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So the argument is, "this time is different" and "no one should attempt to do any investment or retirement planning because no one can know what the future ROI will be?"
Every investment and retirement planning tool, all of them, including Firecalc, Fidelity's, and every other brokerage company, require estimated ROI or historical ROI as a core part of calculating possible outcomes.
Without an inclusion of calculated ROI, running any of the planning tools is impossible. Forget Monte Carlo simulations, forget Portfolio Charts, forget heatmaps, or any of the graphics that some love to post; they're all irrelevant and not useful for the future, based on this skewed logic.
So the argument is, "this time is different?" and "no one should attempt to do any investment or retirement planning because no one can know what the future ROI will be?"
Every investment and retirement planning tool, all of them, including Firecalc, Fidelity's, and every other brokerage company, require estimated ROI as a core part of calculating possible outcomes. Many use historical outcomes as well.
Without an inclusion of calculated ROI, running any of the planning tools is impossible. Forget Monte Carlo simulations, forget Portfolio Charts, forget heatmaps, or any of the graphics that some love to post; they're all irrelevant and not useful for the future, based on this skewed logic.
Firecalc only looks at worst case outcomes in worst case sequences , not average returns unless you want to play around and enter an assumed return in the portfolio tab .but it is not how they typically want things looked at
Which is why there is a huge span in the projected dollars they give you as a possible range . It ranges from broke to many times what you started with
But a safe withdrawal rate is not based on an assumed average return.
Fidelity does not just choose an average return either ..
You can see how they arrive at things in the methodology manual.
Firecalc only looks at worst case outcomes in worst case sequences
Go look at the tab titled, "Your Portfolio" in Firecalc. Now look at the fields. There's a default amount in expense ratio and a default investment model selected. The user makes whatever changes. The choices in this tab are used to run the firecalc calculations, even if the user doesn't realize ROI estimates are being used.
Firecalc doesn't only look at "worst case outcomes..." it will look at what amount the starting portfolio needs to be to succeed 100% of the time based on historical data, what spending amount will succeed 100% based on the inputs, and some other what-if scenarios.
The point: ROI is one of the components used in order to run the calculations.
Go look at the tab titled, "Your Portfolio" in Firecalc. Now look at the fields. There's a default amount in expense ratio and a default investment model selected. The user makes whatever changes. The choices in this tab are used to run the firecalc calculations, even if the user doesn't realize ROI estimates are being used.
Firecalc doesn't only look at "worst case outcomes..." it will look at what amount the starting portfolio needs to be to succeed 100% of the time based on historical data, what spending amount will succeed 100% based on the inputs, and some other what-if scenarios.
The point: ROI is one of the components used in order to run the calculations.
I just said that above but that is not what they use as their standard default anymore then they use Monte Carlo simulations which you have a tab for too.
Firecalc is known for using actual worst case scenarios.
When you enter a projected constant return they call it the crystal ball method
.
It assumes no down years ever while spending down which is not realistic.
FIRECalc Results (Consistent growth)
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
FIRECalc looked at the 91 possible 30 year periods in the available data, starting with a portfolio of $750,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 91 cycles. The lowest and highest portfolio balance at the end of your retirement was $750,000 to $1,463,347, with an average at the end of $1,463,347. (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.)
Since you elected the "crystal ball" option for every year, every year will have succeeded or failed, so it is 0% or 100%. FIRECalc found that 0 cycles failed -- the portfolio was depleted before the end of the 30 years -- for a success rate of 100%
Last edited by mathjak107; 01-16-2022 at 12:23 PM..
Is this real return? If it turns out to be 2-4% real, I’m ok with it. I’m even ok with 2-4% nominal. If equities are negative a decade from now, a lot of retirees and pre-retirees are going to be in a heap of trouble.
Anyone notice that the world has changed over the past two years? It is pointless to look at historical S&P returns.
The world has changed, and yet the S&P 500 keeps going higher every year.
Funny how that works.
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