Author Topic: What are the risks of relying too heavily on cFIREsim?  (Read 2853 times)

Threshkin

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What are the risks of relying too heavily on cFIREsim?
« on: April 03, 2014, 10:14:43 AM »
I have been doing a lot of FIRE modeling on cFIREsim and like what I see but am concerned about relying too much on any tool.  My FIRE target is <6 months.

What are some of the less obvious risks of relying on a tool like cFIREsim? 

Other than FIRECalc are there any other tools that provide similar information? 

Of the more traditional retirement calculators (i.e. Fidelity) are there any that stand out for their detail and accuracy?

Thinking outside the box, what other methods do you use to determine your FIRE readiness?

rescuedog

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Re: What are the risks of relying too heavily on cFIREsim?
« Reply #1 on: April 03, 2014, 11:03:13 AM »
We also play with the MSN withdrawal calculator.  I have yet to make my own detailed spreadsheet with all these sorts of components.

http://money.msn.com/retirement/retirement-calculator.aspx

I guess assume conservatively, reassess regularly, try several models to compare?

matchewed

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Re: What are the risks of relying too heavily on cFIREsim?
« Reply #2 on: April 03, 2014, 11:26:10 AM »
One risk I can see with cFIREsim is that it is based off of historical data. That is the usual disclaimer of past performance not being indicative of future... That being said the number of historical occurrences that have happened that it runs through has a pretty diverse set of events.

Another risk is how taxes will be treated in the future. To my understanding I don't think calculators like this can account for this. But I also don't think this is a high risk that it will change drastically; that is it will change just not in a catastrophic manner.

Most of these risks are just the normal downside to most modeling, you don't know what you don't know (more examples include "what if" scenarios at some point you have to stop asking "what if X happens?" and execute a decision). Make sure you build in reasonable flexibility into your plan. Know what you'd do if your plan starts failing and how to get back on track or bear with it until it straightens itself out.

DoubleDown

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Re: What are the risks of relying too heavily on cFIREsim?
« Reply #3 on: April 03, 2014, 01:05:03 PM »

Thinking outside the box, what other methods do you use to determine your FIRE readiness?


I think that question is more important than finding other modeling tools. This thread, started yesterday, talks about figuring out how you will generate income from your assets in retirement, or another way of knowing when you're ready.

https://forum.mrmoneymustache.com/welcome-to-the-forum/forget-the-4-swr-or-any-swr-it's-all-about-income/

I maintain that as long as you are relying on a 100% "paper" portfolio, you're going to have to accept that you will be heavily relying on historical data to make an educated guess at future success. And, you'll likely be experiencing some pretty wild ups and downs along the way if you are invested heavily in stocks (which is pretty much a necessity for successful outcomes in cfiresim scenarios). Models like cfiresim are super helpful, but they can only get you so far. I'm a fan of finding a safe method to generate guaranteed income to cover at least your minimum expenses for the rest of your life, so you're not worrying about going broke or decreasing your standard of living -- or God forbid finding yourself old and your plan crapped out. Some of those usual methods are purchasing an annuity (assuming you don't already have a pension from work), Social Security income, and rental income (which generally is a steady, appreciating cash flow source and a great hedge against inflation).

If you can find some ways to make your net worth generate income, using reasonably conservative assumptions, then I think folks will find they have a much higher confidence in their long term success. You won't be relying much on models, but instead will be looking at almost exactly how much income you will have coming in with a very high confidence. But if the plan is to rely on paper assets, then we have to accept the chance (even if small) that there could be some future periods that look nothing like history, and then the models will have proven to be very limited in their ability to predict outcomes. For example, how well would a 100% equities portfolio have survived Japan's recent 20-year stagflation period?