FireCalc Acceptable % Results - What is good?

[COcheesehead]

One thing to bear in mind is that, even if your portfolio would have survived the worst that history could have thrown at it, the balance, at it's lowest ebb, could severely test your nerves. If you're comfortable with that, then that's fine. It's important that not only does your portfolio survive, but also your underwear

So true. People forget the emotional side. When you don't know where the bottom is, your greatest fears take over.

 

[FLSUnFIRE]

Since this general topic has come up here several times in the recent past it’s probably worth posting the link to Bill Bernstein’s Retirement Calculator from Hell again. This is Part 3 where he points out that chances of global (or personal) apocalypse in one form or another overshadow the difference between a result of 80% and 100%.

The Retirement Calculator from Hell, Part III

Paper and electrons could rapidly be worthless under many possible, but hopefully not probable, scenarios. Read Lucifer's Hammer or One Second After (the better and scarier of the two) and you won't feel quite as safe no matter your AA! Stone age technology can't support the current human population.

 

[Major Tom]

When you don't know where the bottom is, your greatest fears take over.

There's a joke there, I know there is. However, if I don't get out of the house soon, nothing will get done today!

 

[Rianne]

I use Firecalc many different ways. Growing up, my family was near bankruptcy. I married a frugal sweetheart over 35 yrs. ago who opened my eyes to borrowing and saving. Because of my memory (fear) of reliving the horrible situation my DF put us in growing up. He took huge risks relying on luck more than reality. So, I enter 1/2 of our NW and see where we'd end up in 30 years. I enter various "portfolio changes" the 6th tab if a dramatic health or major expenditure where to happen and if we'd recover safely. Firecalc can be easily manipulated in so many ways. With or without SS, if megacorp reneges on our pension. It's all about risk, numbers...just ask my DF bookie.

 

[cnocmmz]

Even if I double my actual spending and get 100%, I still could run out of money. FIRECalc is just a model; it assumes the future will not be worse than the worst of the past 150 years. That may or may not prove to be the the case. As the saying goes - all models are wrong; some models are useful. Ultimately, we each decide to step off the ledge and find out for ourselves.

We are now almost there. Time will tell how the market reacts over the next 2-5 years. We are close to those worst times
All the best

 

[Rianne]

I question the accuracy of "Crystal Ball" method. Allow for negative input, but not sure that is correct.

 

[jollystomper]

I did 100%, but also looked at what was forecast for spending levels down to the 95% level.

I also looked at what spending was possible with 100% success with any 2 of the 3 income sources we have (pension, SS, investments), to see our "barebones" level.

I did not use FIRECALC only, this was one of just several sources used to assess my ability to retire (including meetings with and analysis by a Megacorp provided financial planning firm).

 

[Rianne]

I also looked at what spending was possible with 100% success with any 2 of the 3 income sources we have (pension, SS, investments), to see our "barebones" level.

pension, SS a given. Say you put SS, pension and rather than letting firecalc give 100 year historical returns, you enter negative returns for worse case scenario (thinking of apocalypse, E Bola gone wild) for 30 years. So your investments CG are negative for 30 years at say 5% with your normal or upper normal spending level. I still get 100% with negative returns for 30 years with higher spend level than SS, pension income, using crystal ball.

 

[JustVisitingThisPlanet]

I do 100%

Fidelity's tool shows you the percent over or under your target and will go as high as 150%+. That is where I am at. So I feel pretty confident I will be able to blow the dough.

Am more confident with Fidelity's retirement calculator than FireCalc. FireCalc seems to way overstate.

 

[REWahoo]

FireCalc seems to way overstate.

FIRECalc uses actual history - earth history. Maybe whatever planet you're from had a different economic past.

 

[JustVisitingThisPlanet]

With perhaps an untypical artificially inflated economy last few years. If FireCalc shows you're OK to retire and Fidelity shows you may fall short, might consider caution.

 

[Dtail]

Am more confident with Fidelity's retirement calculator than FireCalc. FireCalc seems to way overstate.

Fidelity's calculator uses a Monte Carlo calculation. Thus the "fat tails" of the calculations can be exaggerated.
An example is that it could use the following bad market years in sequence 2000,2001,2002,1929,2008, etc.
Thus a loss calculation includes an historical yearly sequence of results which has never happened and doesn't use any reversion to means concepts.
Additionally, the medical expense inflation rate is at 5.5%, which can further reduce the results.

Nevertheless, it is a very good and popular calculator which provides additional results to assist in where one stands.

 

[big-papa]

Fidelity's calculator uses a Monte Carlo calculation. Thus the "fat tails" of the calculations can be exaggerated.
An example is that it could use the following bad market years in sequence 2000,2001,2002,1929,2008, etc.
Thus a loss calculation includes an historical yearly sequence of results which has never happened and doesn't use any reversion to means concepts.
Additionally, the medical expense inflation rate is at 5.5%, which can further reduce the results.

Nevertheless, it is a very good and popular calculator which provides additional results to assist in where one stands.

+1
Also, Fidelity includes the ability to take into account taxes, with various underlying assumptions. Note for their Monte Carlo analysis, that when you select "market performing significantly lower than average", this means a 90% confidence level.
Also, they don't necessarily use your exact fund choices in their analysis, but use the more broad categories of US stock (using the SP500), the MSCI EAFE Index for international from 1970 onwards (but substituting in the SP500 for pre-1970), Intermediate Term treasuries for bonds, and T-bills for cash.

Detailed document for their methodology is here:
https://www.fidelity.com/bin-public/060_Guidance_Pages/documents/IRE_METHODOLOGY.pdf

 

[The Cosmic Avenger]

Fidelity also defaults to a "significantly below average" market; although you can also view your results in below average and average markets, which is comforting, they're right to try to get people to plan for more difficult times.

 

[COcheesehead]

Am more confident with Fidelity's retirement calculator than FireCalc. FireCalc seems to way overstate.

Keep in mind Fidelity will show you a remainder. FireCalc, unless you input a balance desired at the end of life, will go to 0. So that may give you much different results.

 

[Dtail]

Fidelity also defaults to a "significantly below average" market; although you can also view your results in below average and average markets, which is comforting, they're right to try to get people to plan for more difficult times.

I believe the "significantly below average market" translates to a 90% confidence level success rate.
Thus the Monte Carlo concept at a 100% success rate/90% confidence level in Fidelity (whereby there is a balance remaining) is probably somewhat similar to a Firecalc 100% success rate using historical sequencing.

I have used around 6 different retirement calculators and the net differences for all of them was within a spending level of no more than a 10% difference.

 

[pb4uski]

Fidelity's calculator uses a Monte Carlo calculation. ...

Check that... my understanding is that FIRECalc's default calculation method is historical, not Monte Carlo. IOW, it takes the assumptions provided and assumes that you retired on January 1, 1871 and then rolls it forward for returns, and withdrawals adjusted for inflation for 30 years... if at any time in the 30 years the balance is less than zero then it is a failure... if the balance is always more than 0 then it is a success. Then it does in for 1872 for 30 years... et al.

FIRECalc starts with a retirement cycle beginning in 1871 and determines whether that cycle would have succeeded (remained in the black) or not. Then it starts over, with a cycle starting in 1872. Then 1873, and so forth until the most recent year for which there are results available.

That is why if your time horizon is 30 years the results say that there were 120 possible 30 year periods but if you change it to 40 years the results say that there were 110 possible 40 year periods.

You can change the historical to Monte Carlo by selecting the random performance option on the Your Portfolio tab.... but at least using the default Monte Carlo it doesn't seem to make much difference... 95.0% success using historical vs 95.9% for Monte Carlo with everything else at default.

 

[Dtail]

Check that... my understanding is that FIRECalc's default calculation method is historical, not Monte Carlo. IOW, it takes the assumptions provided and assumes that you retired on January 1, 1871 and then rolls it forward for returns, and withdrawals adjusted for inflation for 30 years... if at any time in the 30 years the balance is less than zero then it is a failure... if the balance is always more than 0 then it is a success. Then it does in for 1872 for 30 years... et al.



That is why if your time horizon is 30 years the results say that there were 120 possible 30 year periods but if you change it to 40 years the results say that there were 110 possible 40 year periods.

You can change the historical to Monte Carlo by selecting the random performance option on the Your Portfolio tab.... but at least using the default Monte Carlo it doesn't seem to make much difference... 95.0% success using historical vs 95.9% for Monte Carlo with everything else at default.

Bolded by me - Hey PB, are you agreeing with me or disagreeing with me?
Yes, I agree that Firecalc default is historical vs. Fidelity at Monte Carlo.

 

[pb4uski]

Sorry, I misread your post... I thought that it said that FIRECalc used Monte Carlo... oh, well... they both begin with "F".

 

[Retire2023]

I have what is probably a very dumb question, but I'll ask it anyway.

In the retirement calculators, such as the one at Fidelity, there is no entry for expected income from investments. Interest and dividends are not shown. Is this included in the % returns used for the calucations, or is it just ignored?

 

[Dtail]

I have what is probably a very dumb question, but I'll ask it anyway.

In the retirement calculators, such as the one at Fidelity, there is no entry for expected income from investments. Interest and dividends are not shown. Is this included in the % returns used for the calucations, or is it just ignored?

Yes it is included in the % returns used as part of the calculations as part of a total return concept.

 

[skipro33]

Dumb question;
When entering my income from pension, SS and withdraws from my IRA accounts, is that gross income or net income? Before or after taxes? My 'take home' pay or 'before deductions'?
My pension, for example, is gross $5,850 a month. I 'take home' $5050 a month. Deduction for medical, $150 a month, and taxes both state and federal is the difference. SS, I take the full amount, no tax deductions as I adjusted my pension to take extra out for that. I can adjust paycheck by paycheck. IRA account aways takes 20% off the top; If I want $20,000 for the year, I gotta take a $24,000 draw and the investment house sends $4,000 (20%) in for federal tax.



That's a pretty big difference when doing the calc.

 

[Gumby]

I find the most accurate way to do it is to enter gross income and then gross up the spending number to account for taxes. Because the tax bracket that applies to your IRA withdrawals is driven by the gross pension income, not net income after withholding and deductions. This means you also include the deduction for health care in the spending number.

 

[firedata]

I've always gone with the 4% rule (which over 30 years) gives about a 95% chance of non-failure. So about 5% failure rate is okay for me, though I think as we get closer, one more year (OMY) could lower it to 0%. Plus there's a fairly high likelihood of a decent inheritance in hopefully 20+ years that will add a nice buffer (but not something I am counting on).

I do like the calculator with the longevity on it that calmloki posted. Gives a nice perspective of not waiting too long before pulling the trigger.

 

[rodi]

firecalc assumes taxes are part of your spending... since everyone has different tax situations... So your spending should be GROSS spending. And pension and SS should be gross amounts...

Medical deductions are also part of your spending.

If your situation changes dramatically over the course of retirement you can choose a model that adjusts to a standard pattern (Bernicke) or one of the other spending models. Or, if you are a supporter (have donated to help host firecalc) you can put in manual spending amounts by year.