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Old 02-13-2024, 12:53 PM   #1
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Firecalc question

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.
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Old 02-13-2024, 01:04 PM   #2
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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 wouldnít 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.
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Old 02-13-2024, 01:09 PM   #3
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Maybe inlcude a portion if a plan to downsize is included in your retirement scope.
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Old 02-13-2024, 01:55 PM   #4
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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.
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Old 02-13-2024, 02:18 PM   #5
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firecalc is about investing liquid assets so they can generate a safe , secure consistent income .

the home you live in canít be rebalanced , you canít spend the hall closet at the supermarket and you canít swap one room for someone elseís 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 .
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Old 02-13-2024, 02:25 PM   #6
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...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.
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Old 02-13-2024, 02:30 PM   #7
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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.
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Old 02-14-2024, 07:20 AM   #8
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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.
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Old 02-14-2024, 07:28 AM   #9
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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.
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Old 02-14-2024, 07:28 AM   #10
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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
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Old 02-14-2024, 07:29 AM   #11
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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.
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Old 02-14-2024, 04:07 PM   #12
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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.
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Old 02-14-2024, 06:02 PM   #13
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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.
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Old 02-15-2024, 02:11 AM   #14
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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.
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Old 02-15-2024, 03:11 AM   #15
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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
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Old 02-15-2024, 02:51 PM   #16
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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.
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Old 02-15-2024, 03:08 PM   #17
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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 itís 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.
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Old 02-15-2024, 03:45 PM   #18
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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 itís 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.
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Old 02-15-2024, 03:51 PM   #19
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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.
Iím not sure what you are referring to. Discussions here about FIRECalc results are open, straightforward, and usually very helpful. Thereís 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.
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Old 02-15-2024, 04:03 PM   #20
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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.
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