Dipping under 100% on Firecalc?

[daylatedollarshort]

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

I think we just have to agree to disagree on this one, ERD50. If you want to think I don't get your point, or the usefulness of Firecalc, that is fine. We've had this discussion before.

Hey, but how about we talk about mortgages in retirement instead? If I remember right, we agree on that!

 

[ERD50]

I think we just have to agree to disagree on this one, ERD50. If you want to think I don't get your point, or the usefulness of Firecalc, that is fine. We've had this discussion before.

Hey, but how about we talk about mortgages in retirement instead? If I remember right, we agree on that!

The runner analogy didn't clinch it for you, it's actually a good way to visualize it, if I do say so myself? Well, we can move on if you wish, that's OK.

But I will not "agree to disagree" - what I presented is what I believe to be factually correct (and I only leave that open in case anyone can point out an error in my ways). I have a habit of trying to not disagree with facts. It leads to bad outcomes.

Next subject

-ERD50

 

[FI_RElater]

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.

I'm gonna have to correct you on this one....

The 1907 retiree had to survive:
the 1907 panic
the 1910-1911 panic
the recession of 1913-1914
the post-WW1 recession (1918)
the depression of 1920-1921 (short but deep)
the short mild recessions of 1923-24 and 1926-27
and, of course, the Great Depression of 1929-33

** and the introduction of the federal income tax **

and then the brutal inflation of their early years, especially 1917, 1918, and 1919 where it reached almost 20 %

{and I didn't think Kitces ever showed the 1906/1907 retiree, since the Cowles Comission (1938) didn't have definitive data, and thus didn't proscribe investment returns, for anything before 1926.... (or else his Colorado College students were slackers and didn't want to compute any more... and given what they did, I really doubt that)}

 

[Andre1969]

I have a spreadsheet table I use to track different scenarios, that I usually update around the beginning of every year. On the X-axis, I plot out the year, from 2022 to 2041 (age 52-71 for me). On the Y-axis, I plot out a potential dollar amount I want to live off per year. In the past it ranged from $30K to $100K per year, in $5K increments, but in 2020, I tacked on a $110K line once I realized I was setting my sights a little low.

Anyway, at the beginning of the year, I had a $100% chance of making it on $90K per year, 98.1% chance on $95K, a 94.2% chance at $100K, and a 78.6% chance at $110K. This was presuming I retired, right then and there, and took into account taking SS at 62. At the time, I had about $2.5M in invested assets.

As for the $110K lifestyle, Firecalc estimated that if I waited until 2023, I'd have a 90.3% chance, and a 94.2% chance if I waited until 2024.

Now, I'm down to about $2.13M. I only updated the first column, but if I were to retire now, Firecalc gives me a 100% chance of success up to $75K per year. At $80K, I'm at 99%, and at $85K I'm still at 95.2%.

For the longest time, my goal was only $60K per year, but a few years back I went a bit hedonistic and bumped that to $80K. So, as long as my math skills are working properly, and I didn't put in any numbers wrong, I think I should still be good.

Ideally I want a 95% or greater chance of success. But, depending on how annoyed I got with work, I figured I'd be willing to take a slightly lower chance.

For instance, right now, $90K per year gives me an 89.4% chance of success. If $90K was my goal, and work really got me to the point I was ready to retire, I'd probably chance it. And then cut back, if need be, when times got rough.

As for that $110K per year fantasy? The chance of that succeeding is now cut to about 56.7%.

Overall though, I'm not too concerned. There are going to be rises and falls. It can't go nowhere but up, all the time.

 

[mathjak107]

I'm gonna have to correct you on this one....

The 1907 retiree had to survive:
the 1907 panic
the 1910-1911 panic
the recession of 1913-1914
the post-WW1 recession (1918)
the depression of 1920-1921 (short but deep)
the short mild recessions of 1923-24 and 1926-27
and, of course, the Great Depression of 1929-33

** and the introduction of the federal income tax **

and then the brutal inflation of their early years, especially 1917, 1918, and 1919 where it reached almost 20 %

{and I didn't think Kitces ever showed the 1906/1907 retiree, since the Cowles Comission (1938) didn't have definitive data, and thus didn't proscribe investment returns, for anything before 1926.... (or else his Colorado College students were slackers and didn't want to compute any more... and given what they did, I really doubt that)}

It’s all here in kitces’s data

So you aren’t correcting me , it is him you think you have an issue with

https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

 

[ncbill]

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.

Don't forget that 1966 retiree faced increasing annual inflation over the entire first half of their retirement.

Last time I looked, IIRC, annual inflation went from around 2% in 1965, to around 10% by 1970, then into double-digits later that decade, reaching nearly 15% by the end of that retiree's first 15 years (of a 30 year retirement)

And even then a 3.8% inflation-adjusted withdrawal survived for those 30 years.

 

[Dtail]

Don't forget that 1966 retiree faced increasing annual inflation over the entire first half of their retirement.

Last time I looked, IIRC, annual inflation went from around 2% in 1965, to around 10% by 1970, then into double-digits later that decade, reaching nearly 15% by the end of that retiree's first 15 years (of a 30 year retirement)

And even then a 3.8% inflation-adjusted withdrawal survived for those 30 years.

Yep, that 1965 retiree had to have a really great last 15 years to just bring him to a close 4% failure at 3.8%.

 

[mathjak107]

Don't forget that 1966 retiree faced increasing annual inflation over the entire first half of their retirement.

Last time I looked, IIRC, annual inflation went from around 2% in 1965, to around 10% by 1970, then into double-digits later that decade, reaching nearly 15% by the end of that retiree's first 15 years (of a 30 year retirement)

And even then a 3.8% inflation-adjusted withdrawal survived for those 30 years.

Exactly

It is a testament to just how conservative 4% is

 

[DireWolf]

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

The way it’s being misused by some reminds me a bit of the Monty Hall Problem. (Not that it is the exact same issue, but just in how people just can’t see it)

 

[Koolau]

In all my planning, I included back-ups such as cutting expenses or even moving (last resort.) The point is that those of us who planned will likely survive because we are committed to it and don't give up (go back to w*rk) just because we have some financial reversals. YMMV

 

[almost there]

A portfolio with consistent growth of 0%, and an inflation rate of 3.0%

Ran a FIRECalc with zero return today. Just for fun.

Fill out FIRECalc as normal, then add zero return.
5th top tab: "Your Portfolio"
Then 3rd tab. down "A portfolio with consistent growth of" add 0% return.

A portfolio with consistent growth of 0%, and an inflation rate of 3.0%

And see what you get. Might help you sleep better.

 

[dheb]

The way I look at it, if you were at 100% a few months ago, and then the market dips, you should still be OK as long as you keep your ratio of stocks/bonds the same as you input, because in some of the past scenarios FIREcalc uses, some retirement scenarios start under similar circumstances, with a market dip. So, you might not hit the rosy scenario of the peak returns, but as long as economic conditions aren't worse than anything we've ever seen in the past 150 years or so, you should be OK. I wouldn't worry about a dip into the 90s at this point.

Personally, I'm retiring in a couple months, and I'm still confident. My FIREcalc results even during this market dip haven't changed enough to make me worry. I haven't had to reduce my projected budget, but I built it with an extra $1000/month for emergencies, so if I needed to reduce my budget, there's room. Or I could pick up part time employment for some extra money if I need to. I've been living on my projected monthly budget since the start of the year, and I find I typically come in about $200-300 under what I budgeted. I also figure that I probably don't need to adjust my spending upward for inflation annually. Maybe every other year instead. I'm the kind of guy who adapts, and if pork prices rise, I switch to chicken. Or vice versa. If you're flexible and can adapt a bit when necessary, things will be fine. A FIREcalc score in the 90s puts you ahead of most Americans, anyway.

 

[street]

Ran a FIRECalc with zero return today. Just for fun.

Fill out FIRECalc as normal, then add zero return.
5th top tab: "Your Portfolio"
Then 3rd tab. down "A portfolio with consistent growth of" add 0% return.

A portfolio with consistent growth of 0%, and an inflation rate of 3.0%

And see what you get. Might help you sleep better.

Just did that scenario. I gave my portfolio and 75% cut and used 25% of todays portfolio with my expenses as per year as of today for the next 30 years. My results were 100% success.

 

[mikes425]

One limitation I've found with FireCalc as far as trying to use the "Mixed Portfolio" option, is the inability to factor in the international equity and bond component of my PF. Also, under the "Total market" option for Fixed Income it's difficult for me to select the best option there because I have a diversified mix of bond/FI positions on the income side... and they are generally shorter duration overall...but they include corporate and treasury..and there's no way to select both. In these respects it's hard for me to enter a precise and accurate reflection of my actual portfolio composition in it. Thanks for any suggestions!

 

[cat4ever]

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%?

The main thought was to use it as a tool to adjust spending as needed, up or down, and I wondered if others used it for that to any degree. It's all a crap shoot I know, but at some point between getting a 0%-99% success rate I would think it could become a concern enough for anyone to think about adjusting spending or (gasp!) getting a job :-(

I think the most salient point I've seen here is looking more closely at the past starting years that are coming out failures in FIRECalc, and just how poorly the market and inflation did over the term of 10-20 years. Those were some lean years so as most have posited here, it's not even close to panic time.

 

[Doc0]

In early retirement (first 15 years of a 30 year retirement) with market drops of 20% or greater cut your WR by 10% to 15%. If you have 1M and loose 200K (20%) it takes 25% (1.25 x 800K) to get back even. Dropping the WR will allow recovery much sooner. Past 15 years the chances of running out of breath exceed the chances of running out of money, especially after you start to take SS.

I don't use FireCALC. I prefer a Monte Carlo tool like Portfolio Vizualizer which includes SORR in the prediction

 

[mathjak107]

The problem is a swr is supposed to be a secure , consistent income .

Cutting 10-15% is extreme.you may not even be able to pay your bills

That is why I use 95/5 as my draw method ..biggest cuts are 5% .

However if drops go on you could see multiple cuts but so far it hasn’t happened in my last 7 years retired ..

 

[ERD50]

In early retirement (first 15 years of a 30 year retirement) with market drops of 20% or greater cut your WR by 10% to 15%. If you have 1M and loose 200K (20%) it takes 25% (1.25 x 800K) to get back even. Dropping the WR will allow recovery much sooner. Past 15 years the chances of running out of breath exceed the chances of running out of money, especially after you start to take SS.

I don't use FireCALC. I prefer a Monte Carlo tool....

I'd love to see some historic examples (FIRECalc or similar tool) to back up the idea that 10% ~15% spending cuts will "allow recovery much sooner". The analysis I did years ago say you need much deeper cuts, much sooner to have much impact. So soon and so deep, that you'd often end up cutting your quality of life for many years for no reason at all.

I don't care for MonteCarlo for this application - markets, inflation, etc are too intertwined for random analysis.

-ERD50

 

[Chuckanut]

In early retirement (first 15 years of a 30 year retirement) with market drops of 20% or greater cut your WR by 10% to 15%. If you have 1M and loose 200K (20%) it takes 25% (1.25 x 800K) to get back even. Dropping the WR will allow recovery much sooner. Past 15 years the chances of running out of breath exceed the chances of running out of money, especially after you start to take SS.

I don't use FireCALC. I prefer a Monte Carlo tool like Portfolio Vizualizer which includes SORR in the prediction

I've used a variable withdrawal percentage algorithm for years.
Up markets with low inflation produce higher withdrawal rates.
Down markets with high inflation (today) should drive the withdrawal rate down. I will test that in January.

The adjustments are gentle. No big spending spree in good times, but also no need to eat Raman three meals a day in bad times. That's theory as far as I can tell. This is the first down cycle since I have used it.

 

[Koolau]

If 5 years ago you ran FIRECalc and it said 100% but then today, when there is a recession/market drop, doesn't the original "result" from FIRECalc still apply? True, it could be different this time, but the assumption is that FIRECalc took all the previous bad times into account - let us hope since YMMV.

 

[mathjak107]

If 5 years ago you ran FIRECalc and it said 100% but then today, when there is a recession/market drop, doesn't the original "result" from FIRECalc still apply? True, it could be different this time, but the assumption is that FIRECalc took all the previous bad times into account - let us hope since YMMV.

However if you were first starting out your balance would be different.

No different then some retiring in 2007 with a million dollars and a 40k draw .


The 2008 retiree would have 700k left and a 28k draw .

So based on what happens over the next few years the 2007 retiree may have to take a pay cut or the 2008 retiree will have to take raises.

We have had 129 rolling 30 year cycles ..at 4% swr 90% of them ended with more then you started , 67% ended with more than 2x what you started with using 60/40 .

So a system for raises over and above just inflation adjusting has been needed way more often then not.

Odds are our 2008 retiree would be taking raises working his way up to the 2007 retiree

 

[Koolau]

However if you were first starting out your balance would be different.

No different then some retiring in 2007 with a million dollars and a 40k draw .


The 2008 retiree would have 700k left and a 28k draw .

So based on what happens over the next few years the 2007 retiree may have to take a pay cut or the 2008 retiree will have to take raises.

We have had 129 rolling 30 year cycles ..at 4% swr 90% of them ended with more then you started , 67% ended with more than 2x what you started with using 60/40 .

So a system for raises over and above just inflation adjusting has been needed way more often then not.

Odds are our 2008 retiree would be taking raises working his way up to the 2007 retiree

Yes, that's how the math works. My point: If at your starting point FIRECalc gives you 100% (which means 100% of situations like yours would have survived in the years FIRECalc has data), then when 5 years later there is a recession (or whatever) then, assuming nothing is different than all those 30 year periods, you are still "good." Now, realistically, most of us would still cut back. But YMMV.

 

[Dtail]

Yes, that's how the math works. My point: If at your starting point FIRECalc gives you 100% (which means 100% of situations like yours would have survived in the years FIRECalc has data), then when 5 years later there is a recession (or whatever) then, assuming nothing is different than all those 30 year periods, you are still "good." Now, realistically, most of us would still cut back. But YMMV.

Yeah get your point.
It kind of comes down to how one uses Firecalc. If one uses it as a retire again and again concept with a current portfolio as the starting point, then the results can show a lesser success rate with an initial downturn at the start of retirement.

 

[corn18]

I have an input on my Excel model that removes YTD losses. When I do that, I am right on the forecast I used to retire last March @ 100%. I am now @ 86%. My model assumes I retired today and resets every day.

I am now tracking exactly to the line I had calculated for the worst 35 year retirement start date: 1969.

So, I am still on track for 100% if I retired last year. But if I re-retired today, I would only have an 86% probability of success. This is the nature of stacking a 15% market drop in front of the worst 35 year period for retirement. It is now much worse than the worst.

What is interesting is I probably would not have retired last March with the money I have today.

So what to make of this?

 

[CRLLS]

Yes, that's how the math works. My point: If at your starting point FIRECalc gives you 100% (which means 100% of situations like yours would have survived in the years FIRECalc has data), then when 5 years later there is a recession (or whatever) then, assuming nothing is different than all those 30 year periods, you are still "good." Now, realistically, most of us would still cut back. But YMMV.

I was just wondering that point myself. If the SS COLA for 2023 ends up being the +8.6% as is being reported and the markets continue as they are or decline, I wonder if anyone here would actually increase their WD by that 8.6% in 2023. That's what the studies allow. FWIW, not me.