Author Topic: firecalc and cFIREsim both lie?  (Read 133646 times)

lauren_knows

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Re: firecalc and cFIREsim both lie?
« Reply #100 on: April 17, 2014, 10:49:16 AM »
Yeah, it looks like you're breaking it using that model outside it's intended use.

It's been a while since I've talked through this model, but I think your situation is never actually taking advantage of the "sinking" or "rising" portfolio.  It's always using the ceiling.  That's because it calculates "sinking" or "rising" by using those percentages and comparing them to your ceiling/floor.  So, if you make it 0/100, you negate the whole model and it will choose the ceiling all the way until it's about to fail, then it will try to use the floor but its too late.

The default 40k/1M scenario says 3%/5%  50k/30k for the variable spending.  So an example is:

2010 - Portfolio - 1,000,000 : Spending - 40,000 (which is based on the initial spending listed to the far left).
2011 - Portfolio - 900k   (Ok, 3% of 900k is $27k. 5% is $45k. Because the current spending of 40k is in between the ceiling/floor and the 3%/5%, spending will remain at 40k)
2012 - Portfolio - 700k  (Major market hit. 3% of 700k is $21k, 5% is $35k. Because the 35k is less than the current spending, 35k is the new spending level)
2013 - Portfolio - 550k (More market hits. 3% of 550k is $16500, 5% is $27500. But, because the overall Floor is 30k, new spending is now 30k)
2014 - Portfolio - 1,200,000 (historical hypothetical major upswing!.  3% is $36k, 5% is 60k. Because the overall ceiling is 50k, new spending is 50k).

TL;DR: 0/100% breaks it, yes.

arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #101 on: April 17, 2014, 10:57:47 AM »
Ah, I see.

That's because it calculates "sinking" or "rising" by using those percentages and comparing them to your ceiling/floor.

That's the key part I was missing.

I was picturing it using sinking/rising as "market down/market up" based on the previous year.  This would fluctuate your spending quite a bit year to year though.

I'm picturing a spending model that calculates "market down (or maybe down X%) previous year, trim the fat and use $X.  Market flat or up, use normal spending).  So you basically have a  budget of $Y, and know there's some fat in it, such that you can cut down to a lean budget of $X if the market dropped at least a certain percentage.  Guess there's no way, as of yet, to model that.

I'll noodle it over some more.

Thanks for the help BK!
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arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #102 on: April 17, 2014, 11:03:33 AM »
Another second of noodling solved it.  If it's using the percentage to determine up or down, I can just set them the same.  (I really do like to break models and/or use them outside their intended use.  Heh.)

So setting both the floor and ceiling percent to 4%, then it will use my spending floor and ceiling.  As I said above, it does make your spending jump up and down a lot year-to-year, but it increases the success rate to 77%.
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lauren_knows

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Re: firecalc and cFIREsim both lie?
« Reply #103 on: April 17, 2014, 11:06:07 AM »
Ah, I see.

That's because it calculates "sinking" or "rising" by using those percentages and comparing them to your ceiling/floor.

That's the key part I was missing.

I was picturing it using sinking/rising as "market down/market up" based on the previous year.  This would fluctuate your spending quite a bit year to year though.

I'm picturing a spending model that calculates "market down (or maybe down X%) previous year, trim the fat and use $X.  Market flat or up, use normal spending).  So you basically have a  budget of $Y, and know there's some fat in it, such that you can cut down to a lean budget of $X if the market dropped at least a certain percentage.  Guess there's no way, as of yet, to model that.

I'll noodle it over some more.

Thanks for the help BK!

Well, if you think about it, it does follow the market dips/rises... it's just a little abstract.  That window of 3%/5% moves up and down based on the market.  Also, it will never fluctuate outside of the specified CPI-adjusted Floor/Ceiling values you set (say, 46800 and 37600 or whatever).

I think that when we were brainstorming on this idea, someone suggested making it "simpler" by tracking the actual market like you suggest (if down 10%, cut back a certain amount of spending, etc), but we got muddled up by trying to come up with concrete rules as to when to increase/decrease your spending after the first adjustment.  After that 10% decline, when is it safe to increase spending? After it reaches the original value? After a 5% flat climb? If you're drawing down a portfolio, you might never see it "climb" again... right?

Stuff like this has hurt my brain for the entire cFIREsim project :)

arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #104 on: April 17, 2014, 11:31:45 AM »
Another second of noodling solved it.  If it's using the percentage to determine up or down, I can just set them the same.  (I really do like to break models and/or use them outside their intended use.  Heh.)

So setting both the floor and ceiling percent to 4%, then it will use my spending floor and ceiling.  As I said above, it does make your spending jump up and down a lot year-to-year, but it increases the success rate to 77%.

Hmm.. so that creates some interesting situations wherein the success rate goes down as you increase the spread. 

In any case, getting back to the relevant stuff we were discussing with Sol's "50% success rate" scenario...

I do like your aggressive nature on that though, and the viewpoint of "50% just means you'll be just as likely to be fine as to need to trim and adjust a little."

EDIT: After two minutes on cFIREsim, I found that 50% success rate is about a 5.85% SWR, which is the same as having about 17X your annual expenditures in assets.

Spending: 46,800/yr
Portfolio: 800,000
WR: 5.85%
Success Rate: 50.44%

Then setting your "fat trim" to be 20% of your budget (i.e. minimum spending of 37440), ceiling spending of 46800, min % withdraw from rising to be 5.85% and max withdraw from sinking to be 4.68%, or 37440/800000), you raise your success rate to 72%.

So variable spending will help, but historically even if you cut back 20% of your budget due to bad years, you'd still have run out of money 1/4 of the time. 

So one may need to be even more aggressive than that in cutting, or shoot for a higher success rate than 50% initially (i.e. lower than 5.85% SWR).

In fact, if I run a scenario of 5% SWR...

Portfolio: 800k
Spending (5% SWR): 40000
Fat trimmed spending (20% cut): 32000

Normal success rate (at regular inflation adjusted withdrawals, not variable) is 70% (69.91)

Now we switch to variable spending.  Max spending 40k, min 32k.  5% and 4% ceilings.  That increases your success rate all the way to 92%.

So if a SWR of 5% is viable over 9 times out of 10, historically, with some flexibility in spending, 4% is quite ridiculously safe, if you're willing to trim fat in bad years.

Starting with a 5% SWR and dropping spending by 30% in bad years (5%/3.5% and 40k/28k ceiling/floors) gives you a 99% success rate (just one failure, 1966).
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Mister Fancypants

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Re: firecalc and cFIREsim both lie?
« Reply #105 on: April 17, 2014, 11:47:42 AM »
Hmm.. so that creates some interesting situations wherein the success rate goes down as you increase the spread. 

In any case, getting back to the relevant stuff we were discussing with Sol's "50% success rate" scenario...

Spending: 46,800/yr
Portfolio: 800,000
WR: 5.85%
Success Rate: 50.44%


Then setting your "fat trim" to be 20% of your budget (i.e. minimum spending of 37440), ceiling spending of 46800, min % withdraw from rising to be 5.85% and max withdraw from sinking to be 4.68%, or 37440/800000), you raise your success rate to 72%.

So variable spending will help, but historically even if you cut back 20% of your budget due to bad years, you'd still have run out of money 1/4 of the time. 

So one may need to be even more aggressive than that in cutting, or shoot for a higher success rate than 50% initially (i.e. lower than 5.85% SWR).

In fact, if I run a scenario of 5% SWR...

Portfolio: 800k
Spending (5% SWR): 40000
Fat trimmed spending (20% cut): 32000

Normal success rate (at regular inflation adjusted withdrawals, not variable) is 70% (69.91)

Now we switch to variable spending.  Max spending 40k, min 32k.  5% and 4% ceilings.  That increases your success rate all the way to 92%.

So if a SWR of 5% is viable over 9 times out of 10, historically, with some flexibility in spending, 4% is quite ridiculously safe, if you're willing to trim fat in bad years.

Starting with a 5% SWR and dropping spending by 30% in bad years (5%/3.5% and 40k/28k ceiling/floors) gives you a 99% success rate (just one failure, 1966).

The reality is most people will not have the ability to cut $8,000 out of there annual budget $40,000 due to poor market performance on the turn of a dime, let alone do it for multiple years or indefinetely.

Having a larger amount of excess which allows for lower consumptions and higher wealth preservation is really the only thing you can plan for as you have no idea what you actual spending will need to be or what the markets will actually do.

Cutting it too close is too risky, modeling is all academic, a very useful tool for guidence but in reality too many people use it as a crutch or an excuse and for many it is way to early in the game for them to realize they are going to fail.

sol

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Re: firecalc and cFIREsim both lie?
« Reply #106 on: April 17, 2014, 11:54:00 AM »
So if a SWR of 5% is viable over 9 times out of 10, historically, with some flexibility in spending, 4% is quite ridiculously safe, if you're willing to trim fat in bad years.

Starting with a 5% SWR and dropping spending by 30% in bad years (5%/3.5% and 40k/28k ceiling/floors) gives you a 99% success rate (just one failure, 1966).

It's this last scenario that I'm most interested in.  Getting from 90% to 100% is really tough if you have to do it by working longer, because it means dropping your SWR from like 4.0 to 2.5%, which means saving 40 years of expenses instead of 25 years of expenses and at a 50% savings rate would commit you to working for at least an extra decade.

But if you can instead get from 90% to 100% by being flexible in your withdrawal rate, then you save yourself all those years of working and chances are good your SWR will be exactly the same.  And if you just so happen to retire in one of the historically worst possible years, your portfolio success would still be 100% as long as you could cut back a little. 

I'd much rather accept an extra 15 years of financial freedom with a slim 10% chance of having to tighten my belt someday than choose to stay stuck slaving away for 15 years in a crappy job for my prime years of life, missing my kids grow up, losing my health to a desk job.  It's like worrying about the cost of an auto accident so you buy a huge SUV, you've totally miscalculated the real costs. 

And I don't think so poorly of myself that I believe I could never find work again after retirement.  It's not like this is a one way street after you pull the trigger, where you are forbidden from ever re-entering the workforce.  The possibility of a little extra income at some point down the road also does a lot to ease the worry of hitting one of those worse case scenarios.

But that's just me.  If someone else really wants to double their stash in order to feel safe, instead of relying on their own flexibility to spend or ability to earn some side income someday, I'm fine with that. 

I'm also fine with people buying luxury cars and expensive vacations and $6 cups of coffee.  Somebody has to work and spend to keep the engine turning so that I can hitch a ride, so I don't begrudge them their decisions as long as they make them with their eyes open. 


arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #107 on: April 17, 2014, 12:07:44 PM »
I'd much rather accept an extra 15 years of financial freedom with a slim 10% chance of having to tighten my belt someday

Except that that's not quite it.  The 90% success rate assumes you start tightening your belt right away, not just "someday," if the market is down.
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Re: firecalc and cFIREsim both lie?
« Reply #108 on: April 17, 2014, 12:17:19 PM »
Sol, another thing you may be interested in is that as a Fed, you can likely take at least one year of Leave Without Pay (LWOP), which gives you the option of returning to work on the off chance you see a horrible market year within your first 12 months (guaranteed to return to a position at your grade/step). Doesn't totally eliminate bad sequencing risk, but it's some help. Also, amazingly enough, 6 months of that LWOP time counts toward your retirement! So, for example, you could glide out of your job on LWOP after 9.5 years, and get credit for 10 years of service.

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Re: firecalc and cFIREsim both lie?
« Reply #109 on: April 17, 2014, 12:53:59 PM »
I did some research a looong time ago on the firecalc outputs and came up with a test to determine which line on the chart you're on (destined for success or destined for failure?). 

Full research here: six year old thread at early-retirement.org forums

Abstract:
"About 10-15 years into your retirement, look at your portfolio balance in inflation adjusted dollars versus what it was when you retired. If you have less than 50-60% of your portfolio remaining at that point (adjusted for inflation), you are very likely to run out of money or have a very low portfolio balance at some point in the future. In other words, I'm proposing a FIRE check-up about 10-15 years into retirement. If your portfolio value at 10 to 15 years is less than 50-60% of the initial value, start thinking about earning income from some other source, or reducing expenses, or both."

One critique from a poster was that I'm data-mining a historical data set and the future might not hold.  True enough, although I don't know of a better solution than using the data we have.

Sadly, my spreadsheet went poof (per my comments from 6 years ago). 

Reflecting back on my thinking six years ago, wow was I a FIRE nerd.  Now that I'm FIRE'd, I don't have a hard and fast withdrawal rule.  I'm aiming at around 3-4% of the actual portfolio value each year with a floor of probably $25-30k.  If our portfolio dropped 43%, we could still pull 4% of the new value to generate a $25k withdrawal.  And I have a little side hustle income flowing in the door that can easily push our $25k bare bones spending to $30-35k or more if I focused more effort.  Basically, now that I have arrived at FI, I'm not too worried about a hard and fast rule. 

lauren_knows

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Re: firecalc and cFIREsim both lie?
« Reply #110 on: April 17, 2014, 01:10:53 PM »
Basically, now that I have arrived at FI, I'm not too worried about a hard and fast rule.

That's good for you, but us yet-to-be-retired dreamers sometimes cling to these calculations to find a semi-tangible goal date for retirement that makes us feel warm and fuzzy ;)

arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #111 on: April 17, 2014, 01:54:54 PM »
I did some research a looong time ago on the firecalc outputs and came up with a test to determine which line on the chart you're on (destined for success or destined for failure?). 

You're FUEGO on the ER boards?!

You just jumped up a bunch in my book.  That FUEGO guy, he fucking knows what he's talking about.  :D

I like how you say in the first post of that thread:
Quote
I'll be late 30's, maybe 40 by the time I can FIRE.

Hah, you beat the * outta that goal.  :)
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RootofGood

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Re: firecalc and cFIREsim both lie?
« Reply #112 on: April 17, 2014, 04:38:49 PM »
I did some research a looong time ago on the firecalc outputs and came up with a test to determine which line on the chart you're on (destined for success or destined for failure?). 

You're FUEGO on the ER boards?!

You just jumped up a bunch in my book.  That FUEGO guy, he fucking knows what he's talking about.  :D

I like how you say in the first post of that thread:
Quote
I'll be late 30's, maybe 40 by the time I can FIRE.

Hah, you beat the * outta that goal.  :)

Oh crap, you guys know who FUEGO is?  ;)

Yeah, that's me. 

My FIRE date was advanced about 2 years thanks to a disgruntled boss.  :)  It has been working out well so far, and the up market got us where we wanted to be anyway. 

I think I tightened up my income needs and my idea of an adequately sized portfolio.  I don't need the 1.5 million I thought I would need in 2008.  It's closer to $1.2 million.  And wow, $60k/yr what was I thinking?  We're living pretty large on $32k right now.

Oh wait, I was budgeting $10k for health insurance in the pre-obamacare days.  And extra tax on the extra income to get us to $60k. 

Nords

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Re: firecalc and cFIREsim both lie?
« Reply #113 on: April 17, 2014, 06:31:52 PM »
Until that level of math and computing power is actually trusted, an annuity (of some percentage of the portfolio) is the only way to assure the portfolio's longevity.

This is a relatively easy thing to simulate.  It's not a matter of insufficient computing power, just insufficient generosity on the part of people who write these things for free for the benefit of the rest of us.

Firecalc and cFIREsim are not exactly complicated mathematical tools.  Building a model that allows you to turn down your spending by specified amounts wouldn't be hard.  I might devote a few hours to play with excel some weekend, just to see.
My commentary about "trusted math and computing power" is not directed at Bo_Knows.  I'm not complaining about "insufficient generosity".  Hell, Bo fixed FIRECalc from scratch after its new owner flailed around for over five years (and at least three programmers) trying to upgrade the current version.  Dory sold that program at the peak of its valuation and bagged the new guy with the task list.

What I'm apparently not expressing very well is the fact that there is scant peer-reviewed reproducible research leading to an accepted and widely-used retirement calculator which uses variable-spending algorithms in retirement. 

Many people fail to even complete a run on one of today's calculators, and USAA has built an entire retirement planner around this issue.  cFIRESim does lots of things right, but users struggle to figure them out.  ESPlanner is probably more complicated (and expensive) than most customers are willing to tackle.  FinancialMentor's retirement calculator is very good, but it's not based on SWRs.  The Bogleheads Wiki lists at least two dozen retirement calculators, and I couldn't even name six of them blindfolded.  Guyton's manual algorithm makes my head hurt, and I'm a nuclear engineer at the (presumptive) peak of my cognition.

If realistic retirement spending was "relatively easy" to simulate then it would've been done by now, yet researchers like Wade Pfau and Michael Kitces are going to spend their entire careers laying the foundation for (and perhaps building) the software that's going to help the average user figure out how much to spend in retirement for various market valuations and returns.  Then we really would be able to retire at a 4% SWR (or even higher) with 100% success rates because we'd know when to cut back spending, and by how much.  Everything right now is, at best, a "thumbrule".

I swear you people and your calculators.  You're staring at a glass half empty/full of tepid water.  Why isn't it filled to the rim with ice cold beer? 
As for the 30-something potential early retirees debating about 3.x% or 4.x% or whatever SWR giving a 50-95-99-100% SWR, I just don't think the traditional "adjust for inflation each year and maintain a flat real consumption" is realistic.  In many of the simulation runs, you're sitting on 3-4x the wealth you started with after a few decades. 
I suspect that we've read too many of these SWR threads over the past decade...

I did some research a looong time ago on the firecalc outputs and came up with a test to determine which line on the chart you're on (destined for success or destined for failure?). 

You're FUEGO on the ER boards?!

You just jumped up a bunch in my book.  That FUEGO guy, he fucking knows what he's talking about.  :D
Hey, he's not just FUEGO, but in an earlier incarnation of E-R.org he was--

Well, I'd better let him reveal that identity when the time is right.  The statute of limitations may still have some time left to run, and he may still be negotiating the book/movie rights.
« Last Edit: April 17, 2014, 06:34:24 PM by Nords »

lauren_knows

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Re: firecalc and cFIREsim both lie?
« Reply #114 on: April 17, 2014, 06:39:23 PM »
I agree Nords... retirement calculators are too hard to use, and I'll be the first to admit that cFIREsim has a huge learning curve.

I intended to try and alleviate that with "crowdsourced" ideas, but it's hard to generate detailed discussion.  Plus, as you mentioned, there isn't enough peer-reviewed work on withdrawal strategies that would work.  I wish I knew more about Monte Carlo simulators, because I'd be able to tweak the one on cFIREsim and do WAY more analysis.  But, alas, it is pretty complicated statistics.

Mister Fancypants

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Re: firecalc and cFIREsim both lie?
« Reply #115 on: April 17, 2014, 07:55:27 PM »
Until that level of math and computing power is actually trusted, an annuity (of some percentage of the portfolio) is the only way to assure the portfolio's longevity.

This is a relatively easy thing to simulate.  It's not a matter of insufficient computing power, just insufficient generosity on the part of people who write these things for free for the benefit of the rest of us.

Firecalc and cFIREsim are not exactly complicated mathematical tools.  Building a model that allows you to turn down your spending by specified amounts wouldn't be hard.  I might devote a few hours to play with excel some weekend, just to see.
My commentary about "trusted math and computing power" is not directed at Bo_Knows.  I'm not complaining about "insufficient generosity".  Hell, Bo fixed FIRECalc from scratch after its new owner flailed around for over five years (and at least three programmers) trying to upgrade the current version.  Dory sold that program at the peak of its valuation and bagged the new guy with the task list.

What I'm apparently not expressing very well is the fact that there is scant peer-reviewed reproducible research leading to an accepted and widely-used retirement calculator which uses variable-spending algorithms in retirement. 

Many people fail to even complete a run on one of today's calculators, and USAA has built an entire retirement planner around this issue.  cFIRESim does lots of things right, but users struggle to figure them out.  ESPlanner is probably more complicated (and expensive) than most customers are willing to tackle.  FinancialMentor's retirement calculator is very good, but it's not based on SWRs.  The Bogleheads Wiki lists at least two dozen retirement calculators, and I couldn't even name six of them blindfolded.  Guyton's manual algorithm makes my head hurt, and I'm a nuclear engineer at the (presumptive) peak of my cognition.

If realistic retirement spending was "relatively easy" to simulate then it would've been done by now, yet researchers like Wade Pfau and Michael Kitces are going to spend their entire careers laying the foundation for (and perhaps building) the software that's going to help the average user figure out how much to spend in retirement for various market valuations and returns.  Then we really would be able to retire at a 4% SWR (or even higher) with 100% success rates because we'd know when to cut back spending, and by how much.  Everything right now is, at best, a "thumbrule".

I agree the "what I will spend per year?" and "what I will spend it on?" and "how and when to adjust my spending based on market and/or life events?" is nearly impossible to predict. Perhaps some neural network programming could approximate the randomness but no current retirement planner can effectively predict what people will actually need or do especially with longer retirement runs that are created by FIRE.

Tools like cFiresim are great for showing expected outcomes of portfolios against known spending drawdowns, as soon as you can know you spending 100% you are all set.

Until then plan on having excess margin of safety in your portfolio and plan on drawing less from it.

I'm not saying work an extra 10 years to guarantee you will never run out of money, I just think way too many people FIRE on a portfolio that can barely sustain them if it really can at all because they simply can't fathom what it takes to calculate true inflationary living expenses over multiple decades.

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Re: firecalc and cFIREsim both lie?
« Reply #116 on: April 18, 2014, 08:37:30 AM »
I'm not saying work an extra 10 years to guarantee you will never run out of money, I just think way too many people FIRE on a portfolio that can barely sustain them if it really can at all because they simply can't fathom what it takes to calculate true inflationary living expenses over multiple decades.

I'd wager the opposite is true among the FIRE community at large.  Those that actually get close to pulling the trigger seem to suffer "one more year" pretty often.  Which means even more margin of safety beyond the 4% firecalc results.

Then they retire early and live like they are destitute for a year or two because they are withdrawing instead of saving (something very painful when you're a hard core skinflint and have grown accustomed to saving more than you spend every year).

As for inflation, that's implicitly built into the firecalc/cFIREsim runs.  Among the FIRE community, there seems to be a lot of understanding of inflation (compared to the general population of traditional retirement seekers).   

Depending on the forum, some talk about 2% SWRs and having a multi-million dollar portfolio.  Then others will respond with "do you think $3 million will be enough?".  There's a thread on early-retirement.org right now with a 30-something guy with $3MM pondering sticking it out till he gets to $5-6MM "for a margin of safety".  He's making a million per yet net at a not-so-bad job, so I might stick it out too.  :)


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Re: firecalc and cFIREsim both lie?
« Reply #117 on: April 18, 2014, 09:00:46 AM »
Under 35:  Yeah, I got enough.  Heck, I'll just go back to work if I don't have enough income!

Over 35:  Well, there are the kids to educate.  And I don't know if Social Security will be there for me.  And what if we have another 2008?  Do these models really work out in real life?  I guess I will work one more year (or 5 more) just to make sure.

JohnGalt

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Re: firecalc and cFIREsim both lie?
« Reply #118 on: April 18, 2014, 09:06:58 AM »
I'm not saying work an extra 10 years to guarantee you will never run out of money, I just think way too many people FIRE on a portfolio that can barely sustain them if it really can at all because they simply can't fathom what it takes to calculate true inflationary living expenses over multiple decades.

I'd wager the opposite is true among the FIRE community at large.  Those that actually get close to pulling the trigger seem to suffer "one more year" pretty often.  Which means even more margin of safety beyond the 4% firecalc results.

Then they retire early and live like they are destitute for a year or two because they are withdrawing instead of saving (something very painful when you're a hard core skinflint and have grown accustomed to saving more than you spend every year).


Trying to find the middle ground between these two is one reason I ended up with my current plan to hit a bare minimum FI point such that I could get by off the 4% rule (or whatever rule I end up being comfortable with) and then switch over to consulting/job hopping/doing things that cover expenses (phD program with a stipend, peace corps, etc) until I run out of things I'm interested in doing that come with a paycheck of some sort.  I don't see that happening anytime soon.  In fact - I can't even imagine "retiring" at 30 with a goal of never doing anything again that involves a paycheck. 

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Re: firecalc and cFIREsim both lie?
« Reply #119 on: April 18, 2014, 09:13:18 AM »
Guyton's manual algorithm makes my head hurt, and I'm a nuclear engineer at the (presumptive) peak of my cognition.

Yeah, but are you a PE?

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Re: firecalc and cFIREsim both lie?
« Reply #120 on: April 18, 2014, 02:37:56 PM »
I'm not saying work an extra 10 years to guarantee you will never run out of money, I just think way too many people FIRE on a portfolio that can barely sustain them if it really can at all because they simply can't fathom what it takes to calculate true inflationary living expenses over multiple decades.

I'd wager the opposite is true among the FIRE community at large.  Those that actually get close to pulling the trigger seem to suffer "one more year" pretty often.  Which means even more margin of safety beyond the 4% firecalc results.

Then they retire early and live like they are destitute for a year or two because they are withdrawing instead of saving (something very painful when you're a hard core skinflint and have grown accustomed to saving more than you spend every year).


Trying to find the middle ground between these two is one reason I ended up with my current plan to hit a bare minimum FI point such that I could get by off the 4% rule (or whatever rule I end up being comfortable with) and then switch over to consulting/job hopping/doing things that cover expenses (phD program with a stipend, peace corps, etc) until I run out of things I'm interested in doing that come with a paycheck of some sort.  I don't see that happening anytime soon.  In fact - I can't even imagine "retiring" at 30 with a goal of never doing anything again that involves a paycheck.
One of the ironies of getting over "Just One More Year!" syndrome is the fear that once you leave the workplace you'll never be able to earn another dime... and then your body will break down if you try to go back to work in another occupation.

Yet now that I'm not earning a paycheck, I see entrepreneurial revenue opportunities everywhere.  I've stumbled across them several times per year for the last 12 years, and they're everywhere.  Clearing $10K-$20K/year seems ridiculously straightforward, and even $30K/year is within a couple years of bootstrapping.  If I was really willing to surf less for a few years then I'd be able to completely replace my old paycheck.

Guyton's manual algorithm makes my head hurt, and I'm a nuclear engineer at the (presumptive) peak of my cognition.
Yeah, but are you a PE?
C'mon, I'm a nuclear-trained submariner, but self-inflicted masochism has its limits!

My daughter's currently beating her head against the civil engineering FE & PE wall.  Of course the wall is made of steel-reinforced prestressed concrete...

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Re: firecalc and cFIREsim both lie?
« Reply #121 on: April 18, 2014, 05:18:36 PM »
I think a big reason MMM and others have continued to be successful post-RE is that retiring early allows one to start a business that can go without profits for years and you would still be fine. But I think more people than not on this forum would be successful entrpenuers, but the uncertainty of profits keeps them from being able to so.

As a software person myself, I've played with the thought of working for a startup in return for a share of the company. Being FIRE allows one to walk away from those stressful situations, and take on more risky ventures than before.

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Re: firecalc and cFIREsim both lie?
« Reply #122 on: April 18, 2014, 08:13:12 PM »
I think a big reason MMM and others have continued to be successful post-RE is that retiring early allows one to start a business that can go without profits for years and you would still be fine. But I think more people than not on this forum would be successful entrpenuers, but the uncertainty of profits keeps them from being able to so.

Put another way, you can start the business you want, build it at the pace you want, and make good long term decisions without undue influences of investors and outside money men.


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Re: firecalc and cFIREsim both lie?
« Reply #123 on: April 18, 2014, 08:36:10 PM »
One of the ironies of getting over "Just One More Year!" syndrome is the fear that once you leave the workplace you'll never be able to earn another dime... and then your body will break down if you try to go back to work in another occupation.

Yet now that I'm not earning a paycheck, I see entrepreneurial revenue opportunities everywhere.  I've stumbled across them several times per year for the last 12 years, and they're everywhere.  Clearing $10K-$20K/year seems ridiculously straightforward, and even $30K/year is within a couple years of bootstrapping.  If I was really willing to surf less for a few years then I'd be able to completely replace my old paycheck.

I feel the same way.  Between business opportunities, partnering on rentals/flipping, or online entrepreneurship, I have to be pro-active to not devote my time to making more money. 

At least I know if I ever get bored, I can fill time and pick up some money from side hustles.  It's just the utility of money drops off once you have enough. 

Quote
My daughter's currently beating her head against the civil engineering FE & PE wall.  Of course the wall is made of steel-reinforced prestressed concrete...

Just tell her those exams are pretty easy if you study for them.  So says a guy on the internet...

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Re: firecalc and cFIREsim both lie?
« Reply #124 on: April 18, 2014, 08:52:54 PM »
If realistic retirement spending was "relatively easy" to simulate then it would've been done by now, yet researchers like Wade Pfau and Michael Kitces are going to spend their entire careers laying the foundation for (and perhaps building) the software that's going to help the average user figure out how much to spend in retirement for various market valuations and returns.  Then we really would be able to retire at a 4% SWR (or even higher) with 100% success rates because we'd know when to cut back spending, and by how much.  Everything right now is, at best, a "thumbrule".

I guess I'm not seeing the complexity here that you and others are.  I envision a spending rule that looks pretty easy to implement with one additional variable, something like "if the market was positive last year, withdraw your usual x% plus inflation" (the same as the usual rule) and then adding one additional variable that's something like "if the market was down last year, forego your annual inflation adjustment and reduce this year's withdrawal by z%" where z is some ratio of how much the market dropped.  Like if z is 50 then a 10% drop in the market means that this year you reduce your withdrawal by 5%.  In subsequent positive years, you start adding the inflation adjustment back in on top of the new amount.

There are a ton of different ways to do this, as bo has clearly stated, and it would be easy to get bogged down in the details.  Should z be 50 or 100 or 0?  In positive years, should you go back to taking the inflation adjustment on the new reduced amount, or go back to your old 4%?  I don't think it really matters which choices are made in how this would get implemented in a spreadsheet, as long as they result in a somewhat smoothed spending curve that doesn't dramatically alter the spending level too suddenly for people, but does reduce withdrawals a bit in down years and doesn't let the portfolio grow to ridiculous values in most historic scenarios.

I think this is probably what most early retirees do anyway.  If RootofGood saw a 30% decline in the markets tomorrow, I doubt he'd blindly take his planned inflation adjustment on top of his usual SWR.  If he saw 10 years in a row of steady 12% returns, he might get a little more loose with the spending.  We all use those big fuzzy logic brains to feel out what we think is some sort of moderate course, and my proposal here is to just find a way to formalize that thinking in a simple equation.   (This year's SWR) = either a) last year's withdrawal plus CPI adjustment, if the market was up or b) last year's withdrawal minus z% of the market decline, if the market was down.

Seems easy to do to me, and you could play with the success rate for various value of z in the same way you play with various values of SWR.

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Re: firecalc and cFIREsim both lie?
« Reply #125 on: April 21, 2014, 06:08:38 PM »
I saw this come up in another discussion but thought it might be relevant here.  Apparently betterment recently released an automated variable withdrawal rate option.

https://www.betterment.com/blog/2014/04/11/retirement-income-shouldnt-be-a-guessing-game/
 

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Re: firecalc and cFIREsim both lie?
« Reply #126 on: April 21, 2014, 06:55:50 PM »
I saw this come up in another discussion but thought it might be relevant here.  Apparently betterment recently released an automated variable withdrawal rate option.

https://www.betterment.com/blog/2014/04/11/retirement-income-shouldnt-be-a-guessing-game/
Betterment may (or may not) be more reputable than your average indexed annuity sales firm, but when their article...
1) Portrays a 4% WR failing 30% of the time with a portfolio containing 30% stocks, then
2) Notes that to follow Betterment's suggestion, the "initial portfolio starts with a 56% stock allocation"
...it looks like so much smoke and mirrors.

Near the bottom of the Betterment article they do acknowledge "we are highlighting the Monte Carlo results using a 30% stock Betterment portfolio. Notably, we found that applying the 4% rule even to a 50% stock Betterment portfolio is expected to fail 21% of the time under modern market conditions."

They may have a good point (and a good product) but I'm always leery when the bold proclamations at the top say one thing, while the fine print at the bottom provides a different perspective.

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Re: firecalc and cFIREsim both lie?
« Reply #127 on: April 21, 2014, 07:38:37 PM »
That blog post is actually being discussed here:
http://forum.mrmoneymustache.com/investor-alley/betterment's-blog-post-about-the-4-rule/

And a Bettermint employee who helped create that new withdrawal strategy posted in the thread.  I'd recommend those people interested post there, especially people who are skeptical of it.  I'd love to see MDM's concerns cut and paste over there so they can be addressed (or not).
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Re: firecalc and cFIREsim both lie?
« Reply #128 on: April 21, 2014, 08:01:15 PM »
Cut & pasted, with some explanation.  Thanks for the suggestion.

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Re: firecalc and cFIREsim both lie?
« Reply #129 on: April 22, 2014, 01:08:59 PM »
EDIT: After two minutes on cFIREsim, I found that 50% success rate is about a 5.85% SWR, which is the same as having about 17X your annual expenditures in assets.

That's with a 30-year run.  For 50 years (there is less sample data, yes, but 93 runs instead of 113, so possibly still quite valid) 50% success rate drops down to a 4.9% SWR, or 20x your annual expenses in assets.
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arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #130 on: June 09, 2014, 10:57:48 PM »
If realistic retirement spending was "relatively easy" to simulate then it would've been done by now, yet researchers like Wade Pfau and Michael Kitces are going to spend their entire careers laying the foundation for (and perhaps building) the software that's going to help the average user figure out how much to spend in retirement for various market valuations and returns.  Then we really would be able to retire at a 4% SWR (or even higher) with 100% success rates because we'd know when to cut back spending, and by how much.  Everything right now is, at best, a "thumbrule".

I guess I'm not seeing the complexity here that you and others are.  I envision a spending rule that looks pretty easy to implement with one additional variable, something like "if the market was positive last year, withdraw your usual x% plus inflation" (the same as the usual rule) and then adding one additional variable that's something like "if the market was down last year, forego your annual inflation adjustment and reduce this year's withdrawal by z%" where z is some ratio of how much the market dropped.  Like if z is 50 then a 10% drop in the market means that this year you reduce your withdrawal by 5%.  In subsequent positive years, you start adding the inflation adjustment back in on top of the new amount.

There are a ton of different ways to do this, as bo has clearly stated, and it would be easy to get bogged down in the details.  Should z be 50 or 100 or 0?  In positive years, should you go back to taking the inflation adjustment on the new reduced amount, or go back to your old 4%?  I don't think it really matters which choices are made in how this would get implemented in a spreadsheet, as long as they result in a somewhat smoothed spending curve that doesn't dramatically alter the spending level too suddenly for people, but does reduce withdrawals a bit in down years and doesn't let the portfolio grow to ridiculous values in most historic scenarios.

I think this is probably what most early retirees do anyway.  If RootofGood saw a 30% decline in the markets tomorrow, I doubt he'd blindly take his planned inflation adjustment on top of his usual SWR.  If he saw 10 years in a row of steady 12% returns, he might get a little more loose with the spending.  We all use those big fuzzy logic brains to feel out what we think is some sort of moderate course, and my proposal here is to just find a way to formalize that thinking in a simple equation.   (This year's SWR) = either a) last year's withdrawal plus CPI adjustment, if the market was up or b) last year's withdrawal minus z% of the market decline, if the market was down.

Seems easy to do to me, and you could play with the success rate for various value of z in the same way you play with various values of SWR.

Have you figured out a formula for us yet so Bo can implement it? :)
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sol

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Re: firecalc and cFIREsim both lie?
« Reply #131 on: June 10, 2014, 12:03:29 AM »
Sure.  Define one additional variable z with a range of [0,1].

Iff last year's portfolio return was positive, withdraw last year's amount plus the CPI adjustment.  Same as usual.
Iff last year's portfolio return was negative, withdraw last year's amount reduced by the amount the market dropped multiplied by z.

Example 1.  My portfolio returned 30% this year and my withdrawal was 40k last year.  CPI was 2.5% so this year I withdraw 1.025*40k = 41k.  z is ignored.

Example 2.  My portfolio was down 10% last year and my withdrawal was 40k last year.  Z is set to .5 so I withdraw 40k*[1-(10%*0.5)] = 38k.  CPI is ignored.

The idea is to reduce spending slightly in years when the market tanks.  How much you reduce spending in a downturn is specified by z.  This mitigates the classical sequence of return risk where you normally would be taking out high dollar values from a depleted portfolio, thus allowing you to roll with a higher than 4% SWR in the first place because your spending is more flexible if returns turn out to be bad.

If you set z to 0 then you just forego your inflation adjustment in years when your portfolio doesn't grow.  Even that little bit helps. 
If you set z to 1 then your spending is much more variable, might be reduced by whatever % your portfolio drops, but you get a much higher initial SWR for equivalent success rates.

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Re: firecalc and cFIREsim both lie?
« Reply #132 on: June 10, 2014, 04:31:05 AM »
Iff last year's portfolio return was positive, withdraw last year's amount plus the CPI adjustment.  Same as usual.
Iff last year's portfolio return was negative, withdraw last year's amount reduced by the amount the market dropped multiplied by z.
According to this strategy, your withdrawal, in real terms, will only ever stay the same or go down, with no lower limit. Even if you still adjust upwards for inflation when the market drops (if you don't, a few years of slightly negative returns but 8-10% inflation will starve you to death), and you set z to something conservative like 0.2, when the stock market crashes by 30% you suddenly have to cut your budget by 6% and never increase it again.

Any realistic long-term withdrawal strategy must always withdraw, inflation-adjusted, at least as much as the bare minimum you actually need to live. (Unless you go back to work.)

dude

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Re: firecalc and cFIREsim both lie?
« Reply #133 on: June 10, 2014, 07:33:21 AM »
I've posted this in another thread before, but it does seem relevant to this thread:

http://www.bloomberg.com/news/2013-04-09/maybe-past-performance-does-predict-your-savings-future.html


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Re: firecalc and cFIREsim both lie?
« Reply #134 on: June 12, 2014, 05:56:56 AM »
Iff last year's portfolio return was positive, withdraw last year's amount plus the CPI adjustment.  Same as usual.
Iff last year's portfolio return was negative, withdraw last year's amount reduced by the amount the market dropped multiplied by z.
According to this strategy, your withdrawal, in real terms, will only ever stay the same or go down, with no lower limit. Even if you still adjust upwards for inflation when the market drops (if you don't, a few years of slightly negative returns but 8-10% inflation will starve you to death), and you set z to something conservative like 0.2, when the stock market crashes by 30% you suddenly have to cut your budget by 6% and never increase it again.

Any realistic long-term withdrawal strategy must always withdraw, inflation-adjusted, at least as much as the bare minimum you actually need to live. (Unless you go back to work.)

Right.  Is it more prudent to set a Z-value, set a CPI-adjusted spending floor and a CPI-adjusted spending ceiling, then apply your formula for both downturns AND upswings?

Edited Example 1 to reflect my suggestion:
Quote
Example 1.  My portfolio returned 30% this year and my withdrawal was 40k last year.  CPI was 2.5% so this year I withdraw 40k*[1+2.5%]*[1+(30%*0.5)] = $47150. 

Example 2.  My portfolio was down 10% last year and my withdrawal was 40k last year.  Z is set to .5 so I withdraw 40k*[1-(10%*0.5)] = 38k.  CPI is ignored.
« Last Edit: June 12, 2014, 09:23:50 AM by bo_knows »

warfreak2

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Re: firecalc and cFIREsim both lie?
« Reply #135 on: June 12, 2014, 06:33:13 AM »
Quote
Example 1.  My portfolio returned 30% this year and my withdrawal was 40k last year.  CPI was 2.5% so this year I withdraw 40k*[1+(30%*0.5)] = $46k. 

Example 2.  My portfolio was down 10% last year and my withdrawal was 40k last year.  Z is set to .5 so I withdraw 40k*[1-(10%*0.5)] = 38k.  CPI is ignored.
(I assume you still meant to increase by inflation in Example 1).

You can't get away with ignoring inflation, ever. Inflation means prices went up. Taking a $2k pay cut on $40k sounds like no big deal, but what if inflation is 10%, or even 15%? After just two years you'd be withdrawing $36k which is nominally a harsh 10% pay cut, but in real terms could be equivalent to a punishing 32% pay cut. At this point you may be wishing you chose a withdrawal strategy which didn't give you such wildly different standards of living in different years.

I realise you're setting an inflation-adjusted lower limit which avoids the main problem, but my concern is that if you ignore inflation in some circumstances, then your withdrawal isn't always adjusting to how well your investments do in real terms.

The easiest and most sensible way to do handle inflation is to adjust the investment growth figure before doing anything else. (1 + r) = (1 + n)/(1 + i) where r is the real return, n is the nominal return, i is inflation. Rounding errors aside, if your nominal return is 10% with 3% inflation, this is the same as if they returned 13% with 6% inflation, or 7% with 0% inflation. However, the z formula produces a different (real-terms) withdrawal in each situation. More worryingly, if your nominal return is exactly equal to inflation, your investments didn't really grow at all, but if both are positive, the formula tells you to increase your real-terms withdrawal.

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Re: firecalc and cFIREsim both lie?
« Reply #136 on: June 12, 2014, 09:26:53 AM »
I should have just rewritten those rather than copy/pasting.  I fixed the Example 1 above.  However, sol specifically wanted to ignore CPI during a downturn year.  I don't think there is anything inherently wrong with that.  There are plenty of strategies that go with a nominal value, and are successful.  The good ole "percent of portfolio" strategy ignores CPI by default, but often folks will put in CPI-adjusted floor/ceiling values.

I do think that sol's strategy needs SOME method of raising spending during the good times, or else, as you said, the spending will only get worse and worse...never better.

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Re: firecalc and cFIREsim both lie?
« Reply #137 on: June 12, 2014, 11:03:34 AM »
this is fantastic analysis.  our travel budget in retirement assuming we dont just gocurrycracker our lifestyle is about 20% of our total budget ... soooo.... that makes the 5% SWR the easy goal now.  just dont travel after a bad year. 

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Re: firecalc and cFIREsim both lie?
« Reply #138 on: June 12, 2014, 06:54:42 PM »
this is fantastic analysis.  our travel budget in retirement assuming we dont just gocurrycracker our lifestyle is about 20% of our total budget ... soooo.... that makes the 5% SWR the easy goal now.  just dont travel after a bad year.

In a similar vein, our plan D or E for that scenario is to travel to places with a cheap COL - Asia, or South America, for example.  Save Europe for the "up" market years.  ;)
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Re: firecalc and cFIREsim both lie?
« Reply #139 on: June 12, 2014, 07:23:27 PM »
I do think that sol's strategy needs SOME method of raising spending during the good times, or else, as you said, the spending will only get worse and worse...never better.

A good point, thanks.  And it points towards a couple of obvious solutions.

solution 1:  Take the CPI every year regardless, but adjust down by z*(portfolio performance) in down years.  This fixes the original problem you both mentioned.

solution 2:  Ignore CPI completely, and adjust up OR down by z*(portfolio performance).  If the market is up 10% and your z is .5, your withdrawal goes up 5%.  If it's down 10% your withdrawal goes down 5%.  This method assumes that market performance will approximately move in conjunction with CPI over the long term.   Crazy stagflation would hurt, but I presume we're all smart enough to abandon a strategy not designed for crazy times.

solution 3:   Withdraw last year's withdrawal amount adjusted by z times both portfolio performance and CPI.  So if CPI was 2% and the portfolio did +10%, your withdrawal amount is up (1%+5%) = 6%.  If CPI was 4% and your portfolio was down 30%, your withdrawal amount is (+2% + -15%) = -13%.

The idea I'm trying to capture is that you should withdraw less in years when your portfolio is way down.  This naturally assumes you have some flexibility in your budget to make 10% or greater adjustments in the case of market catastrophe.  I think having that flexibility in your spending level should logically translate into higher withdrawal rates the rest of the time without burdening people with 4% or less during prosperous times.

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Re: firecalc and cFIREsim both lie?
« Reply #140 on: June 12, 2014, 07:36:38 PM »
The idea I'm trying to capture is that you should withdraw less in years when your portfolio is way down.  This naturally assumes you have some flexibility in your budget to make 10% or greater adjustments in the case of market catastrophe.  I think having that flexibility in your spending level should logically translate into higher withdrawal rates the rest of the time without burdening people with 4% or less during prosperous times.

Or you could look at it the opposite - instead of having a budget with fat that you trim in down years (causing you to work longer to get that higher budget) you have a leaner budget that you increase in good years.
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sol

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Re: firecalc and cFIREsim both lie?
« Reply #141 on: June 12, 2014, 07:43:37 PM »
Or you could look at it the opposite - instead of having a budget with fat that you trim in down years (causing you to work longer to get that higher budget) you have a leaner budget that you increase in good years.

It's probably a matter of personal preference, but I think I'd rather have a comfortable budget that I might have to cut than a tight budget I might get to increase.

It's all just sequence of return risk.  If things go along swimmingly, both budgets are fine though mine is nicer.  On the off chance the economy tanks, mine has to tighten the belt to the point where yours was already tightened.

arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #142 on: June 12, 2014, 08:13:25 PM »
Or you could look at it the opposite - instead of having a budget with fat that you trim in down years (causing you to work longer to get that higher budget) you have a leaner budget that you increase in good years.

It's probably a matter of personal preference, but I think I'd rather have a comfortable budget that I might have to cut than a tight budget I might get to increase.

It's all just sequence of return risk.  If things go along swimmingly, both budgets are fine though mine is nicer.  On the off chance the economy tanks, mine has to tighten the belt to the point where yours was already tightened.

Oh, absolutely, for sure.  And others may be more comfortable with a budget they don't have to cut at all.

It's all about balancing how long you want to work to build up a stache to provide enough.  Your way (cushy, cut in bad years) means more work than the way I put it in the post you quoted (barebones, increase in good years), but less than I put it in the line above (cushy, never decrease).

It's, as you say, all personal preference. 
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

warfreak2

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Re: firecalc and cFIREsim both lie?
« Reply #143 on: June 13, 2014, 04:43:04 AM »
solution 1:  Take the CPI every year regardless, but adjust down by z*(portfolio performance) in down years.  This fixes the original problem you both mentioned.
Problem there is your withdrawal still never goes up in real terms.

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solution 2:  Ignore CPI completely, and adjust up OR down by z*(portfolio performance).  If the market is up 10% and your z is .5, your withdrawal goes up 5%.  If it's down 10% your withdrawal goes down 5%.  This method assumes that market performance will approximately move in conjunction with CPI over the long term.   Crazy stagflation would hurt, but I presume we're all smart enough to abandon a strategy not designed for crazy times.
Crazy times are a real possibility and a strategy that can't handle them has room for improvement. Also, we'd like to be able to simulate the strategy to work out how safe it is, and simulators can't use human intelligence to change strategy mid-retirement.

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solution 3:   Withdraw last year's withdrawal amount adjusted by z times both portfolio performance and CPI.  So if CPI was 2% and the portfolio did +10%, your withdrawal amount is up (1%+5%) = 6%.  If CPI was 4% and your portfolio was down 30%, your withdrawal amount is (+2% + -15%) = -13%.
This one sounds most reasonable, but realistically you still need an inflation-adjusted spending floor. Going broke is the obvious way a retirement plan can fail, but not withdrawing enough to live on also ought to be considered a failure.

boarder42

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Re: firecalc and cFIREsim both lie?
« Reply #144 on: June 13, 2014, 05:54:05 AM »
this is fantastic analysis.  our travel budget in retirement assuming we dont just gocurrycracker our lifestyle is about 20% of our total budget ... soooo.... that makes the 5% SWR the easy goal now.  just dont travel after a bad year.

In a similar vein, our plan D or E for that scenario is to travel to places with a cheap COL - Asia, or South America, for example.  Save Europe for the "up" market years.  ;)

Yes a similar thought crossed my mind if i can convince my wife we can live in a duplex or condo in the us and rent it out while we are gone to offset cost of living.  Been looking at CR quite a bit.  very low COL compared to most places ... same with SE asia

lauren_knows

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Re: firecalc and cFIREsim both lie?
« Reply #145 on: June 13, 2014, 07:00:29 AM »
solution 3:   Withdraw last year's withdrawal amount adjusted by z times both portfolio performance and CPI.  So if CPI was 2% and the portfolio did +10%, your withdrawal amount is up (1%+5%) = 6%.  If CPI was 4% and your portfolio was down 30%, your withdrawal amount is (+2% + -15%) = -13%.

This makes the most sense to me, and would provide the easiest user-interface (and would be easiest to describe to someone, since both ups and downs are handled with the same formula).

Quote
The idea I'm trying to capture is that you should withdraw less in years when your portfolio is way down.  This naturally assumes you have some flexibility in your budget to make 10% or greater adjustments in the case of market catastrophe.  I think having that flexibility in your spending level should logically translate into higher withdrawal rates the rest of the time without burdening people with 4% or less during prosperous times.

You're absolutely correct. Being flexible allows for a higher WR overall.  I actually prefer the idea of a variable spending method based on market conditions, but I will admit that the current "Variable Spending" on cFIREsim is a bit confusing.  Another user came up with it, and it's hard to describe.  I think your idea with a z-value, and an optional Floor/Ceiling (which is available to all spending methods on cFIREsim regardless), would be MUCH more easy to understand.

I think I'll get a version of this out on the development version of the site today and see how it fares.  I'll report back.

arebelspy

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Re: firecalc and cFIREsim both lie?
« Reply #146 on: June 13, 2014, 08:41:57 AM »
I think I'll get a version of this out on the development version of the site today and see how it fares.  I'll report back.

I cannot express how happy it makes me that we have someone in this community that is both willing and able to do something like this. You rock, BK!
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

lauren_knows

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Re: firecalc and cFIREsim both lie?
« Reply #147 on: June 13, 2014, 12:58:01 PM »
I've got something over at www.cfiresim.com/dev/input.php.

If you're in the Spending Plan section, you'd choose "Variable Spending(new)".

Though, I'm not 100% sure that I have the logic correct (inflation always messes me up when developing new methods) because if you choose a low z-value (say 0.2), you get some really weird things.   My son is about to wake up from his nap, so I'll have to review it later.

For now, if anyone wants to troubleshoot it, at the bottom of the output page, there is a "
  • => Array" link.  Clicking that will open up a tree of the results for the whole simulation.   You can try to track the portfolio and spending for each year to see if it makes sense (though, those numbers are in inflation-adjusted dollars and I'm doing the calculations nominally... though, should it matter?)


Edit: Nevermind, I think I found the quirk.  When the portfolio dropped below $0, the spending calculation got out of control... so I set spending = $0 if the portfolio was negative (makes sense, right? Can't spend money you don't have?)  I really need to re-evaluate the value of having these fake "negative" portfolio values. They screw so many things up.
« Last Edit: June 13, 2014, 01:17:50 PM by bo_knows »

boarder42

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Re: firecalc and cFIREsim both lie?
« Reply #148 on: June 13, 2014, 01:57:32 PM »
THIS IS SWEET!!! YOU ROCK

boarder42

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Re: firecalc and cFIREsim both lie?
« Reply #149 on: June 13, 2014, 02:03:50 PM »
How hard would it be to add a buffer to the over spend.  meaning i probably wont start spending over my starting annual withdrawl plus inflation until i know i'm safe.  say the first 5-10 years then maybe.  then i will probably be comfortable spending up to a higher amount on good market years.