Author Topic: FIRECalc Assumption--How do I avoid double counting the worst market ever?  (Read 1989 times)

Cycling Stache

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I tried FIRECalc for the first time, and it's giving me a 100% success rate based on my assumptions.  For me, the critical assumption is projecting the value of my investment portfolio in 10 years at the time early retirement "starts."  (My wife claims she has no interest in early retirement, so my "safe" assumption is her working 10 more years to age 51, and because she makes more than we spend, our portfolio wouldn't be touched the next 10 years.)

I've been putting in an investment portfolio double the current value because that's the most statistically likely outcome at a 7% growth rate.  That gives me the 100% success rate, but even assuming 0% growth between now and then, that comes out at 100% too.

The issue is how to avoid double counting the worst case market scenarios?  If the market drops by 50% in the next 10 years and I put in an investment portfolio value 50% of the current total, how can I discount the "failures" in FIRECalc that assume the worst historical periods? 

In other words, we're not (likely) going to have a 20-year period resulting in a 75% market drop.  And because the sequence of return risks always seem to focus on the first few years of retirement, avoiding double counting the "worst time ever" seems important.

Thoughts?  I'm not interested in modeling sky-is-falling assumptions or 2% safe withdrawal rates or anything like that.  I'm trying to make an informed decision about what to do based on most likely outcomes (which includes my wife working--but that's a separate assumption that I can model).

I appreciate the help.

Spork

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #1 on: September 04, 2016, 12:39:58 PM »
What if you use cfiresim?  You can model either "constant model growth" or specify explicitly which years you want to use in historic modeling.

shuffler

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #2 on: September 04, 2016, 03:27:02 PM »
I'm not sure why you're trying to guess what your portfolio will be in 10 years.
I'd suggest you just let FireCalc do its thing, and include that in part of the modeling.

I.e. you should be able to tell it that you want to retire in 2026 (10 years from now), and set up "additional income" from now through 2026 that represents the amount you intent to invest each year until then.

FireCalc should then simulate* what your nest egg would be up through the ten years until you retire, plus beyond that time for however long your retirement period will be.

Cycling Stache

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #3 on: September 04, 2016, 03:37:04 PM »
I'm not sure why you're trying to guess what your portfolio will be in 10 years.
I'd suggest you just let FireCalc do its thing, and include that in part of the modeling.

I.e. you should be able to tell it that you want to retire in 2026 (10 years from now), and set up "additional income" from now through 2026 that represents the amount you intent to invest each year until then.

FireCalc should then simulate* what your nest egg would be up through the ten years until you retire, plus beyond that time for however long your retirement period will be.

I don't think it projects portfolio growth before the retirement/withdrawal date.  As I understood it, the input is the amount of investments at the time withdrawal begins.  Since we're talking 10 years out, there's a lot of projected market growth for our current portfolio (independent of additional money in) potentially in play.

Did I misunderstand the input?

nereo

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #4 on: September 04, 2016, 03:46:45 PM »
I'm not sure why you're trying to guess what your portfolio will be in 10 years.
I'd suggest you just let FireCalc do its thing, and include that in part of the modeling.

I.e. you should be able to tell it that you want to retire in 2026 (10 years from now), and set up "additional income" from now through 2026 that represents the amount you intent to invest each year until then.

FireCalc should then simulate* what your nest egg would be up through the ten years until you retire, plus beyond that time for however long your retirement period will be.

I don't think it projects portfolio growth before the retirement/withdrawal date.  As I understood it, the input is the amount of investments at the time withdrawal begins.  Since we're talking 10 years out, there's a lot of projected market growth for our current portfolio (independent of additional money in) potentially in play.

Did I misunderstand the input?

if you use cfiresim you can choose 2026 as your start date and input your current portfolio size, plus you can add income to your portfolio from now until 2026, plus ss, pension, etc.
i think that will do what you are asking.

Cycling Stache

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #5 on: September 04, 2016, 06:12:08 PM »
Okay, thanks for the help.  Got cFIREsim to work and it does account for the growth until retirement.

Spork

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #6 on: September 04, 2016, 07:11:52 PM »
I'm not sure why you're trying to guess what your portfolio will be in 10 years.
I'd suggest you just let FireCalc do its thing, and include that in part of the modeling.

I.e. you should be able to tell it that you want to retire in 2026 (10 years from now), and set up "additional income" from now through 2026 that represents the amount you intent to invest each year until then.

FireCalc should then simulate* what your nest egg would be up through the ten years until you retire, plus beyond that time for however long your retirement period will be.

I don't think it projects portfolio growth before the retirement/withdrawal date.  As I understood it, the input is the amount of investments at the time withdrawal begins.  Since we're talking 10 years out, there's a lot of projected market growth for our current portfolio (independent of additional money in) potentially in play.

Did I misunderstand the input?

I am pretty sure it does project growth.  I've been using both firecalc and cfiresim in an automated script for several years ... both pre and post FIRE.  The outputs seem pretty consistent with estimating growth.

The_Dude

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Re: FIRECalc Assumption--How do I avoid double counting the worst market ever?
« Reply #7 on: September 04, 2016, 08:47:49 PM »
Firecalc does account for portfolio changes between the starting year and retirement year. That is why there is the not retired tab.