firecalc how accurate???
- Thread starter runnerr
- Start date
youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hi Runnerr Bob........
I've always found Firecalc to be exactly accurate. It does the math precisely with never an error.
How much faith to put into Firecalc is an entirely different question. Projecting investment performance and inflation into the future is a fool's game at best and Firecalc's methodology is but one way to take a crack at it. You'll get no simple answer to this question that's worth anything.
Will history prove to be an accurate predictor of the future? Should you use Monte Carlo theory to estimate possible outcomes and, if so, what assumptions do you use? How about some simple rule of thumb based on average real returns? And on and on.
There are some good books recommended on the Retire Early Home Page and on Bob Brinker's site, among others. Dig in! It's an interesting subject and none of us will know if we were right, wrong or inbetween until the future plays out!
youbet
I've always found Firecalc to be exactly accurate. It does the math precisely with never an error.
How much faith to put into Firecalc is an entirely different question. Projecting investment performance and inflation into the future is a fool's game at best and Firecalc's methodology is but one way to take a crack at it. You'll get no simple answer to this question that's worth anything.
Will history prove to be an accurate predictor of the future? Should you use Monte Carlo theory to estimate possible outcomes and, if so, what assumptions do you use? How about some simple rule of thumb based on average real returns? And on and on.
There are some good books recommended on the Retire Early Home Page and on Bob Brinker's site, among others. Dig in! It's an interesting subject and none of us will know if we were right, wrong or inbetween until the future plays out!
youbet
Mr._johngalt
Thinks s/he gets paid by the post
- Joined
- Dec 3, 2002
- Messages
- 4,801
I agree with youbet. FIRECALC is terrific. I wouldn't read anything
recommended by Bob Brinker, but that's another story
JG
recommended by Bob Brinker, but that's another story
JG
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The calculations are good. As far as its use as a tool, I guess if you're well above the $$ needed for historic 100% survival, you can probably sleep well. If you're below 80%, you might reconsider your retirement plan. Anything in the middle? Who knows.
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If you subscribe to the idea that the future will be no worse than the past, then its a good barometer.
Of course, in 1928 and in 1964 the future did in fact hold something worse than what had happened before...a huge drop and long recover period in 1929 and a long sideways market for both stocks and bonds starting in 1965. So maybe there IS something worse for us to encounter going forward.
The full set of data is sort of irrelevant. If you make it through a period starting in 1929 and 1965, you're probably ok. If you fail one or both of those, that you did fine in the other hundred and something periods isnt particularly helpful.
The warts on firecalc?
- It starts in 1871. A fairly optimistic start as thats the end of the civil war, everything was bashed to hell and back, its a very low starting point. You slide ahead 20 years or so and use that as a starting point, it dramatically affects the long term average annual results for stocks and bonds.
- You're probably doing a 20-30 year 'run'; since we dont have future data, any 30 year 'run' starting past 1975 is incomplete and will report 'successful' even if it possibly might not be. Not really factoring in any full data runs from the past 29 years during times of modern economic influences is problematic in my book. You can do 2 or 3 consecutive 10 year runs, using the worst and average terminal portfolio for the first run for the 'seed' for the second run. What you're basically going to count here is how many times you get through the great depression without running out of money. Plus you're losing any correlative market movements in the process, making the whole end result more akin to a monte carlo simulation than real life history.
- Some of the asset classes simply didnt exist prior to a short while ago...for example, no 'TIPS' during the depression. The data is synthesized, hence not historical. Results therefore vs actual had those classes existed then may vary.
- You dont know how long you're going to live, minus the "john galt option" of setting your own end date via smith and wesson. Hence you dont really know how long your 'run' needs to be.
Theres others, but I think those are the big ones.
Of course, in 1928 and in 1964 the future did in fact hold something worse than what had happened before...a huge drop and long recover period in 1929 and a long sideways market for both stocks and bonds starting in 1965. So maybe there IS something worse for us to encounter going forward.
The full set of data is sort of irrelevant. If you make it through a period starting in 1929 and 1965, you're probably ok. If you fail one or both of those, that you did fine in the other hundred and something periods isnt particularly helpful.
The warts on firecalc?
- It starts in 1871. A fairly optimistic start as thats the end of the civil war, everything was bashed to hell and back, its a very low starting point. You slide ahead 20 years or so and use that as a starting point, it dramatically affects the long term average annual results for stocks and bonds.
- You're probably doing a 20-30 year 'run'; since we dont have future data, any 30 year 'run' starting past 1975 is incomplete and will report 'successful' even if it possibly might not be. Not really factoring in any full data runs from the past 29 years during times of modern economic influences is problematic in my book. You can do 2 or 3 consecutive 10 year runs, using the worst and average terminal portfolio for the first run for the 'seed' for the second run. What you're basically going to count here is how many times you get through the great depression without running out of money. Plus you're losing any correlative market movements in the process, making the whole end result more akin to a monte carlo simulation than real life history.
- Some of the asset classes simply didnt exist prior to a short while ago...for example, no 'TIPS' during the depression. The data is synthesized, hence not historical. Results therefore vs actual had those classes existed then may vary.
- You dont know how long you're going to live, minus the "john galt option" of setting your own end date via smith and wesson. Hence you dont really know how long your 'run' needs to be.
Theres others, but I think those are the big ones.
dory36
Early-Retirement.org Founder, Developer of FIRECal
- Joined
- Jun 23, 2002
- Messages
- 1,841
I liken it to historical weather.
If you are going somewhere for a long period of time, and in recorded history, the weather in that duration of time in that place would have never required more than x changes of warm weather clothes, then x is a good number to plan for, when you want to minimize how much baggage to carry.
Want to be safer? Take more bags (i.e., work & save longer).
If you are going somewhere for a long period of time, and in recorded history, the weather in that duration of time in that place would have never required more than x changes of warm weather clothes, then x is a good number to plan for, when you want to minimize how much baggage to carry.
Want to be safer? Take more bags (i.e., work & save longer).
REWahoo
Give me a museum and I'll fill it. (Picasso) Give
youbet said:
Like religion, you gotta have faith you chose the right one (calculator).
REW
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