How much do you trust online retirement calculators?

[motley]

Traditionally I haven't put much stock in them, esp given I'd put the same information in and get different answers, but I think (I think) they have improved and at least can give one a ballpark idea. Thoughts??

 

[Midpack]

Depends on your expectations. No retirement calculator can predict the future no matter how much info you provide, too many unknowns.

As you may know, FIRECALC is pretty well regarded here. It uses actual past history from 1871 to present to show how a given portfolio would have fared based on nest egg amount, spending and retirement years - but the user has to decide what to do with that result. “If the next few decades are even worse for the stock market than the worst that has ever been seen, including the Great Depression, then all bets are off.”

FIRECalc: A different kind of retirement calculator

firecalc.com

 

[RetiredHappy]

I like Fidelity Retirement Planner, much more so than FIRECALC. It allows you to put in as much details as you would like and it's very intuitive.

 

[big-papa]

Most online or downloadable retirement calculators, in the end, are coming up with an SWR of some sort to help users determine financial retirement readiness. They may do things like incorporate SS or pension. They may just use historic sequences of return or they may use Monte Carlo with the statistics from historic returns. But at the end of the day, they nearly all end up with something that resembles a maximum percentage withdrawal, adjusted for inflation, that might be safe enough such that you don't run out of money before you run out of life, assuming that all possible futures are encompassed by all past results.

I spent probably a decade looking at just about every imaginable method of withdrawing from a portfolio and ultimately ditched anything that resembled SWR since the success criteria was a hard pass/fail. Yes, there are a number of what I call "add-ons" to SWR that would likely improve things (like Guyton-Klinger, Gummy's Sensible Withdrawals, and numerous other examples at Big-ERN). And don't forget "be flexible" which isn't really a plan you can easily test.

I ultimately ended up deciding to use an amortization method, along with time value of money concepts for my withdrawal method. Sequence of returns risk still exists, but it manifests itself by having withdrawals that are variable, so there's always the possibility of having a calculated withdrawal that is below the minimum necessary to pay bills. I'd rather be scrambling in a low withdrawal year than having such a year be one that the withdrawal needed to pay bills completely empties our savings.

This can also be fully backtested. But like other withdrawal methods, there's no guarantee that future sequences of returns are encompassed by all past ones. So for added insurance, I have an income floor composed of TIPS + SS. And while that floor is not large enough such that all of our bills can be paid from it, it's sufficiently large that the stock portion of our portfolio doesn't have to work all that hard, so we can tolerate a heck of a lot of bad things going on in the market before we're in serious trouble.

Retirement readiness then consisted of looking at the value of everything in my portfolio and calculating what a withdrawal would be if retirement was today. When that number was high enough, with a comfortable margin, I retired.

Plenty of pre-canned examples of this type of method available
- VPW over on bogleheads has been around for a while. The spreadsheet is easy to use and on the wiki that describes it, there's even a backtester.
- TPAW, also described over on bogleheads is probably the most advanced and well thought example I've seen. It uses the Lifecycle model put forth by Merton quite a while back. The net result is a personalized, dynamically updated glidepath and withdrawal method that matches the investor's risk tolerance. The tool itself is web based and easy to use once you get a handle on the concepts.

The closest example to what I'm doing was posted on bogleheads' blog by author Siamond. He wrote a 2 part series on Time Value of Money concepts but includes an example spreadsheet that you can copy and modify for your own personal use. Part 1 is here: Early Retirement and Time Value of Money (Part 1) – Financial Page and includes a link to Part 2.

Some of the commercial tools also have the option of using this sort of method, often called the actuarial method to calculate withdrawals. Pralana Gold is one. There are probably others.

A year into retirement and this has been working well for us. I make quarterly withdrawals where I only have to put in a couple of bits of data and out pops how much to withdraw. As we're settling into retirement and seeing what our spending looks like, so far with have a lot more spending capacity than we're actually using. So I also apply discretion, which means we usually don't withdraw the full amount calculated. If this ends up being a long term trend, then it will only result in more margin for future withdrawals. We shall see.

Finally, for my wife, I have a greatly simplified version for withdrawals for her to use in the event that I go first or in some other way become incapacitated. She could pick up using it at any point in time and start using it as this sort of withdrawal method has no memory of what you did in the past. She's less interested in this stuff than I am, but being a computer science major, she can run rings around me in Excel. So it works for us.

Cheers.

 

[Aerides]

Of course they vary. I find firecalc to be quite good. No one should trust one single tool completely, but use them to augment ones own planning and common sense. When in doubt, use a couple and throw out the results of any outliers. They should help you reach a consensus, not drive the car for you.

 

[audreyh1]

I’ve used FIREcalc to extensively model withdrawal rates for my specific situation. I don’t use the default method but rather the %remaing portfolio method which FIREcalc also covers.

I don’t care for the Monte Carlo models. I prefer the historical data ones.

 

[JoeWras]

I guess I trust them, I used them to retire 6 years ago. So far, so good.

Around 2010, I was in a meeting at work that was not in my wheelhouse, and I found it ponderous. Yeah, I got distracted and typed "When can I retire?" while the meeting leader droned on.

I found this site and Firecalc, along with some of the other simple calculators. I've found it all to be very useful. (I lurked here for 2 years before joining after the meeting droning got louder and the buckets in the conference room were overflowing.)

8 years later I retired after running Firecalc way too many times with some pretty aggressive variables like $0 social security and high fixed values in my portfolio. I am glad I was pessimistic. In my second month of retirement, we had a 3 month stock hit and I started worrying about SORR, but kept steady based on looking at some of the Firecalc lines that took that dip.

I'm now retired 6 years and still not in Medicare. I run Firecalc every now and then -- I just did -- and update my spending for increased medical insurance costs, and I like to peg inflation at 6% based on the recent scare we had. It still works out OK, although a few lines get close to $0.

 

[Jerry1]

I trust the process. They force you to consider things you might not have thought about. They make you think about a realistic budget and think about necessary versus discretionary spending. They help you understand the time horizon you’re dealing with. If you take them seriously and enter your data conscientiously they’ll produce a good estimate of what you’re going to deal with financially in retirement. Obviously, they’re only as good as the data supplied and they typically only put that up against history, but they serve a very important roll in getting your head around retirement finances.

 

[marko]

I view all of them as more or less "go/no go" tools. Everyone is different and life has too many variables to try and get too granular. You're either good to go or not. If good, then fill in the blanks along the way.

I keep trying to sneak that private jet past Firecalc but I always get a firm "NO!!"

 

[FLSUnFIRE]

100%..... Quit my job and they were a big tool in my toolbox. Like any tool, you should understand how it works and what it can and can't do (like predict the future).

 

[Gumby]

All retirement calculators are just models, and I agree with George Box - "All models are wrong; some are useful." Jerry1 has set forth, with clarity and wisdom, the reasons why you should try them regardless of their limitations.

At the end of the day, we all lay our plans as well as we can and then jump off the cliff.

 

[tmm99]

I use Firecalc and Fidelity RIP (I'm not sure what it's called now). They gave me some confidence in pulling the trigger. But regardless of what they say, I set the WR lower based on the current portfolio size (It used to be 3% at age 55, but now 3.5% as I'm 65 = fewer years left to live.) I withdraw even less when the market performs poorly and the future seems uncertain (like when the market tanked during the pandemic), I think that's just human nature.

 

[GalaxyBoy]

Around 2010, I was in a meeting at work that was not in my wheelhouse, and I found it ponderous. Yeah, I got distracted and typed "When can I retire?" while the meeting leader droned on.

I found this site and Firecalc, along with some of the other simple calculators.

I did the same thing in 2008. Most productive meeting of my career!

Anyway, I look at these calculators as more of a thumb in the wind rather than something to calculate to the penny how much I can safely spend next year. Don't measure with a micrometer when you're cutting with an axe.

I use firecalc, mainly, but in making my decision to run for freedom I used probably half a dozen or so. When they all came to the conclusion that I was financially ready, it was time to go.

I'm also fortunate with my portfolio returns over the last decade or so that I'm finding it hard to spend anywhere near what the calculators say I can. Recently I realized my account balances added up to double what they were on retirement day, nominally at least. (well, an inheritance that was substantially more than I ever expected and which I never included in my pre-retirement calculations didn't hurt, either.) I need to learn to blow more dough.

 

[motley]

I like Fidelity Retirement Planner, much more so than FIRECALC. It allows you to put in as much details as you would like and it's very intuitive.

Yeah that's the one I've been going to recently. I do like that it accounts for a lot of variables which you can easily adjust. tbh most of the others I've seen online I was underwhelmed by.

 

[OldShooter]

Slightly more than I trust my magic 8-ball.

 

[ShokWaveRider]

Most are close enough for our needs.

 

[aza455]

I’ve used FIREcalc to extensively model withdrawal rates for my specific situation. I don’t use the default method but rather the %remaing portfolio method which FIREcalc also covers.

I don’t care for the Monte Carlo models. I prefer the historical data ones.

Monte Carlo simulations are based on historical data, too.

Monte Carlo Simulation: What It Is, How It Works, History, 4 Key Steps

The Monte Carlo simulation is used to model the probability of different outcomes in a process that cannot easily be predicted because of the potential for random variables.

www.investopedia.com

 

[Midpack]

I like Fidelity Retirement Planner, much more so than FIRECALC. It allows you to put in as much details as you would like and it's very intuitive.

I can't find FRP anymore, but maybe I'm not looking in the right place. FIRECALC has all sorts of details in the various tabs/pages that some folks overlook - what do you find missing?

 

[tmm99]

Yeah that's the one I've been going to recently. I do like that it accounts for a lot of variables which you can easily adjust. tbh most of the others I've seen online I was underwhelmed by.

I used to like Fidelity Planner more when I could change the tax rate. I live in Canada now and my taxes are much higher. The new planner allows you choose which state, but there is no way of increasing my tax rate to a much higher number.

 

[brett]

I used a retirement calculator in my late 40's and eary 50's. Similar to the one used by bank advisors, investment advisors, etc.

When it came to planning my early retirement at 58/59 I used pencil, paper, accurate numbers, and common sense. I am very comfortable with numbers. I wanted to verify the validity of the the retirement calculator/spreadsheet.

Thirteen years into retirement both methods proved to be accurate as each other. My bottom line numbers were all based on after tax dollars for each of us.

Our retirement has not been static. A fair number of lifestyle changes and surprises that were not comprehended by the retirement program. I went with conservative assumptions/ numbers plus a good percentage cushion for errors and omissions.

At the end of the day it all comes down to accurate numbers and realistic expectations about future outcomes no matter how one arrives at the numbers.

 

[audreyh1]

Monte Carlo simulations are based on historical data, too.

Monte Carlo Simulation: What It Is, How It Works, History, 4 Key Steps

The Monte Carlo simulation is used to model the probability of different outcomes in a process that cannot easily be predicted because of the potential for random variables.

www.investopedia.com

But they go further, exploring sequences that haven’t occurred historically.

 

[jazz4cash]

I like Fidelity Retirement Planner, much more so than FIRECALC. It allows you to put in as much details as you would like and it's very intuitive.

Any thoughts on the latest version? I see many complaints about skimpy results reports.

 

[Dtail]

I trust them quite a bit keeping in mind their limitations. I use Firecalc and the Fidelity retirement calculator. One being historical sequencing and the other a Monte Carlo simulator.
Even if one is retired, it can provide current retire re retire scenarios to see where one stands with their estimated remaining years.

 

[jazz4cash]

How much do I trust them? It’s just math and I trust math alot. Variations result from assumptions, inputs, and methodology. I find pretty similar results from various calculators. Differences in results can be buried in the methodology but I don’t require that level of precision.

 

[Dtail]

Any thoughts on the latest version? I see many complaints about skimpy results reports.

Not as happy with the latest version and told Fidelity as such in great detail. I was told I am not the only one.
However it still provides enough details to be useful to me overall.