Big differences between FIRECALC and New Retirement

[COcheesehead]

I tried Firecalc and had a 64% chance of my portfolio lasting 30 years with an average balance at the end of $1.7 million. That swing is so large that it makes me think that Firecalc is useless.

Or maybe you don’t have enough or too much devoted to equities.

 

[Koolau]

I tried Firecalc and had a 64% chance of my portfolio lasting 30 years with an average balance at the end of $1.7 million. That swing is so large that it makes me think that Firecalc is useless.

You should probably reread what those figures mean. They are not mutually exclusive. They are average results. As you are aware, averages may well be made up of zeros and millions. Just because many people with your particular set of circumstances "fail" at early retirement, doesn't mean that the average at the end couldn't be in the millions of dollars.

 

[thepalmersinking]

Or maybe you don’t have enough or too much devoted to equities.

65% equities. If I didn’t have enough then I wonder why the ending balance is so high it seems odd that success is dying with $1 that even the most optimistic scenarios the balance would be a lot less.

I think people may be looking for the easy and reassuring 100% success which can be obtained on a simple spreadsheet.

the same data set that gave me an average ending balance of $1.7 is the same data that gave me a 35% chance of failure.

 

[COcheesehead]

65% equities. If I didn’t have enough then I wonder why the ending balance is so high it seems odd that success is dying with $1 that even the most optimistic scenarios the balance would be a lot less.

I think people may be looking for the easy and reassuring 100% success which can be obtained on a simple spreadsheet.

the same data set that gave me an average ending balance of $1.7 is the same data that gave me a 35% chance of failure.

It’s SORR, retiring in the wrong year, only we don’t know that ahead of time. Life is non linear. Returns bounce, funds are pulled out. If you start on the downside, it’s hard to recover.

Don’t make the mistake of plotting an even X% return a year on a spreadsheet. Reality is way different.

 

[2HOTinPHX]

It’s SORR, retiring in the wrong year, only we don’t know that ahead of time. Life is non linear. Returns bounce, funds are pulled out. If you start on the downside, it’s hard to recover.

Don’t make the mistake of plotting an even X% return a year on a spreadsheet. Reality is way different.

We made a simple spreadsheet.....is there a better way to plot? To plot or not to plot..that is the question.... LOL
Of course we also use NewRetirement and firecalc.

 

[LateToFIRE]

I tried Firecalc and had a 64% chance of my portfolio lasting 30 years with an average balance at the end of $1.7 million. That swing is so large that it makes me think that Firecalc is useless.

It's giving you a probability of success based on historic market data. Out of 123 30 year runs ~44 of them (36%) would have failed, largely due to SORR

I find it useful it to run varying levels of withdrawal, ranging from enough to meet basic needs to enough to live luxuriously. Gives me some idea of how much risk I want to live with.

Can you think of a better way to measure the risk of running out of money?

 

[Koolau]

It's giving you a probability of success based on historic market data. Out of 123 30 year runs ~44 of them (36%) would have failed, largely due to SORR

I find it useful it to run varying levels of withdrawal, ranging from enough to meet basic needs to enough to live luxuriously. Gives me some idea of how much risk I want to live with.

Can you think of a better way to measure the risk of running out of money?

What FIRECalc and other calculators don't account for is the natural tendency to "deal" with bad SORR. IOW when your Equities take a 49% pull back in a year, you don't continue to spend your 3.87% (or whatever was in the plan.) You find a way to cut back (stop eating out, skip the vacation, put off the new car purchase, etc.) SO, you probably don't actually "fail" as in going broke. You "fail" as in not doing all the stuff you had planned when you planned it. Big difference.

 

[COcheesehead]

We made a simple spreadsheet.....is there a better way to plot? To plot or not to plot..that is the question.... LOL
Of course we also use NewRetirement and firecalc.

You have to have random returns like what a Monte Carlo analysis provides. You can’t say, I’ll earn 6% a year and take out 4-5%. The world is vastly wilder than that and when you are pulling funds out while your portfolio drops - classic SORR.

 

[COcheesehead]

What FIRECalc and other calculators don't account for is the natural tendency to "deal" with bad SORR. IOW when your Equities take a 49% pull back in a year, you don't continue to spend your 3.87% (or whatever was in the plan.) You find a way to cut back (stop eating out, skip the vacation, put off the new car purchase, etc.) SO, you probably don't actually "fail" as in going broke. You "fail" as in not doing all the stuff you had planned when you planned it. Big difference.

But who wants to work their entire life only to skimp on retirement in bad times? I don’t. People need a portfolio that is resilient as well as sufficient.

 

[Koolau]

But who wants to work their entire life only to skimp on retirement in bad times? I don’t. People need a portfolio that is resilient as well as sufficient.

Your option then, is to w*rk long enough so that FIRECalc gives you 100% - You choose which you prefer. Retire even earlier but maybe have to cut back OR wait a few years until your stash is big enough never to fail.



Life is full of such choices. This is just one of them.

 

[COcheesehead]

Your option then, is to w*rk long enough so that FIRECalc gives you 100% .

Or change your asset allocation, starting withdrawal level and how you take social security.

 

[RetiredAt49]

What FIRECalc and other calculators don't account for is the natural tendency to "deal" with bad SORR. IOW when your Equities take a 49% pull back in a year, you don't continue to spend your 3.87% (or whatever was in the plan.) You find a way to cut back (stop eating out, skip the vacation, put off the new car purchase, etc.) SO, you probably don't actually "fail" as in going broke. You "fail" as in not doing all the stuff you had planned when you planned it. Big difference.

Well said . Unless you’re uber wealthy and/or 2-3x overfunded in retirement, I believe most people would cut back (at least partially) if the market were to drop significantly and for an extended period of time (multiple years).

 

[2HOTinPHX]

Or change your asset allocation, starting withdrawal level and how you take social security.

Could you expand on these suggestions?
Do you mean like having a large cash type portion asset allocation say three years of expenses to ride out a down turn?
Start out with a lower level of withdrawal in the first few years?
Take SS early to avoid drawing down your funds?

 

[LateToFIRE]

What FIRECalc and other calculators don't account for is the natural tendency to "deal" with bad SORR. IOW when your Equities take a 49% pull back in a year, you don't continue to spend your 3.87% (or whatever was in the plan.) You find a way to cut back (stop eating out, skip the vacation, put off the new car purchase, etc.) SO, you probably don't actually "fail" as in going broke. You "fail" as in not doing all the stuff you had planned when you planned it. Big difference.

Yes, well put. This has occurred to me and definitely what I would do. But, you can only cut back so far until you run up against some relatively fixed costs. So, I like that base level of spending to be in the 100% confidence zone - not a problem in my case. The question I've been trying to answer is just how large can we live in the early years of retirement without endangering our later years. It doesn't help that small variations in early spending tend to have large impacts in later portfolio duration in many of these models.

 

[LateToFIRE]

You have to have random returns like what a Monte Carlo analysis provides. You can’t say, I’ll earn 6% a year and take out 4-5%. The world is vastly wilder than that and when you are pulling funds out while your portfolio drops - classic SORR.

In my excel model, I run stress tests to try to provide some idea the outer boundaries of potential issues. For example, what if equity market drops 40% at start of retirement. What if returns are only 5%, 4%, etc. What if... inflation, and so on. What if I increase spending to punch drunk levels in the first few years, etc.

 

[COcheesehead]

Could you expand on these suggestions?
Do you mean like having a large cash type portion asset allocation say three years of expenses to ride out a down turn?
Start out with a lower level of withdrawal in the first few years?
Take SS early to avoid drawing down your funds?

A portfolio needs to be big enough, but also resilient enough.

I guess one way to make it resilient is to cut spending. That’s not what I wanted to do. I wanted to live the best life not cut out travel or going out to dinner if we had a bear market because when do you start to do that? How do you know? A 5% down market? Is it a correction or the beginning of a bear? 10% down? Wait until it’s 40% down? I’d wake up everyday saying is today the day I need to cut back? Worry is not a strategy, nor is hope.

No, I wanted a plan that gave me an all weather, do not have to do anything, but enjoy retirement portfolio and that is where sequence of return risk strategies come into play.

I listen to Roger Witney’s podcasts and he has a whole series on portfolio resiliency with some real case studies. https://www.rogerwhitney.com/

I also follow Kitces and he has his own thoughts on making a portfolio SORR proof. I used a rising equity glide path to protect my nest egg and it throws off more money then we spend. I lived through two bear markets - 2020 and 2022 in the first three years of my retirement and I have more money today than the day I retired without cutting back a dime.

I suggest you become your own portfolio advocate, research and study and not rely on eating .99 cent ramen when the going gets tough.

 

[FREE866]

I also follow Kitces and he has his own thoughts on making a portfolio SORR proof. I used a rising equity glide path to protect my nest egg and it throws off more money then we spend. I lived through two bear markets - 2020 and 2022 in the first three years of my retirement and I have more money today than the day I retired without cutting back a dime.

And if you didn't follow Kitces and were 100% stock in that time frame your portfolio would be up as well.


Pretty sure you won't see this because I'm on your ignore button, but for others reading don't fall into the trap of thinking you need to go all super conservative before or during retirement, unless you really don't like volatility of course

 

[COcheesehead]

And if you didn't follow Kitces and were 100% stock in that time frame your portfolio would be up as well.


Pretty sure you won't see this because I'm on your ignore button, but for others reading don't fall into the trap of thinking you need to go all super conservative before or during retirement, unless you really don't like volatility of course

I don’t have you on ignore, but you for some reason you like to make posts against SORR strategies without any facts or proof. Just assertions and wise cracks. It gets tiring. Smart folks on here can see that.

 

[FREE866]

I don’t have you on ignore, but you for some reason you like to make posts against SORR strategies without any facts or proof. Just assertions and wise cracks. It gets tiring. Smart folks on here can see that.

Not wise cracks. Go to portfolio visualizer and do a Backtest. The numbers are right there. Facts. “ smart folks” should look at that before drawing conclusions.

 

[COcheesehead]

Not wise cracks. Go to portfolio visualizer and do a Backtest. The numbers are right there. Facts. If “ smart folks” look at that before drawing conclusions.

Glad you are happy with your strategy. I love mine. Have a great day.

 

[RetiredAt49]

Not wise cracks. Go to portfolio visualizer and do a Backtest. The numbers are right there. Facts. “ smart folks” should look at that before drawing conclusions.

Free866 - We (those of us with very high stock asset allocations) are definitely the minority here. Enjoy those amazing annual returns and BTD!

 

[G-Man]

In my excel model, I run stress tests to try to provide some idea the outer boundaries of potential issues. For example, what if equity market drops 40% at start of retirement. What if returns are only 5%, 4%, etc. What if... inflation, and so on. What if I increase spending to punch drunk levels in the first few years, etc.

The RightCapital software allows you to easily do these stress tests.

 

[qwerty3656]

The RightCapital software allows you to easily do these stress tests.

$140 a month for the "basic" software - that would cause me some stress.

 

[G-Man]

$140 a month for the "basic" software - that would cause me some stress.

Some financial advisors offer access to it as part of their services.

 

[COcheesehead]

So for the 100% equities folks , I ran my portfolio using the 4% rule at 100% equities.
If I retired in the following years, I would have run out of money.
1906, 1929, 1965, 1966, 1967, 1968, 1969, 1973
I almost run out if I started in years:
1907, 1909, 1910, 1911, 1912, 1930, 1962, 1964, 1972.
Data starting in 1871