Why Are You Worried If FIRECALC Says 100% Success

L

luckydude

Full time employment: Posting here.
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Jan 12, 2013
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Forgive me if this is a stupid question.

Disclaimer---I have never run Firecalc and don't know the assumptions, conditions, etc., that go into it. I just know from reading this forum that Firecalc success rate of 100% is kind of like the "seal of approval" for FIRE.

For those of you who are retired and ran Firecalc with 100% success rate, why would you be worried about this market downturn? Wouldn't Firecalc have acounted for scenarios like this?

Conversely, if you were to run Firecal today with the current portfolio value (post-market downturn), would the results be any different?

Lucky Dude
 
I am not worried. An historical retrospective is good about once or twice. Patting one's self on the back over-and-over just hurts your elbow and shoulder.
 
luckydude said:
Forgive me if this is a stupid question.

Disclaimer---I have never run Firecalc and don't know the assumptions, conditions, etc., that go into it.
Click to expand...

Actually, it's fairly common that people will use or misuse FIRECalc, without ever reading its documentation. In addition to all the verbiage on the main page, there is also another page that goes into greater detail.

Well worth a few minutes of your time.
 
I'm not worried. I WAS thinking that maybe I can up my spending a little based upon my new all time high portfolio. I'm now thinking "maybe I'll wait to up my spending until after the recovery -- or maybe I just won't increase it at all".
 
Because it's just a calculator -- it's a mathematical abstraction, as opposed to personal experience. Notice that the people who've been through economic downturns are placid and patient. It's the people who have just recently pulled the plug who are anxious. That's understandable. They don't have personal experience of living through a major downturn while being retired -- all they have is "the calculator says it's okay," which is nice but is just an abstraction. They are also disappointed that this is how their retirement is starting out.

They'll get through it okay. Eventually mathematical abstraction becomes lived experience. Then you relax. But first comes anxiety as the roller coaster drops.

I think the best thing to do is listen to the people who've been through it before. They actually seem to be enjoying themselves.
 
ER Eddie said:
I think the best thing to do is listen to the people who've been through it before. They actually seem to be enjoying themselves.
Click to expand...

Well, that might be a bit of a stretch, but we're certainly not panicking.

I retired in 2001 so I have some experience with this. The market will go down for a while, and then it will start going back up again. My 50/50 AA is serving me well now, and I'll be starting to buy equities again soon to rebalance.
 
I think there are a few concerns even if you got 100% previously....

1) Firecalc is great but it is backward looking. The future might not 'rhyme' with the past. I consider this a small risk... Markets recover over time.

2) Sequence of Return Risk (SORR) - A downturn early in your retirement can have a much larger impact on the success rate than in the late stages of your retirement. As someone who retired just under 6 years ago I'm still a little worried about being hit by a bad sequence of returns....

But overall, I'm not worried - and plan to rebalance today. Because firecalc assumes you rebalance when there are big bull or bear swings.
 
Live And Learn said:
I'm not worried. I WAS thinking that maybe I can up my spending a little based upon my new all time high portfolio. I'm now thinking "maybe I'll wait to up my spending until after the recovery -- or maybe I just won't increase it at all".
Click to expand...

My thoughts exactly. Retired last May and things were going great. I was thinking I might actually be able to spend a bit more than I had entered into FC, but now I might want to cut corners a bit, at least to see where this goes.
 
When I retired, I figured as long as the dow was at 8K or more, we would be OK. Two years later, I'm probably OK as long as the Dow is above 5K or higher. At the rate of this decline, I'm probably good through the end of the month. ;-).

Jokes aside, I had the swine flu back when it was going around. We will make it through this too.
 
Just saw something on TV that said this is similar to 9/11. So true ! The Markets actually closed for a week - we've had a few halts. Air traffic practically shut down - just like now. Everyone was worried about their personal well being. SO similar ! In 2001 the recovery was relatively quick - let's hope the similarities hold up !
 
luckydude said:
...
For those of you who are retired and ran Firecalc with 100% success rate, why would you be worried about this market downturn? Wouldn't Firecalc have acounted for scenarios like this? ...
Click to expand...

Not worried. A 100% success rate means you would have survived the very worst of history. The future could be worse than the worst of the past, but guess what - that will affect everyone. If you prepared for the worst (and some of us shoot for 100% with a buffer), you'll do better than most.

The alternative is to work until you die, so you don't need to worry. Not so much fun.


rodi said:
I think there are a few concerns even if you got 100% previously....


2) Sequence of Return Risk (SORR) - A downturn early in your retirement can have a much larger impact on the success rate than in the late stages of your retirement. As someone who retired just under 6 years ago I'm still a little worried about being hit by a bad sequence of returns.... .
Click to expand...

Well, you should only be worried (historically speaking), if you had a very conservative portfolio those first 6 years. People seem to forget that big drops come after big run ups. So if you had a conservative AA, you didn't share in the run-up.

It's a little tough to model, but to the extent that I have, I really don't think one can avoid SORR by being conservative early on. The grim reaper may show up later, and hit your portfolio that didn't take part in the Bull!


rodi said:
...

But overall, I'm not worried - and plan to rebalance today. Because firecalc assumes you rebalance when there are big bull or bear swings.
Click to expand...

It may not matter, but FIRECalc re-balances every year, it's not based on % bands.

-ERD50
 
Having survived two financial disasters that caused huge losses of my stash, I will say that I am more concerned with staying healthy and not catching the virus than worrying about money right now.
 
My life to date gains of 2+ years are gone now, but still have 100% success in Firecalc.
I do run it still under various scenarios and by running it currently, one can see how the results are when "retiring again" in a bear market scenario.
 
Thanks for all your replies.

I suppose FIRECALC success rate of 100% should always give one the peace of mind to ride through market downturns like the one we're having, but human nature being what it is, sometimes it's hard to stay the course and not panic. This is where having the experience of going through previous market downturns can help steady one's nerves, but one really can't know what it's like until one has gone through it.

I finally put my numbers through FIRECALC today and got 100%. I guess I can sleep tight now, however worse the market gets from this point on. I am ready---bring it on :)

Lucky Dude
 
And keep in mind that the failures in FIRECalc and the 4% rule general occur from peak markets. So if you were barely good a month ago you might be concerned with your revised stash. But if you are still 100% after the ~25% drop you are very likely good to go. In fact, your real SWR will likely be 5% or higher (but you won't know that for sure until it is too late to take action).
 
The SORR is real. If you take a beating early in retirement while drawing funds out, good luck.
 
USGrant1962 said:
And keep in mind that the failures in FIRECalc and the 4% rule general occur from peak markets. So if you were barely good a month ago you might be concerned with your revised stash. But if you are still 100% after the ~25% drop you are very likely good to go. In fact, your real SWR will likely be 5% or higher (but you won't know that for sure until it is too late to take action).
Click to expand...

Yes, it's based on today's market closing numbers.

I should add that I ran FIRECALC for my financial assets (equity and cash) only. I have a large real estate asset component that DW and I plan to leave to our heirs, so our plan is to live off the financial assets only and not touch the real estate assets. If we have to, we could liquidate some of the real estate assets but I'd rather not do that and just draw down on the financial assets in our retirement.

Lucky Dude
 
braumeister said:
Well, that might be a bit of a stretch, but we're certainly not panicking.

I retired in 2001 so I have some experience with this. The market will go down for a while, and then it will start going back up again. My 50/50 AA is serving me well now, and I'll be starting to buy equities again soon to rebalance.
Click to expand...
I'm 50/50 too Braumeister....let me know when you are ready to rebalance.:banghead:
 
When my job started looking "iffy", I started plugging numbers into every retirement projection calculator I could find. The first 5 calculators showed:
2 - would be eating out of garbage can in 10 years
1 - goldilocks, funds ran out the same year as projected life expectancy
2 - some impossible scenario that had me dying with more money in the bank than I have now.


From there I started paying extreme attn to feeding the different calculators the same data and looking for settings to use the same/similar assumptions.


I finally ended up with 9 big name calculators, but they still showed a 50% range in the amount I could burn each year:

Vanguard: toward the high end of the range
Financial Engines: highest of them all
WF, Fidelity, Firecalc, TRowePrice, FINRA, Schwab: all about the same within 5K of each other


So... why sweat if a calculator says you're good to go? Because the next calculator will say you're not. They're just suggestions, not guarantees.
 
luckydude said:
Yes, it's based on today's market closing numbers.

I should add that I ran FIRECALC for my financial assets (equity and cash) only. I have a large real estate asset component that DW and I plan to leave to our heirs, so our plan is to live off the financial assets only and not touch the real estate assets. If we have to, we could liquidate some of the real estate assets but I'd rather not do that and just draw down on the financial assets in our retirement.

Lucky Dude
Click to expand...

Your real estate is what we like to call "reinforcements" around here. FIRECalc is not intended to model that type of asset, other than as an income stream. I'm a big advocate of cataloging the conservative assumptions in your plan. If you understand those, you understand how aggressive or conservative your plan is.

For example, in my case my conservative assumptions include:
  • 20% haircut to SS
  • Ignore a likely substantial inheritance
  • Ignore equity in my two houses (no mortgages), I consider this my long-term care insurance
  • Life expectancy to 95 (no males in my family lasted past about 65, no one in DW's family made it to 90)
  • Ignore part time work by both me and DW
  • Disregard asset allocation (e.g., international, REITs) and glidepath outside 60/40 in FIRECalc
  • Disregard spending adjustments due to portfolio performance (i.e., the 95% rule or VPW)

Many people around here have these same conservatisms, and still advocate for sub-3.5% withdrawal rates. They are working longer than necessary and helping me avoid my 20% SS haircut assumption.
 
COcheesehead said:
The SORR is real. If you take a beating early in retirement while drawing funds out, good luck.
Click to expand...

Yep.
IIRC, one must have around ~1 to 2% average return on your investments in the first 15 years, in order to "guarantee" survival of a 30 year retirement using a 4% WR based on historical sequencing.
 
Spock said:
Vanguard: toward the high end of the range
Financial Engines: highest of them all
WF, Fidelity, Firecalc, TRowePrice, FINRA, Schwab: all about the same within 5K of each other
Click to expand...


The two I use are Vanguard Personal Advisor Services and Personal Capital. Vanguard’s indeed allows a lot more spending and has remained at 96% success rate through this swoon. Personal Capital, with the same inputs, has fallen from 87% in the good old days of February to 70%. Both are Monte Carlo based. Personal Capital’s is slick and pretty but I’m wondering what good it is if its success projections fall apart during inevitable market tumult. Lesson learned and, as always during my long investing life, Thank You Vanguard.
 
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