Firecalc retro experience

[spender400]

Hi, I’m new posting but have been reading for a while. I’m based in the uk. I was wondering if anyone who took the plunge based on firecalc estimates had come unstuck financially and found themselves short later. Unlikely I guess due to how the model works, in a market that’s been up-ticking for a while and also painful to declare, but I’m interested if anyone found themselves stuck. I’m 46 and targeting 5-0 to make my break for it. I have faith in the model but would like to test this based on real experiences.

 

[RunningBum]

Firecalc isn't a guarantee. It is based on historical data. Even if someone financially fails in the future, it doesn't mean that Firecalc was wrong, it could mean that the future didn't follow historical data.

A lot of people retire based on 95% success rate in Firecalc. That means 1 in 20 historical sequences failed. So that's like hoping you don't roll double 6s on one roll the dice (about a 97% chance). Now, there's nothing to say that you have to follow a sequence all the way down once you retire. Hopefully you'd see a failure in the making and take steps, like cutting expenses or going back to work.

I'd guess most people that fail underestimated their expenses one way or another. It's not hard to track daily expenses and budget for them, but irregular expenses can be hard to predict, and may be large. Could be health issues, family issues, or just failing to account for large repairs and replacement of cars and such that they didn't account for.

We had at least one person who admirably reported their failure because they were relying on dividends from a banking stock (BOA?) and it tanked. The income stream was diminished, and the capital was demolished. I suspect most people would slink away if their ER fell apart.

Firecalc is only a tool. Use it wisely. And absence of failure from 20 or 100 stories here is no guarantee either.

 

[Rianne]

IMHO, the risk of running short is always there. That's why we try to stick to a budget, I follow it monthly, sometimes daily. If we go over, car expenses, house repair (remodel), healthcare (which you do not have to worry about) can be anything.

I think having a firm handle on spending and trust in the market vehicles you chose to invest and save are the answer to your question. Many folks on this forum are concerned about healthcare. Doesn't the UK provide that for you?

 

[Dtail]

IMHO, the risk of running short is always there. That's why we try to stick to a budget, I follow it monthly, sometimes daily. If we go over, car expenses, house repair (remodel), healthcare (which you do not have to worry about) can be anything.

I think having a firm handle on spending and trust in the market vehicles you chose to invest and save are the answer to your question. Many folks on this forum are concerned about healthcare. Doesn't the UK provide that for you?

+1
For us, the year to date running budget viewed on a monthly basis is the key so far. In general, it is easier to control the expense portion of the equation vs. the income portion.
Lastly, I believe very few folks actually use the fixed year 1 dollar amount WR adjusted for inflation in future years as their actual withdrawal methodology.
It is very helpful as a ballpark "am I financially ready to retire" concept.

 

[joylesshusband]

...anyone who took the plunge based on firecalc estimates...

Yours are unrealistic expectations.
It is incorrect to perceive the Firecalc results as "estimates".
It is also incorrect to perceive Firecalc as a "model".

Firecal is not a planning tool - it is just a gaging tool. It tells you how a portfolio and an income stream set would have behaved under a set of particular circumstances, which circumstances are realistic in the sense that they have already happened once.

Exactly the same circumstances would never reoccur, and also Black Swan events are quite probable.

Apply due diligence together with a variety of planning tools which are available elsewhere.

 

[USGrant1962]

...and also Black Swan events are quite probable.

A black swan is fundamentally defined as an improbable, high impact event - how is an improbable event quite probable?

 

[MichaelB]

Hi, I’m new posting but have been reading for a while. I’m based in the uk. I was wondering if anyone who took the plunge based on firecalc estimates had come unstuck financially and found themselves short later. Unlikely I guess due to how the model works, in a market that’s been up-ticking for a while and also painful to declare, but I’m interested if anyone found themselves stuck. I’m 46 and targeting 5-0 to make my break for it. I have faith in the model but would like to test this based on real experiences.

Hi spender400, welcome to E-R Forum.

You ask an interesting question, and it’s not easy to answer. As already pointed out, FIRECalc is only a model. It can show you how your portfolio and retirement finances would look based on historical retirement dates with much different market conditions, but it cannot model how you will react in moment of financial stress, such as the crisis in ‘08. That can make or break a plan.

Some people may have done poorly and tiptoed quietly away, unnoticed. Folks that retired just before ‘08, “stayed the course”, rebalanced into an ugly equity market, are doing well. Mostly, we are finding out that the biggest challenges are not financial and have nothing to do with tools and modeling, they are enjoying healthy lives.

 

[joylesshusband]

A black swan is fundamentally defined as an improbable, high impact event - how is an improbable event quite probable?

Not so.
It is defined as a _probable_ high-impact event.

Wikipedia says "it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility".
Just like any event taking place on the financial markets.
Nothing in the past can convincingly point to what happens to them at any time.

 

[USGrant1962]

Not so.
It is defined as a _probable_ high-impact event.

Wikipedia says "it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility".
Just like any event taking place on the financial markets.
Nothing in the past can convincingly point to what happens to them at any time.

So riddle me this - why is the title of NNT's book "THE BLACK SWAN, The Impact of the HIGHLY IMPROBABLE" (his caps)?

A black swan is improbable, not impossible.

 

[HI Bill]

FIRECALC simply runs simulations based on historic returns and assumed inputs. Alter any of the assumptions too much, and the outcome falls apart (garbage in = garbage out). Realistic assumptions are key. I do worry a bit about the Black Swan Events (such as WWIII, US Economy Collapse, or a Supervolcano erupting), but if they happen, it's likely that nothing would save you from ruin, unless you have tons of real estate, tons of gold, and don't live in a city that happened to be involved directly in conflict/harms way. There are no certainties in life, but birth, death, and taxes. For me, moderation in everything is the gamble I'm taking. Play it too safe (work too long), and you won't enjoy your retirement years. Retire too early, and you won't enjoy your retirement years.

 

[RunningBum]

From wikipedia, using Taleb's book as the source for this:

Black swan events were discussed by Nassim Nicholas Taleb in his 2001 book Fooled By Randomness, which concerned financial events. His 2007 book The Black Swan extended the metaphor to events outside of financial markets. Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as "black swans"—undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, the dissolution of the Soviet Union, and the September 11, 2001 attacks as examples of black swan events.

I think some people view a Black Swan event as something cataclysmic and ruinous, and some use it as the author of the term seems too--a big game changer, upsetting the normal way of doing thing. Does that sound right, and does it explain the disagreement here?

 

[Major Tom]

spender400 - it might be worth noting that Firecalc uses historical US returns for it's results. You say that you're UK-based. If you're invested mainly in UK instruments, YMMV, as they say.

 

[spender400]

Thank you all for your considered responses. We do have free healthcare here in the UK and I’ve got a fairly strong exposure to US stocks overall as that’s where I see solid returns. I never heard of a black swan event until today. It’s good to know something new.

 

[USGrant1962]

spender400 - it might be worth noting that Firecalc uses historical US returns for it's results. You say that you're UK-based. If you're invested mainly in UK instruments, YMMV, as they say.

Here's a link to a paper by Wade Pfau showing analysis of various counties' SWRs. Note that most are lower than 4%, but many countries in the study were devastated in the world wars. Hence their SAFEMAX years were the teens or 40s.

https://www.coronation.com/assets/C... Withdrawal Rates from Retirement Savings.pdf

 

[USGrant1962]

From wikipedia, using Taleb's book as the source for this:

I think some people view a Black Swan event as something cataclysmic and ruinous, and some use it as the author of the term seems too--a big game changer, upsetting the normal way of doing thing. Does that sound right, and does it explain the disagreement here?

A black swan can certainly be positive or negative. But from the perspective of FIRE planning we are only concerned about 1) negative ones, 2) that affect us (or whatever we're invested in).

A volcanic eruption in the Philippines probably would not affect my portfolio or my SWR (I'm diversified), but would certainly be a black swan to a local resident. Since there are ~7.5 billion people, there are a lot of individual black swans. But black swans are not probable for a specific individual.

If you get a positive black swan, see RobbieB!

 

[Midpack]

Hi, I’m new posting but have been reading for a while. I’m based in the uk. I was wondering if anyone who took the plunge based on firecalc estimates had come unstuck financially and found themselves short later. Unlikely I guess due to how the model works, in a market that’s been up-ticking for a while and also painful to declare, but I’m interested if anyone found themselves stuck. I’m 46 and targeting 5-0 to make my break for it. I have faith in the model but would like to test this based on real experiences.

I’m a little confused. FIRECALC doesn’t produce “estimates,” it spits out the actual results based on past history. If for example you choose 30 years, it will show exactly which 30 year periods came “unstuck” IF you withdrew according to SWR withdrawal methodology. FIRECALC doesn’t predict or guarantee anything, the documentation clearly says as much.

But no should blindly (or probably does) follow SWR withdrawal methodology without course correcting if the nest egg isn’t holding up. Even the SWR originators warned NOT to withdraw for 30 years without re-evaluating. Some folks rerun FIRECALC every X years and adjust spending/withdrawal up or down accordingly.

No offense but anyone who came “unstuck and found themselves short later” would have to be willfully ignorant...

 

[Andre1969]

I would like to think that most people, if they get hit by a bad sequence of years, or some other catastrophe comes up, would alter their retirement plan as soon as possible, rather than just optimistically ride it out like nothing's wrong.

For instance, i just ran a hypothetical scenario, if I retired right now, and only needed it to last 5 years. There are 142 cycles. The best case scenario has me up 186% at the end of 5 years. The average is up around 16%. However, the worst case is down to around 46% at the end of 5 years.

Further, that worst-case pretty much lost money year after year, with a big plunge happening the first year, and then a slow erosion afterward. The first year drop takes it down to about 60%, all by itself, and then it's a slow drain. I'd like to think that, after that first year, I'd cut back a bit in year two. And then, if things still looked bad after that, try to alter something else in year three...even if it meant going back to w*rk.

If I run this same data through a 10 year cycle, there are still no failures. However, the worst of them is now at 43% of the original balance. I can't tell if it's the same cycle as the worst case for 5 years, though.

 

[RunningBum]

I would like to think that most people, if they get hit by a bad sequence of years, or some other catastrophe comes up, would alter their retirement plan as soon as possible, rather than just optimistically ride it out like nothing's wrong.

I would too, but someone recently started a thread asking when you would start making adjustments. At least one person told them they should just stay the course.

 

[rodi]

Like all retirement calculators - firecalc can't predict the future. But it does look at history - which includes the great depression, great recession, nasty inflation, etc... But you need to be careful with your inputs. Make sure your spending is gross, not net. Make sure you have your asset allocation designated appropriately to match your investment asset allocation. Make sure you include enough years - a person retiring at 50 is likely to have a longer retirement than someone retiring at 65. The garbage in/garbage out phenomena is very real...

Another potential gotcha for a longer retirement... if you select a very long retirement you risk excluding some bad cycles. I run the calculator for both my expected retirement length (with a few extra years added in) as well as for 30 years... to make sure I capture all the cycles... if the 30 year fails, and the 45 year survives - I know I'm too close to the edge for my comfort.

And, as mentioned by others, be agile... react to down markets by reducing spending or picking up extra income. Unless you have a lot of secure income (pensions/rental income) AND a really low withdrawal rate....

 

[Red Badger]

Not only do you need to know your current expenses, but also changes once in retirement. I'n my case, a lot of our household expenses were lower while working because I was a road warrior. ie, one less mouth to feed, no lunches to buy at w*rk (expensed), my car sat in driveway for weeks at a time (no commuting expenses....).
In retirement, our travel budget is fairly large compared to w*rking years. Our dining out (above and beyond travel) is up considerably. DW is also making me spruce up the house, so both Home Depot and contractor costs are up. Other costs went down.
Clearly, these are largely discretionary items, but who wants to retire just to not work? Hold on ER folks!!! That question was in rhetorical context to OP's question(s).
Yup - ya need a plan - - - and a budget. And, I'm not that detailed. I just use a monthly range that rolls up to a yearly range. As long as I'm reasonably within tolerance, full speed ahead!
Like others said better. Don't "bet the ranch" on ANY tool. Do it based on a solid knowlegde of your current and forecasted expenses. Ike said it best. "Plans are useless. Planning is essential."

 

[SecondCor521]

I have faith in the model but would like to test this based on real experiences.

I really don't understand this statement.

As long as the people who wrote the code to run the model did not make any programming mistakes, then of course the model works, at least so far. I personally considered this risk but deemed it to be low because a number of independent modelers have come up with approximately the same answer.

If a person followed the working model or was in all respects more conservative than the model, then of course they are going to succeed.

If a person doesn't follow the model or is less conservative in any respect, then they may succeed or they may fail. But if they succeeded, that shouldn't bolster faith in the model as it could have been blind luck. And if they failed, that doesn't necessarily mean that the model failed; it could be (and IMHO more likely is) because they were not following the model.

What I think the OP actually is dealing with is the "too good to be true" aspect of getting close to FIRE and just double checking to believe that it really does work. I FIREd about twenty-six months ago and it is working fine so far for me. Although I have been more conservative than the model in most respects and, more importantly, FIREd at what so far has been an opportune time.

 

[Dtail]

There are many other calculators that the OP could use which could also bring another level of comfort. (Do love Firecalc though)
The Fidelity calculator tends to be one of the most conservative and is based on Monte Carlo simulations which can provide a different view.

 

[Midpack]

I really don't understand this statement.

As long as the people who wrote the code to run the model did not make any programming mistakes, then of course the model works, at least so far. I personally considered this risk but deemed it to be low because a number of independent modelers have come up with approximately the same answer.

If a person followed the working model or was in all respects more conservative than the model, then of course they are going to succeed.

If a person doesn't follow the model or is less conservative in any respect, then they may succeed or they may fail. But if they succeeded, that shouldn't bolster faith in the model as it could have been blind luck. And if they failed, that doesn't necessarily mean that the model failed; it could be (and IMHO more likely is) because they were not following the model.

What I think the OP actually is dealing with is the "too good to be true" aspect of getting close to FIRE and just double checking to believe that it really does work. I FIREd about twenty-six months ago and it is working fine so far for me. Although I have been more conservative than the model in most respects and, more importantly, FIREd at what so far has been an opportune time.

It's not a model so much as a long look backward, based on actual history and a set of assumptions. The classic 4% SWR itself isn't a guarantee of any kind, it's based on a 95% probability over a 30 year period. Even if you change your assumptions to reach a 100% result in FIRECALC, that only tells you your assumptions would never have failed for the 30 year (or whatever you choose) periods from 1871 to present. That is still no guarantee of what the future may hold, if the future somehow differs from the last 140+ years. That's for each of us to grapple with.

And it was never meant to be 'set it and forget it.' Blindly following the withdrawal methodology for 30 years without ever re-evaluating would be foolhardy, and NOT what any credible source has ever suggested. It might work, it might not. The prudent approach is to be more conservative withdrawing (at least at the outset) and/or re-running FIRECALC every 5 years (or whatever frequency you choose) and adjust spending or income accordingly, up or down.

FIRECALC is a framework for spending your retirement portfolio, an axe not a scapel, rough order of magnitude. It is not a hard and fast spending plan by any means, there is no such bulletproof plan no matter what the cost or source...

 

[Carpediem]

What I think the OP actually is dealing with is the "too good to be true" aspect of getting close to FIRE and just double checking to believe that it really does work.

I think you nailed it and I can relate to those "too good to be true" feelings. I keep seeing the 100% success rates in FireCalc and FRP and continue to think "maybe I should go one more year just to be safe". Definitely a scary thought to give up that megacorp paycheck and insurance.

 

[SecondCor521]

It's not a model so much as a long look backward, based on actual history and a set of assumptions. The classic 4% SWR itself isn't a guarantee of any kind, it's based on a 95% probability over a 30 year period. Even if you change your assumptions to reach a 100% result in FIRECALC, that only tells you your assumptions would never have failed for the 30 year (or whatever you choose) periods from 1871 to present. That is still no guarantee of what the future may hold, if the future somehow differs from the last 140+ years. That's for each of us to grapple with.

And it was never meant to be 'set it and forget it.' Blindly following the withdrawal methodology for 30 years without ever re-evaluating would be foolhardy, and NOT what any credible source has ever suggested. It might work, it might not. The prudent approach is to be more conservative withdrawing (at least at the outset) and/or re-running FIRECALC every 5 years (or whatever frequency you choose) and adjust spending or income accordingly, up or down.

FIRECALC is a framework for spending your retirement portfolio, an axe not a scapel, rough order of magnitude. It is not a hard and fast spending plan by any means, there is no such bulletproof plan no matter what the cost or source...

Yes, I know.

I used the term "model" for two reasons:

1. Partly because that's the word the OP used, so I was trying to be relatable so the OP would be more likely to consider my response.

2. Partly due to your second paragraph. It's a model in the sense that it is what would happen if a person in a time machine went back and robotically invested and withdrew according to an algorithm based on data. Probably nobody has actually done so.

Bulletproof is a high standard, but I think everyone here who FIREd probably did so with their version of achieving that level of safety, based on their goals, resources, backup plans, etc. It varies from belts and suspenders and duct tape and an extra pair of pants to "Lord willin' and the crik don't rise".