Author Topic: Calculators predict 100% success for me with no risk base assets. . .so. . .  (Read 4072 times)

Lancebaby

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New here. . First post.  For a variety of reasons interested in an exit plan. . ..when using the various FIRE calculators and plugging in my info, I get 100% chance of success with the lowest returns possible 2-3% that I can get from a fixed income offering I have available.  When I go to a more aggressive mix, my chance of success drop a few points.  So, should I remove ALL risk and go for the guaranteed offering?

here are numbers:
We have no debt but I am not including the value of the house in any of the tools ($700K) . These are just investments:
Taxable savings/investment - $525,000
Tax deferred - $1,900,000
Kids college is already paid for so excluding it as well.

Age - 50.  Plan on working until I am 55 and saving $120,000 for the next 5 years.
Withdrawal -$85,000 starting at 56

I realize that by moving to "guaranteed" I am giving up much upside potential but it is more than I will need anyway.  Perhaps I should split it up. . .some "aggressive" and some guaranteed?

Thanks!

G-dog

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Quit now, unless there is some reason to stay until 55yo!

Nothing is really 100% guaranteed, don't worry about the last few percent.

Metric Mouse

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Quit now, unless there is some reason to stay until 55yo!

Nothing is really 100% guaranteed, don't worry about the last few percent.

+1 You're golden.

forummm

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You're set. If it helps you sleep better, go with a large allocation to the fixed income investments. But I would keep at least some equities (at least 30%) for growth in case you live a lot longer than you expect to, or inflation kicks up big time.

John Doe

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Why do you plan on working another 5 years?  Unless you get a high degree of personal satisfaction from your work, you are already financially able to retire.  Our situations are very similar - I turn 50 in 2 days, have about $1.25m in various accounts plus a DW with a $40k pension in 4 years.  I will make my move to RE in about 6 months - life is too short to wait.   Congratulations!
« Last Edit: August 21, 2016, 07:14:06 PM by bluenoser »

waltworks

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You were all set quite a while ago, quit anytime you want.

Your risks are physical health, or worldwide catastrophe of some kind. Both are much more likely to ruin your retirement than running out of money.

-W

steveo

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I would go at least 50/50 stocks/bonds (including cash) simply because I think that it increases your chance of maintaining your standard of living over the longer term. I would also quit work now unless you really like work.

marty998

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Yeah, you're done. You've be hard pressed to run out of money actually.

Interested to know what makes up your $85,000 expected annual retirement expenses. My guess is that there is enough fat in there that you could cut back if you were invested in equities and SHTF.

mathjak107

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i don' know what calculator you used that showed 3% for 40 years with no equity's is fine , but using actual historial data it has not stress tested well at all .

unless you are getting a very high rate of return for 40 years on that income it did not test well using actual historical data .

figuring 3 million dollars i i show 40 years drawing 85k inflation adjusted with zero equitys has failed at 3% to many times to be considered safe .

FIRECalc looked at the 106 possible 40 year periods in the available data, starting with a portfolio of $3,000,000   and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 106 cycles. The lowest and highest portfolio balance at the end of your retirement was $-1,152,047 to $9,986,101, with an average at the end of $1,149,092. (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 40 years. FIRECalc found that 26 cycles failed, for a success rate of 75.5%.


historically you would have to take a 20% pay cut  to 65k to even get up to 95%  with zero equity's . i prefer seeing 100% as a backstop .

Here is how your portfolio would have fared in each of the 106 cycles. The lowest and highest portfolio balance at the end of your retirement was $-272,076 to $11,695,250, with an average at the end of $2,348,823. (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 40 years. FIRECalc found that 5 cycles failed, for a success rate of 95.3%.


adding just 25% equity's tested much better and is the path i would go . .

FIRECalc looked at the 106 possible 40 year periods in the available data, starting with a portfolio of $3,000,000   and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 106 cycles. The lowest and highest portfolio balance at the end of your retirement was $135,341 to $14,982,899, with an average at the end of $3,415,209. (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 40 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
« Last Edit: August 22, 2016, 02:43:58 AM by mathjak107 »

mathjak107

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i like to see 100% because criteria is different between calculators . i also don't give a hoot about how many average or good time frames we have had . i am only interested in at least getting to the gate with a plan that got through the worst of time frames .

i know if i was building a house here in nyc i want it to survive the likes of sandy . i don't care if hundreds of hurricanes were  of less intensity .

i wouldn't work longer to get a higher success rate . i would just plan a bit lower  and if things pan out better take a raise . the difference between 3 and 4% is only a 12.50% pay cut .

pay cuts are not easy down the road once you established a budget around the higher amount , especially if most of it are needs and not wants .

once you have a plan that tested well human spending patterns and life expectancy statistics can make that plan even better and allow more slack for emergency's ,unexpected spending and the awe craps we get hit with in life . our first yeat in retirement and we just got hit with almost  25k or so in dental for the two of us .

i needed to have some rejected implants replaced and she needed extensive work under caps she dd 15 years ago . so crap happens and these expenses can eat up a years budget like crazy .

using calculators assumes that all principal can be spent creating that income stream .  it isn't a whole lot of fun hitting the  designated amount of years you put in and having a buck left ,  so both income and balance  left  can be important

« Last Edit: August 22, 2016, 04:20:08 AM by mathjak107 »

Free_at_50

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Morning!  I would note that nothing is ever 100% safe or guaranteed, so keep that in mind if you intention is to put all your assets into one "safe" investment.  IMO your biggest risk is inflation.  2 - 3% returns sounds great until interest rates decide to skyrocket like they did in the 70's.  My plan, being I retired at 52, is to hold upwards of 50 - 60% in large cap stocks and etf's which generate dividends and over time reduce that percentage as I age moving toward a higher percentage in bond funds.   Good luck to you!

mathjak107

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being i retired later than you did i took the opposite path . i retired at 62 and decreased equity's way down to 35% going in to retirement and will increase by 2% a year until i hit about 50/50 .

that cuts the odds way down of an early downturn hurting things to bad .

Retire-Canada

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You were all set quite a while ago, quit anytime you want.

Your risks are physical health, or worldwide catastrophe of some kind. Both are much more likely to ruin your retirement than running out of money.

-W

Yes. Keep in mind those calculators only cover a very narrow range of factors that can cause your FIRE to fail. Your physical and mental health as well as a myriad of external factors can degrade your FIRE and working an extra 5 more years is not going to mitigate those and may well exacerbate some issues like your health depending on the specifics of your situation.

Anyone hunting for 100% success in FIRE needs to cast a far wider net than a financial simulator and realize purusing that number may actually result in more risk of failure.

mathjak107

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the calculators only deal with draw rate from your portfolio . .


it is no different than when you were working . you still had all the issues of life as well as deciding how much to spend and how much to keep for a rainy day .
« Last Edit: August 22, 2016, 06:44:34 AM by mathjak107 »

Spork

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I did something similar.  I waited for 100%.  But like it's been said: the realistic difference between 95% and 100% is really zero.  Without some working crystal ball, you never have 100% looking forward.  100% looking back just means "good", not "perfect".

It has only taken me one year of FIRE to realize I saved too much.  FIRE expenses are also just not the same as pre-FIRE expenses.  I've found that even with a couple of unexpected emergencies totaling around $12k and paying for health insurance, my expenses are 15-20% less than last year.  I can't say everyone has the exact same experiences... but it seems pretty common.

mathjak107

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100% means you would have cleared 1965 , the worst time frame we have seen here to date . 95% eliminates a few of the worst case's  which is the whole  idea the safe withdrawal rate was based on . i am not so sure i would want to do .  like i said above , i don't care how many statistical good times we had , i am only interested in what i have to do to clear the bad times .

in fact if we pull off the worst historical dates , 1907,1929,1937 and 1965/1966 a safe withdrawal rate would be 6.50% .
« Last Edit: August 22, 2016, 07:14:40 AM by mathjak107 »

2Birds1Stone

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What isn't guaranteed is your health and ability to enjoy your golden years the way you imagine them now.

5 years is a LONG time to work with that much of a safety net.

mathjak107

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on the other hand if you think it is tough working in your fifty's  or finding a job in your 50's  just wait until you have to try it in your 80's .

it all depends on the budget and the safety factor you feel you want , but the more the better . ideally you want a balance ,.going out to early may leave someone with a greatly reduced ss check as a safety net as well . going out 40 years or more has loads of uncertainty .

« Last Edit: August 22, 2016, 07:47:33 AM by mathjak107 »

Retire-Canada

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on the other hand if you think it is tough working in your fifty's  or finding a job in your 50's  just wait until you have to try it in your 80's .

The key FIRE $$ failure is a bad sequence of returns risk which is an early event in FIRE so you'd be aware of that when you were not in your 80's. I'm 2yrs from 50 and finding a job to supplement my FIRE WRs would be dead easy. You don't need to make $100K/yr. You just need to soften the blow to your portfolio if you are concerned you are at risk. An easy PT job will do that and if you managed to jump through all the hurdles for FIRE successfully out competing the typical easy PT job crowd will not be hard.

The key though is that there is an overwhelming possibility you won't need to resort to that measure if you are already in the 90%+ range on cFIREsim.

boarder42

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on the other hand if you think it is tough working in your fifty's  or finding a job in your 50's  just wait until you have to try it in your 80's .

The key FIRE $$ failure is a bad sequence of returns risk which is an early event in FIRE so you'd be aware of that when you were not in your 80's. I'm 2yrs from 50 and finding a job to supplement my FIRE WRs would be dead easy. You don't need to make $100K/yr. You just need to soften the blow to your portfolio if you are concerned you are at risk. An easy PT job will do that and if you managed to jump through all the hurdles for FIRE successfully out competing the typical easy PT job crowd will not be hard.

The key though is that there is an overwhelming possibility you won't need to resort to that measure if you are already in the 90%+ range on cFIREsim.

correct first 5 years will be very telling of the safety of your funds.  its not hard to pick up part time work those first few years. 

mathjak107

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The entire outcome is decided in the first 15 years but influenced a bit the first 5 years.

One thing i noticed is that the less assets one has generally the lower the success rate.  They try to push things a bit so they can retire sooner .

So they can end up many times  not having as much to be able to cut back on if things start going poorly or they get whacked with unexpected big expenses .

Cutting back is all based on how much discretionary spending you have. Big expenses down the road can also leave you short .

« Last Edit: August 23, 2016, 07:30:23 AM by mathjak107 »

Lancebaby

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Guys - this has been very helpful. . .couple of comments:

1.  Re $85K/year expenses - you are right.  This could be reduced quite a bit.  Trying to get the wife on board so being a bit more generous here.
2.  Re house.  I could sell and rent an equivalent house for approx. $4500/month.  Given that taxes and insurance currently are 1700/month, this would be a substantive reduction in spend. . and the $700k could be invested.
3.  Re health.  This is the big one isn't it. . .hanging over our shoulders.  Worthy of deeper consideration.

Any more thoughts are appreciated.. I'll try and become a regularly contributor here.  Thanks.

Retire-Canada

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Any more thoughts are appreciated.. I'll try and become a regularly contributor here.  Thanks.

Let's say you don't want to rein in the $85K/yr spending...if you can in the flexibility to draw between say $65K and $105K/yr depending on market returns you'll add a signficant amount of robustness to your FIRE plans without necessarily having any impact on the avg $$ you get to spend/yr.

What drives your 4% SWR success rate down is the fact you are robot-ically taking out 4% + inflation each year. Flexibility improves success and at $85K/yr spending I gotta beleieve you have some items which can be deffered if needed [international holidays vs. camping locally, flash new car vs. used economy car, patch roof vs. full roof replacement.

Just some food for thought...

tomsang

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Guys - this has been very helpful. . .couple of comments:

1.  Re $85K/year expenses - you are right.  This could be reduced quite a bit.  Trying to get the wife on board so being a bit more generous here.
2.  Re house.  I could sell and rent an equivalent house for approx. $4500/month.  Given that taxes and insurance currently are 1700/month, this would be a substantive reduction in spend. . and the $700k could be invested.
3.  Re health.  This is the big one isn't it. . .hanging over our shoulders.  Worthy of deeper consideration.

Any more thoughts are appreciated.. I'll try and become a regularly contributor here.  Thanks.

If you post your projected detailed expenses that would be helpful for everyone to give you feedback.  IE did you capture everything that is needed.

Health Insurance, perks that are paid by the company that you want to keep, taxes on the withdrawals from your investments, expected long term health plan, etc.  If you actually currently spend that much on expenses and did not include the federal and state income taxes and the other areas listed, then you may have some troubles retiring without having equities in your portfolio.