Big differences between FIRECALC and New Retirement

[FREE866]

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.
1929, 1965, 1966,1968, 1969, 1973
I almost run out if I started in years:
1964, 1967, 1906 and 1907.
Data starting in 1871

where are you getting these numbers?


Portfolio Visualizer only goes back to 1972. So the only year I was able to test out in your claim is 1973. When I plug in a million dollars using 4% withdrawal rate it leaves me after 30 years with 1.7 million inflation adjusted.



https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

 

[COcheesehead]

where are you getting these numbers?


Portfolio Visualizer only goes back to 1972. So the only year I was able to test out in your claim is 1973. When I plug in a million dollars using 4% withdrawal rate it leaves me after 30 years with 1.7 million inflation adjusted.



https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

I use FICalc. Which is a Monte Carlo based tool. It will show you failure and near failure years. Are you adjusting the 4% withdrawal for inflation? FICalc does that.

 

[FREE866]

I use FICalc. Which is a Monte Carlo based tool. It will show you failure and near failure years. Are you adjusting the 4% withdrawal for inflation? FICalc does that.

few things...first off, thats a cool calculator...thanks



If you're withdrawing a percentage of 4% none of the years you mentioned run out of money. Please acknowledge that.


However, starting with a million lets say you withdraw 40 K per year ---the only years that show depletion are 1929, 1965, 1966, 1968, and 1969. Not the others you mentioned. Think about that--in 122 years ( 1871-1993) 5 years out of 122 go to zero...just 4% of them.



But even then...



Notice they also run out after 24+ years. So someone retiring at 50 that can start to take SS 12 years in or even 20 years in insures them against depletion as their % withdrawing goes down significantly.



Finally, being flexible with expenses as I and most I assume can be, if you even went to 35K in my above example down from 40K you're fine.


Also important to note in that calculator that the overwhelmingly majority of those years the 30 year ending balance is much much higher with 100% equities.



This is exactly why SORR is greatly exaggerated and is used as a buzz word to scare people.

 

[COcheesehead]

few things...first off, thats a cool calculator...thanks



If you're withdrawing a percentage of 4% none of the years you mentioned run out of money. Please acknowledge that.


However, starting with a million lets say you withdraw 40 K per year ---the only years that show depletion are 1929, 1965, 1966, 1968, and 1969. Not the others you mentioned. Think about that--in 122 years ( 1871-1993) 5 years out of 122 go to zero...just 4% of them.



But even then...



Notice they also run out after 24+ years. So someone retiring at 50 that can start to take SS 12 years in or even 20 years in insures them against depletion as their % withdrawing goes down significantly.



Finally, being flexible with expenses as I and most I assume can be, if you even went to 35K in my above example down from 40K you're fine.


Also important to note in that calculator that the overwhelmingly majority of those years the 30 year ending balance is much much higher with 100% equities.



This is exactly why SORR is greatly exaggerated and is used as a buzz word to scare people.

I converted the 4% to a whole number, so I acknowledge that difference.

Thanks for proving the point with SORR though. There is no way to predict it beforehand. It happens and we all get only one shot at it. It’s the luck of the draw. SORR isn’t scary, it’s a risk we all need to take into account.

 

[pb4uski]

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.

+1 There are probably numerous zeros due to the 36% failure scenarios and some big $$ results for the successful scenarios that average out to $1.7m.

So for example, if you had 36 zeros and 64 $2.66m if would average out to $1.7m.

 

[pb4uski]

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.

PV is a poor tool for this sort of analysis since it only goes back to 1985.

 

[FREE866]

PV is a poor tool for this sort of analysis since it only goes back to 1985.

1972
And if you look at my above post you can see the analysis using that FI one

 

[RetiredAt49]

I converted the 4% to a whole number, so I acknowledge that difference.



Thanks for proving the point with SORR though. There is no way to predict it beforehand. It happens and we all get only one shot at it. It’s the luck of the draw. SORR isn’t scary, it’s a risk we all need to take into account.

Duly noted, SORR is a risk. I authored a topic/thread on this forum a couple of months ago on what I did personally to address SORR. I retired 1/1/2022 (the beginning of the last bear market). Given that my AA is 100% equities (excluding some rental properties), we leveraged other financial vehicles (HELOC, no interest credit card) during the bear so that we didn’t have to touch our portfolio and still take lots of vacations. Did I need to do that? No, because we can easily live off 1% of our portfolio (if needed). Why do we only need 1%? Because we have a 100% asset allocation and we live below our means with plans to BTD in the coming years.

 

[G-Man]

Duly noted, SORR is a risk. I authored a topic/thread on this forum a couple of months ago on what I did personally to address SORR. I retired 1/1/2022 (the beginning of the last bear market). Given that my AA is 100% equities (excluding some rental properties), we leveraged other financial vehicles (HELOC, no interest credit card) during the bear so that we didn’t have to touch our portfolio and still take lots of vacations. Did I need to do that? No, because we can easily live off 1% of our portfolio (if needed). Why do we only need 1%? Because we have a 100% asset allocation and we live below our means with plans to BTD in the coming years.

I do plan to get a HELOC before I retire just in case, I need it for SORR during retirement. Right now, I trying to build up my case reserve in my Fidelity Cash Management account.

 

[pb4uski]

1972
And if you look at my above post you can see the analysis using that FI one

Even 1972 isn't back far enough.

 

[COcheesehead]

Duly noted, SORR is a risk. I authored a topic/thread on this forum a couple of months ago on what I did personally to address SORR. I retired 1/1/2022 (the beginning of the last bear market). Given that my AA is 100% equities (excluding some rental properties), we leveraged other financial vehicles (HELOC, no interest credit card) during the bear so that we didn’t have to touch our portfolio and still take lots of vacations. Did I need to do that? No, because we can easily live off 1% of our portfolio (if needed). Why do we only need 1%? Because we have a 100% asset allocation and we live below our means with plans to BTD in the coming years.

Our withdrawal rate now is a negative, meaning we are adding more than we take out.
There are a few good ways to retire and both of us seem to have found what works for us.

 

[Fermion]

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.

On the flip side, who wants to work their entire life so they don't have to skimp at all in retirement only to get a stage 3 cancer diagnosis their first year?

"If he can't drive with a broken back, at least he can polish the fenders"

Health is such a large randomizer that it laughs heartily at these 100% retirements.

 

[COcheesehead]

On the flip side, who wants to work their entire life so they don't have to skimp at all in retirement only to get a stage 3 cancer diagnosis their first year?

"If he can't drive with a broken back, at least he can polish the fenders"

Health is such a large randomizer that it laughs heartily at these 100% retirements.

Agreed, health is the great equalizer- even if a bit off topic.

 

[Fermion]

Agreed, health is the great equalizer- even if a bit off topic.

Yeah sorry. Just always like to throw the reminder out there for people worrying about 99.4% vs 100% on their retirement calculators. If success is being able to enjoy retirement, you may need to multiply those numbers by probability of living the length of said retirement calculation.

It might turn out that 99.4% is actually something like 49.7% and 100% is really 50%, which is sort of sobering.

 

[tulak]

If you have WR of 2% of lower, than you don’t have to worry about SORR. You might be ok under 3% too. But if you’re at 4%, then you should have a plan.

That can be work until you have a lower WR rate. Not everyone wants to do that. Or you can hedge with TIPS (or bonds) in case you’re unlucky and retire into another 1966.

 

[FREE866]

Even 1972 isn't back far enough.

OK...is 1871 far back enough?


Because that was the FI calculator that was used for my analysis above

 

[pb4uski]

I was responding to the idea of using Portfolio Visualizer for back testing. I wasn't opining in FICalc at all.

But I agree with COcheesehead that you are a leading candidate for the ignore button (which I have not yet used).

 

[FREE866]

I was responding to the idea of using Portfolio Visualizer for back testing. I wasn't opining in FICalc at all.

But I agree with COcheesehead that you are a leading candidate for the ignore button (which I have not yet used).

What have I said that you find so offensive? I’m genuinely curious

I think I’ve explained quite clearly, with data why SORR is a bit exaggerated. I actually think that concept has been pushed hard by the financial industry to push for expensive complex plans , but that’s probably a whole nother thread.

I am disappointed you say that though as you were the one that prompted and helped me with Roth conversions.

 

[tulak]

SORR isn’t made up. Of course it’s rare, markets usually go up. But it can and has happened in the past.

If going forward, real rates of return are lower, then occurrences such as 1966 will happen more often.

Up to you if you want to risk it. Personally, I don’t want to cut my spending or go back to work once I retire, so if I retire with a higher WR, then I need to make sure I have a plan. It’s really not that difficult.

And SORR isn’t hard to protect against. Kitches, Bernstein, and other have solutions you can use that are as easy as investing in index funds.

 

[pb4uski]

It is true that most "safe" withdrawal measures end up being too conserative but at the same time who wants to withdraw too heavily too early and risk financial ruin?

I think the best solutions to SORR are either a variable withdrawal rate approach or a retire again approach or starting retirement overweight on bonds in a 10-year bond ladder that covers the first decade of retirement.

 

[tulak]

It is true that most "safe" withdrawal measures end up being too conserative but at the same time who wants to withdraw too heavily too early and risk financial ruin?

I think the best solutions to SORR are either a variable withdrawal rate approach or a retire again approach or starting retirement overweight on bonds in a 10-year bond ladder that covers the first decade of retirement.

Yep, easy solutions. Thanks pb4uski.

10 years of bonds/FI is a common recommendation. As someone who expects to retire in the next 5-10 years, I’ve been thinking about SORR a lot lately to get ready.

Still working on my approach, but will probably go with 5-10 years of FI to get through a bad sequence. VFW is interesting, but I’d prefer something less variable since I don’t want to spend less in down years (even though I inevitably will).

 

[COcheesehead]

Yep, easy solutions. Thanks pb4uski.

10 years of bonds/FI is a common recommendation. As someone who expects to retire in the next 5-10 years, I’ve been thinking about SORR a lot lately to get ready.

Still working on my approach, but will probably go with 5-10 years of FI to get through a bad sequence. VFW is interesting, but I’d prefer something less variable since I don’t want to spend less in down years (even though I inevitably will).

That was my goal. Auto pilot with no reduction in spending or lifestyle.

 

[CincyDave]

A probably ran about a dozen calculators when I was thinking about retiring. All free ones. The three I like best were probably flexible retirement planner, fidelity's planner, and fire calc. OP, if you Google retirement planner comparison you'll find lots of info. Here is one such link.
https://ptmoney.com/best-retirement-calculators/

 

[pb4uski]

Yep, easy solutions. Thanks pb4uski.

10 years of bonds/FI is a common recommendation. As someone who expects to retire in the next 5-10 years, I’ve been thinking about SORR a lot lately to get ready.

Still working on my approach, but will probably go with 5-10 years of FI to get through a bad sequence. VFW is interesting, but I’d prefer something less variable since I don’t want to spend less in down years (even though I inevitably will).

And I want to be clear on what I was thinking. Let's say that you had $1,000,000 and a 4% WR ($40,000 in first year) and otherwise your desired AA was 60/40.

At retirement I would have $400,000 in a 10-year bond or CD ladder with $40,000 of par maturing each year for the first 10 years and the spending for the first 10 years would be supported by those maturities. The remaining $600,000 would be 60/40... or $360,000 equities and $240,000 fixed income.

So at retirement my overall AA would be 36/64 and would drift towards 60/40 over the first 10 years of retirement. The 60/40 portfolio, which started at $600,000 would be rebalanced to 60/40 annually. According to Portfolio Visualizer, a $600,000 60/40 portfolio starting Jan 2013 rebalanced annually with no withdrawals would be worth $1,025,423 at Dec 2022... equal to the total retirement date portfolio despite using the 10-year ladder for spending.

Too bad I didn't think of that when I retired 11 years ago! Luckily, no SORR so it all worked out but if I was retiring today that is what I would do (unless I was significantly overfunded).

 

[COcheesehead]

^^^Rising equity glide path.