Dipping under 100% on Firecalc?

[COcheesehead]

I also haven't run it lately either.

I wonder if somewhere within the Firecalc (or I-orp, or....) program, you can see the sucess ratings of each individual period tested. IOW, it might be useful to know if the periods were the worst in the early years or the latest years were making the most lows.

FIcalc.app will do this.

 

[Romer]

I know if I were to look it would likely be under 100 even though I had a big margin. We are in a market downturn and I have cash to ride it out so I am not concerned.

I used FireCalc to make the decision to retire. Now that I am in retirement, I am focused on watching trends and working what I can. In a market downturn my biggest losses are with companies like Disney which I expect to recover over the next few years. Panicking would be counterproductive so I am riding it out

Interesting timing as the market dumped about the same time I pulled the plug. Wouldn't have changed anything as I have a significant spending buffer I used and also a Safety Net I didn't consider in any of my calculations. I have a nice home on an Acre of land in the city which is rare and is paid off. I never factored downsizing into my equations and that would add significant resources augmenting my Pension and future Social Security (even at 75% SS)

 

[daylatedollarshort]

If firecalc gave people a 100% safety zone, and then we have a not very severe by historical standards yet down turn, and the 100% is dropping, then why even rely on it? What are you getting out of it except a false sense of security when it was 100%?

 

[youbet]

There are at least two other sims like FIRECalc that do what you ask. One, I know, is verboten here - not sure about the other.

You might recall, since you've also been hanging around here for a spell, that FireCalc used to output a bar chart with each bar representing the terminal value of each beginning year. Then, for some reason, that was eliminated.

You can do it, easily enough, by downloading the spreadsheet FireCalc provides and doing it yourself in Excel.

Or, as you say, there are some other calculators available that do it.

 

[youbet]

If firecalc gave people a 100% safety zone, and then we have a not very severe by historical standards yet down turn, and the 100% is dropping, then why even rely on it? What are you getting out of it except a false sense of security when it was 100%?

FireCalc is only giving a "false sense of security" to folks who don't understand what it is doing. Drop the spreadsheet. Play with the numbers using the Excel stat and graphical functions. Think about the back-test you are performing on the personal data you entered. It eventually starts to make sense.

The "false sense of security" generally comes from thinking about FireCalc or other similar back-testing applications as a black box that gives you a specific and predictive answer driven by your input data. In fact, its only presenting a range of possible outcomes by testing your inputs against historical investment returns and inflation data for a presumed life expectancy.

I'm always amused by the wide range of outcomes. If the future resembles history and I live my life as I inputted, FireCalc says at death I'll be someplace between very broke and very wealthy. And because the outcomes are not normally distributed, the "average" outcome is not the most likely.

It is what it is.

 

[MarieIG]

I retired 12/31/21, soooooo I'm not exactly thrilled about the markets and economy.

But, while I'm not a financial maven, I did put some aside to prepare for SORR; and since I'm not going back to work, I'm not running FireCalc. Conversely, I'm not looking to ratchet up discretionary spending (although I haven't cut back on supplements and organic foods which I consider "health" related).

 

[COcheesehead]

I retired in July of 2020 and I actually run FireCalc and the Fidelity planner all the time. I also built a spreadsheet with my own stress tests built in for various market slides.
All of them show us comfortably in the green. We could lose over a million in our portfolio from this point and still be at 100% in FireCalc. So I say run them and then use the results to feel comfortable or to alter your plan accordingly.

 

[youbet]

I retired 12/31/21, soooooo I'm not exactly thrilled about the markets and economy.

I retired into the 2008 Great Recession and admit it did make me blink a few times! But market dips have always recovered and I just held on.

You're retiring into higher inflation levels as well as a market dip. Not a good SORR scenario, especially the inflation. The general price level seems to never recover. Once it's up, it's up seemingly forever. The rate of inflation may slow, but prices tend to continue the upward trend, just more slowly.

In your spot, I'd do a FireCalc run where your portfolio value is what it is today and with your initial spending level increased by, say, 15%. Let us know what kind of change you see.

 

[COcheesehead]

Just run the investigate tab for spending level at 100%. If you are the inflation percentage below that number in your spend, you should be good.

 

[youbet]

Just run the investigate tab for spending level at 100%. If you are the inflation percentage below that number in your spend, you should be good.

Huh?

 

[COcheesehead]

Huh?

If FireCalc says you can take out X and be at 100% and your actual spend is X minus say 8-10% that accounts for a heightened inflation buffer.

 

[Rianne]

I can cut a whole bunch of spending pretty quickly.

 

[ERD50]

If firecalc gave people a 100% safety zone, and then we have a not very severe by historical standards yet down turn, and the 100% is dropping, then why even rely on it? What are you getting out of it except a false sense of security when it was 100%?

Because that is not how it works.

The 100% initial success for X years tells you you would survive all historical periods with that starting amount.

That *includes* the times the markets dipped a lot in the next few years. So it's not uncommon at all to start at 100%, spend for a few years, have the market drop for a few years, and now you are below 100% (if you use your reduced numbers).

But the history shows those scenarios recovered, so you are still at 100% because you were initially - it doesn't matter that it has dropped since then, that's baked in the cake.

Now, this probably seems counter-intuitive to you - you're thinking that if it succeeds when I dip below 100%, then why couldn't I retire in that year with those numbers that are below 100%? And the answer is - you could (if you knew history).

But FIRECalc just looks at each period and runs the numbers. It doesn't try to account for whether the market just took a dive (which means it is lower than average, and not as far to fall on average). IOW, it is quite conservative in that regard.

Another consideration - just based on how one runs FIRECalc. If you were at 100% with $1M, then after a dive say you have 600K. Well, if you enter the original $1M into FIRECalc for that starting year (not your reduced $600K - you are starting fresh), you would come out at 100%.

That can be a little hard to get your head around until you think through exactly what is being reported, but that's it.

-ERD50

 

[mathjak107]

The issue with recovering is all the failures were in the first 15 years of a 30 year retirement.

Even the best bull markets couldn’t save those who retired in 1965 and 1966.

The 30 years returns were pretty close to average even in the worst outcomes .

But the 15 year period was awful and did them in since there wasn’t enough for the bull markets to work on

 

[mathjak107]

what caused the failures were real returns being poor the first 15 years

30 year

1907 stocks returned 7.77% -- bonds 4.250-- rebalanced portfolio 7.02- - inflation 1.64--

1929 stocks 8.19% - - bonds 1.74%-- rebalanced portfolio 6.28-- inflation 1.69--

1937 stocks 10.12 - - bonds 2.13 - rebalanced portfolio -- 7.24 inflation-- 2.82

1966 stocks 10.23 - -bonds 7.85 -- rebalanced portfolio 9.56- - inflation 5.38

for comparison the 140 year average's were: stocks 8.39--bonds 2.85%--rebalanced portfolio 6.17% inflation 2.23%
..


so what made those time frames the worst ? what made them the worst is the fact in every single retirement time frame the outcome of that 30 year period was determined not by what happened over the 30 years but the entire outcome was decided in the first 15 years.
..


so lets look at the first 15 years in those time frames determined to be the worst we ever had.
..

1907--- stocks minus 1.47%---- bonds minus .39%-- rebalanced minus .70% ---inflation 1.64%
.

1929---stocks 1.07%---bonds 1.79%---rebalanced 2.29%--inflation 1.69%
.

1937---stocks -- 3.45%---bonds minus 3.07%-- rebalanced 1.23%--inflation 2.82%
.

1966-stocks minus .13%--bonds 1.08%--rebalanced .64%-- inflation 5.38% it is those 15 year horrible time frames that the 4% safe withdrawal rate was born out of since you had to reduce from what could have been 6.50% as a swr down to just under 4% to get through those worst of times.

 

[youbet]

I can cut a whole bunch of spending pretty quickly.

In addition to knowing how to cut spending, you might (as I am) want to think about how your income can to some extent keep up with rising prices. To me, it's not easy. My pension is not cola'd. My AA allocation is roughly 60-40 and fairly vanilla. So I'm noodling it all over as far as where my portfolio is positioned.

Unlike a market dip, which will recover, an inflation surge usually results in a permanent increase in the general price level. That is, we'll be spending more to live the same way going ahead. So digging around for ways to increase income comes into play as much or more than cutting spending.

 

[daylatedollarshort]

That can be a little hard to get your head around until you think through exactly what is being reported, but that's it.

-ERD50

I understand there are many Firecalc fans here, so I'm not going to get into that debate again. All I will say is that for me, a calculator that says X portfolio would have survived 100% of the time for 30 years, then you add in a normal bear market dip the next year with a 29 year time frame, and there are big changes in then in the portfolio survival rate, well personally I wouldn't have found that 100% number from the previous year to have been helpful or logical in my retirement planning. YMMV.

 

[MarieIG]

I retired into the 2008 Great Recession and admit it did make me blink a few times! But market dips have always recovered and I just held on.

You're retiring into higher inflation levels as well as a market dip. Not a good SORR scenario, especially the inflation. The general price level seems to never recover. Once it's up, it's up seemingly forever. The rate of inflation may slow, but prices tend to continue the upward trend, just more slowly.

In your spot, I'd do a FireCalc run where your portfolio value is what it is today and with your initial spending level increased by, say, 15%. Let us know what kind of change you see.

You made me w@rk! Still 100%

 

[RunningBum]

I understand there are many Firecalc fans here, so I'm not going to get into that debate again. All I will say is that for me, a calculator that says X portfolio would have survived 100% of the time for 30 years, then you add in a normal bear market dip the next year with a 29 year time frame, and there are big changes in then in the portfolio survival rate, well personally I wouldn't have found that 100% number from the previous year to have been helpful or logical in my retirement planning. YMMV.

My take on this is that the market and inflation has its swings high and low, but we haven't have a low like this followed by a really bad low like 1929 or 1966.

Still, I get your point and I don't think anyone should blindly follow Firecalc. The more dangerous point I think is if we have a run up or bubble that puts someone at 100% and they pull the trigger, and then the market tumbles back to reality. In most cases they will probably be ok, but I think it's dangerous to retire on a spike. Hard to know if you're on a spike but if there's been a rapid run up you gotta know you might be. I don't think Firecalc factors in this temporary highs. I can't tell for sure from the "How it works" page, but it looks like it only starts with Jan 1 of each year, rather than from each day of the year. If Firecalc started on 10/25/29 instead of 1/1/29 like I think it does, how many more portfolios would be less than 100%? The market data is there, but inflation data may not be.

 

[ERD50]

I understand there are many Firecalc fans here, so I'm not going to get into that debate again. All I will say is that for me, a calculator that says X portfolio would have survived 100% of the time for 30 years, then you add in a normal bear market dip the next year with a 29 year time frame, and there are big changes in then in the portfolio survival rate, well personally I wouldn't have found that 100% number from the previous year to have been helpful or logical in my retirement planning. YMMV.

That's not true.

You don't understand what these sorts of tools are telling you. That's fine if you don't care to learn, but it's off-base to criticize the tool based on your own lack of understanding.

-ERD50

 

[daylatedollarshort]

I should add I have not tried Firecalc recently and posted here about that issue years ago, so it may have changed by now. But if it is still occurring, I personally don't see the value in the 100% number, if one can take a normal subset of market conditions for the next 29 years within that first 30 years and get a wildly different portfolio survival result.

 

[ERD50]

I should add I have not tried Firecalc recently and posted here about that issue years ago, so it may have changed by now. But if it is still occurring, I personally don't see the value in the 100% number, if one can take a normal subset of market conditions for the next 29 years and get a different result.

No, it hasn't changed, and it can't (legitimately). If it reported the same success rate at a different time with the same inputs (minus the years), that would be wrong. If you read my explanation, it should clear it up.

-ERD50

 

[COcheesehead]

Sequence of return risk shouldn’t be a surprise to anyone.

 

[youbet]

You made me w@rk! Still 100%

Great! `

Times like these remind us all that we have to be watchful. If our spending levels need to increase due to inflation and our portfolios are shrinking due to crappy market performance, it's worth taking a look.

As always, just remember that FireCalc is just back-testing your particulars against historical data.

 

[ERD50]

I understand there are many Firecalc fans here, so I'm not going to get into that debate again. All I will say is that for me, a calculator that says X portfolio would have survived 100% of the time for 30 years, then you add in a normal bear market dip the next year with a 29 year time frame, and there are big changes in then in the portfolio survival rate, well personally I wouldn't have found that 100% number from the previous year to have been helpful or logical in my retirement planning. YMMV.

As a follow up, I entered a 100% success 30 year profile into ficalc.app (easier to use for this than FIRECalc). I know (and it shows) 1966 to be one of the worst years.

By 1975, a $1M 1966 portfolio is down to $478,098. And of course, if I start in 1975 with $478,098 and 21 years and the same spend amount, I succeed as well.

I guess what you are seeing, is that the overall success rate for $478,098 and 21 years is down a lot, to 59%. That's easily explained. The paths for every year are not the same. So taking a snapshot of one year at year X, and sticking into every other year isn't going to give the same results.

Consider two runners in a race. One starts out fast, but slows down at the end. The other starts out slow, and speeds up at the end. They end in a tie. But you can't just swap one runner's style with the other mid-race, and expect the same outcome.

That's what you are doing when you take a specific dip, and then apply it to all the years. Their patterns are different.

But regardless, the 100% success scenario in these historical models is still 100% for each of them along their own path.

Does that help?

-ERD50