Is it legit to re-run when market rises?

[Gatordoc50]

Problem? FIRECALC uses actual market history from 1871 to present which includes starting in good years/periods AND bad (including the Great Depression, 1965-1983, 1987, 2000, 2008 etc.). It doesn't need to "know" - that's kinda the whole point of FIRECALC. The "problem" with FIRECALC is there's no crystal ball, e.g. if future real returns are significantly worse than any period from 1871 thru present. That's the Achilles heel of all retirement calculators and the reason many use to withdraw more conservatively than their historic SWR. And "a few years in arrears" could just as easily be up, as down. Frankly I like using % of remaining portfolio methodology (like audreyh1, 5 year timeframes IIRC) for retirement income at the outset, and maybe going to inflation adjusted (Classic SWR, like FIRECALC) only when we reach 75-80 years old or thereabouts. YMMV

I am aware of firecalcs shortcomings in regards to retirement planning. I was just adding one more. It doesn't take into account recent history like the seventh year of a bull run, PE ratios, fifteenth year of artificially low interest rates, etc. Stock market returns aren't like coin tosses. There is such a thing as being overdue.

 

[NW-Bound]

FIRECalc does not predict the future, nor does it know whether the market is currently at the top of a cyclical bull, or at the bottom of a recession. You have to make that determination.

If I set my WR to 4%, and without SS, FIRECalc tells me that historically, I could be either broke, or a decamillionaire at the end of 30 years. That's all. And that's 100% success for a 30-year retirement (although I could be totally broke by year 31st).

Is the future going to be like the past? Up to me to ponder. Where are we in the market cycle? Again, that's for me to think about.

 

[braumeister]

the seventh year of a bull run, PE ratios, fifteenth year of artificially low interest rates, etc. Stock market returns aren't like coin tosses. There is such a thing as being overdue.

Nonsense! I have it on good authority that this time it's different.

 

[NW-Bound]

Gatordoc, I don't think posters here disagree with you.

Look how many concurrent threads are runnning where people talk about rebalancing some of these expensive stocks into overseas flight and train tickets, and hotel stays.

I have been doing some rebalancing into home maintenance/update myself.

 

[Chuckanut]

Presumably, if one reruns FireCalc after say 5 years of retirement, one also has to deduct 5 years from the total time one will be retired, thus making it easier for the investments to last.

 

[NW-Bound]

But, but, but statistically the longer you live the higher the life expectancy. You should deduct some years, but not the entire 5.

PS. For example, for IRA RMD the IRS says a 70-year-old shall use a distribution period of 27 yeas, but an 80-year-old to use 19 years, and a 90-year-old to use 11 years.

 

[mpeirce]

I like this one, too. % of remaining portfolio is reassuring in that you should never run out of money. In an up year, you get to spend more, but in a down year you need to be prepared to spend less. I'm ok with that.

Ditto

My modification is that I keep a running average of the last three years. This smooths out the tops and bottoms (so far it's only been tops, but I know the bottoms are coming someday).

While I certainly don't want to run out of money, I also don't want to be on one of those paths where I leave a huge pile of money to the kids. They'll get plenty, but I intend to spend most of it.

 

[Midpack]

I am aware of firecalcs shortcomings in regards to retirement planning. I was just adding one more. It doesn't take into account recent history like the seventh year of a bull run, PE ratios, fifteenth year of artificially low interest rates, etc. Stock market returns aren't like coin tosses. There is such a thing as being overdue.

It doesn't? During the history FIRECALC is based on:

• There have been 4 "bull runs" longer than 'seven years', 3 of them much longer and fairly recent.
• PE ratios have reached current levels or higher quite a few times.
• And interest rates have been low before (not sure where you're getting 15 years though).

I am not looking for an argument, and I agree it's prudent to be more conservative than past history would suggest. But you simply can't say conclusively that we're in unchartered territory, and neither is FIRECALC. 'This time is different' still doesn't apply - yet...

 

[bingybear]

why don't we just use 10% SWR because it just gives me more to spend?
First remember that the 4% SWR is a rule of thumb with some caveats. This is not a universal truth. Those who do variable WR to take less in bad years are likely being prudent. In a good year... sure you can spend a bit more. But some of that growth may be needed to help in down years or decades.
the SWR is a rote method for approximating likelihood of success in retirement funding. but there is no guarantee

 

[Gatordoc50]

It doesn't? During the history FIRECALC is based on: [*]There have been 4 "bull runs" longer than 'seven years', 3 of them much longer and fairly recent. [*]PE ratios have reached current levels or higher quite a few times. [*]And interest rates have been low before (not sure where you're getting 15 years though). I am not looking for an argument, and I agree it's prudent to be more conservative than past history would suggest. But you simply can't say conclusively that we're in unchartered territory, and neither is FIRECALC. 'This time is different' still doesn't apply - yet...

I am not saying things are different. What I am saying is that where we are in the cycle is significant and isn't taken into account by firecalc. Let's say there are 25 cycles ( out of 113) in firecalc where valuations and interest rates are similar to now( which I doubt). Now let's say you get a 90 % success rate when plugging in your numbers. I would argue that most, if not all, of the failures would come from those similar 25 times and the successes were coming from times when valuations and interest rates were better. So, your success rate is most likely going to be much less than 90. That is an additional flaw to firecalc, along with not being able to predict the future.

 

[NW-Bound]

What Gatordoc describes is called conditional probability. It applies when we have some info that allows us to narrow down from the general a priori probability.

An example is the following. If all we know about A is that he's a man born in the US, we can say that his life expectancy is X. But suppose our friend A has diabetes, overweighs, smokes, and has high blood pressure, we will be able to say that his life expectancy is now Y, and darn it, would anyone be surprised that Y is less than X.

But in a way, FIRECalc takes care of that by saying that yes, you will survive your 30-year retirement even if you start out in a bull market and live high on an initially inflated portfolio, but there's still a chance you will live under a bridge in Year 31.

What people want is the ability to measure that risk, to have a quantitative assessment. That is hard. And if someone can figure that out, he is not going to use it just for retirement planning. He is going that info to time the market and makes big bucks!

 

[REWahoo]

That is an additional flaw to firecalc, along with not being able to predict the future.

Yep, that lack of knowing how to time the market and predict the future is a real problem with FIRECalc. I'm surprised anyone bothers to use it...

 

[growing_older]

FIRECalc data are one limited set of historic data. They did not take every series from every intrayear high point. Likewise, unless you have 100% success, the few failure cases you see in any given run are mostly those with a bad string of returns shortly after starting the simulation. If you consistently adjust your starting date to new highs, you are implicitly increasing the likelihood that you are starting on one of those failure cases with a string of bad returns about to happen. So when you get some kind of 90% success at a randomly chosen date that may be a real 90% success, but if you get 90% success after cherry picking a high starting point, you may very well have cherry picked yourself into one of the 10% failure cases, so the "independent" odds on which the simulations are based are no longer really independent. You end up selecting a worst case starting point.

 

[Gatordoc50]

FIRECalc data are one limited set of historic data. They did not take every series from every intrayear high point. Likewise, unless you have 100% success, the few failure cases you see in any given run are mostly those with a bad string of returns shortly after starting the simulation. If you consistently adjust your starting date to new highs, you are implicitly increasing the likelihood that you are starting on one of those failure cases with a string of bad returns about to happen. So when you get some kind of 90% success at a randomly chosen date that may be a real 90% success, but if you get 90% success after cherry picking a high starting point, you may very well have cherry picked yourself into one of the 10% failure cases, so the "independent" odds on which the simulations are based are no longer really independent. You end up selecting a worst case starting point.

Exactly. I would also argue that even if you have a 100% success under times of high valuations there would be more near misses than if valuations were better. So, if you increased your SWR after a good year you most likely will turn some of those successes into failures.

 

[ERD50]

... I do think however, that it is possible to get blindsided by adherence to the Firecalc type approach. Many here swear by it, and I do not want to oppose any of you. ...

I'm not looking for a debate either, just trying to learn and challenge my own thinking. But I think you are over-generalizing to say many here 'swear by' FIRECalc.

I wouldn't be surprised if I have the highest number of posts on the subject, yet, I only look at it as something to give some insight and perspective. It's interesting to test different scenarios against history, to get some feeling for sensitivity. I think it's useful to a point, but 'swear by' the results? I feel pretty confident that the results are an accurate reflection of history, but we all know that only means so much.

We know the future may look different, but it seems useful to study history, and I think this is all most of us do with the historical report software.

-ERD50

 

[ERD50]

Exactly. I would also argue that even if you have a 100% success under times of high valuations there would be more near misses than if valuations were better. So, if you increased your SWR after a good year you most likely will turn some of those successes into failures.

There will be more near misses, but not failures if you limit yourself to the historical records. A 100% success is reporting success under all periods. Let's use numbers to hopefully avoid ambiguity:

Let's say you started with a time period that reported 100% success at a 3.3% WR. If you were riding a specific historic cycle where your portfolio grew after inflation and withdrawals, you could then calculate a forward inflation adjusted withdrawal of 3.3% of this new, higher portfolio value, and it would not result in failure.

It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods. It can't possibly make any difference if you entered this period with that portfolio after 5 years of retirement, or if you entered this period with that portfolio as a brand new retiree. It just can't.

Of course, this is just a strict reading of the numbers. But I think if you are to use this tool, you should understand the limits of what it is telling you.

If we want to look at this in a more general sense, increasing your withdrawal will of course reduce your portfolio in relative terms going forward. It may bring you closer to failure, but you can't fail within that data set. Failure does not exist.

In real life, increasing the withdrawals adds risk to future unknowns, but that is true of any withdrawal method. Not touching principal is no guarantee, we don't know what will happen to dividend payers in the future, or how much principal there may be left to draw upon if the stuff hits the fan. There is no magic, we can only say that a conservative WR will extend a portfolio over an optimistic WR. And being conservative has the downside of possibly living more frugally than needed.

What's behind Door # 3 Monty?

-ERD50

 

[haha]

I'm not looking for a debate either, just trying to learn and challenge my own thinking. But I think you are over-generalizing to say many here 'swear by' FIRECalc.

I wouldn't be surprised if I have the highest number of posts on the subject, yet, I only look at it as something to give some insight and perspective. It's interesting to test different scenarios against history, to get some feeling for sensitivity. I think it's useful to a point, but 'swear by' the results? I feel pretty confident that the results are an accurate reflection of history, but we all know that only means so much.

We know the future may look different, but it seems useful to study history, and I think this is all most of us do with the historical report software.

-ERD50

No, I know you are not looking for debate, you just like to rehash things to perhaps reveal new angles. Neither are you hanging back and taking pot shots..You have a well articulated, easily understood position, and I don't want to oppose it

I make up my mind easily, and once I have done so I am generally not interested in further whatevers. I know you are well informed, and undoubtedly have good arguments. It's just that mine are good enough for me, and so I don't really want to expend further effort. Don't forget, I have relied on my methods to support me and previously my family for ~30 years. This is not reason for anyone else to use it, but selling my ideas to others is not important at all to me; it may even have a negative weighting.

The evidence is simple, but different people interpret it differently. This is good!

Ha

 

[growing_older]

It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods.

I think you are making a mistake here. The tool will tell you 100% success in all periods that are in the historic dataset. If history repeats itself, you are covered! But, your upcoming retirement STARTS now, so it covers periods that are NOT YET IN THE DATASET. The 100% success in the historic record is NOT a guarantee of 100% in the future. Moreover, a 100% success in FIRECalc with more near misses is not the same as a 100% success with no near misses. If all you see is 100%, you are not necessarily comparing two equal scenarios.

 

[Midpack]

I think you are making a mistake here. The tool will tell you 100% success in all periods that are in the historic dataset. If history repeats itself, you are covered! But, your upcoming retirement STARTS now, so it covers periods that are NOT YET IN THE DATASET. The 100% success in the historic record is NOT a guarantee of 100% in the future. Moreover, a 100% success in FIRECalc with more near misses is not the same as a 100% success with no near misses. If all you see is 100%, you are not necessarily comparing two equal scenarios.

Who here said anything about a guarantee? Or to blindly adhere to SWR withdrawal methodology?

Of course future data isn't "yet in the dataset" - but you and others have no basis to presume it's statistically different either (yet). Might be, might not.

FIRECALC tells what we might expect if history is any indication. From there we all apply safety factors (or not) beyond that as we each see fit. FIRECALC doesn't pretend to make those judgements, it's up to each of us. Some here didn't/won't retire until their FIRECALC success rate was closer to 200%* as a result...in case the future is different.

* assets twice that required for 100% success

 

[jabbahop]

another datapoint that I look at with firecalc is the lowest value the the portfolio reaches @ 100% success rate.

If I am getting down to one or two years of expenses, I know my margin is small to failure. If it is large, there is already a buffer built in vs historical.

If the future is worse than historical, FC doesn't help much.

 

[2B]

why don't we just use 10% SWR because it just gives me more to spend?

There's no problem with this if you can live with the likelihood of reduced spending if the portfolio value falls. I am doing this but using 5%. I expect my allowable spending to vary - up and down - depending on market performance. I'm willing to live with this variation rather than do what some people do which is a "safer" <3%. I'd rather not potentially leave as much behind. My assets are also more than enough for a successful retirement. My variations will simply control my ability to spend on extras.

 

[NW-Bound]

I find it amazing when posters understand the same thing, but choose to disagree simply because they use different wording to express it. It is then no surprise when wars happen if they actually disagree.

About portfolio present value, yes, one should go beyond the "100%" result by FIRECalc and look at the chart to see how low it can be with a WR of 4%.

In real life, FIRECalc or not, if the present value gets anywhere near 50% of its starting point, people will start shaking in their boots, unless they are so old and perhaps already bedridden to not to care.

 

[Gatordoc50]

There will be more near misses, but not failures if you limit yourself to the historical records. A 100% success is reporting success under all periods. Let's use numbers to hopefully avoid ambiguity: Let's say you started with a time period that reported 100% success at a 3.3% WR. If you were riding a specific historic cycle where your portfolio grew after inflation and withdrawals, you could then calculate a forward inflation adjusted withdrawal of 3.3% of this new, higher portfolio value, and it would not result in failure. It can't fail, because your report told you that 3.3% was 100% successful in all periods, and this is just one of those periods. It can't possibly make any difference if you entered this period with that portfolio after 5 years of retirement, or if you entered this period with that portfolio as a brand new retiree. It just can't. Of course, this is just a strict reading of the numbers. But I think if you are to use this tool, you should understand the limits of what it is telling you. If we want to look at this in a more general sense, increasing your withdrawal will of course reduce your portfolio in relative terms going forward. It may bring you closer to failure, but you can't fail within that data set. Failure does not exist. In real life, increasing the withdrawals adds risk to future unknowns, but that is true of any withdrawal method. Not touching principal is no guarantee, we don't know what will happen to dividend payers in the future, or how much principal there may be left to draw upon if the stuff hits the fan. There is no magic, we can only say that a conservative WR will extend a portfolio over an optimistic WR. And being conservative has the downside of possibly living more frugally than needed. What's behind Door # 3 Monty? -ERD50

That explains the inflation adjustment with firecalc well. As long as you keep your adjustments increases in line with inflation you should, according to firecalc, maintain 100% success no matter what valuations are. But when valuations are high and interest rates are low, I still maintain that firecalc will understate your failure rate if it shows one. I did a little research and found that firecalc was invented by a former member. I appreciate the work that went into it and enjoy using it and other calculators. Personally, my planning consisted of saving 25 times spending and investing to keep pace with inflation. I don't need any equities to do that. Any funds in excess of 25X are invested in equities. It's as good as any plan I have seen. No guarantees of course.

 

[liberty53]

My understanding is that Firecalc is a tool that should pretty much show the same results as the Trinity Study and Bengen's paper that essentially determined the 4% safe withdrawal rate.

In other words, Firecalc will do the same back-testing that the authors of the other studies did. There may be minor differences though to account for slight variations in the variables used.

Firecalc though let's you refine the model to account for things like retirement years, portfolio mix, expenses, etc.

To answer the OP's question again, Firecalc is "memoryless" in that the starting period and assumptions can be changed to account for different assumptions (fewer years to live, greater starting portfolio, different portfolio mix, and of course increased withdrawal rate) and if the results are acceptable then go for it!

 

[Closet_Gamer]

What's behind Door # 3 Monty?

-ERD50

An immediate annuity (perhaps coupled with a deferred annuity for longevity.)

Door number 4 is ammo and beans.

Door number 5 looks a lot like the opening scenes of "2001:A SpAce Odyssey"



(Seriously though, interesting thread.)