FIRECalc - Any Arguments Against It?

[calmloki]

Firecalc isn't very helpful if one has about a third of one's net worth in self managed rental property. How do you assign a value to properties owned for 20-30 years? I use the tax man's "True Cash Value", but how does it relate to a real sale price? What kind of rents will come in and how will they change over time? What's inflation going to be? That seems like a real wild card. I envy (slightly) those who have substantial social security and pension checks and all their assets neatly tucked into a couple stock and bond funds paying regular dividends. Seems like it would make for really clean financial forecasts. That's not me. Firecalc is just a loosey goosey guestimate for me - and that's my argument against it - but still use it to learn I'll die with between -$380,243 and +$22,473,618, depending on whether I croak it in 8 or 30 years.

 

[Gumby]

One potential criticism of FIRECalc that we have sometimes heard here is that you must gross up your spending to account for taxes. Given that everyone has different levels of taxable and non-taxable assets to draw from, I don't see how the program could accommodate that. It is not difficult to make some assumptions about your effective tax rate and make that adjustment once you know you have to, but I could see where some people may be unwilling or unable to make the calculation.

 

[HI Bill]

I was retired over ten years, the first time I ever heard of FIRECalc.

My military pension is so much, I live within my means.

What can FIRECalc tell me that I don't already know?

Probably not much in your case, unless you'd like to up your spending and determine the % success rate in doing so, or how much you can increase your spending.

 

[Offgrid Organic Farmer]

Probably not much in your case, unless you'd like to up your spending and determine the % success rate in doing so, or how much you can increase your spending.

My pension gives us about $19,000 a year. Of that for the last four years we have been investing about $5,000 a year, into some rental real estate.

So far this real estate has not given us any profit, the rental income just manages to pay for property taxes and insurance.

If we had not decided to obligate ourselves to doing this property, we could have had more money to spend on yourselves. But that is not who we are.

We got the Certificate-of-Occupancy, on our rentals last month, and now we are gradually getting more tenants.

The business plan for this property calls for about $50,000/year profit after all expenses.

 

[mountainsoft]

I've been using FIRECalc for a long time and recently introduced it to a friend who is probably no smarter (or dumber) than me. He refuses to believe that it's a good tool for retirement forecasting and it's driving me nuts.

Is there really an opinion out there that FIRECalc is not all its cracked up to be?

I started out with FIRECalc when I first found this forum, and still use it occasionally today as a "second opinion". The main reason I stopped using it was because I had to reenter all my information each time I wanted to run some calculations. I believe there is a way around that now, but I still find the number of inputs a bit limiting at times. I also find FIRECalc to be a bit more optimistic than other calculators I have used. I would rather err on the side of pessimism and have things turn out better than my estimates, than the other way around.

These days I prefer "Flexible Retirement Planner".
https://www.flexibleretirementplanner.com/wp/download/

I like that it saves all of my entries so I can experiment often as situations change. I also like that I can enter a variety of inputs (such as Social Security at different ages) and be able to select different inputs to see how different timings would affect our overall outcome. It's also nice to be able to look at the detailed spending list and not just rely on a general percentage of success.

 

[Swetch]

One potential criticism of FIRECalc that we have sometimes heard here is that you must gross up your spending to account for taxes.

I'm not sure I understand what you mean. Can you explain this?

 

[Dtail]

I'm not sure I understand what you mean. Can you explain this?

Example:
Spending without taxes = 100k
Taxes = 10k

The spending number you input into Firecalc is 110k.

New users of retirement calculators sometimes expect the calculators to calculate the taxes.
Some calculators like the one in Fidelity does have that option.

 

[Rianne]

I think it means your actual spending + whatever taxes you guesstimate. We spend approximately $60K/year. But it might be $71K+ because we pay current year plus forward taxes for next year due to home business. So I put $75K spending as a gross up to cover any tax expense.


Ha, Dtail, I think we hit enter at the same time.

 

[street]

The high range of money it could be, after x number of years, seem high but then what do I know.

 

[Swetch]

These days I prefer "Flexible Retirement Planner".
https://www.flexibleretirementplanner.com/wp/download/

Are you associated with that software?

 

[Lawrencewendall]

I started out with FIRECalc when I first found this forum, and still use it occasionally today as a "second opinion". The main reason I stopped using it was because I had to reenter all my information each time I wanted to run some calculations.

There is a link to save the URL for what you input. Copy the link or bookmark it and it will take you right back to what you previously entered. On the results page, in the upper top right corner is a hyperlink to save this data "Link to save this set of data." Save it in a draft and you can always go back and relook at it. If you change the data, save a new link.

 

[Gumby]

I'm not sure I understand what you mean. Can you explain this?

Assume you want to spend $120k per year and you are taking the money out of your traditional IRA, which is taxable income. In order to have 120k left after taxes, you need to "gross up". To do that, you can do the following: (assume Married Filing Jointly)

1. In 2020, the 10% bracket applies to income up to $19,750. That is $1975 in taxes.

2. In 2020, the 12% bracket applies to income from $19,750 to $80,250. So that's another $7260 in taxes.

3. Now the slightly tricky part - you need to figure out how much to take in the 22% bracket. You're going to need at least $39,750 to get from $80,250 to your desired spending of $120,000. And you're going to need to take another $9235 to pay the taxes in the 10% and 15% brackets. Which means you'll be drawing at least $48,985 subject to 22% taxation. Already, your draw is up to $129,235

4. Now, you'll need to figure out the taxable amount to take in order to end up at $129,235. To do that, first take the standard deduction of $24,800, giving you $104,435. Subtract out the start of the 22% bracket ($80,250) to give you $24,185. Gross that up for taxes using the following equation: gross amount = net amount/(1- tax rate) = 24185/(1-0.22)=$31,006

5. Now, add the standard deduction back in, so $31,006 + $24,800 = $55,806. Add the beginning of the 22% bracket ($80,250) to get $136,056. That is the spending you need to put into FIRECalc.

6. As a check, let's do your taxes. AGI = 136,056. Taxable income = 136,056 - 24,800 = 111,256. Tax in 22% bracket = (111,256 - 80.250) X 0.22 = $6821. Plus tax in 12% bracket ($7260). Plus tax in 10% bracket ($1975). So total tax equals 6821+7260+1975 = 16,056. So if you take $136,056 out of your taxable IRA, you'll have $120,000 left to spend after taxes. Your effective tax rate is 11.9%

7. You'll also need to figure your state income taxes (if any) and add that amount to your spending as well.

 

[rodi]

I've tried and run a boatload of retirement calculators.

Like anything - you need to understand the inputs. With firecalc you need your "all in" spending - inclusive of healthcare, taxes, and other items people tend to ignore. And some people miss the multiple tabs - which allow you to input SS, pensions, other income sources or one time spend or income events. Also allows you to set your asset allocation - something that people often forget to do. If you're running firecalc at it's defaults - but your nest egg is all in cash... you've got a disconnect.

So firecalc does take some work to get accurate outputs of how your plan would have worked in past markets.

I found running several different calculators helped me refine different aspects of my retirement plan. Fidelity lets you drill down into different budget categories and inflate them at different rates (but you need to jump past the defaults, which is work). Quicken lifetime planner lets you allocate some big expenses outside of firecalc (college, kids weddings), which was useful... But it's deterministic (flat growth and inflation... not real world). I-orp lets you look at how withdrawing from different sources can save you tax money over time. Each calculator helped me think about different aspects of retirement. Now I use firecalc for my check up runs. (Been retired almost 6 years.)

 

[mountainsoft]

Are you associated with that software?

Nope, I have no connection with the software other than using it frequently. I've tried a bunch of different calculators and it's just the one that works well for me. Most of the online calculators (i.e. AARP and the like) are ridiculously simplistic to the point of being worthless. Firecalc is nice, but it's kind of awkward to use and there's no obvious way to save your inputs for later experimenting.

I've never used the online version of Flexible Retirement Planner, so I don't know how it compares to the Windows download version. I'm generally not a fan of any kind of online app, which unfortunately seems to be the trend these days.

Some of the other calculators are way too complex for my needs (i.e. Pralana). I-Orp gets recommended a lot, but I don't like the way it makes you enter numbers in thousands (entering 5 to indicate 5000). I'm too simple to understand that kind of complexity.

Of the calculators I've tried FRP seems to be a bit more pessimistic than the others (for the same figures it gives a lower success rate). I like to err on the side of caution, so that's a plus for me.

I wish I could remember who first recommended FRP when I joined this forum, otherwise I would never have known about it.

 

[tmm99]

I've been using FIRECalc for a long time and recently introduced it to a friend who is probably no smarter (or dumber) than me. He refuses to believe that it's a good tool for retirement forecasting and it's driving me nuts.


Is there really an opinion out there that FIRECalc is not all its cracked up to be?


Don't want to start a riot here. I like it lot. Just wanted to know if there are downsides to using it.

Well, what does your friend use?

 

[tmm99]

What FIRECalc tells you is "could I have survived the Great Depression and Stagflation?" Really no more, no less. But I find that very helpful for early retirement planning.

Honestly, the biggest downside is it is probably (but unknowingly) way too conservative.

I don't think Firecalc is very conservative... or I should say FIDO is more conservative especially if you use the "if the market performs wat before average" setting...

 

[BeachOrCity]

I personally think one should use BOTH firecalc (historical) and a Monte Carlo one as well. With the latter its "garbage in / garbage out" so you need to understand what all the inputs mean or it will be worthless.
Most of the time if done properly Monte Carlo will have lower view of your probability of success than firecalc would.

 

[big-papa]

Firecalc is a great planning tool to get an idea whether you're in the ballpark to retire or not by looking to see if you would have been ready to retire at certain dates in the past, with an assumption of only a couple of withdrawal methods, none of which I plan on using as I would rather be in control of how much I have left when I die, rather than leaving it entirely to the winds of fate such as what happens when using SWR. Not everything that has happened in the past is guaranteed to again repeat in the future. Additionally, it doesn't have all of the asset types I personally would like to see.

There are a ton of ways to get at this. Firecalc is one. I also look at Fidelity's RIP Planner. I've played with Monte Carlo myself, but very few Monte Carlo Simulators understand serial correlation or the fact that long term returns don't follow a normal or Gaussian distribution. Jim Otar's calculator appears to take some of this into account, but one must pay for it. And in his writings, even he is reluctant about the benefits of such calculators.

 

[Markola]

All retirement calculators point out the likelihood of when you will run out of money. They can’t account for all the ways you will change course long before you do.

 

[youbet]

They can’t account for all the ways you will change course long before you do.

+1

And FireCalc doesn't try to. You simply set up a set of circumstances and back-test. Any conclusions you draw about how the results might apply to the future is up to you.

To me, the biggest "eye-opener" FireCalc provided was showing me the huge variation in possible results. You enter prudent data and then you see you might either run out of money while you're still alive and kickin' or die with a large multiple of what you started with or anyplace inbetween. And without all that much you can do about it in practical terms...... You aren't in as much of control as you'd like to think!

The consistencies seem to be that, all else equal, it's better to start FIRE with more money and it's better to have lower spending, at least in terms of survivability. In terms of life's enjoyment, however, there are subjective factors which play a big role. Hence, the OMY conumdrum.

 

[target2019]

Nope, I have no connection with the software other than using it frequently. I've tried a bunch of different calculators and it's just the one that works well for me. Most of the online calculators (i.e. AARP and the like) are ridiculously simplistic to the point of being worthless. Firecalc is nice, but it's kind of awkward to use and there's no obvious way to save your inputs for later experimenting.

I've never used the online version of Flexible Retirement Planner, so I don't know how it compares to the Windows download version. I'm generally not a fan of any kind of online app, which unfortunately seems to be the trend these days.

Some of the other calculators are way too complex for my needs (i.e. Pralana). I-Orp gets recommended a lot, but I don't like the way it makes you enter numbers in thousands (entering 5 to indicate 5000). I'm too simple to understand that kind of complexity.

Of the calculators I've tried FRP seems to be a bit more pessimistic than the others (for the same figures it gives a lower success rate). I like to err on the side of caution, so that's a plus for me.

I wish I could remember who first recommended FRP when I joined this forum, otherwise I would never have known about it.

I also use Flexible Retirement Planner in addition to Firecalc. After finding it had features I needed, I went ahead and paid the donation.

Since there's a support forum, you can go in and post any question, and get a reasonable answer.

Once thing it does not handle is Roth conversions. With any of the softwares mentioned you'll probably need to adjust account balances and other inputs at least once a year, and re-run the scenario to make sure all is trending as expected.

 

[Gumby]

...

The consistencies seem to be that, all else equal, it's better to start FIRE with more money and it's better to have lower spending, at least in terms of survivability....

It is said that time heals most wounds. I would add "so does money".

 

[Midpack]

Firecalc is a great planning tool to get an idea whether you're in the ballpark to retire or not by looking to see if you would have been ready to retire at certain dates in the past, with an assumption of only a couple of withdrawal methods, none of which I plan on using as I would rather be in control of how much I have left when I die, rather than leaving it entirely to the winds of fate such as what happens when using SWR. Not everything that has happened in the past is guaranteed to again repeat in the future. Additionally, it doesn't have all of the asset types I personally would like to see.

No one, including the original authors of the Trinity study or Bill Bengen, ever recommended blindly using SWR methodology. SWR is just the percentage of your savings that you can, in theory, withdraw every year without running out of money while you're alive based on past history. It was never proposed to be an actual withdrawal method for the future.

The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.

Enter the "safe withdrawal rate" -- the percentage of your savings that you can, in theory, withdraw every year without running out of money while you're alive based on past history.

Suggesting that we should follow a 4% Rule is about as ludicrous as suggesting that we should all wear size 10 shoes.

It's important to monitor your withdrawal rate, your remaining amounts of money, and your spending each year. You need to make sure your spending is at a healthy, sustainable rate when compared with the size of your investment portfolio and other retirement savings accounts.

If your portfolio had a bad year, you might want to lower your withdrawal rate and decrease spending. In a great year, you could increase your withdrawal rate and reward yourself with a nice trip to a new locale.

 

[youbet]

No one, including the original authors of the Trinity study or Bill Bengen, ever recommended blindly using SWR methodology.

[/U]

You got it! I don't where that idea came from, but it's popular and sure gets discussed a lot here. Maybe it's the FA's and the media mouths who call it the "4% rule" that are to blame.

 

[Dtail]

I personally think one should use BOTH firecalc (historical) and a Monte Carlo one as well. With the latter its "garbage in / garbage out" so you need to understand what all the inputs mean or it will be worthless.
Most of the time if done properly Monte Carlo will have lower view of your probability of success than firecalc would.

Agree.
Even though retired 3 years, I still use multiple calculators, since I am using some variation of a variable WR% and thus theoretically I am retiring anew each year, plus SORR is still in play.

The ones I use more frequently for reasons stated above is Firecalc and the Fidelity planner which is Monte Carlo based.

Logically the Monte Carlo calculator will have lower probabilities of success, since for example it can combine "fat tails" of retirement years 2000,2001,2002,1929,2008, etc in consecutive order which has not happened historically and ignores "reversion to the mean" concepts.