FIRECalc vs REW

[springnr]

+1

This is a great lesson for those who insist waiting until 70 is the only thing that makes sense. Delaying looked good on paper and for us would have likely been the best option - that is until the reality of seeing our portfolio (our only source of income at the time) decline by 35% and not knowing when (or if) that decline would stop. At that point all I wanted to do was stem the bleeding...

FYI, now that you have reached FRA.....

"Retirees who are already collecting benefits can reset the clock by voluntarily suspending benefits and reapplying at age 70. You need to be full retirement age to suspend your benefits. This allows you to earn up to four years in delayed retirement credits."

The credit is applied per month of delay, partial year would count. 8% a year return on delay?
​

 

[REWahoo]

Yes, I've considered it springnr but knowing my track record the month I suspend would mark the beginning of a substantial and sustained market decline. I think I'll stick with the status quo.

 

[redduck]

Who, me?


...........................

Did you deliberately misspell "Wheee!!!" so as not to activate the jinx?

 

[springnr]

Yes, I've considered it springnr but knowing my track record the month I suspend would mark the beginning of a substantial and sustained market decline. I think I'll stick with the status quo.

Please don't then! I lumped high $$$K from Megacorp payoff into my tIRA on April fools day. Shooting for 70, but who knows.

 

[bizlady]

DH retired in 2011 at age 55 and the portfolio is higher today than when we started by about 16%.

Here is where I get hung up...if the portfolio does poorly in the first years (however long that is- I am not sure), then it is trouble. Let's say the market crashes in 2 years. Assuming all other factors remain the same, my portfolio does not know when I retired so why would we not be in trouble? Hypothetically, would that not be as if we retired at 60 and then the market did poorly "in the first few years"? I just do not get that....

 

[springnr]

55 and 60 are both early in the time frame if one needs their money to last until they are 90+
I agree, in thinking the red line in the chart starting at either 55 or 60 would not be fun. Start the red line at age 55 and go sideways for 20 years, then decline when you are 75, one's money would still last until 90. A negative event early in retirement can change your yearly draw for a long time.

 

[REWahoo]

Here is where I get hung up...if the portfolio does poorly in the first years (however long that is- I am not sure), then it is trouble. Let's say the market crashes in 2 years. Assuming all other factors remain the same, my portfolio does not know when I retired so why would we not be in trouble? Hypothetically, would that not be as if we retired at 60 and then the market did poorly "in the first few years"? I just do not get that....

Dory's chart shows a 30 year retirement. You are correct: if your withdrawal horizon is beyond 30 years, then the critical period - the number of years at the beginning of your retirement where a severe market decline may (not necessarily will) doom your portfolio to failure - is probably longer.

Dory's chart illustrates that retiring just prior to a market crash can be fatal to portfolio survival. Yes, the 1973 retiree (red line) on Dory's chart did suffer a catastrophic failure due IN PART to retiring just prior to a 40% decline in the market. But it is also what happened after that decline which resulted in failure - a relatively flat market performance for a decade, plus the 73 retiree continued to adjust withdrawals annually to compensate for double-digit inflation. Most of us would have gone on the defensive and reduced our expenses rather than maintaining our spending all the way to the poor house.

 

[CaliforniaMan]

CaliforniaMan, I'm curious...Are you withdrawing 3% because that is all you comfortably need at this point, or are you holding back on spending money on things you would really enjoy because you don't want to bump up your WR to 4%?

There are two answers, first I will give the (relatively) logical one, then the (more) real one.

I found that the 3% along with SS would give us about the same monthly income we have actually been spending for about the past year prior to retirement. We were frugal, but not overly miserly during that year and I thought we could also save some additional spending, by getting rid of some unnecessary expenses, like overpaying for insurance, cable, etc. In addition outgo will decrease due to paying less taxes (I pay self employment tax, ugh) and no savings set aside for retirement. We might spend a bit more in travel but can probably squeeze that in. Also my DW is younger than me and want to make sure it lasts. 3% will pretty much last forever with 70/30 under most circumstances.

The 4% or 4.5% I had originally planned would give us some more spending, and allow a little extravagance, but on the other hand, if I had that money I would probably spend it. I don't know about others, but if in my mind I don't have a budget, and I think I have extra spending money for that month, I will likely spend it. Go into Costco for example, and come out with a bunch of DVDs that after I get home realize that nobody really wants to watch, or furniture we don't have room for, or gadgets we will never use, or who knows what (those guys are geniuses in knowing how to get me to part with my money). My DW has some of the same issues, different stores, same problem. But when we are on a budget we do fine, and I do want to train us to learn how to better live on a budget now that I wont be able to plan on extra income.

Now for the real reason. I have been saving in my retirement accounts all my life. Through hard times and good, never even thinking about taking anything out during the hard times, never selling in down markets, other than putting money in, never thinking about the taking out part. It was hard fought income, and now that I am retired, I can't and don't want to fight that fight again, ever. I even have a hard time thinking about taking out the 3%. I will get some residuals (unpredictable amounts) over the next few years, and rather than spend them, will take them as income and decrease my retirement draw by the same amount.

It is a psychological problem for me. I am new to this retirement draw thing and it is more than a little bit scary. I know we only live so long, and want to have a good time during the remainder, not live the life of some foolish miser. On the other hand I could easily be a miser or be a spendthrift, and sometimes that middle road between those two is the hardest one to follow.

This is why your post in particular and this forum in general has been so helpful to me, and why I wanted to give a detailed response to your question. I am thoroughly enjoying my first month and a half of retirement so far, and this forum has been very helpful to me during the past year in changing my perspectives. I hope that over the coming years that middle road will become clearer and easier to follow.

 

[REWahoo]

It is a psychological problem for me. I am new to this retirement draw thing and it is more than a little bit scary...

...I am thoroughly enjoying my first month and a half of retirement so far, and this forum has been very helpful to me during the past year in changing my perspectives. I hope that over the coming years that middle road will become clearer and easier to follow.

What you describe is typical of many of us who retire early. It took me about 18 months to get comfortable pulling money out rather than putting it in. Barring a big market downturn you'll get comfortable with the fact you can spend some of your savings and still see it grow - or at least not see it decline by the amount you withdrew.

Hang in there...

 

[BuysToys]

What you describe is typical of many of us who retire early. It took me about 18 months to get comfortable pulling money out rather than putting it in. Barring a big market downturn you'll get comfortable with the fact you can spend some of your savings and still see it grow - or at least not see it decline by the amount you withdrew.

Hang in there...

I'm in the same boat as California Man. It's comforting to hear that it should get easier to spend that savings! I cringe every month when I transfer money to the checking account to pay the bills, even though I know that's why it's there....

 

[MichaelB]

What you describe is typical of many of us who retire early. It took me about 18 months to get comfortable pulling money out rather than putting it in. Barring a big market downturn you'll get comfortable with the fact you can spend some of your savings and still see it grow - or at least not see it decline by the amount you withdrew.

Hang in there...

The first year of my ER was much easier because I was only thinking "time off from work". That's when I asked myself "why not ER", and from that point it took me at least two more years - and lots of spreadsheet calculations - to comfortable with the idea, then commit.

Strangely, I found the market decline of "01 and '02 to be helpful (in a perverse way). My portfolio did well in '00 and early '01 and I naively concluded much of that was my skill, so I made some risky investments, did very badly, and in shock, sat out from the first part of the recovery. Still, despite my bumbling my portfolio had recovered enough for me to conclude that the greatest risk to my ER plan was me, and if I could somehow deal with that, ER was achievable.

When I first used FIRECalc my portfolio odds were around 84%. Now they are at 93% and I have a bigger buffer and a solid "Plan B".

 

[tulak]

When I first used FIRECalc my portfolio odds were around 84%. Now they are at 93% and I have a bigger buffer and a solid "Plan B".

Wow, I've never seen this info posted before: what firecalc withdrawal rate did you retire with.

I've always assumed that most retire with at least 95%+. It's interesting that some might consider a lower rate with a plan B.

I'm not RE yet, but I don't think I could pull the plug until I'm 95%+ for my barebone expenses.

 

[yakers]

Like California Man (hey, I live here too!) I am 'under withdrawing'. On another site a poster had a line I like: "risk of failure" is probably better termed a "risk of adjustment"

There are too many variables in my financial plans to apply any particular formula and expect to adhere to it. I.E., it is extremely likely but not certain that my wife will get an inheritance about 1/3 of current investable assets. Then we are planning NOT to spend down our Roth IRAs, plan to leave them to our two boys, but they are there for emergencies, part of our portfolio or not? Fortunately our portfolio continues to grow (I'm retired 5 yrs, wife7) due to brillance/luck. And we can survive on our pensions alone so not too worried about 50% market declines it would call for 'adjustments' which we can handle from our LBYM lifestyle, in fact we are not comfortable spending all that the calculations suggest so we let the portfolio continue to grow.

In any case, I like to ponder the theories and then look even closer at the applications and experiences of intelligent folks in retirement. I no longer think there is one way or even one best way to plan a retirement portfolio, staying awake is the main element I take away.

 

[Options]

Happy to do it. I'm hoping seeing some real-world experiences (warts and all) will be educational, especially for those who suffer from chronic OMY symptoms.

+1

This is a great lesson for those who insist waiting until 70 is the only thing that makes sense. Delaying looked good on paper and for us would have likely been the best option - that is until the reality of seeing our portfolio (our only source of income at the time) decline by 35% and not knowing when (or if) that decline would stop. At that point all I wanted to do was stem the bleeding...

Thanks for the awesome informative post and comments! Although my plan is to delay SS until 70, I can see a severe market decline causing the taking of early SS to become a plan B for me.

Like California Man (hey, I live here too!) I am 'under withdrawing'. On another site a poster had a line I like: "risk of failure" is probably better termed a "risk of adjustment"

Wade Pfau covers this very topic in his excellent blog. I found his discusion of the current popular retirement income strategies enlightening and helpful:

Wade Pfau's Retirement Researcher Blog: Retirement Income Strategies

I'm personally using a combining approach, evaluating my personal financial situation across almost all of the strategies depicted. It significantly elevated my comfort level with ER this coming January.

 

[Totoro]

What you describe is typical of many of us who retire early. It took me about 18 months to get comfortable pulling money out rather than putting it in. Barring a big market downturn you'll get comfortable with the fact you can spend some of your savings and still see it grow - or at least not see it decline by the amount you withdrew.

Hang in there...

How does one get comfortable enough to make that first step is my struggle (and of many others).

The idea of starting with a year off might not be that bad. Different frame of mind vs. full ER, and one year can become two years and so on .. I'll muse a bit on that.

Thanks for sharing!

 

[REWahoo]

MuirWannabe posted a link to this old thread so I thought I would update my chart to show where we are after 10.5 years of retirement. The chart is explained at the beginning of this thread.

Our calendar year withdrawal rates to date shown as a percentage of our initial portfolio value the day we retired in 2005:

Year 1: 4.8%
Year 2: 9.8%
Year 3: 7.9%
Year 4: 6.1% (SS begins for me)
Year 5: 5.4% (SS begins for DW)
Year 6: 4.2%
Year 7: 3.9%
Year 8: 3.5%
Year 9: 3.7%
Year 10: 4.5%

As you can see from the jump in our withdrawal rate this year, we've loosened up the purse strings a bit.

Still, so far, so good...

 

[pb4uski]

....As you can see from the jump in our withdrawal rate this year, we've loosened up the purse strings a bit. ....

Of course, you're 10 years older and the sky hasn't fallen down.

 

[MichaelB]

Of course, you're 10 years older and the sky hasn't fallen down.

Except when the market crashed in '08. But that wasn't the sky falling down, it was the ground opening up to swallow all life ..

 

[MuirWannabe]

Thanks REW for the update. No offense. But I love your relatively high withdrawal rates. It just gives me more encouragement for my future plans. Not that I plan to go crazy. But your results through some tough times and through this 'new normal' of 0% interest rates are remarkably good.


I guess since my tendency is to lean on the negative/worry side of things, it makes me appreciate all the more the upbeat folks. A little dose of happy is not such a bad thing now and then.


Muir

 

[bizlady]

It has always stuck in my head.. "if the market tanks in the first few years". And then I wonder if the "first few years" does not reset each year when you retire early.


We retired 4.5 years ago at age 55, and have lived off of after tax savings until now. In 2016 we will start to draw from tax deferred accounts, and frankly, it makes me a bit nervous with the markets and economy as they are.


Our plan works with most every calculator with a 95% plus outcome, and the play lasts until age 97 for me and 94 for him (great longevity on both sides).


The common sense side of me says we made a plan and now need to work the plan, the frugal side of me is a bit nervous.. Bottom line, nothing is for sure-- darn it!

 

[NW-Bound]

MuirWannabe posted a link to this old thread so I thought I would update my chart to show where we are after 10.5 years of retirement. ...

Did you adjust for inflation? The FIRECalc lines do account for inflation. In case you have not, cumulative inflation since 2005 till now is 25%. A $1M in 2005 is now worth only $0.8M.

Also, the market was rising in your first 3 years of retirement. The S&P rose 34% from Jan 2005 to Oct 2007. A Y2K retiree got hit by a dropping market immediately, so would not do as well.

Still, your high ER for the first 5 years is awesome.

It has always stuck in my head.. "if the market tanks in the first few years". And then I wonder if the "first few years" does not reset each year when you retire early...

Yes. But you will have to reset to 4%WR of the new balance. You may not like the reduced lifestyle though.

 

[REWahoo]

Did you adjust for inflation? The FIRECalc lines do account for inflation. In case you have not, cumulative inflation since 2005 till now is 25%. A $1M in 2005 is now worth only $0.8M.

No, I did not. Feel free to give the chart the appropriate haircut to reflect the CPI erosion.

Also, the market was rising in your first 3 years of retirement.

I retired mid 2005 and my year 1 numbers reflect calendar year 2006 as does the chart.

A Y2K retiree got hit by a dropping market immediately, so would not do as well.

+1

Selfishly, I'm only concerned with how I am doing, not the hapless Y2K retiree.

 

[W2R]

Bottom line, nothing is for sure-- darn it!

Death (and taxes). Every year we survive is another year of beating back the grim reaper, and winning this game.

Unknown to me in advance, my retirement date of 11/9/2009 would be a nearly ideal time to retire because the market has boomed ever since. My WR sure took a big jump this year when I bought my Dream House. Whew.

year | WR % initial portfolio (not CPI adj., to be like REW's)| Portfolio size % of initial
2010 | ............ 2.6% | ............ 100%
2011 | ............ 2.1% | ............ 108%
2012 | ............ 2.3% | ............ 108%
2013 | ............ 2.8% | ............ 116%
2014 | ............ 2.1% | ............ 126%
2015 . | ............ 8.5% (estimated) | ............ 126%

Of that 8.5%, 6.5% was for house buying/selling expenses, and 2.0% was for regular living expenses. The latter is lower because I started getting SS in June of 2014.

 

[ERD50]

MuirWannabe posted a link to this old thread so I thought I would update my chart to show where we are after 10.5 years of retirement. The chart is explained at the beginning of this thread.

Our calendar year withdrawal rates to date shown as a percentage of our initial portfolio value the day we retired in 2005:

Year 1: 4.8%
Year 2: 9.8%
Year 3: 7.9%
Year 4: 6.1% (SS begins for me)
Year 5: 5.4% (SS begins for DW)
Year 6: 4.2%
Year 7: 3.9%
Year 8: 3.5%
Year 9: 3.7%
Year 10: 4.5%

As you can see from the jump in our withdrawal rate this year, we've loosened up the purse strings a bit.

Still, so far, so good...

So adjusting for the 25% inflation number that NW-B mentioned, we go from an eyeball ~ $1.8M down to ~ 1.35M. For easy math, I like to use a $1M starting portfolio, so that adjustment from the FIRECAlc $750K default brings us right back to $1.8M.

A 10 year run of FIRECalc gives the following ranges:

Here is how your portfolio would have fared in each of the 135 cycles. The lowest and highest portfolio balance at the end of your retirement was $373,216 to $2,775,650, with an average at the end of $1,260,831​

So better than average historically. "So far, so good" seems about right!

-ERD50

 

[Lsbcal]

I retired in 2003 and did a bit of consulting but have gone cold turkey since 2005. Our portfolio went through a similar roller coaster ride as REWahoo's ... bull market, nasty bear market, current bull market. In inflation adjusted terms the portfolio is up about 4% versus the 2003 portfolio.

This year we will spend about 3.5% of our portfolio. Helps to have SS, Medicare, and not taking RMD's yet.