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Your portfolio is the unknown ... you have a big ole pile of dollars and you want to know how much can I safely count on from my portfolio TO ADD TO MY ALREADY KNOWN SOURCES OF EXISTING INCOME from pension ,ss, annuity incomes ...we know what here can provide.
That Is where calculators like firecalc come in , they stress test the gap and give you a ballpark on an amount so you can fill in the unknown and add it to your know sources ....
They then add that portfolio contribution to your other income numbers and see if the portfolio portion can fill that gap reliably for the number of years you tell it .... it has nothing to do with projecting the reliability of your other sources which never end as long as you live , they are a given forever for at least the amounts you tell it and no further testing is needed on the known money..
It is no different then not even entering your known income in firecalc , holding it on the side ,subtracting it from what you need in total and then just using firecalc to tell you what the portfolio can bring to the party ....then just add them up yourself..
The biggest issues we have are planning around what is not known , so calculators worth their salt never use average returns or average rates... planning is based on the worst outcomes we have had .... anything better just sweetens the plan .... so far those who retired in 1907, 1929 ,1937 ,1965 , or 1966 , had outcomes so bad for markets , rates and inflation that they have not been duplicated since in any other groups
Last edited by mathjak107; 06-30-2019 at 05:49 AM..
There is a lot here you say that seems to make no sense , especially because you are not entering the most important part ,the portfolio ...that is the part firecalc deals with as it tries to find a safe amount it can contribute to the party at a high rate of success.
Why are you entering 61 year intervals , that makes no sense.. you need to run it for a 30-35 year retirement roughly .. we have had 119 30 year retirement cycles to date .
Did you back out the 75% default equity allocation? What was your spending figure you put in vs portfolio amount ? I will bet whatever you did enter is not correct or correctly entered or just not complete data..already the 61 year intervals make no sense.
First of all the purpose of firecalc is to stress test the portion of your portfolio you will be using to see if it can fill the gap between your social security income ,annuities ,pension ,etc ... it then adds what the portfolio can safely bring to the party and adds it to your other income ..
So if I need 100k and my pension and annuity and ss is 60k ,then my portfolio needs to be able to have a high success rate of providing 40k ...running the numbers through firecalc show for a 30 year time frame a 40-60% equity mix can provide over a 90% chance of filling that gap and providing that inflation adjusted 40k..
Why would you stress test income that is guaranteed ? You already know what the income is and there is near zero sequence risk so something is not making sense ... it is not like fixed income where rates vary and you have sequence risk .....your pension and annuity can never go down , it can only stay the same or go up so I am not sure what the purpose is of running a pension and annuity when the amounts are known and fixed at a min.
Firecalc is for projecting the unknown like markets and rates not the known.
It is like I use bob clyatts variable draw method ...firecalc has a tab for that ....because the draw is based on each years balance I can tell firecalc to look at a 30 ,60, or 80 year retirement and it will always say I have a 100% success rate because being based on each years balance I would never ever run out of money ..you can’t ...
But what does change is the draw and balance as things change but like a pension or annuity I can never outlive the money source. It just may not be enough..
So with these calculators you can never go broke because you always have pension , annuity and ss coming in , only the portfolio can go broke ..so asking firecalc to calculate a success rate on nooooo portfolio , just the known income sources does not seem to make sense...you know your income in this case.... there are no worst case scenarios to have to base a safe withdrawal rate on like you do a portfolio...
1. I entered the time horizons of 21 and 61 years to round up to the age of 80 vs. 120 (I am 59 now). The first one is the age at which I have a substantial longevity insurance kick in (plus the result tells me how much money I can expect to need in the earlier and more active retirement), while 120 is around the theoretically maximum attainable age (the oldest unequivocally confirmed person ever lived to 119, and human chromosomal telomeres cannot regrow past the age of 125).
2. I changed the default portfolio value to 0 (because as you know I am not an investor, although I have some mutual funds in an IRA - but I am converting that to Roth to serve as an emergency fund late in life). I changed the default annual expenses to $55,000 because those are my annual expenses right now. Then in the second tab, I added 75% of the ss figure that I found through the ss calculator. Finally, I added three fixed annuities ("pension") that I have going now or will be receiving starting at future dates.
3. I ran this calculation in order to see possible effects of inflation on my fixed income (plus social security, which is not fixed, but is also not subject to investment risk). In order to get that information from Firecalc, one apparently has to run Firecalc for each year of retirement separately, because the calculation does not give the information about adequacy of fixed income for all interval years, but only for the final year examined. In other words, if you input only your fixed income and the interval of 30 years, Firecalc gives the probability of adequate income in the 30th year, but not for the year 5 or 12 or 27 or any other year in the interval.
It really can’t do much ..there is nothing unknown to calculate ....like I said it only adds in the unknown contribution from a portfolio that you can safely add to that other income which you already know what it can provide..
There is nooooooo worst case outcome to calculate .. firecalc looks at the sequences of market returns yearly , interest rates ,inflation and the effect of sequences on them ..
None of that will apply because you have none of the parameters that are variable except inflation
All you have is a known amount of pension ,annuity ,ss and an unknown inflation rate ...there is nothing to calculate as the first 3 parameters are known ....
You don’t even need firecalc ..you need a simple spending down spread sheet and 3% average inflation and you are done. In fact anything inflation adjusted is already calculated for you. It is what it is , just divide it out by the number of years.
There is really nothing firecalc can do for you without a variable portfolio in the mix
Think of it as building a house ... firecalc would look at the most wicked storms your area ever had and then tell you to construct for the worst storm .....
But if your area has no storms for firecalc to look at , there is nothing for firecalc to tell you to do or calculate ..... a set amount in pension ,ss and annuity except for inflation adjusting has no storms to calculate .
You can’t even treat it as fixed income as fixed income has interest rates over 30 years all over the map with pay cuts at times and negative real return years ...
But ss and an inflation adjusted pension have no negative real return years , a fixed annuity might turn negative but again it is rare because fixed annuities start out with higher draws then 4% like now they are over 6% on an immediate annuity so even they may not go negative easily.
Just think of a 50k pension ..you get 50k a year inflation adjusted ... what would you like firecalc to tell you that is not apparent in what you can spend a year ? It is 50k a year inflation adjusted
For the non inflation adjusted stuff just use 3% inflation in your spending ....with no worst case scenario in a portfolio and negative return years there really is no worst case cycles except for maybe the 1965 1966 30 year cycle where inflation soared but even though you won’t be crushed by market and bond returns so again it is likely not going to reflect much as it can’t
Last edited by mathjak107; 06-30-2019 at 07:16 AM..
Never put all your eggs in one basket. No, all mine is not in stocks, maybe a quarter. I dont lose sleep over my funds. And dont worry about a bear market. Thats just the media trying to scare you about the economy and defeat Trump.
It really can’t do much ..there is nothing unknown to calculate ....like I said it only adds in the unknown contribution from a portfolio that you can safely add to that other income which you already know what it can provide..
There is nooooooo worst case outcome to calculate .. firecalc looks at the sequences of market returns yearly , interest rates ,inflation and the effect of sequences on them ..
None of that will apply because you have none of the parameters that are variable except inflation
All you have is a known amount of pension ,annuity ,ss and an unknown inflation rate ...there is nothing to calculate as the first 3 parameters are known ....
You don’t even need firecalc ..you need a simple spending down spread sheet and 3% average inflation and you are done. In fact anything inflation adjusted is already calculated for you. It is what it is , just divide it out by the number of years.
There is really nothing firecalc can do for you without a variable portfolio in the mix
Think of it as building a house ... firecalc would look at the most wicked storms your area ever had and then tell you to construct for the worst storm .....
But if your area has no storms for firecalc to look at , there is nothing for firecalc to tell you to do or calculate ..... a set amount in pension ,ss and annuity except for inflation adjusting has no storms to calculate as.
You can’t even treat it as fixed income as fixed income has interest rates over 30 years all over the map with pay cuts at times and negative real return years ...
But ss and an inflation adjusted pension have no negative real return years , a fixed annuity might turn negative but again it is rare because fixed annuities start out with higher draws then 4% like now they are over 6% on an immediate annuity so even they may not go negative easily
Inflation is the only storm that interests me :-). Firecalc algorithm does seem to have capacity to look at the possible effects of inflation upon fixed income (it probably considers all other storms to be 0, if the portfolio is 0), but it seems to be able to only determine that for one specific year (ie, if it reports 100% success for that particular year, that does not mean 100% success for all the retirement years prior to that year).
If the reported % of success is less than 100% for a particular year, one can increase the amount of "pension" in the calculation until the result hits 100% success - that gives an idea of the additional amount of cash (in addition to the ongoing annuities and ss) needed to cover my particular spending need in case of the worst possible inflation scenarios recorded so far (eg, the 1970s rates of inflation). While I don't think the 1970s will repeat (because there won't be another young baby boomer massively expanding consumer demographic in my lifetime), it is still useful to know that I have enough other financial resources to pad my annuity income in case of a decade of 8-12% inflation.
Yes it looks at fixed income , but bonds ...it takes actual bond rates each year and looks at them .... you don’t have a bond that varies rate ..you have a fixed payout adjusted for inflation or just a fixed forever payout .. it is not even close to the same in effect as far as firecalc goes.
What you are trying to see using fixed income is way different then investing a lump sum in bonds
Yes it looks at fixed income , but bonds ...it takes actual bond rates each year and looks at them .... you don’t have a bond that varies rate ..you have a fixed payout adjusted for inflation or just a fixed forever payout .. it is not even close to the same in effect as far as firecalc goes.
What you are trying to see using fixed income is way different then investing a lump sum in bonds
In the second tab, there are three lines to enter a "pension" which can further be either inflation-adjusted or not. If it is not inflation-adjusted, then it is a fixed-amount pension (ie, equal to fixed annuity). It does not say "bonds" but "pension".
Some fairly long winded replies are found here, but the thing that leaps out at me is the declaration that cash buffers are not needed.
Horse pooky.
But to the central question; no, we will not have to withdraw money from stock market if we don't want to. When we do withdraw money it all becomes 'long term investment' income. That's the advantage of not using a 401(k), where withdrawal is required and is viewed as 'income'.
Sometimes it seems to be that the very LAST thing the Powers That Be want is for us to buy individual long term growth stocks and hold them until we want some money. They would rather we traded, balanced and used 401(k)'s. I just haven't done it that way.
In the second tab, there are three lines to enter a "pension" which can further be either inflation-adjusted or not. If it is not inflation-adjusted, then it is a fixed-amount pension (ie, equal to fixed annuity). It does not say "bonds" but "pension".
correct , but you must not only change the default setting of stocks to zero in the portfolio tabe but zero out the bonds too since you have none . just zeroing it out stock assumes a 100% fixed income portfolio .. it just defaults bonds to 100% which is not the case if you are not doing it.
what are you entering for a starting value and draw if you are entering nothing in the portfolio section ?
correct , but you must not only change the default setting of stocks to zero in the portfolio tabe but zero out the bonds too since you have none . just zeroing it out stock assumes a 100% fixed income portfolio .. it just defaults bonds to 100% which is not the case if you are not doing it.
what are you entering for a starting value and draw if you are entering nothing in the portfolio section ?
In the first tab, I entered $55,000 for the current annual draw, 0 for the portfolio, and 21 or 61 years for the length of retirement. In the second tab, I entered 75% of what the SS projects it will start paying me at 70 in today's money, and I entered 2030 as the year when I'll start taking ss (ie, when I'm 70). In the bottom section of the second tab, under "pension", I entered the amount I get in annuities now, starting year 2019, and I unchecked "inflation-adjusted". I did the same for two additional later-starting annuities (which I entered in the two additional "pension" lines on that page). Then I clicked on "compute" at the bottom of that page. The result gives 100% of success at the age of 120, but only 54% of success at the age of 80, which makes me think that "success" pertains only to a single year, not to all the previous retirement years within the 61 year time horizon (there cannot logically be 100% success over the entire 61 years, if there has been 46% failure by 21 years of retirement).
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