View Poll Results: What was/is your probability of success for FIRE
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100%
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115 |
68.45% |
95-99%
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37 |
22.02% |
90-94%
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9 |
5.36% |
80%
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6 |
3.57% |
70%
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0 |
0% |
below 70%
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1 |
0.60% |
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12-16-2020, 05:07 PM
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#41
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Thinks s/he gets paid by the post
Join Date: Dec 2017
Posts: 2,555
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Quote:
Originally Posted by AvidGolfer80
Now I am wondering if there is anyone on this forum or know of someone who retired at a very low probability? 80% 70% 60% or even 50%
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My mom tried this, effectively by withdrawing a 6% rate annually. In just 15 years, the actual $ amount in her accounts was half of the starting value, and that is not counting the effects of inflation. She had investments that had loads and high fees, and an investment advisor. If she had used low cost funds such as VG, she might have managed to break even.
__________________
Balance in everything.
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12-16-2020, 05:55 PM
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#42
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Full time employment: Posting here.
Join Date: Aug 2019
Posts: 691
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We retired without doing any online calculating. We realized our army pension would cover living expenses if we didn't spend money on stupid stuff. Now the IRAs sit there (and continue to grow) as the buffer for inflation, long term medical expenses, etc. Running Firecalc with pension exceeding spending gets 100% every time...
__________________
--At what age does spending less now in order to have more later stop making sense?
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12-16-2020, 06:33 PM
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#43
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Recycles dryer sheets
Join Date: Nov 2004
Location: SF Bay Area
Posts: 309
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My Dad retired with pretty much no savings but has a generous teacher's pension. He is working part-time now in his early 70's just for the social security credits since he was excluded for SS when he was a teacher.
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12-16-2020, 07:36 PM
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#44
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Thinks s/he gets paid by the post
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,727
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we first started thinking and dreaming about early retirement around age 40 (1990). when we started working to make that more than a dream we didn't know about this group (if it even was a thing) or FiReCALC. we knew we were going to each have a public pension and SS plus our investments. except for the mortgage we were already debt free. the retirement plan was to live off of the pensions and SS leaving everything else as a cushion. towards that end i re-purchased a pension from a previous public employer and we kicked our investing into high gear both pre-tax and post-tax and made extra payments on the mortgage.
the two big nuts to crack in retirement were the mortgage and health insurance. my wife had enough time in service to qualify for no-cost health coverage in retirement until age 65 and i could stay in my agency's group policy until age 65 but i had to pay the premium. the proceeds from the old pension i re-purchased would just about cover my health insurance premium and we were on track to knock out the mortgage one or two years before retiring.
two things happened in 1999. my retirement system developed an early retirement option (age 50) but i was not able to get my agency to participate. and a deferred comp option was offered to both of us that we took advantage of.
by Y2K ER in 2005 (me) and 2006 (her) was looking really good so i started re-working the spreadsheets. i had updated projections for revenue and went through our Quicken file averaging 3-yrs worth of expenses. i assumed 0% increase in pensions and SS at age 62 and an annual 3% increase in expenses (worst case scenarios). i updated it several times a year. the mortgage was paid off about 18-months before we walked (15-yr mortgage paid in 11). in early 2005 the spreadsheets were showing we were good to go so i gave 6-mos notice and a year later my wife did the same. i walked out the door in august of '05, my wife in october of '06.
for quite some time i kept waiting for the other shoe to drop...i was sure there was something i had failed to take into account in my spreadsheet but that shoe never materialized. our revenue and expenss peojections were pretty much on the mark.
we are living quite comfortably according to plan on our pensions and SS...well below our means with positive cash flow each month. other than purchasing for cash our current MH we have not touched our investments. since 2005 our net worth has blossomed to a point i never would have imagined possible. and if the world economy doesn't implode in the next few years (as some are predicting) we should be good for the next 30-years.
the moral...plan, set goals, budget, save, invest, shed debt, rinse and repeat. life is good!
__________________
Rich
Ham Radio, Sport Pilot, RVer
FIRE: 8/11/2005, age 55y,1d
Dispatcher, then shift supv, then administrator for a regional 9-1-1 call center
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12-16-2020, 08:26 PM
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#45
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2016
Posts: 8,968
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I wasn't here when I retired. I signed up after I retired when I was looking for a retirement forum.
I did a few retirement calculators but not firecalc until I was here. All good to go.
Yeah, coulda quit sooner...
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12-16-2020, 08:58 PM
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#46
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Full time employment: Posting here.
Join Date: Oct 2020
Posts: 952
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First, let me say the makers of Firecalc have done an amazing job. One caveat I would put in is that they are leaving it up to you to estimate your taxes and that obviously varies depending on your life situation, jurisdiction, and taxable income. It's hard to get that right as your asset values and therefore growth vary during the simulation period and income taxes may take a big bite for people in the 100% success department. Firecalc projects that my NW will go way up, but I didn't make an estimate of tax expenses to match that and since it is running a wide spread of scenarios, it's not easy to see how to address that.
My own spreadsheet, tuned to my tax situation (but which I would like to stop using as it seems endlessly buggy and hard to maintain), gives me about half the ending value that I got with Firecalc and quite a few cases where the ending value was half the starting value. The reverse is probably true too, that lower taxes in cases where the assets are depleting means slower depletion.
So to the 100+% crowd, don't fall in love with all those future riches, the tax man always has his hand out.
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12-16-2020, 09:18 PM
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#47
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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Quote:
Originally Posted by Exchme
My own spreadsheet, tuned to my tax situation (but which I would like to stop using as it seems endlessly buggy and hard to maintain)...
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I think you just nailed the reason Dory36 declined to include taxes in FIRECalc.
__________________
Numbers is hard
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12-17-2020, 03:10 AM
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#48
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Administrator
Join Date: Apr 2006
Posts: 23,038
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Quote:
Originally Posted by Exchme
First, let me say the makers of Firecalc have done an amazing job. One caveat I would put in is that they are leaving it up to you to estimate your taxes and that obviously varies depending on your life situation, jurisdiction, and taxable income. It's hard to get that right as your asset values and therefore growth vary during the simulation period and income taxes may take a big bite for people in the 100% success department. Firecalc projects that my NW will go way up, but I didn't make an estimate of tax expenses to match that and since it is running a wide spread of scenarios, it's not easy to see how to address that.
My own spreadsheet, tuned to my tax situation (but which I would like to stop using as it seems endlessly buggy and hard to maintain), gives me about half the ending value that I got with Firecalc and quite a few cases where the ending value was half the starting value. The reverse is probably true too, that lower taxes in cases where the assets are depleting means slower depletion.
So to the 100+% crowd, don't fall in love with all those future riches, the tax man always has his hand out.
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This is how I handle expected taxes:
1. Start with actual spending on everything but income taxes.
2. Assume that all money needed to support that spending is taxable ordinary income.
3. Gross up for taxes at the marginal rate.
4. Use the grossed up number in FIRECalc
So, for example, suppose I actually spend $81k per year based on having tracked my spending for many years. That puts me at the bottom of the 22% federal bracket and in the 5.5% state bracket. To gross up, so that after I've paid taxes I have $81k left to spend, I use the following formula: Gross draw = actual spending/(1- marginal rate). In this case $81k/(1 -.275) = $111.72k gross draw. That's what I put in for spending on the first tab of FIRECalc.
Will my actual taxes be that high? No, because I didn't take into account the standard deduction, nor the fact that some of my income will be non-taxable social security and some will be withdrawals from Roth and after tax accounts, nor that some may be long term capital gains. It also assumes taxation of income at the marginal rate instead of the effective rate. But doing it this way ensures that I am being conservative in estimating my chances of success. It is also far simpler and easier to do.
Tax rates may go up in the future, but there is really no way to predict when and by how much, so the best I can do now is just use the current ones and err on the conservative side.
Perhaps one big difference in our situations is that I have no heirs, so I care not one whit about my ending balance, as long as it is above zero. FIRECalc says it will average 8 figures. That's good enough for me.
__________________
Living an analog life in the Digital Age.
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12-17-2020, 03:19 AM
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#49
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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Quote:
Originally Posted by stepford
My inner math pedant, usually barely under control, is forced to point out: X% success probability isn't the same as 100% success probability with X% of expected expenses (which I'm sure everyone here already knows). So all of these 100+% numbers don't really make sense. If P(success)>1 does that mean that probability of failure is negative? Poor math pedant brain melts at the thought.
All that said, this thread got me to run Firecalc for the first time in a year and, using the criteria of this thread, my success probability is now 260% if I live to be 100. Take that, math pedant brain.
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Though I ran FIRECalc a lot when planning to retire, I have not run FIRECalc for a few years.
Just did it, and found that I could increase my spending to more than 5x the level of spending in the last 12 months.
What happened? A bull market to inflate the stash plus the Covid-constrained lifestyle conspired to cause this effect. Is that really desirable?
I made the FIRECalc run with the default 30-year retirement. In fairness, I should use 22 years, as I already enjoyed 8 years of putzing around. That brings the possible spending level up to 6x.
Does the above make me feel good? The answer is no.
On the other hand, if FIRECalc says I would better be looking for a job, I would feel quite lousy, and possibly would not be posting here.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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12-17-2020, 03:20 AM
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#50
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Thinks s/he gets paid by the post
Join Date: Aug 2018
Posts: 1,020
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Quote:
Originally Posted by Gumby
Will my actual taxes be that high? No, because I didn't take into account the standard deduction, nor the fact that some of my income will be non-taxable social security and some will be withdrawals from Roth and after tax accounts, nor that some may be long term capital gains. But doing it this way ensures that I am being conservative in estimating my chances of success. It is also far simpler and easier to do.
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Some additional safety margin is gained because not all of your income will actually be taxed at the marginal tax rate, unless you are in the lowest marginal tax bracket.
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12-17-2020, 03:26 AM
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#51
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Administrator
Join Date: Apr 2006
Posts: 23,038
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Quote:
Originally Posted by Lewis Clark
Some additional safety margin is gained because not all of your income will actually be taxed at the marginal tax rate, unless you are in the lowest marginal tax bracket.
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100% correct. I realized that I left that part out and revised my post accordingly.
__________________
Living an analog life in the Digital Age.
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12-17-2020, 04:47 AM
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#52
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Full time employment: Posting here.
Join Date: May 2007
Posts: 883
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Quote:
Originally Posted by AvidGolfer80
For those who chose 100%.... are we talking about the bare minimum to reach 100% (based on the number of years, yearly withdrawal and size of the nest egg) or far exceeding it?
Thanks
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For me, it wasn't watching "the number" to determine retirement date. Rather, it was the BS bucket that filled up. So, I worked too long some might say but it turned out that my w/d rate was less than 1%.
__________________
"It is better to have a permanent income than to be fascinating". Oscar Wilde
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12-17-2020, 04:49 AM
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#53
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gone traveling
Join Date: Nov 2014
Posts: 435
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I have a hair over $100,000 more in my check book than i had 5 years ago when i retired. i have everything i want except for my new vette that is paid for already.
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12-17-2020, 04:51 AM
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#54
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,884
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Quote:
Originally Posted by AvidGolfer80
For those who chose 100%.... are we talking about the bare minimum to reach 100% (based on the number of years, yearly withdrawal and size of the nest egg) or far exceeding it?
Thanks
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We are roughly 30-50% over the number we'd need for 100%.
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12-17-2020, 04:56 AM
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#55
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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I chose a withdrawal method that couldn’t run out of money by definition - thus 100% success guaranteed. This is taking a fixed percent of the portfolio every year. No inflation adjusting on withdrawals. If the portfolio goes down, so does the income. So you live with varying annual income. I figured out that I could live with that.
FIREcalc models this method as %remaining portfolio. You can choose different AAs and even specific asset types look at min, max and average real ending portfolios based on historical data. I had to dig a bit deeper to model drawdown of the portfolio (and thus income) during worst case sequences.
__________________
Retired since summer 1999.
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12-17-2020, 06:21 AM
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#56
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Full time employment: Posting here.
Join Date: Jul 2005
Posts: 617
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FireCalc tells me that historically we would've had a 100% success rate if we had spent 1.5X what our 2019 expenses were - not taking SS or my wife's future pension (which she'll be eligible to receive in 2022) into consideration - at a 70/30 allocation and assuming we lived to 100.
I didn't plan it that way. It just happened.
I left the workforce in December of 2017. My wife still works.
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12-17-2020, 06:21 AM
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#57
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Full time employment: Posting here.
Join Date: Oct 2020
Posts: 952
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Quote:
Originally Posted by Gumby
This is how I handle expected taxes:
1. Start with actual spending on everything but income taxes.
2. Assume that all money needed to support that spending is taxable ordinary income.
3. Gross up for taxes at the marginal rate.
4. Use the grossed up number in FIRECalc
So, for example, suppose I actually spend $81k per year based on having tracked my spending for many years. That puts me at the bottom of the 22% federal bracket and in the 5.5% state bracket. To gross up, so that after I've paid taxes I have $81k left to spend, I use the following formula: Gross draw = actual spending/(1- marginal rate). In this case $81k/(1 -.275) = $111.72k gross draw. That's what I put in for spending on the first tab of FIRECalc.
Will my actual taxes be that high? No, because I didn't take into account the standard deduction, nor the fact that some of my income will be non-taxable social security and some will be withdrawals from Roth and after tax accounts, nor that some may be long term capital gains. It also assumes taxation of income at the marginal rate instead of the effective rate. But doing it this way ensures that I am being conservative in estimating my chances of success. It is also far simpler and easier to do.
Tax rates may go up in the future, but there is really no way to predict when and by how much, so the best I can do now is just use the current ones and err on the conservative side.
Perhaps one big difference in our situations is that I have no heirs, so I care not one whit about my ending balance, as long as it is above zero. FIRECalc says it will average 8 figures. That's good enough for me.
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Your approach is certainly conservative for now. But the puzzle of how to handle taxes extends to the future - if you really end up with 8 figures in your portfolio, your taxes will have less to do with your spending and more to do with the dividends/realized capital gains in taxable accounts and IRA RMDs. Of course if you have 8 figures, you are not worried about having to live in your car, so this is a First World problem.
I think I will test the Firecalc by first reducing my IRA values by my assumed future tax rate.
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12-17-2020, 06:44 AM
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#58
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Administrator
Join Date: Apr 2006
Posts: 23,038
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Quote:
Originally Posted by Exchme
Your approach is certainly conservative for now. But the puzzle of how to handle taxes extends to the future - if you really end up with 8 figures in your portfolio, your taxes will have less to do with your spending and more to do with the dividends/realized capital gains in taxable accounts and IRA RMDs. Of course if you have 8 figures, you are not worried about having to live in your car, so this is a First World problem.
I think I will test the Firecalc by first reducing my IRA values by my assumed future tax rate.
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For the next 12 years (until the young wife is 72), we plan to do Roth conversions to the top of the 22% bracket, which will help deal with the RMD issue. The amount we currently have in taxable, while sufficient for a few years of expected draws, is a relatively small portion of our overall portfolio (<8%). And it is entirely cash, so I'm not worried about dividend income or capital gains until after RMDs start, which is when taxable will build up rapidly and I'll need to put it in something other than cash. But, as you note, that is a first world problem.
__________________
Living an analog life in the Digital Age.
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12-17-2020, 07:24 AM
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#59
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Full time employment: Posting here.
Join Date: Oct 2020
Posts: 952
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No kidding, and my buggy spreadsheet only covers an approximation of my relatively simple tax situation. Some issues that come up - you should deplete taxable accounts first, but to spend $1 you have to sell more than $1 based on the unrealized capital gain. Then, no account balance can go below zero, so once your taxable accounts are gone, you have to tap IRAs, but essentially all of that will be taxed, so you need to withdraw even more to get $1 free cash flow. These extra $ put you in higher tax brackets, which may mean more withdrawal needed, so you have to iterate. You also have to check AMT, and some trigger points like the NIIT are not indexed for inflation. I didn't even bother with IIRMA trigger points, ACA subsidy points, etc, but those can be important too.
Even if you could program the tax code (let alone know the future tax code), who would fill all that out?
Note that for primary intent of the program which I take to be determining if it's safe to retire, portfolios that get very large are safe, so getting taxes just right on them is not the focus. I just wanted to point out to folks not to spend all that future money quite yet.
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12-17-2020, 07:36 AM
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#60
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2014
Posts: 7,373
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At age 50 in 2003 I created a very simple Excel spreadsheet with inputs for inflation rate and an average rate of return. I started with what we had at that point and made assumptions about future returns and contributions, and then took 4% of the balance at age 65 and looked at the current-dollar value. It was an amount we could live on given our spending patterns. I left out SS, not sure if it would be around.
When I got fed up with the toxic politics at work at age 61, I looked at it again and added in SS, which now looked more certain. I was out the door a week later.
I've kept the withdrawal rate at 3.5% and my advisor (don't flame me for that) has run fancy Monte Carlo simulations that do include taxes and "lumpy" expenses such as a new car every 10 years and they say I have a 98% chance of not outliving my savings without LTC expenses, 95% with LTC.
Right now my net worth has appreciated at an average annual rate of 4% since retirement (AFTER withdrawals) so I think it's sustainable. That 4% is on the high side- usually it hovers around 3%.
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