how to interpret this kind of output. Realize that these probabilities are merely an imperfect estimate of the investment risk you are taking. In other words, they assume the continuity of financial and political institutions over the period studied. Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year). For this to be a useful estimate of your true chance of not running out of money, the "success rate" of your ambient political, economic, and military environment must be at least 97% over this 40-year period. Do you think that this is likely? Only if you are an historical illiterate (which, I’m afraid, subsumes many finance academics).
...


So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.
History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).
A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

The Retirement Calculator from Hell, Part III

 

[Teacher Terry]

Didn’t find any retirement forums until after we retired. I retired by choice and my husband didn’t. We have always lived on a budget.

 

[Dtail]

I think this is it:



The Retirement Calculator from Hell, Part III

Might be true, but psychologically if one's retirement started at 80% success rate and starts heading very south, one might always wonder "maybe I should have worked it to 95/100%"?
Just a thought....

 

[GravitySucks]

I left MegaCorp 6+ years ago with a well below 100% success number.
Due to some misinformation and a great market run it is now at 100%. Of course that means little as it's based on the past, not the future where it will matter.

 

[Turbo29]

Might be true, but psychologically if one's retirement started at 80% success rate and starts heading very south, one might always wonder "maybe I should have worked it to 95/100%"?
Just a thought....

I think you have to look at that differently. If you have a 95% success rate in your plan you actually have 95%*80% or 76%. If you retired with an 80% success rate you actually only have a 64% chance of success.



I think where it becomes important is when people kid themselves and keep staying one more year at the job (or eat ramen for lunch, etc.) to get from 95% to 100%.



I get it, some people want certainty, but there is no such thing in this world.