Ultra Conservative Retirement Planners

[smileydog]

I have been comparing the Fido retirement planning tool with Firecalc and have noticed that Fido's a bit more conservative in its approach. I was curious if others have seen this with sponsored planning tools that are trying to encourage investments. The Fido default on their graphs is for poor market performance - while I want to be cautious - I don't want to delay retirement unnecessarily. In general are we being encourage to save too much?

 

[hellbender]

I personally would favor a more conservative approach than that utilized by the Firecalc methodology. Firecalc defines "success" as not running completely out of money. This is at great variance with any definition of success I would favor since I believe it unrealistic to adopt a model which assumes that one must hang on to an equity-rich portfolio anywhere near such precarious position. Keep in mind that because of the way in which the Firecalc methodology is constructed, actual SWRs will never exceed that which the calculator determines today. In other words, the SWRs of the future can only go down. They can never go up.

 

[brewer12345]

Keep in mind that because of the way in which the Firecalc methodology is constructed, actual SWRs will never exceed that which the calculator determines today. In other words, the SWRs of the future can only go down. They can never go up.

Huh? I cannot imagine what you were trying to convey. Care to explain a little further?

And FWIW, if you use the firecalc variant that follws ESRBob's 95% methodology, you get a withdrawal scheme that aims to maintain the corpus of your stash.

 

[Mwsinron]

When you talk about fido? Is it Fidelity you are talking about? I would guess you are but I dont want to assume. If so they seem to be really ultra conservative. They go off how much you make per year. I know I dont need to spend 75 or 80 percent of what I make yearly lol.

 

[smileydog]

Fidelity is the Fido. I want to know up front what slants that there might be. I like Fidelity and they have always been good to me but the difference in some of the calculations just made me wonder a bit. I recently read the Retire on Less that you think book and it pushes an expense based approach based on possibly reduced cost in retirement.

 

[Nords]

Huh? I cannot imagine what you were trying to convey. Care to explain a little further?

The math says that if a sequence of returns leads to a failure then it doesn't matter how good all the other sequences are. That one failure sequence limits the upper boundary of the 100%-successful SWR even if the next 50 years of investment returns come in at 15%.

So most people's 100%-success FIRECalc runs stumble at 1966-82 or 1929-?. It doesn't matter how good the future looks or how their asset classes & correlations differ from those failure periods... the math says that the SWR can't go higher than the run that failed.

The reality is that people don't spend their money like FIRECalc, and many people don't insist on working for a big-enough portfolio to achieve a 100% success rate.

It also gives Hellbender an excuse to slip a little equity-bashing into an otherwise asset-neutral post.

Hellbender, we hear you. You think equities are bad. We get it. However your harrumphing heavy-handed criticism of the status quo without a constructive suggestion for an improvement is of no help to this board. If you don't like FIRECalc then you're welcome to propose a better alternative. If you don't like equities then you're welcome to post your recommended asset allocation. But your repetitive equity-bashing diatribes serve no remaining purpose other than to make the rest of the board wonder what trauma induces this Pavlovian response in you whenever the subject comes up.

There are many ways to ER. It's possible that some of them can be done using assets that you wouldn't touch with a 10-foot pole. A little more tolerance for that possibility could lead to a more productive discussion and an enjoyable experience for everyone...

 

[hellbender]

Huh? I cannot imagine what you were trying to convey. Care to explain a little further?

The Firecalc model defines success based on the "worst historical market performance". The worst market peformance ever experienced will never get better. Therefore SWRs calculated using this methodology, in the fullness of time, may go lower (market performance occurs which is worse than that ever previously experienced) but they will never go higher.

 

[yakers]

If firecalc were based on the best periods of return it could 'only get worse'.

 

[hellbender]

The math says that if a sequence of returns leads to a failure then it doesn't matter how good all the other sequences are. That one failure sequence limits the upper boundary of the 100%-successful SWR even if the next 50 years of investment returns come in at 15%.

So most people's 100%-success FIRECalc runs stumble at 1966-82 or 1929-?. It doesn't matter how good the future looks or how their asset classes & correlations differ from those failure periods... the math says that the SWR can't go higher than the run that failed.

So we agree.

 

[Mysto]

Hi smileydog

There is a fundamental difference between the calculators. Firecalc uses actual rolling hisotrical results. The fido calculator uses historical results but in a monte carlo simulation. This gives a history that never happened. They try to model a future worst case. At a 90% confidence the simulation was successful (didn't run out of money) 9 out of 10 times. You can set it for other confidence levels if you are using the main retirement planner. I ran across problems with the fido calculator and you can read some of it under the title:

monte carlo vs. firecalc - or what is fido doing to me! (I don't know how to link this)

I like the tool but recognize that it is very conservative.

There is a section on fido that explains their methodology.

 

[bbuzzard]

Please give a link to the Fido calculator we are discussing. Thanks

 

[Cut-Throat]

The Firecalc model defines success based on the "worst historical market performance". The worst market peformance ever experienced will never get better. Therefore SWRs calculated using this methodology, in the fullness of time, may go lower (market performance occurs which is worse than that ever previously experienced) but they will never go higher.

Sure they can. Let's say we have a roaring Bull market for the next 10 years and the Dow goes to 30,000 plus.
Your Net worth more than doubles. So you sit down and re-run FireCalc with 10 years less than the previous plan and your SWR goes up!

You know you can always rerun FireCalc, your never stuck with the number you started with!

 

[MasterBlaster]

Getting back to the original comparison between Firecalc and the Fidelity calculator I have a more cynical response.

Fidelity has a vested interst in getting people to invest more and more money with them. It is not in their best interest to give an evenhanded (let alone rosy) projection of future retirement stash needs. Fidelity must also model their somewhat larger fee structure than a basic ultra-low fee index fund retirement that Firecalc defaults to. Just based on Fidelities mutual fund fees one would have to have 10-20 percent more stash just to keep your money with them.

Now before you flame me, I am aware that Fidelity has some very low fee index funds (ie the Spartan funds). However most of their funds are not what I would call ultra low fee.

 

[Martha]

http://personal.fidelity.com/planning/retirement/plan_overview.shtml.cvsr?refpr=rrc18

Fidelity retirement planner. You can sign in as a guest, you don't have to be a Fido customer. I don't know the philosophy behind their planner. Maybe it is a monte carlo planner, which inserts more randomization into what might happen in the future than is probably called for.

 

[Running_Man]

Sure they can. Let's say we have a roaring Bull market for the next 10 years and the Dow goes to 30,000 plus.
Your Net worth more than doubles. So you sit down and re-run FireCalc with 10 years less than the previous plan and your SWR goes up!

You know you can always rerun FireCalc, your never stuck with the number you started with!

Actually isn't that by definition true of Firecalc as it is a point in time calculation? Certainly if I made 100% in the first 5 years and only spent 1/3 of that gain my withdrawl rate could greatly increase by reallocating according to the revised FireCalc projections. To me it seems FireCalc for the most part is to determine the level you can safely withdraw. Good early years put time & money on your side.....

 

[Nords]

So we agree.

No, only as long as you continue to cherrypick the parts of my posts that you'd prefer to quote out of context.

 

[Rollie]

Based on the fidelity calculator I need to work 5 more years past 55! How is it so different than Firecalc?

 

[hogtied]

Why not just go to Advanced FireCalc and plug in your comfortable minimum "Terminal Value"? Your success percentage will drop as you raise your minimum Terminal Value.

 

[haha]

It also gives Hellbender an excuse to slip a little equity-bashing into an otherwise asset-neutral post.

Hellbender, we hear you. You think equities are bad. We get it. However your harrumphing heavy-handed criticism of the status quo without a constructive suggestion for an improvement is of no help to this board. If you don't like FIRECalc then you're welcome to propose a better alternative. If you don't like equities then you're welcome to post your recommended asset allocation. But your repetitive equity-bashing diatribes serve no remaining purpose other than to make the rest of the board wonder what trauma induces this Pavlovian response in you whenever the subject comes up.

There are many ways to ER. It's possible that some of them can be done using assets that you wouldn't touch with a 10-foot pole. A little more tolerance for that possibility could lead to a more productive discussion and an enjoyable experience for everyone...

This guy has only made 16 posts since Dec 1, 2006. How could they be repetitive? I looked back, and most of his posts don't seem to be about this issue at all.

IMO we have plenty of equity cheerleaders on board, why does someone who has another point of view have to come up with an alternate calculator to be allowed to put forth that point of view? He didn’t say that others were wrong, just that he thinks there are potential flaws in relying too heavily on FireCalc.

Anyway, his criticism of FireCalc is accurate. One additional sequence worse than what is already in the database will ipso facto lower SWRs. Whether this is likely or not is another question and one that will depend on how the future unfolds.

I know what everyone who posts about index funds and SWRs thinks. They may be 100% correct. But I don't know about Hellbender's experience buying riverfront lots for $67,500, moving a little dirt and reselling for a good profit.

I personally would rather hear that than the 900 millionth post on how marvelous indexing is- even if it is indeed marvelous.

Ha

 

[Bikerdude]

But your repetitive equity-bashing diatribes serve no remaining purpose other than to make the rest of the board wonder what trauma induces this Pavlovian response in you whenever the subject comes up.

Say what dude? DYAM, you got to bring the diatribe down to the lowest common denominator. You know what I mean?

 

[Nords]

This guy has only made 16 posts since Dec 1, 2006. How could they be repetitive? I looked back, and most of his posts don't seem to be about this issue at all.

Say what dude? DYAM, you got to bring the diatribe down to the lowest common denominator. You know what I mean?

Eh, this post wasn't about equities. No need to bring up the subject at all, let alone troll for a controversial response.

You guys can go read all his posts just as well as I can, and form your own opinions.

 

[chinaco]

Interesting! Differing opinions upset the equilibrium. Should we all remain

Hey, a controversial post is not a bad thing. It gets people thinking and questioning their approach. This is a good thing. If you get too complacent, the market gremlins will get you!

It all started with an question about the difference between two tools. Hellbender's response is a bit thin on substance and long on opinion. He is questioning the status quo (on this board). He might be doing it to get a rise out of a few people. That's ok. It breaks the conversation out of the chant (as HA pointed out).

I probably will always question my approach and be looking over my shoulders during ER. Matter of fact, I am working on contingency plans for certain events so I do not have to rely on a knee jerk reaction if they occur or wind up like a deer staring in the headlights of a semi and get mowed down.

I will follow a conservative balanced indexing approach. Why. Because I am done trying to "hit the lottery" (so to speak) in the market. If I can get 8-10% I am please as punch. Reality is I might wind up with more like 6-8%. From here, I just want to know how to smooth out the waves of the ocean and avoid the storms so the boat doesn't get swamped. That is why I diversify.

I look at swr as a guideline, not a hard fast rule. The WR amount will always be a fairly low % if the time horizon is a long time and you want the funding to last.

I am pleased that I have some people to compare notes with. I learn some things when I peruse the board. But I take nothing that I read (about investment advice) as much more than opinion... or someone sharing something that they read. A word to the wise for everyone. Fact check, cross-check... Do not assume that what you read is reliable fact. No offense, but I would not follow advice from anyone, anywhere, at anytime in matters of finance without checking it out.

I am going to run a poll to see how many real experts we have on manging the draw-down phase. How many pension actuaries are on the board and/or Life Insurance actuaries that design the product (i.e., funding/expenses). I will bet the answer is very close to ZERO... I would be surprised if there were 1 or 2.


Are there and FSAs out there?

 

[smileydog]

Thanks for the interesting dialog! I am in a learning mode and all input is appreciated - doesn't mean I would agree...
I heard Dave Ramsey (get out of debt guru) tell some gal that with a good growth stock mutal fund she could get 12% draw 8% and leave 4% for inflation - that was for 600k. Talk about optomistic. Firecalc is wayyyyy conservative compared to that comment. dog

 

[Cut-Throat]

Thanks for the interesting dialog! I am in a learning mode and all input is appreciated - doesn't mean I would agree...
I heard Dave Ramsey (get out of debt guru) tell some gal that with a good growth stock mutal fund she could get 12% draw 8% and leave 4% for inflation - that was for 600k. Talk about optomistic. Firecalc is wayyyyy conservative compared to that comment. dog

That's why Dave Ramsey's program is so religious. You've got to pray for a miracle for that plan to work

 

[hellbender]

This guy has only made 16 posts since Dec 1, 2006. How could they be repetitive? I looked back, and most of his posts don't seem to be about this issue at all.

IMO we have plenty of equity cheerleaders on board, why does someone who has another point of view have to come up with an alternate calculator to be allowed to put forth that point of view? He didn’t say that others were wrong, just that he thinks there are potential flaws in relying too heavily on FireCalc.

Anyway, his criticism of FireCalc is accurate. One additional sequence worse than what is already in the database will ipso facto lower SWRs. Whether this is likely or not is another question and one that will depend on how the future unfolds.

I know what everyone who posts about index funds and SWRs thinks. They may be 100% correct. But I don't know about Hellbender's experience buying riverfront lots for $67,500, moving a little dirt and reselling for a good profit.

I personally would rather hear that than the 900 millionth post on how marvelous indexing is- even if it is indeed marvelous.

Ha

Thank you. I am amazed to see the level of defensiveness, ire and personal attacks preciptated by my observations. It is truly incredible that the merest hint that I prefer to invest in something other than equities, or that the Firecalc tool is anything less than perfect results in such smears and exaggerations. Talk about your Pavlovian responses.

If anyone (other than astromeria) thinks they have the right to speak for this forum in condemning me, and further - to legislate what constititutes acceptable opinion or content in my posts, then they are going to be very dissappointed.

I have always found that I learn much more from those that disagree with me. That is part of the reason I am here. It helps me to grow as an individual and sharpen my philiosophy. There is a price to be paid though. . . . . from time to time I encounter individuals who are so insecure that they must surround temselves with those who mimic (or at least don't question) their views. As a natural result, over time they begin to find the ideas of others so intolerable that they must resort to exaggeration and personal attacks.

The business of SWRs, indexing and calculators grew old for me a long time ago. I consider the knowledge valuable, even though I don't utilize it often myself. I find more value in questioning the status quo than in wrapping myself with a fuzzy security blanket of like-thinkers and defending the status quo vehemently against all comers. That would be easy.