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FIRE calculators

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

#335955

Postby Urbandreamer » August 26th, 2020, 12:14 am

hiriskpaul wrote: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. .


That it EXACTLY the reason for the thread. It's not the issue of being the most wealthy corpse in the yard that concerns me, but the small chance of being the man I give the coin to outside the supermarket.

He's great. Always polite, calls me young man. But I swear that I'm the older....

As I have been saying, IF I lived in the US and invested in the US I could take comfort from the calculators and research. As I don't, I benefit from state pension, so will almost certainly be ok. However I would like to do the calculations based upon being outside the US.

hiriskpaul
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Re: FIRE calculators

#335957

Postby hiriskpaul » August 26th, 2020, 12:56 am

It is tricky. The only site I know of for UK investors is the timeline one, linked to by PhaseThree. I have not tried it, but is supposedly free for 30 days. I hate signing up for things where you get charged if you don't cancel, which is my main reason for not trying it.

The alternative is a DIY approach, if you have the inclination to do it, but the difficulty is obtaining decent data. RPI and UK interest rate data is freely available online, as is FX data I think if you hunt around for it. The problem is with reliable global stock and bond market data. I have access (for the moment) to a private database with some global data going back about 50 years, but don't know of similar or earlier data freely available online. If you are interested in worst case scenarios, they took place earlier, although the 1970s were not great for equity or bond investors due to high inflation, oil crisis, etc.

There is no shortage of US data, eg from Shiller (http://www.econ.yale.edu/~shiller/data/ie_data.xls)*. It would be great if global data was as readily available as this.


* Look at the plots to see off the scale bond yields and how stretched US equity prices have become.

CryptoPlankton
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Re: FIRE calculators

#335959

Postby CryptoPlankton » August 26th, 2020, 1:45 am

Urbandreamer wrote:That it EXACTLY the reason for the thread. It's not the issue of being the most wealthy corpse in the yard that concerns me, but the small chance of being the man I give the coin to outside the supermarket.



I'm not convinced that even the most sophisticated and geographically appropriate simulation tool could alleviate "supermarket man" concerns unless or until you have that gut feeling that you are in a position to FIRE. And I think, in addition to financial resources, that is very much down to each person's character and circumstances.

I decided I could live by "independent means" some time ago, but I suspect there are many here who wouldn't even begin to consider it possible if they were in my financial position! My advantages include having modest (therefore flexible) needs/wants, no heirs and the potential to free capital from property (by downsizing and/or selling my other property) if my investments should perform at the extreme lower end of expectations. Rather than look for some fancy Monte Carlo type affair, which, at the end of the day, would be as useful at predicting the future as Michael Fish, I contented myself with plugging in some worst case scenarios into Hargreaves Lansdown's drawdown calculator as part of my planning.

Simulations will always throw up the chance of unpalatable outlier outcomes - if they don't then imho they must be flawed. Personally, I find more comfort by having a contingency plan (lifestyle changes and/or release of property capital) for tackling the worst case scenario.

hiriskpaul
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Re: FIRE calculators

#336026

Postby hiriskpaul » August 26th, 2020, 10:55 am

CryptoPlankton wrote:
Urbandreamer wrote:That it EXACTLY the reason for the thread. It's not the issue of being the most wealthy corpse in the yard that concerns me, but the small chance of being the man I give the coin to outside the supermarket.



I'm not convinced that even the most sophisticated and geographically appropriate simulation tool could alleviate "supermarket man" concerns unless or until you have that gut feeling that you are in a position to FIRE. And I think, in addition to financial resources, that is very much down to each person's character and circumstances.

I decided I could live by "independent means" some time ago, but I suspect there are many here who wouldn't even begin to consider it possible if they were in my financial position! My advantages include having modest (therefore flexible) needs/wants, no heirs and the potential to free capital from property (by downsizing and/or selling my other property) if my investments should perform at the extreme lower end of expectations. Rather than look for some fancy Monte Carlo type affair, which, at the end of the day, would be as useful at predicting the future as Michael Fish, I contented myself with plugging in some worst case scenarios into Hargreaves Lansdown's drawdown calculator as part of my planning.

Simulations will always throw up the chance of unpalatable outlier outcomes - if they don't then imho they must be flawed. Personally, I find more comfort by having a contingency plan (lifestyle changes and/or release of property capital) for tackling the worst case scenario.

Running simulations/back tests are not about predicting the future (nothing can do that), but about quantifying risks. If I had followed strategy X, the distribution of outcomes would have looked like x, Y I would have seen y. Which do I prefer x or y?

It makes perfect sense to give more weight to simulations run with UK data for inflation, interest rates, etc. if that is where I am going to live.

I agree about having a plan B should the unlikely happen. It does not negate the desire for a robust plan A though.

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Re: FIRE calculators

#336045

Postby CryptoPlankton » August 26th, 2020, 11:59 am

hiriskpaul wrote:Running simulations/back tests are not about predicting the future (nothing can do that), but about quantifying risks. If I had followed strategy X, the distribution of outcomes would have looked like x, Y I would have seen y. Which do I prefer x or y?


Yes, I do appreciate that they are an attempt to make informed decisions - "playing the percentages",if you like. But they are just that, percentages, and based on periods of time in the past that will never be repeated. Even if the results were as reliable as the probability distribution for throwing dice, the outliers are still lurking. Throwing double six is a less than 3% chance, but would you stake your whole future on not throwing it?

hiriskpaul wrote:It makes perfect sense to give more weight to simulations run with UK data for inflation, interest rates, etc. if that is where I am going to live.

I agree, but at what point do you feel comfortable enough with the results to say "That's it, I'm safe with this amount"? There will always be some risk so it is important to feel equipped to read the signs and change course if things seem to be starting to head towards the undesirable end of the curve.

hiriskpaul wrote:I agree about having a plan B should the unlikely happen. It does not negate the desire for a robust plan A though.


Of course, but the Titanic still sank when many lesser vessels have survived by simply keeping an eye on the icebergs - they just needed to be seaworthy...

hiriskpaul
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Re: FIRE calculators

#336050

Postby hiriskpaul » August 26th, 2020, 12:10 pm

CryptoPlankton wrote:
hiriskpaul wrote:Running simulations/back tests are not about predicting the future (nothing can do that), but about quantifying risks. If I had followed strategy X, the distribution of outcomes would have looked like x, Y I would have seen y. Which do I prefer x or y?


Yes, I do appreciate that they are an attempt to make informed decisions - "playing the percentages",if you like. But they are just that, percentages, and based on periods of time in the past that will never be repeated. Even if the results were as reliable as the probability distribution for throwing dice, the outliers are still lurking. Throwing double six is a less than 3% chance, but would you stake your whole future on not throwing it?

hiriskpaul wrote:It makes perfect sense to give more weight to simulations run with UK data for inflation, interest rates, etc. if that is where I am going to live.

I agree, but at what point do you feel comfortable enough with the results to say "That's it, I'm safe with this amount"? There will always be some risk so it is important to feel equipped to read the signs and change course if things seem to be starting to head towards the undesirable end of the curve.

hiriskpaul wrote:I agree about having a plan B should the unlikely happen. It does not negate the desire for a robust plan A though.


Of course, but the Titanic still sank when many lesser vessels have survived by simply keeping an eye on the icebergs - they just needed to be seaworthy...

I am unsure what your thrust is here. Are saying there is no point looking at the past to get some guidance as to what to do in the future?

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Re: FIRE calculators

#336061

Postby CryptoPlankton » August 26th, 2020, 12:44 pm

hiriskpaul wrote:I am unsure what your thrust is here. Are saying there is no point looking at the past to get some guidance as to what to do in the future?

No, not at all, it's all we have to go on, though I think it has obvious limitations and I like to look at how I would cope with worst case scenarios. I'm only trying to say that, rather than concentrating solely on determining at what point you feel statistically (in terms of risk) ready to FIRE, you can also reduce your concerns about becoming "supermarket man" by looking at how adaptable you could be if necessary. Whatever our risk tolerance, we can't eliminate it completely, but we can feel more comfortable with the FIRE decision if we have prepared ourselves to deal with poor outcomes. That's all.

dealtn
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Re: FIRE calculators

#336062

Postby dealtn » August 26th, 2020, 12:45 pm

hiriskpaul wrote:
Running simulations/back tests are not about predicting the future (nothing can do that), but about quantifying risks. If I had followed strategy X, the distribution of outcomes would have looked like x, Y I would have seen y. Which do I prefer x or y?

It makes perfect sense to give more weight to simulations run with UK data for inflation, interest rates, etc. if that is where I am going to live.

I agree about having a plan B should the unlikely happen. It does not negate the desire for a robust plan A though.


I'm not sure I would feel comfortable running back test Monte Carlo (be that as a US or UK retiree) given where we are now. I am not convinced the past is sufficiently representative of where the present is for it to be meaningful. The present position is an outlier, in my opinion, so the start point is too unrepresentative to use our known history to determine accurately enough the potential paths and the probabilities of those occurring.

hiriskpaul
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Re: FIRE calculators

#336098

Postby hiriskpaul » August 26th, 2020, 2:48 pm

dealtn wrote:
hiriskpaul wrote:
Running simulations/back tests are not about predicting the future (nothing can do that), but about quantifying risks. If I had followed strategy X, the distribution of outcomes would have looked like x, Y I would have seen y. Which do I prefer x or y?

It makes perfect sense to give more weight to simulations run with UK data for inflation, interest rates, etc. if that is where I am going to live.

I agree about having a plan B should the unlikely happen. It does not negate the desire for a robust plan A though.


I'm not sure I would feel comfortable running back test Monte Carlo (be that as a US or UK retiree) given where we are now. I am not convinced the past is sufficiently representative of where the present is for it to be meaningful. The present position is an outlier, in my opinion, so the start point is too unrepresentative to use our known history to determine accurately enough the potential paths and the probabilities of those occurring.

I have a lot of sympathy with this. I have already mentioned we are in uncharted territory in many ways. The closest I can think of, though far from a perfect match, is the run up to the Wall Street Crash. Declining bond yields, though still way above where they are today, stock prices rising out of kilter with earnings and heading towards deflation. It is hard to see how we can avoid mass unemployment for a while either. I would not be at all surprised if cash turned out to be king again, which is why I have decided to keep hold of a significant allocation, with short dated US bonds for some currency diversification. Even if I do end up losing to inflation for a few years that may be a price worth paying compared to the risk of a full on equities crash compounded by rising bond yields.

Despite the uncharted territory, back testing might still tell the OP about the merits of his strategy compared to others he might want to consider. Or yes, it might be a complete waste of time.


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