I investigated a number of retirement planning simulators, including FIRECalc, cFIREsim, and Vanguard's retirement nest egg calculator, and ran into discrepancies and limitations with each of them. Can someone please recommend a calculator, assuming one exists, that supports the following spending model?
I am looking for a hybrid of "inflation-adjusted" and "% of remaining portfolio" models, both of which are commonly available in online calculators. If portfolio returns for current year < inflation for current year, use the "% of remaining portfolio" model. Else, if returns > inflation, limit your spending to (portfolio value + inflation) * % of remaining portfolio, rather than (portfolio value + returns) * percentage of remaining portfolio. More succinctly, spending = floor(value from "% of remaining portfolio model", value from "inflation-adjusted" model).
I am not sure if any studies have been done on the model I describe above, but I suspect that it should allow for considerably higher average annual spending than either of the two popular models that it is based on. During years in which your portfolio drops, one can cut spending to avoid early depletion, as with the "% of remaining portfolio" model, to avoid early depletion, while during good years when returns > inflation, one can limit their "pay raise" to a cost of living adjustment, which should mitigate the risk of poor future returns.
In addition, I have a couple of specific questions/observations regarding online calculators that I would appreciate feedback on:
1. Does the "% of Portfolio" spending plan work for anyone in cFIREsim? Even when I enter a ridiculous yearly spending amount, such as 20%, I still get a 100% success rate result... wouldn't that be nice?
2. Both FIRECalc and cFIREsim yield much better results than Vanguard, often by a factor of 50-100%, despite similar input settings. Based on my understanding of their methodologies, FIRECalc and cFIREsim limit their analysis to actual historical sliding time windows of, say, 50 years, while Vanguard randomly picks a string of return/inflation values for specific years from their database. The latter approach results in some economic cycles that are far less favorable than anything ever experienced during our history (20-year Great Depression, anyone?), which yields a rather grim bottom line compared to what's produced by FIRECalc and cFIREsim.
Am I correctly interpreting the differences among these tools? Also, is the general opinion that Vanguard's tool is too conservative or are the other calculators too aggressive? As a point of reference, in order to achieve a 100% success rate, Vanguard recommends a meager withdrawal rate of 2.2% for a 50-year retirement, while, FIRECalc's rate is a far more palatable 3.77%.
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