Fidelity Simulations How Should I Interpret?

nakadude

Dryer sheet wannabe
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I have a very good working relationship with my FA with Fidelity. I feel like he wants to support me in the FIRE life that I've been carving out. I just had our 6 month post FIRE meeting and the numbers had some red flags. The question is whether to be concerned and make changes or just ride it out with minor tweaks along the way. Basically, my window for running my investments down would be somewhere around the age of 80 (my life expectancy is around 85-90) and after that we'd be living off of SS. This would in their "very worst case" scenario. Worst case would be around 85, and average scenario would be somewhere around 90-95. He said I should consider taking on j*b for the next 4-6 years to help extend the window to account for the worst case scenario. I'm a survivor of middle management and hate the thought of going back to w*rk, but I'm also not liking the thought of being just on SS in my late years. We tried several scenarios (ss start dates, withdrawal/investment strategies) and it ended up being minor differences with the numbers.
So the big question is whether I should consider going back to w*rk or am I living in fear of a very unlikely scenario?
 
Do you have enough discretionary expenses that could be eliminated if it turns out to be near the worst case scenario? If you have enough expenses that could be reduced, you might be able to avoid considering another job.
 
FIRE is all about gaining flexibility and choices, not necessarily stopping work altogether. There's work and then there's work. See if you can find a lower-paying part-time job -- totally unrelated to your previous career -- that's so stress-free that you would do it for nothing. That's what I ended up doing, even though initially I never thought I'd want to work again. Not only is my very-part-time job enjoyable, but it gets me (an introvert) out of the house and gives me some healthy moderate doses of social interaction.
 
I assume he is using the Fidelity Retirement calculator. If so, what score did he calculate and monies left over at the end of retirement using the "Significantly Below Average" module?
 
The Fidelity Retirement Planner assumes your yearly spending budget is fixed and adjusted for inflation, for the rest of your life. Recent studies have shown most retirees spending pattern, plotted over time looks like a smile. More spending the first decade of retirement (lots of vacations), reduced spending during the second decade (number of vacations reduced) and higher spending during the third decade (higher medical expenses).

Also, the Fidelity Retirement Planner runs the numbers for 3 market scenarios: significantly below market returns, below market returns and average market returns. Check which plan you discussed. Fidelity recommends you use the significantly below market returns because it has a 95% probability of succeeding, and conservatively it’s a good idea to follow this planning for the first 3-5 years of retirement. After this period, you’ll have a better idea on how the plan is proceeding and you can make spending changes as you see fit.

I would run the Retirement Planner once a year and make minor changes as needed. Enjoy your retirement.
 
What happens when you put your numbers in the Firecalc here? You'll get a percentage that is the probability of success based on history repeating itself. I think this would be useful in answering how unlikely the running out of money scenario is for you. Firecalc does a great job of showing the range of future possibilities with the spaghetti plot it makes. I think this is much more useful than some predicted age at which you'll run out of money. The age number should be presented with a probability IMHO.
 
Also, I believe the Fidelity Retirement Planner tool assumes a 20% haircut in your portfolio value during the first year of retirement. Someone can confirm. Based on feedback from others, the tool is very conversative.

I'm curious as well on your score and your projected ending balance.
 
Also, I believe the Fidelity Retirement Planner tool assumes a 20% haircut in your portfolio value during the first year of retirement. Someone can confirm. Based on feedback from others, the tool is very conversative.

I'm curious as well on your score and your projected ending balance.
Off the top of my head, the haircut the first year was closer to 10%, perhaps a little less.
 
I have a very good working relationship with my FA with Fidelity. I feel like he wants to support me in the FIRE life that I've been carving out. I just had our 6 month post FIRE meeting and the numbers had some red flags.
I'm confused - what has changed in the last 6 months? Or was this analysis not done before you retired?
 
No tool is predictive but it sounds like you may be a bit more exposed than you are comfortable with. -or perhaps the simulation is a bit too conservative and causing you undue concern.

If you have discretion in your budget now or in the future (downsizing?) then it may not be as dire. Reducing/eliminating some expenses now would be better as the savings have time to grow as well as being a bird in hand so to speak. Adding some revenue would help reduce your near term withdrawals... perhaps a fun job (even min wage doing something fun that doesn't feel like work) will reduce your burn by several thousand dollars which can make a difference over time -also, getting paid to have fun offsets spending to have fun!
 
From the report:
Significantly below average market: in 90% of the simulations, we saw results as good or better than the results shown. We suggest using the significantly below average market condition to help avoid over-estimating how much money you might have in retirement.

-

The first year haircut - redoing the calculations over the years the cut has ranged between -13.6% and -10.9% for me.
 
I found it important to understand necessary vs discretionary spending. If you model using total spending, that is somewhat conservative. Run it with some haircuts to your discretionary and get a sense of how much you have to cut spending to feel comfortable. Then, if times going forward are better than expected, you're all set. If they're worse, you'll have a sense of how deep you can cut and still be okay.

As pointed out, Fidelity does use the significantly below market assumption. I agree with that, but recognize, you're being very conservative - on top of being conservative in your spending model by using total spending.

Also, use FireCalc. It trades some of the conservativeness and overlays historical market conditions to give you a range of possibilities (look at the graph). That too may give you some comfort in how conservative you're being.
 
From the report:
Significantly below average market: in 90% of the simulations, we saw results as good or better than the results shown. We suggest using the significantly below average market condition to help avoid over-estimating how much money you might have in retirement.

-

The first year haircut - redoing the calculations over the years the cut has ranged between -13.6% and -10.9% for me.
The 90% success rate in Fidelity is probably roughly equal to the 95% success rate in Firecalc.
This is due to a Monte Carlo simulation being naturally more conservative than historical sequencing, plus the additional haircut Fidelity takes off the first year portfolio.
 
Not to hijack the thread, but how do you get the Fidelity retirement # (there's like a Fidelity rating single #). I thought you just had to say you weren't retired yet (i.e. move your retirement date into the future) and it would appear, but I'm not seeing it.
 
Not to hijack the thread, but how do you get the Fidelity retirement # (there's like a Fidelity rating single #). I thought you just had to say you weren't retired yet (i.e. move your retirement date into the future) and it would appear, but I'm not seeing it.
On the newer program they put in the last year, it is under the section "Your retirement analysis" subsection at the bottom left side of the page "How am I doing". The score is expressed as a percentage in covering one's expenses.
This display is different than in the older program.
 
Run firecalc
Review your budget, are there some discretionary expense items you can do without now?
Certainly, adding a part time job would help extend your portfolio.

If you are this close only 6 months after retirement, my concern is you may not have been in a good financial position to retire in the first place. What did your FA say 6 months ago? And what has changed in the last 6 months?
 
Also, sanity check with SWR. No guarantees, but if your withdrawal rate is 3% or so, seems like you can ride out storms.

YMMV
 
I would rather eat rice and beans than go back to w*rk. I would rather never take another vacation than go back to w*rk. I don't need to spend money to be happy and have a meaningful life.

OP, when you are this close to the edge, you need to take a hard look at your expenses and all the numbers that went into the tool. Your margin of error needs to be small. You will need to make some decisions on how much you need to spend vs. want to spend. It then becomes a trade off between w*rking and lifestyle. That is your call.

I thought the tool the Fidelity advisors ran was different than the one available to us. Either way, the one available to us is conservative, but for me it aligns pretty well with Firecalc.
 
Going back to work may not mean specifically going back to your previous occupation. Can you find some side hustle that would be part time, enjoyable (or at least you would not hate it) and that would supplement your income right now? Also you did not say what is your age, that make make difference in replies. If you are 40-50 - I would say you need to look for some part time gig at least as you are facing a very long retirement.
 
The original poster has not chimed in since the first post, but I don’t understand how their retirement plan changed since retirement. I ran Fidelity Retirement Planner for 5-6 years before my retirement, to verify I was on track.
 
Basically, my window for running my investments down would be somewhere around the age of 80 (my life expectancy is around 85-90) and after that we'd be living off of SS. This would in their "very worst case" scenario. Worst case would be around 85, and average scenario would be somewhere around 90-95.
Why do you not like the idea of living on only Social Security, does it cover all essential expenses? Depending on how much you get in SS benefits, at that point your taxes would probably be extremely low and you might qualify for additional programs that would help (I don't know the restrictions but I'm thinking SS supplemental income and food stamps).

A retirement advisor (his advice was a benefit at my last job before I retired) said that people who have only enough for their expected lifespan do not feel confident spending even the amount that they safely could, and that it is best to plan for 5 years more than you expect to live, in order to spend confidently.
 
Other post from the OP, it answers a lot of questions.

 
Thanks all for the responses. I didn't want to respond to them until there was a good sample size of answers. I really think that in our discussions prior to my retirement, some assumptions were made that perhaps weren't as well elaborated as they should. I personally appreciate all of the answers and I find that the numbers do play out as they would. My survival expenses are pretty low (around 3K) so I do know we could cut way back of something catastrophic happens. We did allow for a lot of discretionary expenses early on as DW does have some long term health issues that will likely curb our travel 10-15 years down the road. I do know I have time to see how things play out as the withdrawal rate on just my portfolio is currently 10% while DW is still w*rking and contributing to her 401k. I see that there are a lot of moving parts in this so I'll probably check back with the group a few more months down the line when I see how the situation proceeds. Right now, my portfolio has held steady for the past 6 months which gave me a sense of security that the plan is working.
 
Not a plan I would choose. I would focus on reducing the spending plan to 6% for a couple of years and/or finding a part-time job while the DW is still working.
 
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