FireCalc: How big a grain of salt?

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TheTimeLord
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FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 9:08 am

I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
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Re: FireCalc: How big a grain of salt?

Post by SQRT » Sun Jul 15, 2018 9:14 am

I haven’t run firecalc in years. The results do t change much from year to year do they? I guess if your portfolio has done better than average over the last year or two your results might improve. In my case, my investments aren’t the same as the firecalc market reference so seems of little use to me.

I have to admit though, things are going very well. When do you up your spending? I started last year.

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 9:23 am

SQRT wrote:
Sun Jul 15, 2018 9:14 am
I haven’t run firecalc in years. The results do t change much from year to year do they? I guess if your portfolio has done better than average over the last year or two your results might improve. In my case, my investments aren’t the same as the firecalc market reference so seems of little use to me.

I have to admit though, things are going very well. When do you up your spending? I started last year.
Since I am still working/saving, the market has been going up and I am eliminating non-SS years there is what I would consider a real difference (not life changing) from year to year. I have I spreadsheet that uses about 4 different home made spending models and with annual real returns of 3%, 3.3%, 3.5% and 4%. About a 18 months ago I added if a quit tomorrow model uses 3.3%. So about every time I run my models I get a higher potential spending level.
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Re: FireCalc: How big a grain of salt?

Post by Pajamas » Sun Jul 15, 2018 9:24 am

“Past performance does not guarantee future results.”

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 9:36 am

Pajamas wrote:
Sun Jul 15, 2018 9:24 am
“Past performance does not guarantee future results.”
Nothing is guaranteed, the question is to what degree do you trust the predictive capability of their model. And I guess if you don't, what is the method should one use to make predictions about the ability of the portfolio to support them in retirement.
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Re: FireCalc: How big a grain of salt?

Post by jebmke » Sun Jul 15, 2018 9:40 am

I ran Firecalc once - mainly to see if the output agreed with the simulations that VG did for me. At some point, you have to stop analyzing everything to death or you will over-think something and make real mistakes. If your plan is reasonably robust, 2-3 different tools should not generate conflicting directions. If you are close to the edge, you probably can't retire anyway or you need to re-think the spend in a macro sense.
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Re: FireCalc: How big a grain of salt?

Post by Dottie57 » Sun Jul 15, 2018 9:41 am

Pajamas wrote:
Sun Jul 15, 2018 9:24 am
“Past performance does not guarantee future results.”
Granted. However I do feel good about having 100% success with with a decent spend in firecalc. I-orp.com is much mor optimistic.

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Re: FireCalc: How big a grain of salt?

Post by Pajamas » Sun Jul 15, 2018 9:45 am

TheTimeLord wrote:
Sun Jul 15, 2018 9:36 am
. . . what is the method should one use to make predictions about the ability of the portfolio to support them in retirement.
I simply divide the total amount by expected years of life and as long as it is significantly more than what I actually spend, then I don't worry about it. Honestly, I never set goals for total portfolio amounts or income. There are so many critical and mostly unknown variables, including life span, spending, portfolio amount, portfolio returns, etc.

It's easy to figure out what to do with any extra money; someone else can always use it for something if I don't need it.

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Re: FireCalc: How big a grain of salt?

Post by tennisplyr » Sun Jul 15, 2018 9:54 am

I look at a few of the more well known calculators and see what their saying. Since I am retired, the more important question is what can/will I do when/if things get dicey. Life is good 😀
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Re: FireCalc: How big a grain of salt?

Post by jebmke » Sun Jul 15, 2018 9:56 am

Pajamas wrote:
Sun Jul 15, 2018 9:45 am
Honestly, I never set goals for total portfolio amounts or income. There are so many critical and mostly unknown variables, including life span, spending, portfolio amount, portfolio returns, etc.
I never did either. During accumulation right after we were married we made a fundamental plan around saving and investing and then got on with life. There were way too may variables to try to predict the future so I never did. I really didn't even look at anything other than re-balancing until I was over 50.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 10:05 am

Pajamas wrote:
Sun Jul 15, 2018 9:45 am
TheTimeLord wrote:
Sun Jul 15, 2018 9:36 am
. . . what is the method should one use to make predictions about the ability of the portfolio to support them in retirement.
I simply divide the total amount by expected years of life and as long as it is significantly more than what I actually spend, then I don't worry about it. Honestly, I never set goals for total portfolio amounts or income. There are so many critical and mostly unknown variables, including life span, spending, portfolio amount, portfolio returns, etc.

It's easy to figure out what to do with any extra money; someone else can always use it for something if I don't need it.
I don't think that approach would be appropriate for me since one of my primary goals is to maximize things in the early years when I am still healthy and active. But everyone should go with an approach they are comfortable with since they are the one who has to live with the outcome.
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Re: FireCalc: How big a grain of salt?

Post by galeno » Sun Jul 15, 2018 10:17 am

Monte Carlo simulation on Portfoliovisualizer (PV) and Firecalc (FC).

Portfolio: 40% TSM + 60% Interm US Treasuries. Term: 35 yr. ER: 0.01. Success rate: 94%.

SWR (PV) = 3.9%. SWR (FC) = 3.8%.

When I use our portfolio's TER* of 0.40% in FC the SWR goes to 3.6%.

*TER (total expense ratio) is ER + TR (tax ratio) + other costs (commissions, spreads, wire fees, currency fees, etc).
Last edited by galeno on Sun Jul 15, 2018 10:22 am, edited 1 time in total.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Re: FireCalc: How big a grain of salt?

Post by am » Sun Jul 15, 2018 10:18 am

TheTimeLord wrote:
Sun Jul 15, 2018 9:08 am
I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Markets were good in the past. You were good if you retired sometime in the past. Most of the time you’d end up with more than you started using 4% swr. No one knows the future. There’s the risk of running out of money and time. No matter how many calculators, research, calculations you use, it will stay unknown.

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Re: FireCalc: How big a grain of salt?

Post by MnD » Sun Jul 15, 2018 10:26 am

A percentage of annual portfolio withdrawal plan damps out both the portfolio failures and the giant XX million portfolio ending balance scenarios. I like 5% of portfolio balance with a 3% inflation-adjusted floor.

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Re: FireCalc: How big a grain of salt?

Post by am » Sun Jul 15, 2018 10:31 am

MnD wrote:
Sun Jul 15, 2018 10:26 am
A percentage of annual portfolio withdrawal plan damps out both the portfolio failures and the giant XX million portfolio ending balance scenarios. I like 5% of portfolio balance with a 3% inflation-adjusted floor.
How does this work and will this last for more than 30 yrs if your an early retiree? If you have 1 mil, first year is 50k. What do mean by 3% floor?

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 10:36 am

am wrote:
Sun Jul 15, 2018 10:18 am
TheTimeLord wrote:
Sun Jul 15, 2018 9:08 am
I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Markets were good in the past. You were good if you retired sometime in the past. Most of the time you’d end up with more than you started using 4% swr. No one knows the future. There’s the risk of running out of money and time. No matter how many calculators, research, calculations you use, it will stay unknown.
OK, point not really on point.
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Re: FireCalc: How big a grain of salt?

Post by Pajamas » Sun Jul 15, 2018 10:38 am

TheTimeLord wrote:
Sun Jul 15, 2018 10:05 am

I don't think that approach would be appropriate for me since one of my primary goals is to maximize things in the early years when I am still healthy and active. But everyone should go with an approach they are comfortable with since they are the one who has to live with the outcome.
Yes, I saw your other thread about that.

The only times I didn't have enough money available to spend to meet my needs and wants were when I bought a relatively expensive automobile and when I bought an apartment, so I had to take loans in both instances. I generally start with what I need and then what I want rather than first looking at how much money I have in determining how much to spend. If you don't have enough money to pay for what you need and want or are trying to maximize what you spend, then it's more of a concern. I'm not sure which comes first, the chicken or the egg.

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Re: FireCalc: How big a grain of salt?

Post by knpstr » Sun Jul 15, 2018 11:00 am

TheTimeLord wrote:
Sun Jul 15, 2018 9:08 am
I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
As everyone said, it isn't a guarantee. Of course, nothing can be guaranteed so that caveat is presumably taken. If you want a guarantee you'll never be able to retire.

That said, if firecalc spits out 100.00% success rate AND you used a fairly conservative scenario (meaning you even assumed more spending than you anticipate needing) that is probably the best you can do. You are very very likely able to retire.
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Re: FireCalc: How big a grain of salt?

Post by ruralavalon » Sun Jul 15, 2018 11:13 am

Dottie57 wrote:
Sun Jul 15, 2018 9:41 am
Pajamas wrote:
Sun Jul 15, 2018 9:24 am
“Past performance does not guarantee future results.”
Granted. However I do feel good about having 100% success with with a decent spend in firecalc. I-orp.com is much mor optimistic.
TheTimeLord wrote:
Sun Jul 15, 2018 9:36 am
Pajamas wrote:
Sun Jul 15, 2018 9:24 am
“Past performance does not guarantee future results.”
Nothing is guaranteed, the question is to what degree do you trust the predictive capability of their model. And I guess if you don't, what is the method should one use to make predictions about the ability of the portfolio to support them in retirement.
I don't know how to assign a margin of error to firecalc, which was your question.

I believe it gives as accurate a forecast as any.

Confidence is increased if other calculators indicate that the portfolio size is robust enough to outlast a 30 year retirement.

If a calculator indicates a lower probability of success then -- working longer, or a Single Premium Immediate Annuity, or both, must be considered.

I agree that it's good to plan on higher spending in early retirement, when health and energy level allow more activity like travel and sports. Calculators are less useful in predicting or planning spending levels in retirement.
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Re: FireCalc: How big a grain of salt?

Post by SQRT » Sun Jul 15, 2018 11:36 am

Pajamas wrote:
Sun Jul 15, 2018 9:24 am
“Past performance does not guarantee future results.”
Agree but after 12 years of very good results it seems reasonable to react. Otherwise my daughter is probably going to be very very wealthy. If I spend more maybe I can keep it to just one “very”.
Last edited by SQRT on Sun Jul 15, 2018 12:24 pm, edited 1 time in total.

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Re: FireCalc: How big a grain of salt?

Post by galeno » Sun Jul 15, 2018 12:21 pm

It's uncanny.

Using a term of 30 yr both PV and FC recommend a 96% SWR of EXACLY 4.0%. When we include our TER of 0.4% our 96% SWR goes to 3.8%. All three: 4% rule, PV, and FC give CONSERVATIVE forecasts.

Term: 30 yr. Success rate: 96%.

Monte Carlo simulation on Portfoliovisualizer (PV) and Firecalc (FC).

Portfolio: 40% TSM + 60% Interm US Treasuries. Term: 30 yr. ER: 0.01. Success rate: 96%.

SWR (PV) = 4.0%. SWR (FC) = 4.0%.

When I use our portfolio's TER* of 0.40% in FC the SWR goes to 3.8%.

*TER (total expense ratio) is ER + TR (tax ratio) + other costs (commissions, spreads, wire fees, currency fees, etc).
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Re: FireCalc: How big a grain of salt?

Post by whodidntante » Sun Jul 15, 2018 12:44 pm

Expected returns are low, particularly for domestic stocks. So I think firecalc is going to give you an optimistic answer.

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Re: FireCalc: How big a grain of salt?

Post by galeno » Sun Jul 15, 2018 1:12 pm

When you pick a term both PV and FC assume the WORST term in the database history.

So unless the FUTURE term you pick is worse than the worst PAST term in history, all three: the 4% rule, PV, and FC give a PESSIMISTIC answer.
whodidntante wrote:
Sun Jul 15, 2018 12:44 pm
Expected returns are low, particularly for domestic stocks. So I think firecalc is going to give you an optimistic answer.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Re: FireCalc: How big a grain of salt?

Post by JPH » Sun Jul 15, 2018 1:23 pm

The primary purpose of FireCalc is to show you the "grain of salt." The wild spread of all those lines tells you that almost anything is possible. But they converge to something reasonable.
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Re: FireCalc: How big a grain of salt?

Post by galeno » Sun Jul 15, 2018 1:38 pm

Exactly. I like both PV and FC. Why not run them every year or five to set your next one to five year AWR?

As the term goes down the AWR goes up. In my examples for a term of 35 years our SWR is 3.6%. For a term of 30 yr the SWR goes to 3.8%.
JPH wrote:
Sun Jul 15, 2018 1:23 pm
The primary purpose of FireCalc is to show you the "grain of salt." The wild spread of all those lines tells you that almost anything is possible. But they converge to something reasonable.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Re: FireCalc: How big a grain of salt?

Post by 2015 » Sun Jul 15, 2018 2:36 pm

galeno wrote:
Sun Jul 15, 2018 1:12 pm
When you pick a term both PV and FC assume the WORST term in the database history.

So unless the FUTURE term you pick is worse than the worst PAST term in history, all three: the 4% rule, PV, and FC give a PESSIMISTIC answer.
whodidntante wrote:
Sun Jul 15, 2018 12:44 pm
Expected returns are low, particularly for domestic stocks. So I think firecalc is going to give you an optimistic answer.
This has always confused me. It's always confused me how the valuations and expected returns crowd seems to miss what you've pointed out (and what I've repeated read, BTW). I'd be very interested to know if I've somehow missed something in their logic.

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Re: FireCalc: How big a grain of salt?

Post by Dandy » Sun Jul 15, 2018 2:37 pm

No knock on the software but like all of these calculators they are historically based and the future may or may not look anything like the different scenarios based upon the past. A good reality check about your situation but I would always have some reservations about the results - probably err on the conservative side.

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 2:49 pm

Reading through this thread, I am beginning to wonder how anyone retires without a constant fear of running out of money. Then that makes me wonder if anyone voluntarily retires or is everyone just forced out to live out their days in fear of financial calamity.
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Re: FireCalc: How big a grain of salt?

Post by LadyGeek » Sun Jul 15, 2018 3:09 pm

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).
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Re: FireCalc: How big a grain of salt?

Post by jebmke » Sun Jul 15, 2018 3:11 pm

TheTimeLord wrote:
Sun Jul 15, 2018 2:49 pm
Reading through this thread, I am beginning to wonder how anyone retires without a constant fear of running out of money. Then that makes me wonder if anyone voluntarily retires or is everyone just forced out to live out their days in fear of financial calamity.
I think a lot of folks simply try to structure their lives with some flexibility. If things get tough, they try to make some cuts in their routine expenses and delay discretionary expenses like travel or replacing the car -- or in some cases pick up part time jobs to tide them over. I've done taxes for some "single" retirees who have combined households even though they aren't married or even a couple. They share a house and some common expenses and that allows them to get by with less. At a more extreme level, they move in with family members.

Keep in mind that a large segment of the population lives with financial uncertainty their whole lives.
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Re: FireCalc: How big a grain of salt?

Post by ruralavalon » Sun Jul 15, 2018 5:19 pm

TheTimeLord wrote:
Sun Jul 15, 2018 2:49 pm
Reading through this thread, I am beginning to wonder how anyone retires without a constant fear of running out of money. Then that makes me wonder if anyone voluntarily retires or is everyone just forced out to live out their days in fear of financial calamity.
Many of the people who don't save for retirement or have defined benefit pensions truly do live (and realistically should live) in fear of financial insecurity.

If firecalc or i-orp give a 90+% chance of your money outlasting a 30 year retirement, then in my opinion a "constant fear of running out of money" or living "in fear of financial calamity" is not at all warranted.
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Re: FireCalc: How big a grain of salt?

Post by tennisplyr » Sun Jul 15, 2018 5:29 pm

TheTimeLord wrote:
Sun Jul 15, 2018 2:49 pm
Reading through this thread, I am beginning to wonder how anyone retires without a constant fear of running out of money. Then that makes me wonder if anyone voluntarily retires or is everyone just forced out to live out their days in fear of financial calamity.
No, no, no.....many in this forum are extremely conservative and fearful, don't take this as a reflection of the general population. I for one have far less than a million and have no fears of running out of money. You can call me an eternal optimist, half full kind of guy.
Those who move forward with a happy spirit will find that things always work out.

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Re: FireCalc: How big a grain of salt?

Post by Nate79 » Sun Jul 15, 2018 5:37 pm

TheTimeLord wrote:
Sun Jul 15, 2018 9:08 am
I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Looks like a boat load of grains of salt when the results they give have a range such as that. I mean how can you seriously expect to draw any conclusion when the range of balance can be between $XXXk and $XX,XXXk? A monkey can throw darts that accurate.

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 6:03 pm

Nate79 wrote:
Sun Jul 15, 2018 5:37 pm
TheTimeLord wrote:
Sun Jul 15, 2018 9:08 am
I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Looks like a boat load of grains of salt when the results they give have a range such as that. I mean how can you seriously expect to draw any conclusion when the range of balance can be between $XXXk and $XX,XXXk? A monkey can throw darts that accurate.
It is a projection of the success of being able to withdraw $X/year for a certain period, the range you are looking at is what would be left at the end of the period based on historical cycles. So the point is not about what would be left over at the end of the period but historically if your plan would have ever had a failure withdrawing that amount from a portfolio that started at a specified size.
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Re: FireCalc: How big a grain of salt?

Post by Hyperborea » Sun Jul 15, 2018 6:06 pm

One of the things I used to do in Firecalc to test my retirement plans was to do some sensitivity analysis. So, push your expenses a little, up the expense ratio, add an extra expense or make a planned future expense a bit bigger, reduce your pension or SS amounts, and see how likely it was to fail. For example, I have a planned expense in about 15 years for a home when I'm in my mid-60's but the cost is variable (how much I spend depends on the portfolio) and I tested it at various reasonable and unreasonable amounts.

If you are going to retire younger than say 65 or so then you should also try running the retirement duration for longer. Run them for 30 years to make sure that you get as many cycles as possible but then extend to 40 and maybe 50 years. Another test is to run for 30 years but require that the portfolio never drops below some failsafe amount - perhaps 1/4 to 1/3.

What you are looking for is not just do these more extreme cases survive but how quickly the failure rate changes. If you push hard on the parameters and the failure rate changes only a little then you aren't really far from the edge of failure in your plans. On the other hand if the failure rate climbs by 15% then your retirement scenario is close to the edge.

Of course, this is all based on historical data but other than that we've got nothing - even those claiming to predictive powers using assorted metrics (i.e. CAPE) are also based on historical data.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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Re: FireCalc: How big a grain of salt?

Post by Pajamas » Sun Jul 15, 2018 6:08 pm

As you point out, it's all based on historical cycles and the future may be different. Only one thing is certain: everyone living will die.

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Re: FireCalc: How big a grain of salt?

Post by Sandtrap » Sun Jul 15, 2018 6:13 pm

tennisplyr wrote:
Sun Jul 15, 2018 9:54 am
I look at a few of the more well known calculators and see what their saying. Since I am retired, the more important question is what can/will I do when/if things get dicey. Life is good 😀
+1
I've used, and continue to occasionally use, the following tools to keep track of and project forward as best they can.
ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
http://www.morningstar.com/portfolio.ht ... Entry.aspx
Optimal Retirement Planner (I-ORP)
https://www.i-orp.com/paper/index.html
http://www.calculator.net/investment-calculator.html

The most important thing that is actionable and controllable is how much is allocated to Emergency Funds and Fixed, and alternate income stream generating assets -- and spending in retirement.

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Re: FireCalc: How big a grain of salt?

Post by TheTimeLord » Sun Jul 15, 2018 6:17 pm

Pajamas wrote:
Sun Jul 15, 2018 6:08 pm
As you point out, it's all based on historical cycles and the future may be different. Only one thing is certain: everyone living will die.
You are correct, who knows stocks may go to zero, I guess they can't or shouldn't be counted on to keep moving from lower left to upper right over the long term because that is based on history, as are the advantages of indexing over active investing. Personally somewhere along the line I decided I needed to try to size the portfolio I would need to support a retirement that provides certain things. The only way I have ever been able to figure out how to do this is by using history as a guide. That doesn't mean my plan is accurate or will turn out the way I desire, it was just the only way I could figure out to make what I hoped to be realistic assumptions about returns going forward.
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Re: FireCalc: How big a grain of salt?

Post by gasdoc » Sun Jul 15, 2018 6:55 pm

I don’t have much to add. However, firecalc does give you a good starting point, and then you have to be willing to make changes to your withdrawal rate as market returns go from being an unknown to becoming known.

Gasdoc

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Re: FireCalc: How big a grain of salt?

Post by David Jay » Sun Jul 15, 2018 7:12 pm

The whole point of the Montecarlo simulations in Firecalc is use the best and worst of past time periods (and everything in between), so short of an extinction-level event (major asteroid strike, etc), if the bottom-most lines on the spaghetti graph are well above zero then you are as well covered as is practical to know.

Trying to achieve metaphysical certainty will keep you working until 2025.
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Re: FireCalc: How big a grain of salt?

Post by Sandtrap » Sun Jul 15, 2018 7:15 pm

There's a fascinating, fiber filled, info rich, post/thread by "will thrill" that addresses these issues as well.

"A different take on retirement income: time segmentation"
viewtopic.php?p=4021760#p4021760

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Re: FireCalc: How big a grain of salt?

Post by 2015 » Sun Jul 15, 2018 7:25 pm

TheTimeLord wrote:
Sun Jul 15, 2018 2:49 pm
Reading through this thread, I am beginning to wonder how anyone retires without a constant fear of running out of money. Then that makes me wonder if anyone voluntarily retires or is everyone just forced out to live out their days in fear of financial calamity.
Using LMP with an RP helps. LMP allows me the freedom to completely ignore market noise commentary. I'm using the RP in conjunction with VPW (although I'm not sure yet the extent to which I'll be taking withdrawals from the RP, if I do so at all). I realize use of LMP can be expensive, depending on your circumstances.

Use of LMP frees me to focus on more important things like the proper use of time, since more money can always be manufactured but more life cannot. I don't know why, but this year I've been surrounded by people who are dying or are near death. Not a one has mentioned wishing they had made more money in life.

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Re: FireCalc: How big a grain of salt?

Post by Hyperborea » Sun Jul 15, 2018 7:32 pm

David Jay wrote:
Sun Jul 15, 2018 7:12 pm
The whole point of the Montecarlo simulations in Firecalc is use the best and worst of past time periods (and everything in between), so short of an extinction-level event (major asteroid strike, etc), if the bottom-most lines on the spaghetti graph are well above zero then you are as well covered as is practical to know.
Firecalc originally and currently by default does NOT use Monte Carlo simulations but real historical data. It runs your scenario as if you retired in 1870 and figures the end result. Then it runs it as if you retired in 1871 and so on.

Monte Carlo simulations do a great job of simulating molecules in a vapour but a poor job of simulating reality in finance. There are too many variables that interconnect in ways that vary over time. Most such simulators assume a perfect gaussian distribution on your returns with no skew (asymmetry) or kurtosis (fat tails) with no interaction between the portfolio elements (stocks, bonds, and inflation) and no reversion to the mean as has been observed historically. So, overall not so helpful.
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Re: FireCalc: How big a grain of salt?

Post by David Jay » Sun Jul 15, 2018 7:39 pm

Hyperborea wrote:
Sun Jul 15, 2018 7:32 pm
David Jay wrote:
Sun Jul 15, 2018 7:12 pm
The whole point of the Montecarlo simulations in Firecalc is use the best and worst of past time periods (and everything in between), so short of an extinction-level event (major asteroid strike, etc), if the bottom-most lines on the spaghetti graph are well above zero then you are as well covered as is practical to know.
Firecalc originally and currently by default does NOT use Monte Carlo simulations but real historical data. It runs your scenario as if you retired in 1870 and figures the end result. Then it runs it as if you retired in 1871 and so on.

Monte Carlo simulations do a great job of simulating molecules in a vapour but a poor job of simulating reality in finance. There are too many variables that interconnect in ways that vary over time. Most such simulators assume a perfect gaussian distribution on your returns with no skew (asymmetry) or kurtosis (fat tails) with no interaction between the portfolio elements (stocks, bonds, and inflation) and no reversion to the mean as has been observed historically. So, overall not so helpful.
Sorry, I used the wrong term. I know that they used real historical data. I thought that the “spaghetti” diagram was called a Montecarlo presentation.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: FireCalc: How big a grain of salt?

Post by Will do good » Sun Jul 15, 2018 8:35 pm

OMY and you will be fine, if still fearful than another OMY. OMY. OMY. OMY. OMY.

To be honest, if BH could be in trouble by not having enough, imagine what the rest of the country/world would be like. YOLO :sharebeer

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Re: FireCalc: How big a grain of salt?

Post by am » Sun Jul 15, 2018 8:49 pm

Pajamas wrote:
Sun Jul 15, 2018 6:08 pm
As you point out, it's all based on historical cycles and the future may be different. Only one thing is certain: everyone living will die.
It would be easier to plan if we knew when we die. But even then we would not know how the markets will behave nor how we’d reach death (chronic multi year debilitating illness versus sudden death). We bogleheads try to reach as much certainty as possible with regards to retirement, but at some point you just gotta bite the bullet and do it. We’re all better off than most, if not simply for the knowledge we have.

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Re: FireCalc: How big a grain of salt?

Post by LadyGeek » Sun Jul 15, 2018 9:00 pm

Will do good wrote:
Sun Jul 15, 2018 8:35 pm
OMY and you will be fine, if still fearful than another OMY. OMY. OMY. OMY. OMY.

To be honest, if BH could be in trouble by not having enough, imagine what the rest of the country/world would be like. YOLO :sharebeer
Acronym help:

OMY - One More Year
YOLO - You Only Live Once
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Re: FireCalc: How big a grain of salt?

Post by flyingaway » Sun Jul 15, 2018 9:04 pm

Will do good wrote:
Sun Jul 15, 2018 8:35 pm
OMY and you will be fine, if still fearful than another OMY. OMY. OMY. OMY. OMY.

To be honest, if BH could be in trouble by not having enough, imagine what the rest of the country/world would be like. YOLO :sharebeer
When you can make the decision (to retire or not), OMY can alleviate many problems.

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Re: FireCalc: How big a grain of salt?

Post by HomerJ » Sun Jul 15, 2018 9:44 pm

am wrote:
Sun Jul 15, 2018 10:18 am
TheTimeLord wrote:
Sun Jul 15, 2018 9:08 am
I periodically run Firecalc, which I did this morning, and here are the results with what I consider a pretty aggressive level of spending. My question is how big a grain of salt do I take these with? FWIW, the results were pretty much inline with my own spreadsheets, so I feel good about that. But like a lot of people after this long bull market I am having trouble accepting things are really turning out this well.
Here is how your portfolio would have fared in each of the XXX cycles. The lowest and highest portfolio balance at the end of your retirement was $X10,045 to $XX,356,158, with an average at the end of $X,244,306. (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.)
For our purposes, failure means the portfolio was depleted before the end of the XX years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Markets were good in the past. You were good if you retired sometime in the past. Most of the time you’d end up with more than you started using 4% swr. No one knows the future. There’s the risk of running out of money and time. No matter how many calculators, research, calculations you use, it will stay unknown.
Considering the past included the GREAT DEPRESSION, and 1966-1982, where the market basically went nowhere for SIXTEEN years.... AND that sixteen year period ended with a couple of years of 10% inflation...

I feel fairly good about a portfolio that survived those events. Sure, the next 30 years could be even WORSE... It's certainly possible. But we had some pretty bad 30-year periods in the past too.
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Re: FireCalc: How big a grain of salt?

Post by Silver Bullet » Sun Jul 15, 2018 10:00 pm

Does FireCalc take tax implications into account? For example, are the earnings scenarios pre-tax or post-tax? Assuming that the "Spending" calculation is in post-tax dollars, but it really doesn't say (or I missed it). If it's pre-tax Spending, shouldn't this figure be increased to a gross number?

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