FireCalc: Anyone UNDER 100% ??

[wmc1000]

Bolded by me - Hasn't TSHTF happened many times historically already, which could mimic any current SHTF scenarios?

I wonder what the online retirement calculators would show if based on Germany's historical timeline or that of Greece.

 

[HI Bill]

At my current balance my SWR % is ~3.5%. However, IF my portfolio drops 30% my withrawal % would be 5%. I'm taking a fixed amount. I take out a fixed amount every year ( so far anyway)Make sense?

Yes. FIRECALC has those 30% drops baked in. If you maintain a reasonable AA, and take $ from the fixed income portion of your portfolio during down times, and the equities during the up times, FIRECALC is predicting you'll be ok if it's saying 100% now. The equities historically will recover, and most down periods don't last more than 3 years. That's why there's such a wide range of outcomes in the squiggly lines. It's all about SORs.

 

[HI Bill]

I wonder what the online retirement calculators would show if based on Germany's historical timeline or that of Greece.

Different stories. FIRECALC assumes you're invested primarily in US markets. If you're concerned about the US encountering something like Greece has, international diversification is your only realistic protection, IMHO.

 

[FREE866]

Yes. FIRECALC has those 30% drops baked in. If you maintain a reasonable AA, and take $ from the fixed income portion of your portfolio during down times, and the equities during the up times, FIRECALC is predicting you'll be ok if it's saying 100% now. The equities historically will recover, and most down periods don't last more than 3 years. That's why there's such a wide range of outcomes in the squiggly lines. It's all about SORs.

Gotcha
I'm extremely high equity. Very little fixed income.

 

[HI Bill]

Gotcha
I'm extremely high equity. Very little fixed income.

Then if we have a 50% drop in the markets, you'll experience (presumably) a 50% drop in your invested assets, and will likely run out of $ eventually (depending on the actual SORs that we encounter). I'd consider moving at least 3 years of expenses to bonds for a much greater margin of safety (FWIW, up until 1 year before my anticipated retirement date, I was at 95% equities; this has now been adjusted). Have you included your exact AA in FIRECALC? There's a 'band' of AA ranges where you're likely to be ok, but 100% equities dosen't fall within the range!

 

[FREE866]

Then if we have a 50% drop in the markets, you'll experience (presumably) a 50% drop in your invested assets, and will likely run out of $ eventually (depending on the actual SORs that we encounter). I'd consider moving at least 3 years of expenses to bonds for a much greater margin of safety (FWIW, up until 1 year before my anticipated retirement date, I was at 95% equities; this has now been adjusted). Have you included your exact AA in FIRECALC? There's a 'band' of AA ranges where you're likely to be ok, but 100% equities dosen't fall within the range!

I'm not 100% equity. More like 93%
I have ~ 2 years expenses in bonds. I know that's not suggested but I just hate bonds and honestly market turbulence doesn't bother me.

 

[HI Bill]

I'm not 100% equity. More like 93%
I have ~ 2 years expenses in bonds. I know that's not suggested but I just hate bonds and honestly market turbulence doesn't bother me.

I also hate bonds, but realize that if equities tank, you'll be forced to sell them at loss (selling more shares), making the loss permanent. If you encounter down markets for 3 or 4 years, you'll see a significant reduction in your assets, and may never recover.

 

[FREE866]

I also hate bonds, but realize that if equities tank, you'll be forced to sell them at loss (selling more shares), making the loss permanent. If you encounter down markets for 3 or 4 years, you'll see a significant reduction in your assets, and may never recover.

I totally hear you and I know bonds stabilize things a bit. I've run numbers ad naseum believe me and we would need to almost see something unprecedented for me to run out of money.

 

[youbet]

I'm not 100% equity. More like 93%
I have ~ 2 years expenses in bonds. I know that's not suggested but I just hate bonds and honestly market turbulence doesn't bother me.

IMHO, the fear of "selling equities at a loss in a prolonged down market" is highly over-rated.

If your WR is 4% and your equity heavy portfolio is kicking out 2% int + divs, there's half of it right there. If you could cut your budget by one-eighth, that would reduce your WR to 3.5%. Then you'd have to sell about 1.5% of your equities per year (after you sell the bonds). It's possible, but unlikely, that your entire well-diversified equity portfolio would all be sharply down where you couldn't find a few percent of your holdings to be attractive for sale, even in a down market. But more likely you'd have some holdings where selling wouldn't be too painful.

The real danger, IMHO, would come if you have an totally unexpected large expense, say a very expensive medical emergency right after you discover your tornado-destroyed home wasn't insured, and that occurs right on top of a big market pullback. Since there would be no time to wait for divs and int to come in periodically (you need a LOT of cash right away), you'd have to borrow with the interest expense of the loan adding to the problem.

If you're still nervous, think up a few black swan scenarios and work through how you'd handle them given your current portfolio and budget.

Remember, the biggest failures demonstrated by FireCalc were caused by inflation (stagflation) rather than by "down markets."

 

[ncbill]

I also hate bonds, but realize that if equities tank, you'll be forced to sell them at loss (selling more shares), making the loss permanent. If you encounter down markets for 3 or 4 years, you'll see a significant reduction in your assets, and may never recover.

It all depends on the withdrawal rate.

E.g., $5 million portfolio, but only $100,000/year spending a high % equity portfolio would have recovered, even for the "you picked one of the top 10 worst years to start retirement" historical cases.

If one needs to withdraw 5% year then SORR is a problem & they'd probably be served better by a rising equity glidepath approach to withdrawals (e.g. rebalancing to around 30% equities)

 

[FREE866]

This is from Paul Merriman.....interesting graph on withdrawal rates with different asset allocations....


https://paulmerriman.com/wp-content...le-Distrib-@-BoY-of-Portfolio-SP-500-2018.pdf

 

[HI Bill]

It all depends on the withdrawal rate.

E.g., $5 million portfolio, but only $100,000/year spending a high % equity portfolio would have recovered, even for the "you picked one of the top 10 worst years to start retirement" historical cases.

If one needs to withdraw 5% year then SORR is a problem & they'd probably be served better by a rising equity glidepath approach to withdrawals (e.g. rebalancing to around 30% equities)

Good point....I'm focused on a 4 to 5% WD rate....if you're at 2%, you can withstand almost anything, at 100/0.