This Firecalc Scenario Does Not Make Sense

[Rianne]

To me anyways, not a mathematician or statistician. My entries are (not our situation):

Portfolio: $2,000,000
Spending: $100,000
Full Years: 25
SS $60,000 starting in 2025
Spending Model: Constant Spending Power
Inflation: 6%
Portfolio: Index funds 5%
Fixed Income: 5 year treasuries
Results: 100%
Balance at end: $138,611 - $2,238,015 average $687,158

I've been playing around with high inflation. One of my scenarios was 4% interest and 6% inflation, all other the same...100%

 

[pb4uski]

Why does 100% success not make sense? WR is 2%... ($100k spending -$60k SS)/$2m portfolio

 

[SnowballCamper]

Makes sense to me, only spending 40k from investments per year. Thats 2%

 

[Koolau]

I don't see the problem. You're not even close to the proverbial 4% "safe withdrawal rate" that we use as a simple estimate of portfolio survival for a 60/40 AA for 30 years.

Maybe check again??

 

[FREE866]

Im very surprised that what looks like a starting WR of 2% on a $2,000,000 portfolio has an average ending balance $687,000 after 25 years .
What % of the portfolio is in equities?

 

[pb4uski]

I'm guessing that the 6% inflation assumption is taking a toll on the portfolio balance over 25 years.

 

[Rianne]

I'm guessing that the 6% inflation assumption is taking a toll on the portfolio balance over 25 years.

I increased inflation to 7% and growth rate of 3%. The inflation set at constant spending (on that page) and portfolio page of consistent growth.
Results: 100% and it says possible highest ending point $2,000,000.

Our discussions often go to inflation as eating away at growth. This calculation is saying one would be safe with 3% CDs or treasuries for 25 years with a 7% inflation rate and constant spending of $100,000. Right?
So, if we went all in, long term treasuries, CDs at 4-5% with 7% inflation, we'd be good for 25 years. I'm understanding that 7% inflation rate remains constant for 25 years.

 

[Rianne]

Im very surprised that what looks like a starting WR of 2% on a $2,000,000 portfolio has an average ending balance $687,000 after 25 years .
What % of the portfolio is in equities?

Most recent calculation, no equities.

 

[Rianne]

Why does 100% success not make sense? WR is 2%... ($100k spending -$60k SS)/$2m portfolio

So, inflation is irrelevant.

 

[FREE866]

A 6 or 7% average inflation rate for 25 years is an extremely draconian forecast. Throw in zero equity exposure and it's a very misguided investment plan.

 

[Rianne]

A 6 or 7% average inflation rate for 25 years is an extremely draconian forecast. Throw in zero equity exposure and it's a very misguided investment plan.

The data input had 0 equity exposure. That's what surprised me with the results. I looked at historical interest rates going back to the 60s, 70s, and 80s. I was trying to understand a draconian forecast. Especially since, we've been on a tidal wave of luck since 2009.

 

[Chuckanut]

I'm guessing that the 6% inflation assumption is taking a toll on the portfolio balance over 25 years.

Yes.

6% inflation cuts the value of a dollar by 50% in only 12 years. In 24 years your dollar has been cut in half twice in real terms, and your dollar is only worth 25¢. Then add another 6 years of inflation to reach 30 years, and your dollar is worth about 20¢.

That’s a pretty big blow to a person’s wealth.

 

[walkinwood]

If you're using 0% equities, why not work this out on a spreadsheet? Use a number for 5 yr treasury returns, your high inflation # and the 2% wr. You'll have a better view of the numbers & how they shake out.

 

[Rianne]

If you're using 0% equities, why not work this out on a spreadsheet? Use a number for 5 yr treasury returns, your high inflation # and the 2% wr. You'll have a better view of the numbers & how they shake out.

Ran out of money at age 86. And I put a 2% COLA on the social security.

Here's what Firecalc said when I used exactly 7% inflation, 3% consistent growth. Portfolio 2M, spend $100,000, SS $60,000, 25 years.

"Here is how your portfolio would have fared in each of the 96 cycles. The lowest and highest portfolio balance at the end of your retirement was $73,926 to $2,000,000, with an average at the end of $73,926. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)"

"Since you elected the "crystal ball" option for every year, every year will have succeeded or failed, so it is 0% or 100%. FIRECalc found that 0 cycles failed -- the portfolio was depleted before the end of the 25 years -- for a success rate of 100%"

 

[pb4uski]

I increased inflation to 7% and growth rate of 3%. The inflation set at constant spending (on that page) and portfolio page of consistent growth.
Results: 100% and it says possible highest ending point $2,000,000.

Our discussions often go to inflation as eating away at growth. This calculation is saying one would be safe with 3% CDs or treasuries for 25 years with a 7% inflation rate and constant spending of $100,000. Right?
So, if we went all in, long term treasuries, CDs at 4-5% with 7% inflation, we'd be good for 25 years. I'm understanding that 7% inflation rate remains constant for 25 years.

Looks like this to me assuming that $60,000 of SS increases the same as inflation of the $100,000 of expenses.

n​	Withdrawals​	Interest​	Balance​
​	7.00%​	3.00%​	​
0​	​	​	2,000,000​
1​	-40,000​	58,800​	2,018,800​
2​	-42,800​	59,280​	2,035,280​
3​	-45,796​	59,685​	2,049,169​
4​	-49,002​	60,005​	2,060,172​
5​	-52,432​	60,232​	2,067,972​
6​	-56,102​	60,356​	2,072,226​
7​	-60,029​	60,366​	2,072,563​
8​	-64,231​	60,250​	2,068,582​
9​	-68,727​	59,996​	2,059,850​
10​	-73,538​	59,589​	2,045,901​
11​	-78,686​	59,016​	2,026,231​
12​	-84,194​	58,261​	2,000,298​
13​	-90,088​	57,306​	1,967,517​
14​	-96,394​	56,134​	1,927,257​
15​	-103,141​	54,723​	1,878,839​
16​	-110,361​	53,054​	1,821,532​
17​	-118,087​	51,103​	1,754,549​
18​	-126,353​	48,846​	1,677,042​
19​	-135,197​	46,255​	1,588,100​
20​	-144,661​	43,303​	1,486,742​
21​	-154,787​	39,959​	1,371,913​
22​	-165,622​	36,189​	1,242,480​
23​	-177,216​	31,958​	1,097,221​
24​	-189,621​	27,228​	934,828​
25​	-202,895​	21,958​	753,892​

 

[Rianne]

Looks like this to me assuming that $60,000 of SS increases the same as inflation of the $100,000 of expenses.

n​	Withdrawals​	Interest​	Balance​
​	7.00%​	3.00%​	​
0​	​	​	2,000,000​
1​	-40,000​	58,800​	2,018,800​
2​	-42,800​	59,280​	2,035,280​
3​	-45,796​	59,685​	2,049,169​
4​	-49,002​	60,005​	2,060,172​
5​	-52,432​	60,232​	2,067,972​
6​	-56,102​	60,356​	2,072,226​
7​	-60,029​	60,366​	2,072,563​
8​	-64,231​	60,250​	2,068,582​
9​	-68,727​	59,996​	2,059,850​
10​	-73,538​	59,589​	2,045,901​
11​	-78,686​	59,016​	2,026,231​
12​	-84,194​	58,261​	2,000,298​
13​	-90,088​	57,306​	1,967,517​
14​	-96,394​	56,134​	1,927,257​
15​	-103,141​	54,723​	1,878,839​
16​	-110,361​	53,054​	1,821,532​
17​	-118,087​	51,103​	1,754,549​
18​	-126,353​	48,846​	1,677,042​
19​	-135,197​	46,255​	1,588,100​
20​	-144,661​	43,303​	1,486,742​
21​	-154,787​	39,959​	1,371,913​
22​	-165,622​	36,189​	1,242,480​
23​	-177,216​	31,958​	1,097,221​
24​	-189,621​	27,228​	934,828​
25​	-202,895​	21,958​	753,892​

Leave it to Pb4uski to set me straight, as you've done many times in the past. No wonder you moved into fixed income to preserve your portfolio. Yes, inflation will eat at my $100,000 spending. That's why when I calculate spending/or withdrawal I use much higher numbers than what we actually spend/withdraw.

 

[Rianne]

Bottom line, I increased spending to $125,000. Portfolio of Consistent Growth at 4% growth and 5% inflation gave me 100% success with $141,977 at the end of 25 years.
Portfolio of Total Market: 45% equities/5 year treasuries - 5% inflation left me with -$85,593
Portfolio of Total Market: 45% equities/30 year treasuries - 5% inflation left me with -$52,397