FireCalc cFireSim % what it means and what is good enough

[Tiny]

I've been running and playing around with numbers thru FireCalc and cFireSim. 

I'm wondering if I am assigning too much value to the simulation succeeds 100% (0 fails).   
 
What does the failure rate actually mean? 
Is there a "good enough" %?   Or is 100% the one and only goal to shoot for?  Is all hope of a nice retirement lost if the percent is 93%?? 

I'm wondering if there's a "Good Enough" percentage to achieve  and what it might be. 

What kind of success rate are you looking for (and why) when you run these simulations?   



Kind of like how having a FICO score about 760  doesn't really get you much more in perks/good stuff.   Sure an over 800 score is impressive but does it really get you "more" of something? 

Kind of like how scoring enough to get an A on a test is usually just as good as getting 100% right on a test.    

What's "good enough"? 

 

 

[minnesotapaintlady]

I don't get hung up on trying to reach 100% at all.  After all, even 100% on a Firecalc doesn't mean you're home free with the whole past performance doesn't guarantee future results thing... Mid 90's is fine for me especially since Firecalc assumes you're just making the same inflation adjusted withdrawal every year no matter what.  If you change your plans in response to the market you can up your odds (market crashes maybe live lean that year instead of taking your normal distribution)

[grumpyhermit]

I'm too dumb to use FireCalc. I've tried and by the end I feel like I'm just making wild guesses and don't trust any of the results anyway. However, like all things I would think that the "good enough" success percentage is going to be down to your personal risk tolerance.

I'm pretty risk averse, so even when a calculator or projection SAYS I'll be fine I mostly ignore it, assume I've done something wrong,  and continue to expect the worst. Though I think a large part of that is that SS benefits are a huge question mark for people my age (early 40s) Without those, at least partial, most calculators have me eating catfood in retirement (or just dying at my desk).

I'm single income, moderate/low earner, so while I save a fair amount (for me) of my income, without SS I would be unlikely to have a comfortable cushion in retirement. I can and do max my Roth, but maxing my 403b would require me to make sacrifices (i.e. roomates) I'm just not willing to make at my age.

[jeffreymo]

I’m aggressive on the spend side and don’t account for any inheritances we will likely receive. Also my retirement date which I record in the Firecalc could be 5-6 years earlier than my wife’s retirement date.

For these reasons, I’m ok with 70% or better.

[Tiny]

There's this calculator - which is a little less overwhelming than FireCalc but seems to do the same type of calculation:

cfiresim.com/

[Tiny]

I'm kind of feeling like all the scenarios where I get 90% or higher success rates seem to be doable (and worth the risk). Because as MPL pointed out - changing ones response to the market (as cycles play out or as life happens - not in a "timing the market" sort of way) can make a difference.

I've hearing about how some retirees have 1 to 3 years in "safe" easy to access accounts - They basically have This Year $, and then 3 years of expenses as an "EF" of sorts. Each year they more or less just move money from the 3 years of expenses account to This Year $ and then refill 3 years of expenses account from their retirement accounts.

The thought is if the market goes south they could choose to take less or to NOT take money from their retirement accounts for a year or two or three - which might help with the recovery of their retirement accounts.


FWIW:
FireCalc made me cry the first couple of times I tried to input my information - I didn't have all the numbers it wanted. And some of the numbers/dates where things I never thought about or didn't know what they were.

That's not to say that it was a bad experience - as it nudged me towards thinking about/find out some of the information.

In general (beyond FireCalc/cFireSim) when planning for retirement - I'm finding that most articles/advice/help is biased towards being married. It took me a while to get use to asking myself - is this "thing" aimed at marrieds and if so what should my takeaway from it be as a life long single?

[tskeeter]

Our financial advisors have said that Monte Carlo simulation success rates in excess of 90% indicate that your retirement plan is doable.  

The way Monte Carlo simulations are structured, the worst case scenario assumes that every bad thing that could happen to the economy over a 30 year simulation period actually did happen.  It is incredibly unlikely that only bad things would happen for 30 consecutive years.

The simulations also usually assume that you do not alter your spending, regardless of economic conditions or portfolio returns.  By pulling back your spending a bit when the economy is struggling, you can probably increase the probability that you will have enough retirement resources by a couple of percent.

[Tiny]

I found this on Monte Carlo simulations:

www.marketwatch.com/story/should-you-use-a-monte-carlo-simulation-to-determine-if-your-retirement-savings-will-last-11611607222


Just pulling one of many bits I found interesting or that addressed my concerns/questions/misgivings:

There are at least two issues to consider when thinking about Monte Carlo simulations, said Branislav Nikolic, vice president of research at Cannex Financial Exchanges Limited. The first, to quote an aphorism generally attributed to the statistician George Box, is that “all models are wrong, but some are useful.”

I found the quote strangely comforting. It's not a test (to pass or fail) - it's a tool.

The tool — value at risk or VAR — is gaining traction in planning circles, said Nersesian. VAR is for investors who relate better to financial outcomes in dollar terms versus percentages or probabilities. “It advances the risk management process by quantifying the maximum dollar loss that a portfolio may achieve during periods of market stress,” he said. “It provides advisers with a tool that can help them speak their client’s language.”

This is the first I've heard of this... 

[buystoys]

I took FIRECalc with a grain of salt before we retired.  I figured if it came out at 90% or better, we would be able to navigate our way through.  I also used i-Orp to confirm our planned withdrawals.  I don't exactly use the i-Orp recommendation, but it's nice to see that we have more than enough to get through any problem times.  We don't take as much as i-Orp says we can, either.  We also don't take as much as FIRECalc says we can. 

[MN-Investor]

My husband used to love using Firecalc! He would periodically send me screenshots of the results and he would say "Oh no! I can't retire!" Of course he would have us spending $200,000/year (or something equally ridiculous) in his scenarios.

[bookkeeper]

I used FireCalc quite often in the lead up to our retirement.  I think you are in good shape if you are coming up with a 90% success rate.

Being financially ready to retire includes being flexible if your investments are not earning what you had projected.  For us, that included having a two year cash stash on hand.  We retired in 2014 and we were fortunate that our investments never hit a huge backslide.  We did have some that were not performing as hoped, so we rebalanced and are happy with the mix now.

We have two piles of money.  One for the first 10 years and one for the next block of 10 years.  We have made draws from both accounts and they are still more than what we started with.  Over half of the Monte Carlo projections had us decreasing the value of our accounts until this year when DH claimed his SS check.  That didn't happen, so we are in a good place.

We do harvest the profit from DH's 401k from time to time and park it in the money market account therein.  That money market account contains the cash that we live off of.  We know in advance how much ready cash we have to spend and when we will owe federal income tax on that cash.  Our yearly spend is around $100,000.  We could tighten it up to $60,000 very easily if we had to.  

[minnesotapaintlady]

Sept 13, 2021 20:59:02 GMT -5 MN-Investor said:

My husband used to love using Firecalc! He would periodically send me screenshots of the results and he would say "Oh no! I can't retire!" Of course he would have us spending $200,000/year (or something equally ridiculous) in his scenarios.

LOL  My favorite thing to do in Firecalc the past few years is just figure what income I hit 100% on not adding another dime to my accounts, retiring at 59 1/2 (about 7 years), and collecting just 10K/year in SS starting at 65.

It wasn't that long ago that that number was 25K.  Now it's 40K.  Getting pretty close to my comfy level! 

[Tiny]

I had a bit of a heart attack - when I spent some time reviewing my "estimated" income tax "expense" and realized I was using a really old estimate.    

I updated some other estimated expenses as well. 
And I figured out how to get a better SS estimated monthly payment if I stop working in the next year.   

Which is what inspired my question and this thread....  Even with my updated guestimates and better SS payment "guess" - I can still eeek out a 100% success rate from FireCalc.   But when I play around with the numbers small changes start to drop my success rate - with my "I can't believe I'm spending so much money!!!!"  number getting me down to a 90% success rate.   
    
 

[resolution]

I have always mistrusted my expense projections because we were planning to buy a more expensive house and I couldn't predict what my expenses would be in the new house. Now that we have bought the house and I have a good idea of my future budget, I still have a hard time trusting that my estimates are accurate, especially for health care.