FIRECalc rewrite

[jIMOh]

here's some ideas

1) allow entering of current ages, ER age, regular retirement age and late retirement age within one running of it, giving probale successes for each age range.

1a) alow different entries for spouses. me age X, ER age of X+20, R age of X+30, LR age of X+40. Wife aged Y, ER age of Y+7, R age of Y+10, R age of Y+13.

2) allow a person to enter account types (Roth, 401k, taxable accounts) and tax rates for each account (based on current tax tables). Give an advanced option which can calculate RMD's and compare to income needed.

2a) allow different entries for spouse (2 roth lines, 2 401k lines etc...)

3) allow Firecalc to remember me, so I don't have to enter all info when I go to it. I ran it once around 6 months ago... in a year or so, when I hit some type of milestone or lump sum, I'd like to rerun it, but just update the initial assumptions I entered.

3a) allow to remember spouse info

4) allow firecalc to use yearly returns BACKWARDS (so 2007 return, then 2006, then 2005, then 2004, then 2003) to test strategy using various other market conditions. I have done reading which suggest if the 2000-2002 bear came earlier in retirement, it takes most SWR and ratches them down a notch. Allow user to see what this does.

4a) give the user the ability to put a "bear market" the first X years of retirement which have an overall return of -y% and see what this does to overall success rates.

 

[dory36]

Dory,
Dory - I'm willing go into more detail on my thoughts on this if you are interested.

Sure -- please do. I understand the confidence intervals, but elaboration will be useful when I start trying to compile all this into programming tasks.

dory36

PS - just by chance, you're not off a motoryacht named Cadence are you?

 

[Rustic23]

I never figured out how to do this in the present FireCalc, so it may be possible, but how about the death of a spouse? Pension check goes down by 40%, SS by a third. Would be helpful to be able t what if different dates in the future.

 

[Lusitan]

Thanks for all your work on FireCalc, Dory - it's a great tool to play with when tinkering with FIRE plans.

Others have made great suggestions, far more substantial than mine, but here's one thing that I think should be changed:

FIRECalc asks for your current portfolio value (X) and then it allows you to input (Y) additional savings per year until your retirement year ZZZZ.

When viewing results, FIRECalc always starts out by saying "Your plan is to spend $, which is W% of your starting portfolio ..."

But for the percentage, it calculates the percentage based on your CURRENT portfolio, not your portfolio upon reaching ER (which is the important one). This makes for some eye-popping "withdrawal rates" that really are out of place. The end result calculations are fine, but this withdrawal rate thing really sticks out.

Who cares what percentage of my current portfolio I will be withdrawling starting in 2020 when I retire ... what's important is what percentage of my 2020 portfolio I'll be withdrawling when I retire in 2020.

Thanks for taking a look at this and other changes!

 

[Lsbcal]

Another thought for the summary page. I use advanced FIRECalc and request the spreadsheet summary. Then I use the Excel functions to get the average, stddev, and min for the portfolio. I am particularly interested in the min (maximum drawdown) on the portfolio because I know I won't have the guts to live with an excessive drawdown. Also I want to know the year the max drawdown occurs to see if it's at the end of the test period or somewhere in the middle.

Currently the a historgram is showing the portfolio end value is shown. To complement this, it would be nice to see a histogram of the (worst) drawdowns for each starting retirement sequence.

As an alternative a few values could be produced:
average worst case drawdown =
(this is the average of the minimums for each sequence)
worst drawdown =
year of worst drawdown =

Les

 

[dory36]

Lots of excellent suggestions. Keep 'em coming. The "feature freeze" will probably be in about 2-3 weeks, when I move back onto the boat for a while.

To get a notice when there is a test version to play with, sign up for the mail list at http://firecalc.com/newfc.php.

dory36

 

[dory36]

An idea ... please give me some feedback.

The problem: long term retirements, say 50 years, miss the problem years of the mid 1960s, since there are no 50 year data sets that start with the rough years of the mid 1960s. (100 year retirements, if you believe in extreme life extension possbilities, miss the Great Depression.)

The hypothesis: Failures occur when there are down years in the early part of the retirement cycle. If the early years are OK or better, no problem. That is anecdotal, but I think the data will support it. So, we can predict the long term outcome based on the first ~5 years. If this hypothesis is correct, we can include data all the way up to 2002 for prediction of retirement plan success of unlimited retirement terms.

Thoughts? It makes me wish I had been storing all the gazillion runs, so I would have a large body of data for analysis. Statisticians... how can I come up with a rule, such as "If the 5th year portfolio balance is below 63.3% of the starting balance, then ..."?

Whatever year seems most valid (the earlier the better), I need to develop a mapping of Nth year ratio to later year outcomes.

dory36

 

[Cb]

Lots of excellent suggestions. Keep 'em coming. The "feature freeze" will probably be in about 2-3 weeks, when I move back onto the boat for a while.

To get a notice when there is a test version to play with, sign up for the mail list at http://firecalc.com/newfc.php.

dory36

That link doesn't work for me.

Cb

 

[ERD50]

An idea ... please give me some feedback.

The problem: long term retirements, say 50 years, miss the problem years of the mid 1960s,

Whatever year seems most valid (the earlier the better), I need to develop a mapping of Nth year ratio to later year outcomes.

dory36

Glad you are going to try to tackle this. I'm not sure there is any good answer. But, a suggestion:

Maybe this would take too many calculations, but what if you wrapped around and just kept tacking on the 'extra' years from the start of the data up to where you start to overlap.

Example: 50 year run cannot currently utilize data past 1956 to get a full 50 years. So do the normal runs, then when you run from 1957 to 2006, use each year from 1871 to 1956 tacked on to complete the data set. Then run 1958 to 2006, and tack on two year periods from 1871 to 1958, etc, etc, etc.

Too much computer time?

Off hand, that seems like a very negative way to look at it, you could have two of the worst sequences to deal with in those 50 years. But, let's see... 1974, 1929 - just 45 years apart! Maybe two disasters should be 'expected' over a 50 year period?

That's a grim thought to end a holiday on!

-ERD50

 

[ERD50]

That link doesn't work for me.

Cb

it is not formatted correctly,

just paste this into a new window and it went through for me:

firecalc.com/newfc.php

or try one of these:

FIRECalc

corrected version of link

-ERD50

 

[twaddle]

The problem: long term retirements, say 50 years, miss the problem years of the mid 1960s, since there are no 50 year data sets that start with the rough years of the mid 1960s. (100 year retirements, if you believe in extreme life extension possbilities, miss the Great Depression.)

The hypothesis: Failures occur when there are down years in the early part of the retirement cycle. If the early years are OK or better, no problem. That is anecdotal, but I think the data will support it. So, we can predict the long term outcome based on the first ~5 years. If this hypothesis is correct, we can include data all the way up to 2002 for prediction of retirement plan success of unlimited retirement terms.

Predictions of success? Correlation between the start of the sequence and failure? Err, sounds like a slipery slope to me. Definitely not in the spirit of the old FIREcalc.

But it would be an interesting alternative to FIREcalc. My guess is that the new FIREcalc would conclude that anybody who retired in the year 2000 would be doomed to failure (i.e., negative real returns at the end of 5 years).

 

[jay8]

More data...

How about more asset classes for back-testing:


1. Mid-cap
2. Emerging market
3. International Large Growth
4. International Large Value
5. REIT
6. TIPS
7. Intermediate US Treasury

 

[dory36]

Predictions of success? Correlation between the start of the sequence and failure? Err, sounds like a slipery slope to me. Definitely not in the spirit of the old FIREcalc.

Heh... I'm not thinking about substituting this sort of thing for any sequence where there are data.

Rather, once we run out of data (starting after 1967 for a 40 year term for example), a separate result would be reported, something like:

"We can't look at historical results for a 40 year term starting after 1967, but we can compare starting trends. For your own scenarios, 66% of the runs eventually failed, when the portfolio after 5 years was below 57% of the starting point. We might expect that same ratio would apply to the 35 additional starting years for which we don't have a full 40 years of data. Of the additional 35 starting years we can test this way, 6 of the starting years resulted in 5th year portfolio balances that were at or below 67% of the starting amount. Based on these trends in the partial sequences, we might expect that 4 of the 35 partial sequences would eventually result in a failed portfolio. This would change your overall success rate to 83%."

dory36, never using a single word when 10 will do...

 

[dory36]

Maybe this would take too many calculations, but what if you wrapped around and just kept tacking on the 'extra' years from the start of the data up to where you start to overlap.

I don't think it would be reasonable to assume that any specific year would be a plausible subsequent year to 2007, for "splicing" data to make longer sequences.

If we take the ending balance of each short sequence, and do a completely new run using that ending balance as the starting portfolio, and set the term to be the number of years that we are short, then we could come up with a probability that each short sequence would succeed or fail.

Each of the full sequences either succeeds or fails. Each of the partial sequences would have a percentage of likely success.

But I suspect the impact of making every run do ~40 times the number calculations as it currently does might make this approach too demanding for the server.

 

[ERD50]

I don't think it would be reasonable to assume that any specific year would be a plausible subsequent year to 2007, for "splicing" data to make longer sequences.

I tend to agree, but what other choice is there if you want to lengthen the data stream (other than a statistical approach)?

If we take the ending balance of each short sequence, and do a completely new run using that ending balance as the starting portfolio, and set the term to be the number of years that we are short, then we could come up with a probability that each short sequence would succeed or fail.

Isn't that the same thing?

Each of the full sequences either succeeds or fails. Each of the partial sequences would have a percentage of likely success.

But I suspect the impact of making every run do ~40 times the number calculations

It might not be all that data intensive with your approach. Assuming most people shoot for high % success rates (95% or greater typically):

Call the 'full data' years 'seq A', the 'remaining years 'seq B'.


1) 'Failures' in 'seq A' are failures. Do not extend those runs.

2) Starting with the worst of the runs of 'seq A', run against 'seq B' as you suggest.

3) If you get any failures in 'seq B' with that starting value, go to step 2 and run again with the next lowest balance for 'seq A'.

4) Repeat steps 2-4 until you get a success for that balance against all 'seq B' runs.

What you would be giving up is complete data on average ending balances, max and min. But you would still have a success rate and you could still seek out a starting portfolio or spending rate for X% success.(edit/add) It might take a few more iterations, you don't know ahead of time if you will have some or no failures in the 'Seq B'. If 'Seq B' failures take you far from your XX% success rate, you might need to go back and bump up portfolio or decrease spending to improve success rate.

I think a disclaimer to note that the parametric data is not complete for those longer runs is a reasonable compromise. IMO, the parametric data is interesting, but a far lower usefulness than the success/failure number.

-ERD50

 

[ERD50]

Note that not only would you need to use the ending portfolio balance of 'seq A' to start 'seq B', but you would need to use the ending 'spend' numbers also.

It seems these would vary for each 'seq A' run, depending upon inflation and the percent of your portfolio that is inflation protected.


-ERD50

 

[Jimmyrd]

Defined pension plans

Hi,
First thank you so much for Firecalc. I recently found it after reading Scott Burns recent column in the WSJ Sunday pages.
I am not very proficient yet with use of Firecalc but would make a suggestion or two.
1. SS for self and spouse is included in FC. I would like to see a place to enter defined pension plan(s). They should include a provision for inflation , or not, depending on the type of plan. (and one for spouse too).
2. An easy way to print results for study would be very helpful.
Again, thank you.

Jimmy

 

[REWahoo]

... I would like to see a place to enter defined pension plan(s). They should include a provision for inflation , or not, depending on the type of plan. (and one for spouse too).

Jimmy, the Advanced FIRECalc version has a provision for multiple pensions.

Look on the "How Much Will You Spend" tab at the three "Increase/Decrease withdrawals by" options near the bottom of the page. For a pension, you would click the "decrease withdrawals by" button, put in the amount of pension, the year it starts, then check the box if it is adjusted for inflation.

 

[halo]

Dory - Suggestion

Dory

Re: the upcoming new Firecalc:

On the Options Page, where it asks "What Year Will You Retire?" is it possible to add the option to answer a different question instead, namely "What Year DID You Retire?"

This way you could run Firecalc to make sure your retirement is on track if you've already exited the work force.

Can this be done?

Thanks!

 

[Ziggy]

Feature Request

If one could have more options for downloading spreadsheets with the formulas and factors, that would be very useful. For instance, could you allow one to start in any year (not just 1960) and to go for more years (i.e.: up to 40 vs 30 now)?

Want to say, though, this is wonderful work you are doing. it is impressive and it is much appreciated! Thanks, Ziggy

 

[SecondCor521]

Dory

Re: the upcoming new Firecalc:

On the Options Page, where it asks "What Year Will You Retire?" is it possible to add the option to answer a different question instead, namely "What Year DID You Retire?"

This way you could run Firecalc to make sure your retirement is on track if you've already exited the work force.

Can this be done?

Thanks!

halo,

You can just put your current data in and it will tell you if you're on track. Just pretend like you're a new retiree...your money doesn't know any differently.

2Cor521

 

[halo]

Clarification

I guess I meant to say that if you could enter a year in the past when you've already retired, then you could know if your current SPENDING is on track.

This is how I use firecalc: I enter my data and start my retirement in the current year (2007) and use the CPI inflation option. I ask for results in the form of the "100% safe" withdrawal amount. Then, having retired on January 1, 2004, I apply the annual compound CPI inflation rates for 2004, 2005 and 2006 (2.68%, 3.39% and 3.24% respectively) to this initial 100% safe withdrawal amount, in effect positing 2007 back to 2004. Using this method, I can be more or less certain of how much in inflation-adjustted dollars I can spend in 2007 and still be "100% safe."

Presumably the calculator always has all the most recent annual inflation rates built into it. If this is the case, it would be nice not to have to posit back to your actual past retirement year, but simply have the calculator do it for you, so it can just tell you how much you can spend currently to be "100% safe."

Perhaps I am missing something or is there something wrong with my method? Please let me know if this is the case or if there is any way to use the current version of the calculator to do what I want. if not, it would be great to see the new version be able to do it. Thanks!

 

[SecondCor521]

I guess I meant to say that if you could enter a year in the past when you've already retired, then you could know if your current SPENDING is on track.

This is how I use firecalc: I enter my data and start my retirement in the current year (2007) and use the CPI inflation option. I ask for results in the form of the "100% safe" withdrawal amount. Then, having retired on January 1, 2004, I apply the annual compound CPI inflation rates for 2004, 2005 and 2006 (2.68%, 3.39% and 3.24% respectively) to this initial 100% safe withdrawal amount, in effect positing 2007 back to 2004. Using this method, I can be more or less certain of how much in inflation-adjustted dollars I can spend in 2007 and still be "100% safe."

Presumably the calculator always has all the most recent annual inflation rates built into it. If this is the case, it would be nice not to have to posit back to your actual past retirement year, but simply have the calculator do it for you, so it can just tell you how much you can spend currently to be "100% safe."

Perhaps I am missing something or is there something wrong with my method? Please let me know if this is the case or if there is any way to use the current version of the calculator to do what I want. if not, it would be great to see the new version be able to do it. Thanks!

Yes, I understood what you meant.

I think you are missing my point. If I were in your shoes, I would put in my 2007 portfolio balance and my 2007 spending amount. Then FIREcalc will tell you whether that amount going forward is 100% safe or not. The point is that there is no need to do the "go back to 2004 and inflation adjust your spending by the CPI" stuff.

Let's do a thought experiment. Suppose your next door neighbor is still working and wonders if he can retire or not. He knows he has $X in his portfolio and spends $Y per year. Since he is very similar to you, he has the same Social Security income, investment allocation, investment expenses, and so forth. You could say to him, "Hey, just stick your numbers into FIREcalc and it will tell you if your spending is 100% safe or not!" He does, and the next day delightedly reports to you that FIREcalc says he is 100% safe to retire now. You then discover to your surprise, that his $X is exactly identical to your portfolio and his $Y is exactly identical to your spending amount.

The point here is that FIREcalc doesn't care that you've been retired for 3 years and your neighbor hasn't. All that matters is what happens from now on. And you and your neighbor, starting from identical positions, have exactly the same historical chances of success now as far as FIREcalc is concerned.

Here's another way of looking at it. Think about flipping coins, and say heads=success and tails=failure. You flip your coin three times and it comes up heads three times in a row. Then you and your neighbor both flip your coins. You both have a 50% chance that your coins will come up heads. Your previous three coin flips have no effect on the outcome of your fourth flip and his first flip.

Hope that makes sense.

2Cor521

 

[boutros]

I imagine I am too late but here goes.

In addition to using a series of historical periods to test success can you have the program randomly select years and the order of years of data. Then rerun the calc several times to provide a probability of success. Kind of a poor man's monte carlo simulation.

 

[wasdana]

This article in the Journal of Financial Planning is full of great withdrawal rate decision rule ideas to incorporate in the next version of Firecalc:

FPA Journal - Using Decision Rules to Create Retirement Withdrawal Profiles