FIRE Calculator Accurate?

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socialforums2019
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FIRE Calculator Accurate?

Post by socialforums2019 »

I'm preparing for some significant changes in life and modeling the financial impact for current cash flow and re-calculating FIRE. I've always been under the assumption that I wouldn't be able to FIRE so I was targeting retirement to be in another 25 years or so. With that said, running anticipated numbers through the FIRE calculator is telling me I will be able to FIRE in 18 years. I know my current retirement savings is low in comparison to those I see posting on this board, so for the calculator to say I could retire in 18 years shocked me. Are the numbers being used below accurate or is something off?

- Current Retirement: $300K
- Annual Savings: $42K (estimating 0% income growth to be conservative)
- Anticipated Retirement Spend: $94K (this anticipates $10K/year in healthcare for a couple)
- 4% Withdraw Rate
- 7% Avg Tax Rate
- FIRE Target: $2.5M
- Stock Return: 8%
- Bond Return: 2.5%
jebmke
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Re: FIRE Calculator Accurate?

Post by jebmke »

socialforums2019 wrote: Sun Sep 13, 2020 9:27 am $10K/year in healthcare for a couple
That seems low to me for a pre-Medicare period unless you have access to something like a retiree HC plan that is subsidized.
I retired early in 2007. I had budgted $1,000 per person for gross costs assuming no subsidies. This included all out of pocket stuff which for things like dental care and eye-related matters can be real surprises. We ended up on a retiree plan which subsidized a lot plus I had an HSA which generated tax benefits. If I backed out the subsidy and the tax benefits I think we came in just a little under the budget but not hugely under. Significant year to year variability due to the out-of-pocket stuff.

Note: this can also be location specific so it may depend on where you live.
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TomatoTomahto
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Re: FIRE Calculator Accurate?

Post by TomatoTomahto »

socialforums2019 wrote: Sun Sep 13, 2020 9:27 am - Stock Return: 8%
- Bond Return: 2.5%
I would like nothing more than for this to be accurate, but I think you’re being wildly optimistic.

As the saying goes, from your lips to God’s ears.
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geerhardusvos
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Re: FIRE Calculator Accurate?

Post by geerhardusvos »

socialforums2019 wrote: Sun Sep 13, 2020 9:27 am I'm preparing for some significant changes in life and modeling the financial impact for current cash flow and re-calculating FIRE. I've always been under the assumption that I wouldn't be able to FIRE so I was targeting retirement to be in another 25 years or so. With that said, running anticipated numbers through the FIRE calculator is telling me I will be able to FIRE in 18 years. I know my current retirement savings is low in comparison to those I see posting on this board, so for the calculator to say I could retire in 18 years shocked me. Are the numbers being used below accurate or is something off?

- Current Retirement: $300K
- Annual Savings: $42K (estimating 0% income growth to be conservative)
- Anticipated Retirement Spend: $94K (this anticipates $10K/year in healthcare for a couple)
- 4% Withdraw Rate
- 7% Avg Tax Rate
- FIRE Target: $2.5M
- Stock Return: 8%
- Bond Return: 2.5%
Check this out:
https://engaging-data.com/fire-calculat ... 2.4&tax=12

For the next 15 years I would recommend a stock return expectation of 5% and a bond of 0%, both real not nominal. I would also expect your taxes to be at least 12%. How old are you? How long will your retirement window be? How much do you make? How much do you spend?

20 years could be doable, especially if you up your savings rate and decrease some of your expenses. 20 years is a long time. Going from $300,000 to 2.5 million is a real journey. If I were you, I would just keep trying to enjoy my life now, and focus on balance and on what’s important, and continue to invest as much as you can each month. Increase your income, but not your standard of living. Once you are 5 to 10 years away (or have $1.5M or something) from retirement, come back and show us your numbers and assumptions. Best wishes!
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mkc
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Re: FIRE Calculator Accurate?

Post by mkc »

jebmke wrote: Sun Sep 13, 2020 9:38 am
socialforums2019 wrote: Sun Sep 13, 2020 9:27 am $10K/year in healthcare for a couple
That seems low to me for a pre-Medicare period unless you have access to something like a retiree HC plan that is subsidized.
I would agree. From our experience just insurance premiums will be higher than that, then there are the expenses up to the deductible amount.

If this is FireCalc, OP might consider doing the MonteCarlo option to show the likelihood of retirement success (and go through all the tabs to fine tune things).
aristotelian
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Re: FIRE Calculator Accurate?

Post by aristotelian »

"Accurate" is the wrong word when making predictions 20 years into the future. The future is inherently unknowable. Do you mean "reasonable"? I would assume the calculator is accurate for whatever inputs you used

In the current climate, bond yields are historically low, so the expected return should probably be more like 1.5%. That also means stock valuations could be inflated so a more conservative estimate would be 6 or 7%.

4% withdrawal rate is known to have a high rate of success for 30 year retirement but would not be regarded as failsafe for early retirement. Might want to assume 3.5 or 3.75.
dbr
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Re: FIRE Calculator Accurate?

Post by dbr »

If this is the calculator linked in a reply above you have to choose either the historical returns or the Monte Carlo simulation to make any sense of the problem. Using historical returns finesses away the necessity to guess the expected returns. Using MC still asks for an expected return but at least displays the range of statistical variation in the system. In that case one can do a sensitivity study by varying your guesses to see the effect on the results. It would be better if expected return were itself a stochastic input to the simulation.

The first option of treating the estimated return as a fixed constant return over time is useless for this sort of analysis.
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Sandi_k
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Re: FIRE Calculator Accurate?

Post by Sandi_k »

For medical care pre-Medicare, my friends without ACA subsidies are paying more like $35k per year in premiums, co-pays, and deductibles for a couple in middle America.
sailaway
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Re: FIRE Calculator Accurate?

Post by sailaway »

The math is accurate, but the inputs are suspect. How long have you been gathering data to determine your spending?
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#Cruncher
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Re: FIRE Calculator Accurate?

Post by #Cruncher »

socialforums2019 wrote: Sun Sep 13, 2020 9:27 am... the FIRE calculator is telling me I will be able to [retire] in 18 years. ...
- Current Retirement: $300K
- Annual Savings: $42K (estimating 0% income growth to be conservative)
...
- Stock Return: 8%
- Bond Return: 2.5%
You don't specify the assumed stock:bond allocation, socialforums2019. But with an allocation of about 82.5:17.5 these inputs would produce your "FIRE Target: $2.5M". [*] So the calculation does seem accurate. But as others have said, the assumed growth rates are optimistic, particularly if you're working in constant dollars.

* Derived using the Excel RATE function. (Assumes constant growth and monthly rebalancing.)
7.04% = (1 + RATE(18 * 12, -42 / 12, -300, 2500, 0)) ^ 12 - 1
82.5% = (0.0704 - 0.025) / (0.08 - 0.025)

Confirmation using the Excel FV function.
7.04% = 0.825 * 8% + 0.175 * 2.5%
2,500 = FV(1.0704 ^ (1 / 12) - 1, 18 * 12, -42 / 12, -300, 0)
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willthrill81
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Re: FIRE Calculator Accurate?

Post by willthrill81 »

socialforums2019 wrote: Sun Sep 13, 2020 9:27 am I'm preparing for some significant changes in life and modeling the financial impact for current cash flow and re-calculating FIRE. I've always been under the assumption that I wouldn't be able to FIRE so I was targeting retirement to be in another 25 years or so. With that said, running anticipated numbers through the FIRE calculator is telling me I will be able to FIRE in 18 years. I know my current retirement savings is low in comparison to those I see posting on this board, so for the calculator to say I could retire in 18 years shocked me. Are the numbers being used below accurate or is something off?

- Current Retirement: $300K
- Annual Savings: $42K (estimating 0% income growth to be conservative)
- Anticipated Retirement Spend: $94K (this anticipates $10K/year in healthcare for a couple)
- 4% Withdraw Rate
- 7% Avg Tax Rate
- FIRE Target: $2.5M
- Stock Return: 8%
- Bond Return: 2.5%
I don't see the purpose in using a FIRE calculator. If you're spending is $94k and using a 4% withdrawal rate, then you need $2.35 million, close to your estimated $2.5 million. In order to reach $2.35 million in 18 years, you would need a 6.8% real return on your portfolio. That might happen if you maintain a 100% stock allocation, but even that is setting the bar too high IMHO. I wouldn't estimate higher than 5% real returns for even a 100% stock portfolio. With 5% real returns, you would reach $2.35 million in just over 21 years and $2.5 million in 22 years.
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fortunefavored
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Re: FIRE Calculator Accurate?

Post by fortunefavored »

Sandi_k wrote: Sun Sep 13, 2020 11:03 am For medical care pre-Medicare, my friends without ACA subsidies are paying more like $35k per year in premiums, co-pays, and deductibles for a couple in middle America.
Underrated comment.. definitely run your numbers through a real insurance quote system, year-by-year until 65.. some states cap age-related adjustments, some don't. $30-35K sounds about right to me too.

Given the long time horizon, I'd say "save as much as you can, keep expenses as reasonable as you can" - and when you get there, you get there.
Kelrex
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Re: FIRE Calculator Accurate?

Post by Kelrex »

sailaway wrote: Sun Sep 13, 2020 11:07 am The math is accurate, but the inputs are suspect. How long have you been gathering data to determine your spending?
Precisely, I always call FI calculators "real math with made up numbers".

There are countless assumptions that go into FI calculations and those assumptions have far more impact on outcome than any of the details of the calculations themselves.

18 years is a very, very long time away. I recommend that you use the FI calculator as a rough guide of how much you want to save this year in an effort to facilitate the kind of future you might want for yourself, but don't waste your energy getting too hung up on trying to actually predict the future.
rkhusky
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Re: FIRE Calculator Accurate?

Post by rkhusky »

It's an issue of false precision. Retirement in 20-30 years seems reasonable. Re-evaluate in 10 years. If the estimate says another 10 years, re-evaluate 5 years after that.
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