FIRECalc - Any Arguments Against It?

[Dtail]

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.

One rarely sees a poster who claims to be using the 4% rule/advice as a withdrawal methodology.
Even if one would use it, would they really stick to the same inflation adjusted WR% after 3 down years like 2000-2002?

 

[tb001]

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.

Yes, although I found both fidelity and vanguard tax estimates to be wildly off. Both the numbers generated by RIP and their financial plan numbers were very high. When we went through the numbers with our financial planner he acknowledged that they were likely off by a factor of ~3. We ended up having to have our tax accountant run a bunch of simulations for us before DH would believe me.

ETA, that personally I’ve found fidelity RIP and firecalc to be two of the best options, aside from the tax issues with fidelity. Fidelity is great for flagging areas of spend that might have been missed. The main ‘weakness’ of firecalc is that it’s based on historical data, but I’m pretty good knowing we would have survived stagflation and the Great Depression. The competing firecalc site is also nice to see exactly when the failures were, though firecalc offers more flexibility.

 

[big-papa]

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.

Indeed - and yet I'm pretty sure that there are people out there who are doing just that.

 

[youbet]

One rarely sees a poster who claims to be using the 4% rule/advice as a withdrawal methodology.
Even if one would use it, would they really stick to the same inflation adjusted WR% after 3 down years like 2000-2002?

Indeed. But the subject comes up frequently as though the posters feel it is being used (or at least being promoted) sufficiently to warrant arguing against it. For example, you just bothered to question it in your second sentence. Why bother if we all feel no one does it or should they.

Maybe we talk about this non-happening so much to make sure "newbies" don't fall into it? I dunno.......

 

[youbet]

Indeed - and yet I'm pretty sure that there are people out there who are doing just that.

I'm even more sure there aren't very many! And my "sure" is bigger than your "sure!"

 

[Gumby]

Yes, although I found fidelity tax estimates to be wildly off. Both the numbers generated by RIP and their financial plan numbers were very high. When we went through the numbers with our financial planner he acknowledged that they were likely off by a factor of ~3.

That's one of the principal reasons why I prefer to figure out my own taxes.

 

[Midpack]

Indeed - and yet I'm pretty sure that there are people out there who are doing just that.

I seriously doubt that, I've heard plenty of people here claim they wouldn't (not supposed to anyway, so it's a misnomer) and no one who said they plan to just blindly withdraw starting with 4% (or any WR) and adjusting for inflation thereafter.

 

[Dtail]

Indeed. But the subject comes up frequently as though the posters feel it is being used (or at least being promoted) sufficiently to warrant arguing against it. For example, you just bothered to question it in your second sentence. Why bother if we all feel no one does it or should they.

Maybe we talk about this non-happening so much to make sure "newbies" don't fall into it? I dunno.......

Yeah I think there are some youngins and newbies who stumble on the concept and misinterpret it as a rule for withdrawal.

 

[youbet]

That's one of the principal reasons why I prefer to figure out my own taxes.

+1

The fact that FireCalc doesn't include some lame attempt at predicting the amount of future taxes you'll pay is a big plus to me.

 

[Dtail]

Yes, although I found fidelity tax estimates to be wildly off. Both the numbers generated by RIP and their financial plan numbers were very high. When we went through the numbers with our financial planner he acknowledged that they were likely off by a factor of ~3. We ended up having to have our tax accountant run a bunch of simulations for us before DH would believe me.

ETA, that personally I’ve found fidelity RIP and firecalc to be two of the best options, aside from the tax issues with fidelity. Fidelity is great for flagging areas of spend that might have been missed. The main ‘weakness’ of firecalc is that it’s based on historical data, but I’m pretty good knowing we would have survived stagflation and the Great Depression. The competing firecalc site is also nice to see exactly when the failures were, though firecalc offers more flexibility.

I agree that the Fidelity tax estimates are not very accurate. I set it to zero and put in my own taxes as an expense similar to Firecalc.
The flexibility with the expenses in Fidelity is one of the better features.

As for your point for Firecalc, this brings up indirectly a much discussed concept here about a 95% vs. 100% success rate.
Since the 95% success rate has 6 failures and those failures include the stagflation years of 1965/1966 plus the Great Depression starting point, I still am more comfortable with a 100% success rate.

 

[big-papa]

I seriously doubt that, I've heard plenty of people here claim they wouldn't (not supposed to anyway, so it's a misnomer) and no one who said they plan to just blindly withdraw starting with 4% (or any WR) and adjusting for inflation thereafter.

Comes up all the time over on bogleheads. People usually are quick to point out that it's a poor method. Endless arguments on whether 1% is the new 4%, etc. (exaggerating)

In the past here, it's come up a number of times. There have even been polls about it. Maybe people have learned more and changed their minds since then.

https://www.early-retirement.org/forums/f28/poll-on-initial-withdrawal-rates-23692.html
https://www.early-retirement.org/forums/f28/poll-whats-your-withdrawal-scheme-25205.html
https://www.early-retirement.org/forums/poll.php?do=showresults&pollid=1182

 

[Midpack]

Comes up all the time over on bogleheads. People usually are quick to point out that it's a poor method. Endless arguments on whether 1% is the new 4%, etc. (exaggerating)

In the past here, it's come up a number of times. There have even been polls about it. Maybe people have learned more and changed their minds since then.

https://www.early-retirement.org/forums/f28/poll-on-initial-withdrawal-rates-23692.html
https://www.early-retirement.org/forums/f28/poll-whats-your-withdrawal-scheme-25205.html
https://www.early-retirement.org/forums/poll.php?do=showresults&pollid=1182

If you read through them the results are

• not applicable, from 2006
• 11%, from 2007
• 27%, from 2010

But if you read through the comments, almost no one is actually applying the 4% rule. You have to look deeper than polls, very few are actually applying the 4% rule.

What's your SWR strategy? shows the originator didn't understand the 4% rule to begin with.

And I don't know how many times I've seen people say they withdraw 4% each year and claim they are following "the 4% rule" - they are not...

 

[youbet]

Just to play devil's advocate......

I've been FIRE'd 14 years (with zero income from any paid activity - no part time, no home business, no working DW, etc.) and I've never withdrawn following the so-called 4% rule. OTOH, I can think of an infinite number of dumber things than withdrawing 4% annually and adjusting for inflation that I might have done. And maybe I did a couple of times!!

 

[deserat]

Interesting thread. To the OP, I look at FIRECALC as a fairly blunt tool that be partially refined with a bit more variables. It actually does a fairly good job of modelling different scenarios for spending - straight percentage, varied by inflation, varied by research that shows older people spend less after age 56, and a modified variable spending that mimics the 95% rule (which can be adjusted however you wish). By running it with different numbers or assumptions, you get a rough idea of you are in the ball park. The fact that you can change your lifestyle cost requirements and see where it fails is nice to know, too. You can increment it up or down by thousand of dollars and see where the line goes to zero or below.

The other more involved tool is i-ORP. Again you can make it as complex or easy as you wish; I've found that his model tends to front load the IRA to Roth conversions very soon after retirement (no more employment income), so the tax amounts can be eye-popping. Again, it is a model, so you can smooth it out if you wish.

A bit of a simpler technique that I am probably going to use is the variable percentage withdrawal (VPW) worksheet at Bogleheads. I'm in a fairly fortunate position in that I will have two pensions and SS, coming on at different times in my life. That means using the VPW sheet or table will work for me as by the time my second pension comes, I will cover my lowest level lifestyle costs. That sheet is interesting in that it shows you how much of a withdrawal decrease you would have if the stock portion of your portfolio dropped 50%.

One other sheet available is the Retiree Portfolio Model by Bogleheads as well - that sheet is a monster and allows you to tweak whatever numbers you have: pensions, SS, Roth-IRA, RMDs, taxes, AA, spending, etc.

All of the above are free to use.

For paid, I have used briefly the Vanguard Financial Engines Retirement Planner - I found it a bit simplistic and/or assuming the user was not interested in how the numbers worked. The graphics were pretty and you merely place in your portfolio amounts, pension and spending assumptions. It then popped out a recommendation for spending and/or withdrawals.

I have also been used a fee (%of portfolio) money management firm that only would review your situation and make recommendations for free if you had a 7 figure portfolio and they could market to you their services. They asked a bunch of questions about my life, what was important to me, my goals, etc, as well as my spending, portfolio and future pension states. They than ran their model and brought you in and told you where you were strong/weak and how they would hold your hand to get where you wanted to do (and/or if your goals were out of line with your behavior, etc). That was an interesting experience - they did *not* give me the graphs or numbers they had computed in their model. It looked similar to what you see with the free tools above and they told me I could spend even more than the free tools did. They also said they couldn't help me. I appreciated their honesty and walked out with less anxiety about my financial situation as I had just gone through a divorce.

So, I rate the following in order of effectiveness for me:
1) VPW worksheet
2) FIRECALC - for floor calculations
3) i-ORP for year-by-year projection right now of what might happen in tabular format
4) Retiree Portfolio Model - this could go to number 1 if I was portfolio funded only for my retirement
5) Vanguard Financial Engines
6) Fee only financial planner - for minimization of anxiety mainly

So, your friend has lots of options.

One last thing - if use of all of the above bring in a fairly tight range of the same numbers, i.e. what you could withdraw from your portfolio and/or spend yearly without breaking the zero line, pick the easiest to use over time.

 

[Time2]

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.

I have run FireCalc many, many times, it was a while before I actually figured out how to use all the functions and find out what I could spend a and still have my portfolio survive. For a while I just put in my spending and found my portfolio would last 100% of the time, Later I learned to bump my spending to the failure point. We won't ever spend that much, and will be conservative on our WR.

There has been a lot of advice, but I wonder does your friend understand how FireCalc is making it's calculations? Does he understand that it is based on actual historical 30 year runs of the stock market, about 120 different 30 yr market scenarios. If he gets all that, the only thing he could say is "Past performance is no guarantee of future results"
Other than that FireCalc does it's job.

 

[Archman]

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

I was going to suggest that, but you beat me to it. It , also, is a Monte Carlo simulation.

 

[fpichler]

FireCalc fortune telling

Ask your friend if he ever watches the Weather Channel. When there is a tropical storm or hurricane bearing down on the US from Africa they run a variety of very costly and complicated models to predict where and when it will hit land and how intense it will be. The predictions look like so much multicolored spaghetti with mostly general but no exact agreement between any of them. And this is with PhDs, supercomputers and real-time satellite and aircraft information feeding the models. How often is even ONE of those model correct? Rarely. Predictive modelling is a fancy name for educated guessing, and even the experts can't agree whose is more accurate because none of them are always accurate. Same with financial predictions, but you add in factors such a human emotion, greed and corruption and it all becomes a crap shoot. So pick a few tools that you like that have decent track records, look for places they generally agree, then guess whether or not they are right and if you trust them enough to follow their advice. Nobody can predict the market long-term.

 

[latexman]

+1 Well said.

 

[OldShooter]

+1 Well said.

Yes. IMO the real problem with these models is between the user's ears. Users want to believe that the models are predictive, though none can be and only a few claim to be.

Seriously, do you expect the next 30 years to be like the last 30?

 

[pb4uski]

Ask your friend if he ever watches the Weather Channel. ...

Seriously? Bumping a 7-month old thread to make a first post to get on your soapbox to give us a perceptive gimpse of the obvious? Must be a slow day for you.

What are these "few tools that you like that have a decent track record"?

 

[fpichler]

response

I'm new to the site and this was the latest thread I found on FIRECalc. Was hoping some thoughtful people would weigh in with some useful feedback since I haven't used it before. Unfortunately, you don't make the cut.

 

[Gumby]

I'm sure I speak for many when I say that we are absolutely crushed that we don't meet your high standards. Actually, you aren't new to the site. Your information indicates that you joined in 2011. So, what's your game, Sparky?

 

[pb4uski]

I'm new to the site and this was the latest thread I found on FIRECalc. Was hoping some thoughtful people would weigh in with some useful feedback since I haven't used it before. Unfortunately, you don't make the cut.

Seems like it is my lucky day after all.

 

[Lawrencewendall]

Give people a break!

 

[ERD50]

Ask your friend if he ever watches the Weather Channel. When there is a tropical storm or hurricane bearing down on the US from Africa they run a variety of very costly and complicated models to predict where and when it will hit land and how intense it will be. The predictions look like so much multicolored spaghetti with mostly general but no exact agreement between any of them. And this is with PhDs, supercomputers and real-time satellite and aircraft information feeding the models. How often is even ONE of those model correct? Rarely. Predictive modelling is a fancy name for educated guessing, and even the experts can't agree whose is more accurate because none of them are always accurate. ....

I think you are totally missing the purpose of modelling these sorts of things. It isn't about being "right", it's about trying to provide some perspective and proportion to a range of possibilities. "Exact agreement" should not be expected.

When my GPS tells me a trip will take 53 minutes, I don't expect it to be "right". But I can use that to estimate a reasonable range of expectations, which can still be thrown off by an accident and road closing. But I still use that info to help make a decision.

If we have a full understanding of something, and there is little randomness involved, then we no longer use modelling of this kind, we just calculate it. Modeling of this sort is for things we can't calculate, and therefore, by definition, will not be "exact".

... Same with financial predictions, but you add in factors such a human emotion, greed and corruption and it all becomes a crap shoot. So pick a few tools that you like that have decent track records, look for places they generally agree, then guess whether or not they are right and if you trust them enough to follow their advice. Nobody can predict the market long-term.

I'm also curious about what tools you think might have a "decent track record". And how does that jibe with "Nobody can predict the market long-term"? Can this info help make a decision?

Some people will be able to show a track record of market predictions. But we have no idea if that means they can do it again, or if they were just the lucky dart-throwing-monkey. I'd love to be shown how to tell the difference.

And if you have read the intro to FIRECalc, you'd know that it isn't a predictive tool. It wouldn't even call it modeling, it is producing a report of past activity (like looking at past weather events). That doesn't mean it can be predictive, but lacking predictive capabilities, it can be informative to understand the range of past scenarios. It's all we've got, so IMO, better to make use of what we know, than to go into it blind, or to try to find a guru.

-ERD50