Sensitivity analysis


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Jun 11, 2006
Hi all,

I alluded to this in my other thread.

How many of you have done a sensitivity analysis on your retirement spreadsheet? What variables did you change? What did you learn? Did you change anything as a result?

How many of you have done a sensitivity analysis on your retirement spreadsheet? What variables did you change? What did you learn? Did you change anything as a result?

Not rigorously, but I've done it. Pretty much the items Dory looks at: size of nestegg, year of retirement, expenses. I haven't bothered with inflation or returns.

I didn't find it helpful - felt like splitting hairs. I think many of us over-analyze and over-quantify the planning piece. I've still found nothing much better than the old "25 x expenses" rule.

Once you are convinced your plan is at least sane, the real FIRE-busters are black swans. Common sense and flexibility reign.
Ahh...I should be more explicit. I'm doing sensitivity analysis on my "how soon can I retire?" spreadsheet, not on the after retirement part. I'm pretty much sold on the 4% rule plus your common sense and flexibility.

Sure. A 1% change in SWR either puts me in the street or puts in a penthouse eventually.

I retired anyhow. The alternative is work until you die. At some point you just have to say - OK, I'm reasonable satisfied with the risk/reward.

That can be impacted by how tolerable/good/bad your last years of employments are.

Yep, what Rich_in_Tampa says.

darn - no 'posts appeared while you reply feature!'

OK, that's easy. Keep working until you have 25x (or whatever you are comfortable with!).

retiring in 16 years if everything goes right. Tested the what if things go wrong. Bad/good market = +or- 3 years. Low/high wage increases = +or- 3 years. Inflation is almost a non factor if it also increases my pay. In my spreadsheet I assume that I hold my expenses at current levels + inflation +1%. If I am not able to avoid lifestyle creep I can a 10 years or more. The biggest factor was LBYM.

After testing these factors I stopped sweating the investing details. <-- this is coming from someone who is a Portfolio Manager by day.
I can't se how "figuring out" when you are going to retire many years in the future could possibly be useful, other than to have an escape to look forward to. It may or may not come true; there might be 40 miles of bad road ahead.

People have told me I'm insensitive but I'm working on it.
I do sensitivity analysis regularly on my own spreadsheets and on FireCalc. It enables me to visualize "what if" inflation went up, returns went down, I had to retire earlier than planned, asset allocation was different, etc. I am testing the reslience of my portfolio. Since I am RE - 5 years I don't generally bother doing sensitivity analysis on exact withdrawal rates till age 100, because that far out, there are too many variables to guess at. But it's interesting to save a FireCalc scenario (or a spreadsheet) and to return to it a year or two later. You find that some of your preferred assumptions will have changed.
My spreadsheet is not set up to solve the problem, "When can I retire?"

It is set up to solve the problem, "How much income can I put in place for a retirement date between November, 2009 and July, 2010, and what do I have to do to make this income consistent with what I will need?" as well as some other related questions.

Working beyond 2010 has not been an option that I would consider since a few months after creating the spreadsheet. I have been working on my spreadsheet since around 2000, so it did allow a 9-10 year timeframe.

I have spent countless hours juggling possible income sources, looking at what various sizes of a fixed immediate lifetime annuity might do for me, for example, correcting the expected rate of growth of my nestegg as time went by and it grew faster than anticipated, and correcting other factors, and trying various scenarios with different inflation, consumption, salary increases, and other factors. Before my house was paid off, I tried various irregular sized lump sum payments, and various times, to see the effect on the balance left.
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