Firecalc question

[bltkmt]

Quick question on how others use Firecalc in planning spending levels. Lets assume my planned budget is $180k annually and after inputting my data Firecalc gives me 100% success rate and the "Investigate" tab says I could spend $213k annually with a 95% success rate. That gives me some level of comfort that I have a theoretical cushion above my planned $180k spending. However, how to you use this data in future years? Do I plan to keep spending the $180k plus inflation? Or do I instead run a new Firecalc session each year and then adjust my spending accordingly?

 

[finnski1]

IF you use the "constant spending power " tab I believe it automatically adjusts for inflation.

 

[Time2]

It uses historical data, so as long as history repeats, then you should be good for 30 years with an inflation adjustment each year.
However, since "historical performance is not necessarily predictive of future performance" it would not hurt to do a checkup once a year.
If we had one really bad stock market year or several bad years in a row, you might find it wise to reduce your spending for a few years and let your net worth play catch up.

 

[pb4uski]

Quick question on how others use Firecalc in planning spending levels. Lets assume my planned budget is $180k annually and after inputting my data Firecalc gives me 100% success rate and the "Investigate" tab says I could spend $213k annually with a 95% success rate. That gives me some level of comfort that I have a theoretical cushion above my planned $180k spending. However, how to you use this data in future years? Do I plan to keep spending the $180k plus inflation? Or do I instead run a new Firecalc session each year and then adjust my spending accordingly?

Well for one thing we don't let FIRECalc dictate what we spend. We spend pretty much what we want to, but even then it is only about 70% of what the Investigate tab suggest that we could spend at 95% success.

If I was going to let FIRECalc dictate what we spend then I would re-run FIRECalc occasionally with up-to-date inputs and follow that.

 

[bltkmt]

Well for one thing we don't let FIRECalc dictate what we spend. We spend pretty much what we want to, but even then it is only about 70% of what the Investigate tab suggest that we could spend at 95% success.

If I was going to let FIRECalc dictate what we spend then I would re-run FIRECalc occasionally with up-to-date inputs and follow that.

That is what I was thinking.

 

[Major Tom]

Although Firecalc is the only tool I use to determine how much I can withdraw, I don't use it as a "micrometer". Basically, I have figured out that with a portfolio somewhere in the range of 60/40 - 75/25 (the range I stay within), the maximum I could withdraw to stay below the 100% success level, is around 3.3 - 3.4%. That doesn't change much from year to year, although perhaps it might change a little were I to check it every 5 or 10 years.

I think the highest my withdrawal ever went, was to about 2.5%, so I don't worry about it. It is currently at 2.3%. If my WR were ever to need to become significantly higher, I'd remind myself of the appearance of Social Security in my future. Then I'd go make a cup of tea and wish I had some Digestives or Hob Nobs in the house.

 

[flyingaway]

Although Firecalc is the only tool I use to determine how much I can withdraw, I don't use it as a "micrometer". Basically, I have figured out that with a portfolio somewhere in the range of 60/40 - 75/25 (the range I stay within), the maximum I could withdraw to stay below the 100% success level, is around 3.3 - 3.4%. That doesn't change much from year to year, although perhaps it might change a little were I to check it every 5 or 10 years.

I think the highest my withdrawal ever went, was to about 2.5%, so I don't worry about it. It is currently at 2.3%. If my WR were ever to need to become significantly higher, I'd remind myself of the appearance of Social Security in my future. Then I'd go make a cup of tea and wish I had some Digestives or Hob Nobs in the house.

If you keep under-spending, your portfolio will get bigger and bigger. Accordingly, your withdrawal rate will get smaller and smaller. It that the case actually?

 

[Whisper66]

We rerun Firecalc each year and feel no concern if we spend within its results. We have spent beyond Firecalc results but we wouldn’t plan on doing this on a consistent basis.

 

[walkinwood]

We rerun Firecalc each year and feel no concern if we spend within its results. We have spent beyond Firecalc results but we wouldn’t plan on doing this on a consistent basis.

+1

 

[pb4uski]

+2 that seems like a sensible approach.

 

[bltkmt]

We rerun Firecalc each year and feel no concern if we spend within its results. We have spent beyond Firecalc results but we wouldn’t plan on doing this on a consistent basis.

When you say spend within its results so you mean the amount from the investigate tab?

 

[Whisper66]

When you say spend within its results so you mean the amount from the investigate tab?

Yes.

 

[Dtail]

We rerun Firecalc each year and feel no concern if we spend within its results. We have spent beyond Firecalc results but we wouldn’t plan on doing this on a consistent basis.

+3 reretire each year concept.

 

[Major Tom]

If you keep under-spending, your portfolio will get bigger and bigger. Accordingly, your withdrawal rate will get smaller and smaller. It that the case actually?

It hasn't happened so far, but that's only because I dramatically increased the dollar amount I was withdrawing about 2 years ago, to help pay for the running costs of a little campervan I had just purchased. Yes, over time, if I keep my withdrawals to roughly the same dollar amount (adjusted for inflation), my portfolio most likely will get bigger. However, I'm sure I'll find good reasons to increase the amount of my withdrawals!

I doubt that anyone, at the beginning of their retirement, sets a dollar amount for their withdrawals, and sticks to it, adjusting for inflation each year, for the entire duration of their retirement.

 

[bizlady]

Maybe I am missing something but should one also look at the portfolio tab and enter the percentage in stocks? I think it calculates as if 75% is invested in stocks as the default

 

[deserat]

At the risk of sounding like a broken record, another tool is the VPW worksheet at Bogleheads - you put in your pensions and SS, current portfolio amounts, AA and age and it cranks out a recommended withdrawal. It also computes a floor (lower withdrawal) based on a 50% drop in the stock portion of your AA. You can run the spreadsheet monthly, quarterly or yearly. I plan on having my range of spending be between the lower floor and the amount it says I can withdraw. The withdrawal amount is adjusted by your age and portfolio balance.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

 

[SecondCor521]

If you keep under-spending, your portfolio will get bigger and bigger. Accordingly, your withdrawal rate will get smaller and smaller. It that the case actually?

It has for me over the past five years. However, the trend you're describing would only happen on average over time. Over shorter periods of time, the market returns could overwhelm this effect. For example, someone underspending their FIREcalc spending number starting in 2007 might see their withdrawal rate (as a percentage of the current portfolio) go up due to the 2008/2009 market crash.

In my case, it's been pretty much flat spending at a low WR% plus good market returns.

Maybe I am missing something but should one also look at the portfolio tab and enter the percentage in stocks? I think it calculates as if 75% is invested in stocks as the default

Yes, FIREcalc's page does support a couple of different "How is my portfolio invested?" options. I use the first one and change the 75% to whatever my stock AA is.

I figure in general it's good to get FIREcalc's inputs to match my situation as closely as possible. So I also, for example, change the portfolio cost number from, IIRC 0.18% to 0.04% which is my actual portfolio cost.

I know a lot of people de-rate their FIREcalc inputs. I don't. I'd rather see what I consider to be the most accurate results, and then apply the caution to how I approach those results rather than some somewhat de-rated results. But to each their own.

 

[Dtail]

It has for me over the past five years. However, the trend you're describing would only happen on average over time. Over shorter periods of time, the market returns could overwhelm this effect. For example, someone underspending their FIREcalc spending number starting in 2007 might see their withdrawal rate (as a percentage of the current portfolio) go up due to the 2008/2009 market crash.

In my case, it's been pretty much flat spending at a low WR% plus good market returns.



Yes, FIREcalc's page does support a couple of different "How is my portfolio invested?" options. I use the first one and change the 75% to whatever my stock AA is.

I figure in general it's good to get FIREcalc's inputs to match my situation as closely as possible. So I also, for example, change the portfolio cost number from, IIRC 0.18% to 0.04% which is my actual portfolio cost.

I know a lot of people de-rate their FIREcalc inputs. I don't. I'd rather see what I consider to be the most accurate results, and then apply the caution to how I approach those results rather than some somewhat de-rated results. But to each their own.

Bolded by me.
Agree 100%. What is the real purpose of using a retirement calculator if all the inputs are skewed?
Get the best "estimated" results, then one can go from there.

 

[Dtail]

It hasn't happened so far, but that's only because I dramatically increased the dollar amount I was withdrawing about 2 years ago, to help pay for the running costs of a little campervan I had just purchased. Yes, over time, if I keep my withdrawals to roughly the same dollar amount (adjusted for inflation), my portfolio most likely will get bigger. However, I'm sure I'll find good reasons to increase the amount of my withdrawals!

I doubt that anyone, at the beginning of their retirement, sets a dollar amount for their withdrawals, and sticks to it, adjusting for inflation each year, for the entire duration of their retirement.

Bolded by me.
It would be rare if one actually uses this scenario for a real withdrawal pattern.
It is most helpful to get an estimate of where one stands as they prepare for retirement.

 

[bltkmt]

At the risk of sounding like a broken record, another tool is the VPW worksheet at Bogleheads - you put in your pensions and SS, current portfolio amounts, AA and age and it cranks out a recommended withdrawal. It also computes a floor (lower withdrawal) based on a 50% drop in the stock portion of your AA. You can run the spreadsheet monthly, quarterly or yearly. I plan on having my range of spending be between the lower floor and the amount it says I can withdraw. The withdrawal amount is adjusted by your age and portfolio balance.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

Thanks - had not seen the VPW worksheet previously. I just input my numbers and it gave a very generous result for estimated withdrawals!

 

[Time2]

It would be rare if one actually uses this scenario for a real withdrawal pattern.
It is most helpful to get an estimate of where one stands as they prepare for retirement.

Well, I suspect many here have saved more then the suggested 25 x earnings. With that we can spend below our 4% and not be lacking for anything or concerned about running out. However those that retire on 4% are at the limit so are being careful, Firecalc is a bit more important in their figuring.

 

[Dtail]

Well, I suspect many here have saved more then the suggested 25 x earnings. With that we can spend below our 4% and not be lacking for anything or concerned about running out. However those that retire on 4% are at the limit so are being careful, Firecalc is a bit more important in their figuring.

100% agree.
My reference was more to using the initial 4% inflation adjusted withdrawal process each year, not as to whether using a 4% withdrawal amount makes sense.

 

[rodi]

Well, I suspect many here have saved more then the suggested 25 x earnings. With that we can spend below our 4% and not be lacking for anything or concerned about running out. However those that retire on 4% are at the limit so are being careful, Firecalc is a bit more important in their figuring.

I always considered a 4% as a rule of thumb... because it has some things that don't apply to me.
* assumes a 30 year retirement. (I retired at 52, so hope for more than 30 years before I run out of money).
* gives a 95% success of dying with >$0. That 5% worries me.


I think for safety a 3-3.5% WR is better if you have a longer retirement horizon.

 

[bltkmt]

At the risk of sounding like a broken record, another tool is the VPW worksheet at Bogleheads - you put in your pensions and SS, current portfolio amounts, AA and age and it cranks out a recommended withdrawal. It also computes a floor (lower withdrawal) based on a 50% drop in the stock portion of your AA. You can run the spreadsheet monthly, quarterly or yearly. I plan on having my range of spending be between the lower floor and the amount it says I can withdraw. The withdrawal amount is adjusted by your age and portfolio balance.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

Not to derail my own thread but where can I find more about the methodology around this worksheet? Does it use Monte Carlo or anything similar to project portfolio returns over time periods?

 

[KarenC]

Not to derail my own thread but where can I find more about the methodology around this worksheet? Does it use Monte Carlo or anything similar to project portfolio returns over time periods?

If you are using a copy the actual VPW spreadsheet, you'll find the growth trends are specified in the Lists tab (specifically the section beginning at Lists!A131). There is a comment there to the effect it is using historical global growth trends from 1900 to 2018.