So you get 100% in Firecalc .. but are you comfy with your lowest minimum balance ?

[COcheesehead]

I think I'd be comfortable if the lowest balance was zero, or even a failure before the end of the time span. I'm only shooting for 95%, myself. However, my opinion is that, these failure cycles are like a slow motion train wreck. If you pay attention to them, you should see the calamity coming years down the road, and should be able to make changes, such as cutting back on spending, downsizing, working a bit longer, etc, to help kick the can further down the road.

Most of these failure cycles don't just sneak up on you late in life. Usually it seems to be a bad sequence of returns early on, with too much money pulled out during those bad years, and whatever is left, just never gets the chance to recover, so it slowly erodes over time.

+1

 

[Sunset]

So I plugged my numbers into FireCalc:

Spending: $25,000
Portfolio: $750,000
Years: 60

I got 100%! But I'm trying to read this correctly. Does this mean if I have $750k in my portfolio and I continue to spend $25k or less each year, then I will be 100% financially independent for the next 60 years?

That would be a 3.4% withdrawal rate, so highly likely (nobody can guarantee anything) it would last. As long as you have it invested in a 60/40 mix, and it's broadly invested.

Note also if the 750K is in IRA/401K, you have to pay taxes out of the $25K , so not all of it would be available for spending.

 

[MarieL]

I picked 60 years, because yeah, I don't expect to live that long, but I also want to be able to have as much of a cushion as I can to know that I will be financially secure all the way until I die. I have no kids or a spouse, so any leftover money I have when I die would most likely go to other surviving family members and/or charity.

 

[MarieL]

Were those your only inputs? You should try and fill out each of the tabs across the top.

Oh, I didn't see the other tabs. Thanks for the heads up!

 

[Vincenzo Corleone]

I picked 60 years, because yeah, I don't expect to live that long, but I also want to be able to have as much of a cushion as I can to know that I will be financially secure all the way until I die. I have no kids or a spouse, so any leftover money I have when I die would most likely go to other surviving family members and/or charity.

I would suggest that you re-run FireCalc with a 52 year time horizon. Reason being, anything above 52 years would not include (one of?) the worst starting year(s) to retire - 1966.

 

[Hermit]

A really good friend of mine thought he had retirement all figured out. He is now in the final stages of alzheimer's. He needs to be placed in a dementia unit, but the finances for this and continued support of his wife look grim.


Moral - Dont cut it too close.

 

[COcheesehead]

A really good friend of mine thought he had retirement all figured out. He is now in the final stages of alzheimer's. He needs to be placed in a dementia unit, but the finances for this and continued support of his wife look grim.


Moral - Dont cut it too close.

My Dad died with $40,000 to his name. Medical expenses took most of his assets in his last 2 years on earth. He had medical insurance, but not LTC coverage.

 

[Dtail]

Yes, returns are uneven, not linear. But history has shown that each year's return is not entirely independent of the one preceding it. Importantly, FIRECalc is not a Monte Carlo simulator. It takes as many separate planning periods as can be derived from available market data since 1871 and uses them, as they reflect the somewhat interdependent nature of returns year to year. i.e. - if you choose 30 years, there are 119 historical return paths, starting with a person retiring in 1871 and ending with one retiring in 1989. The key assumption is that if your portfolio survives the worst that has occurred in the past, it will survive the future.

Everyone should also run it with uneven returns since returns are never lineal. Those results provide “interesting” ending balances sometimes, as in negative.
I listen to a pretty good podcast and the host says this about any of the Monte Carlo simulators. He said the results are based on hundreds of paths, but we only have a chance at one.

I agree with both of the posts.
Historical sequencing and Monte Carlo simulation both have their advantages and disadvantages.
Thus I use the Fidelity Monte Carlo plus Firecalc, not to mention others.

 

[MarieL]

I would suggest that you re-run FireCalc with a 52 year time horizon. Reason being, anything above 52 years would not include (one of?) the worst starting year(s) to retire - 1966.

I don't understand this? How does lowering the year include 1966?? And why would I want to include this? I wasn't even born then. lol

 

[wmc1000]

We shoot for a minimum ending balance of around $300k, (in todays dollars), since we don't have LTC insurance and that is without considering the value of our home.

Between those 2 things we feel comfortable we could whether any LTC needs for the 2 of us.

 

[Dtail]

I pay little or no attention to FireCalc, It is an interesting gadget but (from the home page):

************************************
How can FIRECalc predict future returns from past performance?
It can't. And it doesn't try.
************************************

We live by inductive reasoning, predicting the future based on the past. This often works, but not always. I'll bet that most of you can guess who made this statement:

“ ... in all my experience, I have never been in any accident … of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort.”
​

Be careful out there.

Okay, but it is still useful in at least establishing a starting point of Am I good to go.
A guideline of the 4% spend is still used widely, but then if one would state that Firecalc doesn't provide a good guideline, but it is effectively based on the 4% rule, well then.......

Yes, there are no guarantees, but for us folks who don't have Pensions/SS covering all our expenses, it is good to have some reference.

 

[REWahoo]

I don't understand this? How does lowering the year include 1966?? And why would I want to include this? I wasn't even born then. lol

Marie, I highly recommend reading and understanding How FIRECalc Works. Definitely time well spent.

 

[NW-Bound]

"So you get 100% in Firecalc .. but are you comfy with your lowest minimum balance ?"

What is this lowest minimum balance which you spoke of? We expect our stash to grow and grow each year despite withdrawals, just as it has done for the last few years.

OK, OK, just kidding.

Even if you withdraw nothing, FIRECalc shows that a $1M in a 50/50 portfolio may shrink to $636K in 5 years, due to the market turning south. Of course, the more you draw, the lower it gets, and just within those first 5 years.

WR Portfolio Min after 5 years

0% 63.6%
1% 59.0%
2% 54.4%
3% 49.8%
4% 45.2%

If you go higher in equity than 50/50, then of course the results would be lower.

Say hello to SORR.

 

[corn18]

This chart always makes me feel better as I analyze corner cases for retirement:

We spend a lot of time trying to avoid the orange, when there is so much green.

Here's a link if you want to run your own data: https://engaging-data.com/will-money-last-retire-early/

 

[REWahoo]

We spend a lot of time trying to avoid the orange, when there is so much [-]green[/-] dark gray.

FIFY

 

[COcheesehead]

This chart always makes me feel better as I analyze corner cases for retirement:

We spend a lot of time trying to avoid the orange, when there is so much green.

Here's a link if you want to run your own data: https://engaging-data.com/will-money-last-retire-early/

How are they calculating the return? If it's X% per year with X being constant, I wouldn't put too much credibility into it.

 

[corn18]

FIFY

I am a rainbows and unicorns kindof guy, so I don't see the grey.

 

[Andre1969]

A 52 year cycle WOULD include 1966 by now, wouldn't it?

Anyway, for those of you with longer time horizons, you might want to plug in a shorter span, just to see what happens. For instance, I'm looking at 50 years, myself. If things go right, one more year of working, and then 11 years before I can get SS, and dead at 100.

FireCalc gives me roughly a 96% chance of success. However, I've run a few shorter timelines, I can see that there are some cycles destined for failure, that simply weren't included in a 50 year run.

I re-run my numbers every year, and figure it gets more accurate each time, since it's a shorter time span. When I first started, I think I was 43, so I was looking at a 57 year time span!

I don't know how to differentiate a single starting point, but I'd imagine that, in addition to 1966, that 1973 was a bad year to start. That's one that FireCalc uses in the example on its front page...1973, 1974, and 1975. I could see 1980-81 being rough times as well, although probably not as bad as 1966 or 1973.

I've run my own numbers, and for me, 1999 would have been a bad year to start. I lost a little money in 2000, and a lot in 2001 and 2002, so it would have been a bad sequence of returns right off the bat. I would have been too depleted to really enjoy that comeback period of 2003-2007, so when the Great Recession hit in 2008, that would have been the final nail in the coffin. Even though the economy has been great since then, I would have been pulling out more than my portfolio was making, so it would still have been eroding.

That was at a 4% withdrawal rate though, and assuming no SS. Ratchet the rate back to 3%, and throwing SS into the mix, I probably would have been okay.

 

[corn18]

How are they calculating the return? If it's X% per year with X being constant, I wouldn't put too much credibility into it.

I'll paste it here for you, but the link explains what it does.

The graph shows the likelihood of your balance being at different levels during each year of your retirement (and compares it to the probability of dying during this time). Red indicates failure (i.e. you’ve run out of money) and green indicates success (i.e. you haven’t run out of money). The probabilities are calculated based upon looking at stock, bond and cash returns from historical cycles between 1871 and 2016. If you expect to retire for 50 years, one historical cycle would be from 1871 to 1922, another one from 1872 to 1923, and so on until 1965 to 2016. Thus 95 different historical cycles are considered (in this case). It is important to note that these frequencies in the past are not the same as actual probabilities. Just because an outcome happened once in history doesn’t mean that there is a one in 95 chance (1.05%) of this same thing happening in the future. However, if your retirement portfolio survives most historical cycles, there is a good chance that it’ll survive in the future without any major black swan events. If something crazy occurs (e.g. a major nuclear war), your retirement balance may be the least of your worries, so we can safely ignore this, since there’s very little way to prepare for it financially. If you look over all these historical cycles, we find that a 4% withdrawal rate will generally last through a long retirement, though there are occasional cycles that are “failures”, i.e. you run out of money. See here for more info on the 4% rule and how historical simulations of withdrawal rate are performed.

 

[OldShooter]

Okay, but it is still useful in at least establishing a starting point of Am I good to go. ...

Agree completely. The more data points one can get, particularly if the finances are tight, the better. But (not picking on Firecalc particularly) these calculators that give precise-looking numbers can mislead folks.

For example, in the paper yesterday was a story about the rescue squad fishing a guy out of the river after he broke through the ice. He claimed that Google Maps told him to cross.

The key, as has been stated, is to realize that flexibility in making life's choices is in everyone's future and that investment performance will be a big factor in guiding those choices.

If I were ever to write a planner (I won't) it would probably have three or four outputs like: "Doesn't look too good,"Kind of marginal,"A reasonable bet," and "Looks pretty good." No way would I punch out three digit % numbers.

(Old joke: "How do you know that economists have a sense of humor?" "They use decimals.")

 

[corn18]

So I plugged my numbers into FireCalc:

Spending: $25,000
Portfolio: $750,000
Years: 60

I got 100%! But I'm trying to read this correctly. Does this mean if I have $750k in my portfolio and I continue to spend $25k or less each year, then I will be 100% financially independent for the next 60 years?

I don't see a lot of orange in your future:

https://engaging-data.com/will-money-last-retire-early/?spend=25000&initsav=750000&age=30&yrs=60&stockpct=60&bondpct=40&cashpct=0&sex=0&infl=1&taxrate=0&fees=0.01&income=0&incstart=50&incend=70&expense=0&expstart=50&expend=70&showdeath=1&showlow=1&show2x=1&show5x=1&flexpct=0

 

[audreyh1]

So I use %remaining portfolio, which can’t run out of money because you take out a fixed percentage of the portfolio value each year. If the portfolio shrinks, so does your income. You don’t get stuck in a scenario of withdrawing larger percentages of the portfolio year after year.

But I did look at remaining portfolio for various withdrawal rates. Mostly 30 year, but I ran a few longer - 40 years.

I modeled a 50/50 total stock market/5 year treasuries portfolio with various withdrawal percentages in FIREcalc.

Withdrawing 4.35% of the portfolio value each year resulted in an average remaining inflation adjusted portfolio of 100% of the original on average, and 50% in the worst case. So worst case you’d be down to half of where you started, adjusted for inflation.

For 40 years - results were about the same.

4.35% appeared to be a generally self-sustaining withdrawal rate.

Note that I’m not talking about the traditional method here.

 

[COcheesehead]

I'll paste it here for you, but the link explains what it does.

The graph shows the likelihood of your balance being at different levels during each year of your retirement (and compares it to the probability of dying during this time). Red indicates failure (i.e. you’ve run out of money) and green indicates success (i.e. you haven’t run out of money). The probabilities are calculated based upon looking at stock, bond and cash returns from historical cycles between 1871 and 2016. If you expect to retire for 50 years, one historical cycle would be from 1871 to 1922, another one from 1872 to 1923, and so on until 1965 to 2016. Thus 95 different historical cycles are considered (in this case). It is important to note that these frequencies in the past are not the same as actual probabilities. Just because an outcome happened once in history doesn’t mean that there is a one in 95 chance (1.05%) of this same thing happening in the future. However, if your retirement portfolio survives most historical cycles, there is a good chance that it’ll survive in the future without any major black swan events. If something crazy occurs (e.g. a major nuclear war), your retirement balance may be the least of your worries, so we can safely ignore this, since there’s very little way to prepare for it financially. If you look over all these historical cycles, we find that a 4% withdrawal rate will generally last through a long retirement, though there are occasional cycles that are “failures”, i.e. you run out of money. See here for more info on the 4% rule and how historical simulations of withdrawal rate are performed.

Got it.

 

[NW-Bound]

I am a rainbows and unicorns kind of guy, so I don't see the grey.

There's nothing like a good illness to ease your mind off SORR.

And I am not talking about something like what residents of Wuhan are going through. They are worrying about something much more immediate than SORR.

Life can get exciting, even for people who do not look for trouble.

 

[daylatedollarshort]

Just wondering, you run Firecalc, and you get 100% say over 40 years.
What minimum balance are you comfortable with ? $300K left, $500K left ? $1 Million left ?

We're not cutting it close at all, so higher than all those numbers, plus the house. LTC for two can get really expensive - $100K+ a year per person plus we'd like to leave a nice amount to each of our kids. We're really into sustainable living so that pretty much translates into low overhead - plant based diet, low energy and water use, buying used when we can, no fast fashion, etc.