Firecalc question

[USGrant1962]

...

My overall experience, both on ER and other forums, and in using calculators both FIRECalc and many others, is that there is a perception among users that anything short of 100% conventional success is failure.

...

Yes, there is plenty of the "3% is the new 4%" or "you shouldn't retire until achieving a 2.5% SWR (sic)" talk here. Though not nearly as bad as Bogleheads.

 

[Gumby]

My take is that if I'm going to err, I would rather err on the side of having saved too much as opposed to too little. The prospect of leaving unspent money on the table when I die does not bother me nearly as much as the prospect of eating cat food in my old age. Someone else may be more willing to take that chance, but I got where I am today by dotting the "i"s, crossing the "t"s, and wearing a belt and suspenders.

 

[pb4uski]

....My overall experience, both on ER and other forums, and in using calculators both FIRECalc and many others, is that there is a perception among users that anything short of 100% conventional success is failure. It's taken me quite a bit of reading and observing to come to a decent understanding of just how narrowly defined the results of these calculators (and the interpretations) tend to be viewed. ...

While I concede that there are some conservative members here that consider 100% to be a requirement, I think the more widely accepted standard is 95% success. Even the 4% rate from the Trinity Study was not 100% success, it was more like 95%.

The reality is that even at 95% success the failures occur late in the projection time horizon so there is plenty of runway for someone to adjust spending to avoid failure.

 

[jollystomper]

I think you are taking my comments very personally - that was not my intent. Agree that it would be difficult to generalize - so I take your point that perhaps I shouldn't. What I can speak to is my own experience. I am professionally knowledgeable in the areas of finance and securities - though retirement planning, as a subset, has represented a very steep learning curve as of late.

My overall experience, both on ER and other forums, and in using calculators both FIRECalc and many others, is that there is a perception among users that anything short of 100% conventional success is failure. It's taken me quite a bit of reading and observing to come to a decent understanding of just how narrowly defined the results of these calculators (and the interpretations) tend to be viewed.

Maybe there's no better way to present an analysis that is trying to capture hundreds of variables in a simple, digestible way. But, seems to me that a lot of nuance, which might be applicable to specific situations, can get lost.

I understand what you are saying. For me FIRECalc was just one tool of several (including analysis from a Megacorp-provided financial planner) that I used when assessing my retirement. I personally would not use it as the only tool, but that is just me. When several tools give me a similiar level of comfort, I feel better .

I agree with Gumby in that I would rather leave too much money that end up with too little. I ran scenarios for various success levels (e.g. 85, 90, 95, 98, 100) just to see what the indicated spending level could be, and what would likely be left at the end.

 

[Wile E. Coyote]

Yes, there is plenty of the "3% is the new 4%" or "you shouldn't retire until achieving a 2.5% SWR (sic)" talk here. Though not nearly as bad as Bogleheads.

I am personally a fan of 3%. 100/3 = 33 and 100/4 = 25. I'm just saying that I feel the buffer of 3% is more satisfying. Besides, I like odd numbers.

 

[mathjak107]

over a typical 30 year retirement spending down 4% inflation adjusted , at the end of the time frame , which is the most popular used for setting initial portfolio capability .

50-60% equities has ended with

more than you started 90% of the time

2x what you started with 67% of the time

3x what you started with 50% of the time

odds of going broke are 5-10% which are the same odds as ending with 6x what you started with.

so 4% has been extremely conservative.

sources for above are kitces research

other time frames can be run in firecalc .

the 4% swr assumes a 30-year time horizon.

Depending on your age, 30 years may not be needed or likely.

According to Social Security Administration estimates, the average remaining life expectancy of people turning 65 today is less than 30 years.

most planners and researchers feel retirees should plan for a long retirement.

The risk of running out of money is an important risk to manage.

But, if you're already retired or older than 65, your planning time horizon may be different as you already have less years of life left so different numbers will apply

 

[Wile E. Coyote]

over a typical 30 year retirement spending down 4% inflation adjusted , at the end of the time frame , which is the most popular used for setting initial portfolio capability .

50-60% equities has ended with

more than you started 90% of the time

2x what you started with 67% of the time

3x what you started with 50% of the time

odds of going broke are 5-10% which are the same odds as ending with 6x what you started with.

so 4% has been extremely conservative.

sources for above are kitces research

other time frames can be run in firecalc .

the 4% swr assumes a 30-year time horizon.

Depending on your age, 30 years may not be needed or likely.

According to Social Security Administration estimates, the average remaining life expectancy of people turning 65 today is less than 30 years.

most planners and researchers feel retirees should plan for a long retirement.

The risk of running out of money is an important risk to manage.

But, if you're already retired or older than 65, your planning time horizon may be different as you already have less years of life left so different numbers will apply

I used Firecalc with various scenarios and the results are much improved if you lower spending (which makes total sense). The latest I settled on was 50/50. Like I said it is also something I will not really be dipping into very much.

 

[Dtail]

Although retired 7 years, I still use Firecalc and the Fidelity calculator often enough. I also like playing with numbers. I do still strive for 100% success, which on Firecalc IIRC translates to ~3.58%WR. OTOH, I have been withdrawing closer to 5% in the last years until pension and SS reinforcements hit.

 

[Wile E. Coyote]

Although retired 7 years, I still use Firecalc and the Fidelity calculator often enough. I also like playing with numbers. I do still strive for 100% success, which on Firecalc IIRC translates to ~3.58%WR. OTOH, I have been withdrawing closer to 5% in the last years until pension and SS reinforcements hit.

Yes, exactly, I plan to pull a little more while I delay SS; then, I will not touch it between 70 to 75 when RMD's start.

 

[ychuck46]

A good question. I wouldn’t include our home and would only look at investment assets. Our home is where we live and not an asset that will provide us with income.

I have been a fan of Firecalc and other sites similar to it for years. I also have never included anything other than investments and savings, and not assets such as our home, cars, etc. Yes, they are part of net worth, but just a personal preference to not view them as part of the bottom line as to whether we had enough to retire on.

 

[mathjak107]

firecalc is about stress testing a portfolio for what it can bring to the party .

it isn’t about your net worth .

it’s about generating an income off liquid assets .

it s just taking other sources of income like pension, annuity , social security, etc and simply adding to the capabilities of your portfolio.

until the day comes you are not consuming the house yourself or driving your car and turn it into cash generation , it plays no role other then represents your cost of housing you or transportation costs

 

[LateToFIRE]

firecalc is about stress testing a portfolio for what it can bring to the party .

it isn’t about your net worth .

it’s about generating an income off liquid assets .

it s just taking other sources of income like pension, annuity , social security, etc and simply adding to the capabilities of your portfolio.

until the day comes you are not consuming the house yourself or driving your car and turn it into cash generation , it plays no role other then represents your cost of housing you or transportation costs

I don't entirely disagree, but everyone has to do a bit of shoehorning the results into their specific situation. As I probably noted earlier, my home is fairly valuable today, well north of $1M, and in 20 years should conservatively be valued at north of $2M with no mortgage. It would be silly for me to ignore this incredibly valuable asset in my planning. Fortunately, FIRECalc does allow me to insert a sale of the property and receipt of the proceeds (though it does not allow an easy adjustment to spending in the future). I run it both with and without sale of the home after 20 years. I'm sure someone will comment that I'll need to live somewhere if I sell my house, but my point is that the somewhere doesn't have to cost +$2M, especially if there is only one of us remaining (my personal preference would be to live in a one room log cabin on a lake).

 

[mathjak107]

you aren’t ignoring it .

but until the day comes you can actually plan how that money is allocated you can’t really plan with it other then to count it phantomly invested in something , even though you are still living in it.

kind of pretending it’s sold and now you have cash in hand to invest , if selling is your plan

 

[Gumby]

As I briefly mentioned earlier, FIRECalc has provisions for future additions to your portfolio that can be useful to account for the value of your house. To best simulate the effect of a future sale, I put in the current value of my house and the year when I expect to sell. Since FIRECalc assumes inputs are current dollars and gives results in current dollars, the implicit assumption for the house value is that it will track the general inflation rate between now and the date I specify. It doesn't assume that value will be "invested" in the portfolio, just that it will track inflation over the period.

And that corresponds with my experience that, absent certain localized phenomena, the value of residential real estate generally has tracked the overall inflation rate over long periods of time. It has certainly been the case with my house. Accordingly, I feel it is quite appropriate to use the "future addition to portfolio" feature of FIRECalc to simulate a future sale and downsizing of my house.

The twist, of course, is that I will still need to live somewhere after I sell my house, so I'll have to account for that. First, if I expect to buy something at that time, I would price it today and put the net difference between the current value of my house and the current value of a cheaper replacement. If I'm just going to rent, then I would not need to "net" the amount. In either case, however, I will also need to adjust my cash flow via the "other spending" feature. So, for the same date, I would add the net ongoing increase or decrease in my spending that would correspond to my change in housing situation.

For example, suppose I decided that when I turn 85, I will sell my current house and rent a two bedroom apartment, with all utilities included in the rent. My spending will decrease by the amount of my current utility bills, my homeowner's insurance, my property tax, home repairs, lawn care etc. All in, that is currently over $24,000 per year. Against this, I'll need to offset the rent for the two bedroom apartment. Suppose I look into it and find, where I live, that this is currently $3000 per month, or $36,000 a year. Therefore, I will expect my spending to increase by $12,000 per year when I turn 85.

So, what I do in FIRECalc is include the $800,000 value of my house as an addition to portfolio, and add $12,000 as off-chart spending, making sure to check the "inflation adjusted" box. Both occurring in the same year. I think this more closely mimics what I expect to happen and should give me a better idea of the feasibility of my entire plan.

 

[Fermion]

In my opinion, if you don't include all assets, you are just running your own personal feel of how Firecalc should calculate.

In those scenarios where the portfolio drops to zero, are you really going to stay in your $800,000 paid off home?

 

[Rianne]

I like the fact with Firecalc and Fi calc I can adjust numbers "just in case" scenarios. I plug numbers in, for instance, moving into a CCRC, a medical surprise, a big purchase, and how that will affect the long-term strategy. When I enter spending, it's based on our typical spending which changes slightly from year to year. These unusual events are manufactured by me. I imagine the worst and see how that pans out just to see.

For normal spending skewed up a bit, I'm always at 100%. My thinking is to prepare for the worst.

 

[mathjak107]

there is a a lot of cushion built in to success rates .

not only is 4% very conservative, but ty bernicke and sun life found that for those with discretionary spending , inflation adjusting is a lot less then every year .

their studies show a lot of what seniors buy or do. early on in the go go years is no longer done thru the slow go years .

so a lot of what is no longer spent covers much of the increases in what we do .

spending tends to ramp up again later in our no go years as he puts it .

ty found senior spending tends to figure in to much inflation adjusting.

firecalc has a box to play with ty’s findings .

also when life expectancy stats are introduced in to the equation most of us won’t last 30 years in retirement if we start at 62

 

[LateToFIRE]

you aren’t ignoring it .

but until the day comes you can actually plan how that money is allocated you can’t really plan with it other then to count it phantomly invested in something , even though you are still living in it.

kind of pretending it’s sold and now you have cash in hand to invest , if selling is your plan

I’ll have to respectfully disagree. All of these calculations are simply what-if analyses. None of these simulations is likely to play out exactly as forecast for any of us. One is simply testing various assumptions vs probabilities. Selling the house and replacing that with something that costs less is a perfectly valid assumption for someone in my situation.

 

[LateToFIRE]

As I briefly mentioned earlier, FIRECalc has provisions for future additions to your portfolio that can be useful to account for the value of your house. To best simulate the effect of a future sale, I put in the current value of my house and the year when I expect to sell. Since FIRECalc assumes inputs are current dollars and gives results in current dollars, the implicit assumption for the house value is that it will track the general inflation rate between now and the date I specify. It doesn't assume that value will be "invested" in the portfolio, just that it will track inflation over the period.

And that corresponds with my experience that, absent certain localized phenomena, the value of residential real estate generally has tracked the overall inflation rate over long periods of time. It has certainly been the case with my house. Accordingly, I feel it is quite appropriate to use the "future addition to portfolio" feature of FIRECalc to simulate a future sale and downsizing of my house.

The twist, of course, is that I will still need to live somewhere after I sell my house, so I'll have to account for that. First, if I expect to buy something at that time, I would price it today and put the net difference between the current value of my house and the current value of a cheaper replacement. If I'm just going to rent, then I would not need to "net" the amount. In either case, however, I will also need to adjust my cash flow via the "other spending" feature. So, for the same date, I would add the net ongoing increase or decrease in my spending that would correspond to my change in housing situation.

For example, suppose I decided that when I turn 85, I will sell my current house and rent a two bedroom apartment, with all utilities included in the rent. My spending will decrease by the amount of my current utility bills, my homeowner's insurance, my property tax, home repairs, lawn care etc. All in, that is currently over $24,000 per year. Against this, I'll need to offset the rent for the two bedroom apartment. Suppose I look into it and find, where I live, that this is currently $3000 per month, or $36,000 a year. Therefore, I will expect my spending to increase by $12,000 per year when I turn 85.

So, what I do in FIRECalc is include the $800,000 value of my house as an addition to portfolio, and add $12,000 as off-chart spending, making sure to check the "inflation adjusted" box. Both occurring in the same year. I think this more closely mimics what I expect to happen and should give me a better idea of the feasibility of my entire plan.

I’ll have to play around with this approach - thx

 

[mathjak107]

I’ll have to respectfully disagree. All of these calculations are simply what-if analyses. None of these simulations is likely to play out exactly as forecast for any of us. One is simply testing various assumptions vs probabilities. Selling the house and replacing that with something that costs less is a perfectly valid assumption for someone in my situation.

thats what i said ..if you are selling the house just pretend you did and allocate the money the way you would .

by the way , when stress testing the allocations there is no assumption.

that is exactly how whatever time frames you choose played out based on the worst outcomes to date .

the likes of which haven’t been seen since 1966.

so things actually did play out that way .

the only question and it’s not an assumption, is whether you will be the poster child for retiring in worse then a 1965 or 1966 retiree saw

 

[Koolau]

As I briefly mentioned earlier, FIRECalc has provisions for future additions to your portfolio that can be useful to account for the value of your house. To best simulate the effect of a future sale, I put in the current value of my house and the year when I expect to sell. Since FIRECalc assumes inputs are current dollars and gives results in current dollars, the implicit assumption for the house value is that it will track the general inflation rate between now and the date I specify. It doesn't assume that value will be "invested" in the portfolio, just that it will track inflation over the period.

And that corresponds with my experience that, absent certain localized phenomena, the value of residential real estate generally has tracked the overall inflation rate over long periods of time. It has certainly been the case with my house. Accordingly, I feel it is quite appropriate to use the "future addition to portfolio" feature of FIRECalc to simulate a future sale and downsizing of my house.

The twist, of course, is that I will still need to live somewhere after I sell my house, so I'll have to account for that. First, if I expect to buy something at that time, I would price it today and put the net difference between the current value of my house and the current value of a cheaper replacement. If I'm just going to rent, then I would not need to "net" the amount. In either case, however, I will also need to adjust my cash flow via the "other spending" feature. So, for the same date, I would add the net ongoing increase or decrease in my spending that would correspond to my change in housing situation.

For example, suppose I decided that when I turn 85, I will sell my current house and rent a two bedroom apartment, with all utilities included in the rent. My spending will decrease by the amount of my current utility bills, my homeowner's insurance, my property tax, home repairs, lawn care etc. All in, that is currently over $24,000 per year. Against this, I'll need to offset the rent for the two bedroom apartment. Suppose I look into it and find, where I live, that this is currently $3000 per month, or $36,000 a year. Therefore, I will expect my spending to increase by $12,000 per year when I turn 85.

So, what I do in FIRECalc is include the $800,000 value of my house as an addition to portfolio, and add $12,000 as off-chart spending, making sure to check the "inflation adjusted" box. Both occurring in the same year. I think this more closely mimics what I expect to happen and should give me a better idea of the feasibility of my entire plan.

This sounds like an actual calculation of what I do, mentally. For instance, I don't include home value in invested assets. I simply (mentally) calculate how long my home's value would keep DW or me, or both in a LTC facility. I don't put any more effort into it than that, since it's pretty speculative at this point.

For "funzies" I'll sometimes add my home's value to my "NW" calculation. It makes it look better which makes me feel good. Practically, my home value is not making me any money (hard to compute it's rising value) so I pretty much ignore it most of the time. YMMV

 

[pb4uski]

In my opinion, if you don't include all assets, you are just running your own personal feel of how Firecalc should calculate.

In those scenarios where the portfolio drops to zero, are you really going to stay in your $800,000 paid off home?

No, if your portfolio drops to zero you'll likely sell the $800k home.

But if you plan for 95% success without the $800k house included and your retirement ends up being one of those 5 out of 100 bad lines that dip below zero then I think you'll be happy that you excluded the $800k house in calculating your withdrawal target.

 

[Dtail]

No, if your portfolio drops to zero you'll likely sell the $800k home.

But if you plan for 95% success without the $800k house included and your retirement ends up being one of those 5 out of 100 bad lines that dip below zero then I think you'll be happy that you excluded the $800k house in calculating your withdrawal target.

Agree

 

[Dtail]

there is a a lot of cushion built in to success rates .

not only is 4% very conservative, but ty bernicke and sun life found that for those with discretionary spending , inflation adjusting is a lot less then every year .

their studies show a lot of what seniors buy or do. early on in the go go years is no longer done thru the slow go years .

so a lot of what is no longer spent covers much of the increases in what we do .

spending tends to ramp up again later in our no go years as he puts it .

ty found senior spending tends to figure in to much inflation adjusting.

firecalc has a box to play with ty’s findings .

also when life expectancy stats are introduced in to the equation most of us won’t last 30 years in retirement if we start at 62

Agree conceptually with Bernicke, but if one runs the maximum spending using that module, I believe the numbers are extremely generous.

 

[mathjak107]

Agree conceptually with Bernicke, but if one runs the maximum spending using that module, I believe the numbers are extremely generous.

they are because they use a lot less inflation adjusting