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FIRE calculators

Including Financial Independence and Retiring Early (FIRE)
Urbandreamer
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FIRE calculators

#335711

Postby Urbandreamer » August 25th, 2020, 9:41 am

I have been planning to FIRE for most of my working life and believe that I'm on course to retire in three years.

Of recent years the internet has provided a number of calculators to help me plan.

My choice was
https://www.firecalc.com/

Others that I know of are
http://www.cfiresim.com/
https://www.flexibleretirementplanner.com/wp/

I took the attitude that I could simply replace $'s with £'s and the simulation would mean something.

BIG mistake.

Firecalc a brilliant tool that runs a statistical simulation to produce the odds of a portfolio meeting your needs. The others do the same. However the simulation is based upon the US stock market. Over the time period used for the data, that market has significantly outperformed most other markets.

Does anyone know of a similar tool that uses global markets or even the UK?

xxd09
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Re: FIRE calculators

#335718

Postby xxd09 » August 25th, 2020, 10:05 am

You should be invested in Global markets incl US
Then Firecalc works
xxd09

dspp
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Re: FIRE calculators

#335725

Postby dspp » August 25th, 2020, 10:18 am

Not a direct answer as I am pushed for time, but try looking amongst these for tools or ideas

https://blog.wealthfront.com/emerging-markets/

https://extradash.com/en/#quick-start-guide

https://www.portfoliovisualizer.com/

https://monevator.com/financial-calculators-and-tools/

Please feel free to disregard, but if you drill you may find some that help.

regards, dspp

Urbandreamer
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Re: FIRE calculators

#335737

Postby Urbandreamer » August 25th, 2020, 10:52 am

xxd09 wrote:You should be invested in Global markets incl US
Then Firecalc works
xxd09


I am so investing.

However the rest of your post does not agree with Firecalc's "Your portfolio" page, which is entirely US based.
NO option for global markets I fear in their simulation..

dssp wrote:Not a direct answer as I am pushed for time, but try looking amongst these for tools or ideas


Thanks dssp. I'd found the Monevator one, but the Portfolio Visualizer looks very promising.

hiriskpaul
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Re: FIRE calculators

#335832

Postby hiriskpaul » August 25th, 2020, 4:07 pm

Over the past 50 years, the gross CAGR of the World Market (MSCI World) has been about 9.5%, with World ex-US about 9.0%, so not a huge difference. That is measured in dollars, but the pound has dropped against the dollar, so in pounds the CAGRs were about 10.8% and 10.3% respectively. You might think that would mean SWRs for pound investors would be higher than those for for dollar investors. Unfortunately though this is not the case because inflation has been much higher in the UK (5.76% RPI since 1970) than in the US (3.92% CPI). UK CPI was not calculated before 1996, so it is difficult to compare precisely, but the difference in inflation results in lower historical SWRs for UK investors, despite the depreciation of the pound.

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Re: FIRE calculators

#335836

Postby Lootman » August 25th, 2020, 4:11 pm

hiriskpaul wrote:Over the past 50 years, the gross CAGR of the World Market (MSCI World) has been about 9.5%, with World ex-US about 9.0%, so not a huge difference. That is measured in dollars, but the pound has dropped against the dollar, so in pounds the CAGRs were about 10.8% and 10.3% respectively. You might think that would mean SWRs for pound investors would be higher than those for for dollar investors. Unfortunately though this is not the case because inflation has been much higher in the UK (5.76% RPI since 1970) than in the US (3.92% CPI). UK CPI was not calculated before 1996, so it is difficult to compare precisely, but the difference in inflation results in lower historical SWRs for UK investors, despite the depreciation of the pound.

I still think that the 4% SWR works for the UK as it is a very conservative measure anyway given those 9% and 10% annualised returns from global equities. Moreover UK equities yield about that much in dividends (usually).

And in that case there is no need for fancy calculations, models and tools. If your liquid net worth equals 25 times your estimated annual expenses, then you are golden.

Urbandreamer
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Re: FIRE calculators

#335852

Postby Urbandreamer » August 25th, 2020, 4:54 pm

Lootman wrote:And in that case there is no need for fancy calculations, models and tools. If your liquid net worth equals 25 times your estimated annual expenses, then you are golden.


Isn't that another way of stating the 4% rule?

100 / 25 = 4 !

It was actually a video about the 4% rule that lead to my question.

In that video it was pointed out that the rule was devised using the US market, a 50/50 equity/bond split and a duration of 30 years.

If you stick with US & 50/50 it fails in a significant number of cases over 40 years (how long I intend to need the pension)
Likewise if the significant equity proportion is outside the US. OK, I'll accept that global ex US isn't bad. The video assumed local markets. However the point is that one reason not to trust the 4% rule is where you are invested.

That was specifically why I wanted to do the simulation using other markets. I invest worldwide. My company pension is 47% "international", 32% UK, 10% pacific rim, 6% bonds, 5% property Outside the company pension it's another complicated mix.

I asked about UK investments as I know that many here place the bulk of their investments there.

It's a good idea, to where possible, base your predictions on the correct data. Personally I question adopting rules of thumb, like 100-age = equity proportion or 4% is good enough without information about history or knowing the assumptions made.

Ps, while I entirely accept hiriskpaul's statements, they ignore sequence risk. The advantage of the Monte Carlo simulation is that it does attempt to include sequence risk.

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Re: FIRE calculators

#335853

Postby Dod101 » August 25th, 2020, 5:02 pm

I am with Lootman on this. When I retired 26 years ago (at a relatively young age) I was in fact given early retirement. My wife's health was failing so I took the opportunity to give up work, with no planning and a lump sum. You do not need calculators and the rest. Take what Lootman is saying, a SWR of 4% of capital or calculate how much you need to live off and multiply by 25 for the capital required. Either way it will give you the ballpark capital you need, that is if you have no pension. Believe me people worry too much.

Dod

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Re: FIRE calculators

#335876

Postby hiriskpaul » August 25th, 2020, 6:48 pm

Dod101 wrote:I am with Lootman on this. When I retired 26 years ago (at a relatively young age) I was in fact given early retirement. My wife's health was failing so I took the opportunity to give up work, with no planning and a lump sum. You do not need calculators and the rest. Take what Lootman is saying, a SWR of 4% of capital or calculate how much you need to live off and multiply by 25 for the capital required. Either way it will give you the ballpark capital you need, that is if you have no pension. Believe me people worry too much.

Dod

You are basing your analysis on a one off anecdotal example. Not much use when planning for the future, especially as the sequence of returns should have been very favourable for you. You could have drawn down 6.4% (rising with RPI) from a 100% portfolio invested in World tracker and the real value of the investment would have been about the same at the end of 2019 as it was in 1994. Had you retired at the beginning of 1973 and drawn down at that rate you would have run out of money by 1984.

hiriskpaul
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Re: FIRE calculators

#335880

Postby hiriskpaul » August 25th, 2020, 7:02 pm

Lootman wrote:
hiriskpaul wrote:Over the past 50 years, the gross CAGR of the World Market (MSCI World) has been about 9.5%, with World ex-US about 9.0%, so not a huge difference. That is measured in dollars, but the pound has dropped against the dollar, so in pounds the CAGRs were about 10.8% and 10.3% respectively. You might think that would mean SWRs for pound investors would be higher than those for for dollar investors. Unfortunately though this is not the case because inflation has been much higher in the UK (5.76% RPI since 1970) than in the US (3.92% CPI). UK CPI was not calculated before 1996, so it is difficult to compare precisely, but the difference in inflation results in lower historical SWRs for UK investors, despite the depreciation of the pound.

I still think that the 4% SWR works for the UK as it is a very conservative measure anyway given those 9% and 10% annualised returns from global equities. Moreover UK equities yield about that much in dividends (usually).

And in that case there is no need for fancy calculations, models and tools. If your liquid net worth equals 25 times your estimated annual expenses, then you are golden.

Dividends may not keep up with inflation and there have been periods when they have not. At the end of 1968 the historic yield of the UK market was 3.2%. By the end of 1976 it would have risen to 6.4%, but the real value of the income paid out by the market had dropped by about 30%. The value of the UK market was down about 65% in real terms as well.

A drawdown rate of 4% is usually fine and if stuck to often leaves a large surplus, but there are a small percentage of historic cases when it would not not have been fine.

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Re: FIRE calculators

#335883

Postby hiriskpaul » August 25th, 2020, 7:12 pm

Urbandreamer wrote:
Lootman wrote:And in that case there is no need for fancy calculations, models and tools. If your liquid net worth equals 25 times your estimated annual expenses, then you are golden.


Isn't that another way of stating the 4% rule?

100 / 25 = 4 !

It was actually a video about the 4% rule that lead to my question.

In that video it was pointed out that the rule was devised using the US market, a 50/50 equity/bond split and a duration of 30 years.

If you stick with US & 50/50 it fails in a significant number of cases over 40 years (how long I intend to need the pension)
Likewise if the significant equity proportion is outside the US. OK, I'll accept that global ex US isn't bad. The video assumed local markets. However the point is that one reason not to trust the 4% rule is where you are invested.

That was specifically why I wanted to do the simulation using other markets. I invest worldwide. My company pension is 47% "international", 32% UK, 10% pacific rim, 6% bonds, 5% property Outside the company pension it's another complicated mix.

I asked about UK investments as I know that many here place the bulk of their investments there.

It's a good idea, to where possible, base your predictions on the correct data. Personally I question adopting rules of thumb, like 100-age = equity proportion or 4% is good enough without information about history or knowing the assumptions made.

Ps, while I entirely accept hiriskpaul's statements, they ignore sequence risk. The advantage of the Monte Carlo simulation is that it does attempt to include sequence risk.

Yes, sequence risk is by far the biggest thing to worry about, which is why statements of the sort "I retired 26 years ago, did X, Y and Z and it worked out ok" are not of much use.

For longer retirements, this site is very informative (US based though unfortuneately) https://earlyretirementnow.com/

Essentially the conclusion reached is that higher equity allocations are required to make it through 40+ years, but that is based on US market data!

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Re: FIRE calculators

#335884

Postby Lootman » August 25th, 2020, 7:18 pm

hiriskpaul wrote:higher equity allocations are required to make it through 40+ years, but that is based on US market data!

Given where bond yields are at the moment that conclusion seems obvious. The old 50/50 guideline, or "100 minus your age in shares and the rest in bonds" rule just doesn't apply any more.

For me it is high quality shares i.e. global best-of-breed, strong balance sheets, high growth numbers and where the growth and safety of dividends is more important than the size of them.

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Re: FIRE calculators

#335886

Postby Dod101 » August 25th, 2020, 7:32 pm

hiriskpaul wrote:
Dod101 wrote:I am with Lootman on this. When I retired 26 years ago (at a relatively young age) I was in fact given early retirement. My wife's health was failing so I took the opportunity to give up work, with no planning and a lump sum. You do not need calculators and the rest. Take what Lootman is saying, a SWR of 4% of capital or calculate how much you need to live off and multiply by 25 for the capital required. Either way it will give you the ballpark capital you need, that is if you have no pension. Believe me people worry too much.

Dod

You are basing your analysis on a one off anecdotal example. Not much use when planning for the future, especially as the sequence of returns should have been very favourable for you. You could have drawn down 6.4% (rising with RPI) from a 100% portfolio invested in World tracker and the real value of the investment would have been about the same at the end of 2019 as it was in 1994. Had you retired at the beginning of 1973 and drawn down at that rate you would have run out of money by 1984.


Actually for a start there is nothing anecdotal about my situation. Secondly, if I had retired at the beginning of 1973 (I remember it well!) being a lot younger, I might have panicked, but I would have drawn in my horns and waited it out. OK, if I was lucky in my retirement date, so what? I have been lucky all my life (except for the fact that I have lost two wives, both around the age of 60. That sobers you I can assure you and sorts out in life what is important.)

Urbandreamer
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Re: FIRE calculators

#335891

Postby Urbandreamer » August 25th, 2020, 7:45 pm

For what it's worth, though it is off topic, I entirely agree with both Lootman and Hiriskpaul, that we need to invest more in equities if we are to desire longer time periods.

However the thread was more along the lines of "what can I expect, if I'm doing what I choose to do".

NOT, what should I do.

All my sums show that, financially, I could retire tomorrow. There are non financial reasons why I won't. However, given the fact that I have not yet nailed my colours to the mast, I do think it worth continuing to do the sums. Ignoring the fact that I do actually enjoy doing so.

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Re: FIRE calculators

#335895

Postby PhaseThree » August 25th, 2020, 8:03 pm

It's probably time to mention this book again :- "Beyond The 4% Rule: The science of retirement portfolios that last a lifetime"
https://www.amazon.co.uk/Beyond-4-Rule- ... B07BBTZXWN

It covers drawdown rates in great detail and discusses risk factors such as sequence risk.
An excellent guide to UK retirement planning based on UK data. This is by far the best input I have had into my FIREish retirement plan.
There is also a related calculator (https://www.timelineapp.co) which I have not tried but would well be worth a look.

From memory the ideal SWR for the UK is around 3.5%

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Re: FIRE calculators

#335896

Postby Dod101 » August 25th, 2020, 8:14 pm

hiriskpaul wrote:[
A drawdown rate of 4% is usually fine and if stuck to often leaves a large surplus, but there are a small percentage of historic cases when it would not not have been fine.


There are no certainties in life so of course that is the case, but if you wait for everything to come together you will probably never retire. Have you not heard that life is risky? Why cross the road if you can stay on the same side? That is of course what makes it interesting.

Dod

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Re: FIRE calculators

#335922

Postby hiriskpaul » August 25th, 2020, 9:24 pm

Dod101 wrote:
hiriskpaul wrote:
Dod101 wrote:I am with Lootman on this. When I retired 26 years ago (at a relatively young age) I was in fact given early retirement. My wife's health was failing so I took the opportunity to give up work, with no planning and a lump sum. You do not need calculators and the rest. Take what Lootman is saying, a SWR of 4% of capital or calculate how much you need to live off and multiply by 25 for the capital required. Either way it will give you the ballpark capital you need, that is if you have no pension. Believe me people worry too much.

Dod

You are basing your analysis on a one off anecdotal example. Not much use when planning for the future, especially as the sequence of returns should have been very favourable for you. You could have drawn down 6.4% (rising with RPI) from a 100% portfolio invested in World tracker and the real value of the investment would have been about the same at the end of 2019 as it was in 1994. Had you retired at the beginning of 1973 and drawn down at that rate you would have run out of money by 1984.


Actually for a start there is nothing anecdotal about my situation. Secondly, if I had retired at the beginning of 1973 (I remember it well!) being a lot younger, I might have panicked, but I would have drawn in my horns and waited it out. OK, if I was lucky in my retirement date, so what? I have been lucky all my life (except for the fact that I have lost two wives, both around the age of 60. That sobers you I can assure you and sorts out in life what is important.)

So what? I have already answered "so what?".

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Re: FIRE calculators

#335923

Postby hiriskpaul » August 25th, 2020, 9:26 pm

Dod101 wrote:
hiriskpaul wrote:[
A drawdown rate of 4% is usually fine and if stuck to often leaves a large surplus, but there are a small percentage of historic cases when it would not not have been fine.


There are no certainties in life so of course that is the case, but if you wait for everything to come together you will probably never retire. Have you not heard that life is risky? Why cross the road if you can stay on the same side? That is of course what makes it interesting.

Dod

Of course. There is no such thing as a "Safe" withdrawal rate. This is all about understanding the risks being taken, not trying to totally eliminate risk.

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Re: FIRE calculators

#335938

Postby hiriskpaul » August 25th, 2020, 10:16 pm

Urbandreamer wrote:For what it's worth, though it is off topic, I entirely agree with both Lootman and Hiriskpaul, that we need to invest more in equities if we are to desire longer time periods.

However the thread was more along the lines of "what can I expect, if I'm doing what I choose to do".

NOT, what should I do.

All my sums show that, financially, I could retire tomorrow. There are non financial reasons why I won't. However, given the fact that I have not yet nailed my colours to the mast, I do think it worth continuing to do the sums. Ignoring the fact that I do actually enjoy doing so.

Actually, I did not mean to say that "we need to invest more in equities if we are to desire longer time periods", just that this is the conclusion reached on earlyretirementnow.com. He is not the only one and high equity is the currently fashionable approach when it comes to probability-based drawdown strategies. The alternative "safety-first" approach is entirely based on index linked bonds/annuities, but is now too expensive or judged bad value by many retirees. There are still some dissenters to high-equity approaches though. McClung (https://www.amazon.co.uk/Living-Off-You ... 0997403403) being an interesting example as he bases his research on market data that includes both the UK and Japan. A very good thought provoking book, but dense and currently about twice the price I paid! The difficulty with bonds right now though is that we really are off the historical charts when it comes to yields on long duration bonds.

I am yet to make my mind up about going equity heavy. On the one hand, most of the recent research is pointing that way, on the other equities have been on a fantastic bull run so it would be surprising if the research and back tests did not point that way! I am still heavily into higher risk fixed income, but as with equities they have had an exceptional run and good opportunities are very hard to find without taking on a lot of specific risk. In short, I am running out of good alternatives to more equities.

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Re: FIRE calculators

#335942

Postby hiriskpaul » August 25th, 2020, 10:32 pm

ps, on the "what can I expect, if I'm doing what I choose to do", you can expect a good outcome, even with a 4% SWR. The problem though is not the expected or average outcome, but the huge dispersion in outcomes - a small chance of running out of money to dying extremely wealthy. McClung's book explores lots of strategies, such as methods of varying the withdrawal, setting the initial withdrawal rate, etc. and trying to steer a path through this to minimise extreme outcomes. Essentially if your investments do well, you draw more, if badly you draw less and the provides evidence based, systematic approaches to decision making.


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