Why Firecalc isn't good enough (and other comments)

[FLSUnFIRE]

I've posted a few times here on this. I don't see how going back to the 1950s markets, let alone the early 1900s is helpful. Even back to 1970, who would've guessed that the likes of GE, Exxon, Philip Morris et al would be so different. We now have mutual funds, ETFs, AI, hedge funds and hundreds of non market cultural differences as well.

Those comparisons look back through an Industrial Revolution lens, a time that we, and our markets no longer inhabit.

In short, our world and the markets that react to our world is entirely different than even a few decades ago. While I fully appreciate the FC outputs, I always wonder about the value of looking back 50 or 100 years to such a different time...how relevant can that analysis be? We might as well look to ancient Rome for comparison. IMO.

And now we are on the cusp of AI and space travel/exploration potentially within a generation or two. Certainly not the same but there are seeds for another growth spurt that could germinate. I'm optimistic (don't you have to be to FIRE?) if we don't blow ourselves up with the technology first and if that happens WDR doesn't matter. Who knows when it will stop...

 

[NW-Bound]

And now we are on the cusp of AI and space travel/exploration potentially within a generation or two...

I don't know what AI will bring, but about space travel, I wonder where they will get fuel for these big rockets.

 

[FLSUnFIRE]

I don't know what AI will bring, but about space travel, I wonder where they will get fuel for these big rockets.

AI will figure out the fuel source! Hopefully not soylent green....

 

[Midpack]

I don't know what AI will bring, but about space travel, I wonder where they will get fuel for these big rockets.

AI will figure out the fuel source! Hopefully not soylent green....

 

[NW-Bound]

These are just examples of extraneous variables that FIRECalc or even fancier economic models cannot account for.

PS. We also have a concurrent thread on the world aging population. How is that going to impact the market return? See, it's all related.

 

[racy]

...If you cannot act in the face of uncertain, incomplete, vague and/or ambiguous information, then your safest bet is to either keep working or commit to offing yourself the day you run out of money.

And there's your answer to those who say the date of death is uncertain.

 

[kenpmcdonald1]

The problem is that the result is presented in a single percentage, and percentage is also used to quantify probability. It's just too slippery to slide from "90% of 30 year periods in the data set resulted in retirement success" to the erroneous, "I have a 90% chance of a successful retirement." Reading a percentage should always be followed by the question "Of what?" and answered accurately.

But a 10% chance of failure does not mean financial ruin. It means that we have to make adjustments to our plan.

 

[dknighd]

Before I retired I looked at many many tools. Including the simple back of the envelope. Which is probably about as good as any other tool. Using a variety of inputs. They all seemed to suggest we would probably be fine.
So far we have been spending a little less than what we probably could spend, but we are comfortable with that. We've been doing it all our lives. That is why we can afford to retire!

 

[Jeffman52]

AI will figure out the fuel source! Hopefully not soylent green....

There is plenty to make the Soylent green out of right now...

 

[Koolau]

I always looked at FIRECalc as a planning tool BEFORE FIRE. IOW, use it to see how much I would need. I've never even thought of using FIRECalc to calculate distributions from my stash. I do a reality check - what % WDR did I have come the end of the year? Is that consistent with the 4% rule, etc.?

FIRECalc never made any promises - except that it would compare your spending to what WOULD have happened in the past. Since it's looking at 30 year slices of time, your chances that it would miss by much would mean something is quite different than those 100+ 30-year swaths. Of course, something COULD be different, so you gotta have some back ups. That's my plan. Assume I'm good until I see something on the horizon (like the proverbial asteroid) and then fall back on my contingencies.

EasyPeasy. YMMV

 

[Exchme]

I have questions about FireCalc. The bond section doesn't give enough options and isn't specific about what bond allocation you have. Interest rates are so different than even a year ago. Our bond ladder should put us at a higher success rate than if I simply entered 50% 5-year treasuries. What interest is FireCalc using?

FireCalc's main engine uses historical yield and inflation data. Current rates are higher than the recent past because inflation is higher. Let's say you are getting 5%. You have to pay taxes, let's say at 22%, so you are left with 3.9%. For the last three months, inflation (PCE) has been 3.5% annual, leaving you a thrilling 0.4% real, after-tax, yield. That's not really much better than before inflation raised it's ugly head. Note you still have inflation risk in that if inflation increases (remember the 70's with 14% inflation?), when your bonds mature, the $ you get back will be worth less than what you paid. You would also get to pay taxes on the yield even though you would have lost purchasing power on the deal.

The only truly different product (aside from waiting to claim SS) is a TIPS ladder. Long term TiPS are currently yielding about 2%. In FireCalc, you would remove the $ you invested in the TIPS ladder from your portfolio and add the annual amounts maturing to your income for the duration of the ladder.

For folks that really want to dig into the limitations of the available data and the effect of bond duration on SWR, there is a current thread on Bogleheads:
https://www.bogleheads.org/forum/viewtopic.php?t=412851
The upshot - the data gets sketchier and sketchier as we go back in time, but in general, in historical periods when SWRs were worst, bond yields did not keep up with inflation, so short term bonds were better than long term as you lost less. Long term and medium term won when you didn't really need the extra score.

 

[Out of Steam]

The cost of working and daily commutes really does play a huge factor in costs.

I was driving 16,000 miles a year in my commute before I retired. The car that I thought I would have to replace fairly quickly after retiring is doing well four years later, and will likely last a couple of more.