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firecalc certainly does have an internal rate of return..it tells you its based on the returns of the couch potatoe index portfolio which is a 75/25 portfolio. you can even enter your own percentages and it works off your mix.. the results are given in a percentage of success with 95% being passing. most of the calculators are based on around a 50/50 mix of equites/bonds to 60/40 mix. firecalc has a default thats 75/25 which is pretty high for a retiree but you can put your own in.
it has to be based on a certain portfolio... if you put in nothing it tells you its 75/25 ..
from fire calc" Without any other information, FIRECalc will assume you want to keep your annual spending about the same for as many years as you specify, you aren't planning on receiving any Social Security or pension, and your retirement portfolio is invested in a "couch potato" portfolio of 75% stock index and 25% bond funds, with a 0.18% fee to the fund. But you can change any or all of those assumptions. You can refine the spending and investment assumptions"
see ,it most certainly calculates the return on your mix historically in its own manor and uses that as its gauge of success... it looks at all kinds of simulations on that mix to see how you fared at different times based on the returns you would have on your portfolio or the couch potato if you entered nothing.
you can google couch potato portolio and see the data on the returns for all the years. its between 6-8%
'
the issue is for the last decade that 6-8% on an entire portfolio dosent exist anymore.... since 95% is the minimal accepted rate of success goingg forward we all need a ton more dough or way less withdrawls..these old numbers no longer have held true for the last decade.
we need new calculators to reflect reality as it is going forward and for the past but i know of none yet....
Last edited by mathjak107; 06-27-2010 at 12:18 PM..
We have Health Care Reform now so its affordable for everyone.
I thought Cost of living depends on your spending and where you live?
You can always move and shop for lower rent and utilities.
Quote:
Originally Posted by mathjak107
dont confuse the inflation index with your cost of living index they are not the same.
your still rather young but i cant think of anything thats not at least double what it was 20-25 years ago.. some things have tripled ...other things like medical insurance may be up many many times what it was.
there is noooooooooo way your cost of living is only going up 1% a year... you can take that to the bank..
even now with supposed negative inflation my own cost of living has risen.
our rents up, utilities are up, food is up..medical insurance greatly up etc....
your cost of living index is based on what you buy, how much it went up x how many times you buy it with a quality index.....
obviously while cheap k-mart jeans may be down better quality gap jeans may be up .....
you cant have a million bucks today , try to draw 4% or 40,000 a year off it, and be able to inflation adjust it by at least 3% a year and only earn 2-4% return like we are.
none of the above... i needed them... bad genes wiped out the sheaths that surround the teeth and destroyed them... nothing was salvagable even for a bridge.
Last edited by mathjak107; 06-27-2010 at 12:46 PM..
okay, i think whats happening is you think firecalc is just taking a pile of money and seeing how long it lasts regardless of return...
firecalc absoluetly has a built in rate of return. firecalc by default mimics the couch potato index which is 75% equities and 25 % bonds .. you can also take any portfolio mix you like and it will make the adjustments internally for the returns that were achieved over the time frames they look at.
depending on the time frames the returns are based on what you would have achieved from that investment mix
FIRECalc simulates over a 1871-2008 period during which equities yielded an annualized real return of 6.4%, thats an after inflation return, before subtracting inflation thats a return 9.8 % on equities.
it then looks at the bond returns for that time frame and comeus up with a internal rate...
its all based on how the couch potato portfolio did.. its not based on just a pile of money and no return like i think your thinking it is..
since this decade returns have fallen off a cliff scott burns the inventor of the couch potato index is now saying the success rate we are getting from these calculators are not realistic anymore.
stock ,bond and cash returns have been so low that they now have no chance of success based on these new returns and using the calculators .
heres what it figures to compute your internal rate of return, click on your portfolio at the top.....
firecalc certainly does have an internal rate of return..it tells you its based on the returns of the couch potatoe index portfolio which is a 75/25 portfolio.
No, it doesn't. You don't understand how firecalc works, you seem to be really caught up in the asset class mix, that's not the point what you're not understanding is that it doesn't just take a rate or return, it runs hundreds of scenarios all with different rates of return that happened historically over time. There is no one rate of return, and it certainly doesn't just run it against 1871-2008 total rate for 75/25.
You could not state what the rate or return Firecalc uses for a 75/25 mix is, it's impossible.
Quote:
since 95% is the minimal accepted rate of success goingg forward we all need a ton more dough or way less withdrawls..these old numbers no longer have held true for the last decade.
Why can't you have success with a portfolio of a million that only makes 6% if you're taking out 40k and inflation adjusting that upwards? Wouldn't be something like:
Year 1: Portfolio makes 60k (6%) and you take out 40k. $1,000,000 + 60k - 40k = $1,020,000 portfolio remaining.
Year 2: Portfolio makes 61,200k (6%) and you take out $41,200k (3% inflation up). $1,020,000 + $61,200 - $41,200 = $1,040,000 portfolio remaning.
It's not a valid question as firecalc doesn't predict the future.
It is accurate in terms of historical data, all it's doing is running your investment mix against hundreds of past returns (not a single rate or return) to tell you how many of those times you wouldn't have gone broke. It does include financial catastrophes in the historical data like great depression.
While I agree with mathjak that we won't have returns that are as high in the future, it certainly isn't like calculators that just pick a rate of return and tell you whether you run out of money or not. You have to decide whether the chance of success is worth needing to accumulate more.
okay , simply put what firecalc dosnt average out the returns... it takes each year on its own merit ...
it looks to see if the return for a particular year would have had you take out more money then your portfolio's return was and marks it a failure.
if you made more in return then you took out it marks it as successful ...
it then compares failures to success and gives you a chance of success rate.....
its just another way to the same conclusion, namely to see if our portfolios will give us a 95% success rate of not out living our money....
ive used firecalc but i happen to like the comprehensive report i get from fidelitys retirement planner. i know lots of folks on the early retirement forum that use firecalc ..
only problem is like i said, they dont adjust for the low returns we have been stuck with going forward... firecalc still shows to large of a withdrawl rate possible for me based on what i would do on todays returns..
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