Interpreting FIRECalc

[bclover]

So I'm playing on another website that has a retirement section and many of them use firecalcu.

Well today a poster is mentioning that basically it's wasted information because, the italics are his answers,


I thought that firecalc gave you possible outcomes at every starting point, both bear and bull markets?

Doesn't it also have the opportunity to change inflation rate and see how your portfolio does? one can go in and through in 10% inflation for example

[I]you can play in the explore tab. but changing something globally does not work well . it is like picking an average return . you can be way way off because sequences matter so much[/I]

looking at the averages as they played out is not the same as planning around projected averages . 1973 and 2008 were not even close to worst case scenarios for a 30 year retirement. those dates above are starting dates for your retirement going out 30 years from those dates not an annual return . .

so when you look at all the periods where you ran out of money they all share a common denominator . they all went bust before the 30th year when their real return average fell below 2% over the first 15 years .

see the difference ? we are not using an average return , we are backing in and deriving an average return based on what actually played out based on sequences ,actual inflation as it happened and actual market returns as they happened . .

no , annual returns are not projected to be some average . it is like you have simple calculators that tell you to project an average return and enter it . never do that ..you can be off by 15 years between the best and worst outcomes with the same average return .

success is based on exactly how each time frame played out and how you would have actually done over each 30 year period had you used your amount and your draw and allocation.

what is considered safe is if doing what you plan to do you survived 90% of the rolling 30 year periods to date . that is not predicting some average .


So basically my question is how do we use firecalc usefully? And if you never know the actual return rate, you don't know if you could be retiring in a bear or a bull market, how to you feel confident enough to pull the proverbial plug.

Now I guess I didn't understand the gist of his answers but basically he's saying that firecalc is not worth the effort. at least that's the take away

And if you get a 100% wouldn't that mean for the parameters you set, for example I put in 33 years wouldn't that mean that 33 years my portfolio survived at my spending (I put in constant spending)

 

[RunningBum]

Odd and very inaccurate title. Since this is about Firecalc, that should be in the title, otherwise it's harder for those who later have the same questions to find this thread, and you also might not get Firecalc experts looking at this. This should also be moved to the Firecalc support subforum.

 

[GravitySucks]

I found it to be worth the effort though I only use it to remind myself that withdraw rates are a huge part of survivability. Firecalc shows what happened in the past in default mode. I believe there's a Monte Carlo simulator that comes in play when you add changes to expected inflation and returns. For a Monte Carlo simulator i use Fidelitys planner.
All the better calculators are based on historical outcomes, including Monte Carlo ones. Is that his main compliant? What else can you use but history? I imagine i could write a program that would show worse than 1966 returns followed by the 70s inflation, but why? I'm not expecting this is the worse of the last hundred years time to retire, but it might be. We might get a bout of hyper inflation that wipes out all our savings but what could I do about that but try to find work. Even a 0.5% WR would fail at 5,000% inflation.

 

[marko]

I found it to be worth the effort though I only use it to remind myself that withdraw rates are a huge part of survivability. Firecalc shows what happened in the past in default mode. I believe there's a Monte Carlo simulator that comes in play when you add changes to expected inflation and returns. For a Monte Carlo simulator i use Fidelitys planner.
All the better calculators are based on historical outcomes, including Monte Carlo ones. Is that his main compliant? What else can you use but history? I imagine i could write a program that would show worse than 1966 returns followed by the 70s inflation, but why? I'm not expecting this is the worse of the last hundred years time to retire, but it might be. We might get a bout of hyper inflation that wipes out all our savings but what could I do about that but try to find work. Even a 0.5% WR would fail at 5,000% inflation.

+1
Over the years, I think all of us have run at least a half dozen+ retirement calculators from a wide range of sources.

In the end I think all of them come out and say "plus/minus 4%". We can debate whether 3.8% or 4.5% is a good number forever (see the most recent SS thread!) but "it depends" is probably the most useful word on this forum.

These numbers, calculations and outcomes are not 100% accurate and guaranteed; I've used them more as a confirmation that 5% is too high and that I can likely spend more than 3.5% but the future is a tough thing to work with.

There's always folks who want to prepare for total nuclear annihilation, but back on Earth I'm running with an 80% chance that things will be just fine.

 

[aja8888]

How to de-stress once in retirement

Well, I just don't watch TV newscasts or read the local liberal rag of a newspaper. Plain and simple!

 

[REWahoo]

How to de-stress once in retirement

Ignore all those "reality shows", especially the news.

 

[Red Badger]

Ignore all those "reality shows", especially the news.

+1.

Wahoo nailed it. aja as well.

I used to be a news junkie. Then, during a long stay at the beach last winter, I put the TV on the local weather channel, muted the volume, and hid the remote.

It was neat getting offshore, beach, and in shore weather info.

I'm in permanent recovery from a terrible addiction.

 

[Bir48die]

This morning I just made the decision to stay off political blogs. Stopped watching the news months ago.

 

[bingybear]

I've always taken the retirement planning software as warm fuzzies. They can provide a sense that you are ready, but no real proof. I've usually run them for more than 30 years. Firecalc (historic mode) will have less representative data when you stretch out the retirement window.

Plus these are garbage in, garbage out. Did you plan for the illness in year 5 that is going to suck lots of cash with extended time in skilled nursing care? No, I don't have a crystal ball, but I expect that most people who are planning don't plan for everything. I'm sure I missed some things.

And if you get a good result from the planners with few if any failures, what is likely to happen? You'll end up with more money because you did not get the worst run on firecalc.

 

[bclover]

Odd and very inaccurate title. Since this is about Firecalc, that should be in the title, otherwise it's harder for those who later have the same questions to find this thread, and you also might not get Firecalc experts looking at this. This should also be moved to the Firecalc support subforum.

sorry you are right, I'll go back and change. I just kinda hit the panic button earlier

 

[bclover]

Odd and very inaccurate title. Since this is about Firecalc, that should be in the title, otherwise it's harder for those who later have the same questions to find this thread, and you also might not get Firecalc experts looking at this. This should also be moved to the Firecalc support subforum.

lol ok how do I do that. I thought I went back and edited but it's not sticking

 

[REWahoo]

I just kinda hit the panic button earlier

If I understand the somewhat confusing information you posted, it appears the quoted individual really doesn't understand FIRECalc. FIRECalc does not make "predictions", it simply tells you how your retirement finances and spending plans would have fared looking at history.

Don't be confused/alarmend by the poster's grouse about the "roll your own" inflation option using an average. FIRECalc's base calculation uses actual inflation rates for each historical year, which is appropriate for what the calculator was designed to do.

 

[braumeister]

I renamed the thread and moved it to the FIRECalc Support forum.

As REWahoo pointed out, the comments in the OP are from someone who never bothered to read FIRECalc's description.

 

[TwoByFour]

Doesn't it also have the opportunity to change inflation rate and see how your portfolio does? one can go in and through in 10% inflation for example

Force-changing parameters of a RIP tool that uses historical data invalidates the results to some degree. Take inflation - bond interest rates tend to track inflation although with a bit of a lag. And the stock market also tends to track inflation. If you force the rate of inflation the RIP tool uses to be something other than the historical values, it is then out-of-sync with the other quantities that have a dependent relationship to it. You have then created an artificial and unrealistic situation; it is hard to know how much confidence you can then give to any results.

That being said, I think FireCalc and other RIP tools are valuable. I ended up writing my own (in Java, I was a developer in my former life) and made it very exact to our situation - I broke out cap gains from interest income and applied the exact tax table to each and coded in our exact withdrawal algorithm. The results of my custom RIP tool were largely consistent with FireCalc. The main advantage for me was the ability to fiddle with the withdrawal algorithm and test when to take SS, at FRA or at 71. (I have delayed it).

At any rate, RIP tools are just approximations and are all based on the past, which likely will not be reflected exactly in the future. So take their results with a healthy grain of salt. This is true for all of them.

 

[Independent]

So I'm playing on another website that has a retirement section and many of them use firecalcu.

Well today a poster is mentioning that basically it's wasted information because, the italics are his answers,


I thought that firecalc gave you possible outcomes at every starting point, both bear and bull markets?

Doesn't it also have the opportunity to change inflation rate and see how your portfolio does? one can go in and through in 10% inflation for example

...

So basically my question is how do we use firecalc usefully? And if you never know the actual return rate, you don't know if you could be retiring in a bear or a bull market, how to you feel confident enough to pull the proverbial plug.

Now I guess I didn't understand the gist of his answers but basically he's saying that firecalc is not worth the effort. at least that's the take away

And if you get a 100% wouldn't that mean for the parameters you set, for example I put in 33 years wouldn't that mean that 33 years my portfolio survived at my spending (I put in constant spending)

I don't think the quote says that FireCalc "is not worth the effort".
It seems to be talking about the difference between assuming a level investment return vs. using history that has non-level returns.
Basically, sequence of returns risk is worth thinking about. That's useful.

The useful part of historical returns part of FireCalc is that they remind us that we probably aren't retiring in an "average" time. Most historic periods were better or worse than average.

Most people want to enter retirement with a "conservative" plan -- one that works even if the future isn't a favorable as we like. Yes, that means that we will probably start out spending less than we would have if we weren't conservative. FireCalc allows us to test our plans against the bad sequences that have actually happened in the past. We get to look at the results and make judgement calls about just how cautious we want to be.

 

[donheff]

I didn't understand what the guy OP was quoting was getting at. Firecalc is one tool out of many. It doesn't guarantee success in retirement. Lets say Firecalc shows you would have had 100% success starting a 30 year retirement in any year in the history it covers. Well it could turn out this year's run is out of scope. Maybe it kicks off 1970's style inflation on steroids and we will all see our portfolios become valueless but so what? Run Firecalc, run some Monte Carlo scenarios; eventually you have to take a chance. I am more than a decade in so early year disaster scenarios are no longer in the picture. But that doesn't leave me 100% confident that I have decades of financial success ahead of me. Any imaginable disaster could unfold this morning leaving us in a science fiction dystopia. At some point you have to decide "I'm good," and pull the plug.

 

[Dtail]

So I'm playing on another website that has a retirement section and many of them use firecalcu.

Well today a poster is mentioning that basically it's wasted information because, the italics are his answers,


I thought that firecalc gave you possible outcomes at every starting point, both bear and bull markets?

Doesn't it also have the opportunity to change inflation rate and see how your portfolio does? one can go in and through in 10% inflation for example

[I]you can play in the explore tab. but changing something globally does not work well . it is like picking an average return . you can be way way off because sequences matter so much[/I]

looking at the averages as they played out is not the same as planning around projected averages . 1973 and 2008 were not even close to worst case scenarios for a 30 year retirement. those dates above are starting dates for your retirement going out 30 years from those dates not an annual return . .

so when you look at all the periods where you ran out of money they all share a common denominator . they all went bust before the 30th year when their real return average fell below 2% over the first 15 years .

see the difference ? we are not using an average return , we are backing in and deriving an average return based on what actually played out based on sequences ,actual inflation as it happened and actual market returns as they happened . .

no , annual returns are not projected to be some average . it is like you have simple calculators that tell you to project an average return and enter it . never do that ..you can be off by 15 years between the best and worst outcomes with the same average return .

success is based on exactly how each time frame played out and how you would have actually done over each 30 year period had you used your amount and your draw and allocation.

what is considered safe is if doing what you plan to do you survived 90% of the rolling 30 year periods to date . that is not predicting some average .


So basically my question is how do we use firecalc usefully? And if you never know the actual return rate, you don't know if you could be retiring in a bear or a bull market, how to you feel confident enough to pull the proverbial plug.

Now I guess I didn't understand the gist of his answers but basically he's saying that firecalc is not worth the effort. at least that's the take away

And if you get a 100% wouldn't that mean for the parameters you set, for example I put in 33 years wouldn't that mean that 33 years my portfolio survived at my spending (I put in constant spending)

I love Firecalc and Fidelity's calculators.
I do believe the below statement is true though.
so when you look at all the periods where you ran out of money they all share a common denominator . they all went bust before the 30th year when their real return average fell below 2% over the first 15 years .