Author Topic: Is it really this simple? Questions about SWR and cfiresim  (Read 2517 times)

MM_MG

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Is it really this simple? Questions about SWR and cfiresim
« on: September 10, 2015, 04:09:10 PM »
I've been playing around with some numbers and I want to make sure I am not missing anything obvious.  I'll keep it high level, but can fill in details if needed.

Let's say current savings, plus current savings rate, yields $2.5M in 13 years.

General SWR rules:
4% = $100K/year
3% = $75K/year

cfiresim:
If I run a scenario of a retirement year of 2028 and a retirement end year of 2074 and put in $100K/year (inflation adjusted) spending plan, I get a 100% success rate.  Same with $150K/year spending.   $160K/yr yields a 97.65% success rate.

Same result if I do the scenario using SWR instead of flat rates.  For example, I can get 100% success with 8% of portfolio with no less than $100K.

Q1: Is this simply because historical gains of the stock market exceed the general 3 and 4% rules?
Q2: Assuming I can live on between $75K and $100K per year (facepunch if I can't right?), what additional variables should I be changing in cfiresim, if any?
Q3: I thought I remember somebody (Sol maybe) explaining that you really do not need a 100% success rate in cfiresim.  At what point is one simply saving "too much" and merely adding to the cushion?
Q4: Is it really this simple?
Q5: What am I missing?   

Apologies in advance if these are dumb questions.  We've just made great strides in slashing our spending and driving our savings up over the past few months and I want to make sure I am not missing something.

« Last Edit: September 10, 2015, 04:20:31 PM by MM_MG »

mozar

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Re: Is it really this simple? Questions about SWR and cfiresim
« Reply #1 on: September 10, 2015, 08:11:20 PM »
I think it depends on your comfort zone. Some people feel like they can retire with a 80% success rate, and that if you are at 100%, you worked too long. What do you want? Do you want to live on $100k a year? I think the "simple" part is that you can save 2.3m in 13 years. Most people can't.

I don't understand what you mean by the stock market exceeding the 4% swr. The stock market has had an average return of 7% after inflation. The SWR is the amount you can "safely" withdraw with 50% in equities/50% in bonds. It's based on the Trinity study which you can look up.

desk_jockey

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Re: Is it really this simple? Questions about SWR and cfiresim
« Reply #2 on: September 10, 2015, 09:00:25 PM »
cfiresim does not give a 100% sucess rate on a 40+ year retirement at a 4% withdrawal rate.  You've made an error with how you represented the numbers in the app.  You entered it as if you had $2,500,000 today in 2015, but were waiting to retire until 2028 upon which date you would have far more than $2,500,000.  In that scenario a $100K annual withdrawal would be less than 4%.

Run the numbers again but move up the dates as if you were retiring today and ending retirement in 2016.  A $2.5M nest egg with a 4% withdrawal rate will give you a 90%-ish success probabilty, a 3.5% withdrawal rate will give you a high 90%, and a 3% rate will probably yield 100%.  The $150K withdrawal on the $2.5M will yield a low success rate.

MM_MG

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Re: Is it really this simple? Questions about SWR and cfiresim
« Reply #3 on: September 10, 2015, 10:45:17 PM »
I think it depends on your comfort zone. Some people feel like they can retire with a 80% success rate, and that if you are at 100%, you worked too long. What do you want? Do you want to live on $100k a year? I think the "simple" part is that you can save 2.3m in 13 years. Most people can't.

Thanks.  I wish it was only 13 years, been saving for a while now…should have a lot more saved than I do.  :)   Simple I suppose, but never easy.  FWIW, the goal is to live on much less, but we'll probably work long enough to have the option to live on more.

Quote
I don't understand what you mean by the stock market exceeding the 4% swr. The stock market has had an average return of 7% after inflation. The SWR is the amount you can "safely" withdraw with 50% in equities/50% in bonds. It's based on the Trinity study which you can look up.
See below.  I was using the program wrong.  Which is what I suspected and hoped someone could point out the error.  I understand SWR as you explained, but was getting confusing results in the simulator.  I probably should have titled this "What am I doing wrong?"  LOL!

cfiresim does not give a 100% sucess rate on a 40+ year retirement at a 4% withdrawal rate.  You've made an error with how you represented the numbers in the app.  You entered it as if you had $2,500,000 today in 2015, but were waiting to retire until 2028 upon which date you would have far more than $2,500,000.  In that scenario a $100K annual withdrawal would be less than 4%.

Run the numbers again but move up the dates as if you were retiring today and ending retirement in 2016.  A $2.5M nest egg with a 4% withdrawal rate will give you a 90%-ish success probabilty, a 3.5% withdrawal rate will give you a high 90%, and a 3% rate will probably yield 100%.  The $150K withdrawal on the $2.5M will yield a low success rate.

Yes.  I was definitely using the program wrong!  I actually found the link to the old version with the tutorial.  When in doubt, read the directions right?   Thanks for the reply. 

Cressida

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Re: Is it really this simple? Questions about SWR and cfiresim
« Reply #4 on: September 10, 2015, 11:17:44 PM »
I actually found the link to the old version with the tutorial.  When in doubt, read the directions right?   

Would you share the link? I spent a small amount of time looking for it once, failed (which I'm sure was my fault), and then forgot about it, but I'd like to have it. Thanks!!!

MM_MG

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Re: Is it really this simple? Questions about SWR and cfiresim
« Reply #5 on: September 11, 2015, 09:58:01 AM »

Would you share the link? I spent a small amount of time looking for it once, failed (which I'm sure was my fault), and then forgot about it, but I'd like to have it. Thanks!!!

Sure.  Only available until the new site is finished.  I didn't see instructions on the new site...probably missed them though.  ;)

Old version
http://gator3089.hostgator.com/~boknows/input.php

Tutorial
http://gator3089.hostgator.com/~boknows/docs/faq.php