IIRC, there's a link to a 20 (?) page PDF somewhere which outlined the methodology.
Year 1 | -16% |
Year 2 | -1% |
Year 3 | -3% |
Year 4 | 0% |
Year 5 | 5% |
Year 6 | 1% |
Year 7 | 0% |
Year 8 | 11% |
Year 9 | 6% |
Year 10 | 0% |
Year 11 | 8% |
Year 12 | 4% |
Year 13 | 15% |
Year 14 | 3% |
Year 15 | 7% |
Year 16 | 1% |
Edit to add: Inflation looks like it is fixed at 2.5% annually - also not very stressing.
Year 1 | -0.6% |
Year 2 | 2.9% |
Year 3 | 2.2% |
Year 4 | 3.3% |
Year 5 | 5.6% |
Year 6 | 2.8% |
Year 7 | 4.9% |
Year 8 | 2.5% |
Year 9 | 3.5% |
Year 10 | 4.8% |
Year 11 | 3.4% |
Year 12 | 3.5% |
Year 13 | 5.1% |
Year 14 | 2.6% |
Year 15 | 3.7% |
Year 16 | 5.6% |
I saw the methodology. The "Returns" section pretty much says "we use a monte carlo simulation" and then spends a lot of words describing what monte carlo simulations are.
It's hard to get actual numbers out of the model.
So I set up a 100% equity portfolio and tried to run a retirement scenario where income matched expenses (Fidelity added some misc expenses anyway.)
Here's what nominal returns for Domestic Equity look like for the "down" scenario:
Year 1 -16% Year 2 -1% Year 3 -3% Year 4 0% Year 5 5% Year 6 1% Year 7 0% Year 8 11% Year 9 6% Year 10 0% Year 11 8% Year 12 4% Year 13 15% Year 14 3% Year 15 7% Year 16 1%
That doesn't look like a terribly stressing stress test to me. Other people may come to other conclusions. But this is the kind of thing I need to know to make sense of the results from any retirement calculator.
Edit to add: Inflation looks like it is fixed at 2.5% annually - also not very stressing.
those early years which determine the shape of the entire retirement look particularly stressing to me with those sequences . the first 5 years shape the retirement and by the 15th year the entire outcome of a 30 year retirement has been decided .
I'm not surprised they changed the name - the original seems like a bit of an inside joke...The new name for the Retirement Income Planner is "The Planning and Guidance Center"
the size of the drop does not mean much if it is short or happens after an up cycle , a modest drop that goes on for a few years does a lot more harm as well as burning principal up year one .
while firecalc typically uses actual historical data fidelity attempts to find even worse outcomes that are possible then historical so in that regard i find fielity even more conservative then firecalc.
doesn't do what ? .
while firecalc typically uses actual historical data fidelity attempts to find even worse outcomes that are possible then historical
while firecalc typically uses actual historical data fidelity attempts to find even worse outcomes that are possible then historical so in that regard i find fielity even more conservative then firecalc .
we can all drum up visions in our head of devastating scenario's where nothing works . gold bugs have been doing that for decades .
they all have visions of being last man standing and only gold survives .
but reality is these things just don't play out or have a very very low chance of playing out .
in reality we have had nothing , not even 2000 or 2008 playing out where it even matched 1965/1966 .
could we ? sure but so far through the great depression , high inflation , world wars and the stagnant 2000's we haven't .
regardless of what the numbers look like , taken as a whole they are already based on some pretty nasty outcomes .
i just retired in july and right off the bat rip eliminated 15% of my principal day 1 in its calculations so i am pretty confident in the numbers.
personally i use bob clyatts dynamic system based on each year so this stuff pertaining to a rigid 4% does not concern me as much
as i am dynamic based on what is going on around me .
In reading Warren Buffet's May 2010 testimony to the FCIC, I was surprised he considered the possibility of financial armageddon at the time had the government not intervened in the 08 financial crisis.
It's actually quite hard to imagine where the bottom would have been had markets been left to freefall.
And it's not at all hard to imagine that the response to a similar financial panic would be much more restrained if it were to happen again today.
we can all drum up visions in our head of devastating scenario's where nothing works . gold bugs have been doing that for decades .
Warren Buffet has said elsewhere he believes (paraphrasing) the more severe the crisis, the stronger the response from the government would be.
Folks who are struggling to find ways to get anticipated SWR from 6% down to 4% don't have that luxury.how many times have you read on this forum something like - "FireCalc tells me I can take a 4% SWR but just to be safe I'll take 3%... or 2%... or even less" ?
how many times have you read on this forum something like - "FireCalc tells me I can take a 4% SWR but just to be safe I'll take 3%... or 2%... or even less" ?
4% is based on a 30 year retirement with something like a 95% success rate. Most of us are planning an "Early Retirement." In my case, that started at the age of 38. I wonder how that 5% failure probability expands as we move from a 30 year time period to a 60 year one.
I know. So silly to think about such things.
Evidently my point is beyond you. FireCalc is already a very conservative model. And then many take that and make it much more so. My point was in reference to those that thought the Fidelity model was too conservative
FireCalc can and does model what you posted - ie long retirements.
Have you accounted for the probability and effects on your SWR of war and nuclear war/socialism and expropriation/Supernova/alien invasion/Ebola and Tika/Global Warming/population explosion ?
Perhaps you should spend nothing - just in case. Or maybe go back to work - Just in case. Or buy gold - lots of it - just in case.
Why do you seem so defensive about me posting the implied equity and bond returns embedded in Fidelity's calculator here?
Am I really not allowed to think that those scenarios aren't as rigorous as I'd like?
A lot has happened since 2008. One of the things that has happened is that attitudes about things like aggressive monetary policy, fiscal stimulus, bailouts, government intervention of any kind, etc. have all hardened in a way that would make a government response to a similar crisis much harder now than it was then. Even if the government had the same resources at it's disposal now, which it doesn't.
And it wasn't all that easy in 2008/09. The first attempt to pass TARP legislation failed.