FIRECalc Change Notes
November, 2007: Version 3, with many changes. Those that affect the computation are below:
- Fixed processing error (divide by zero) when inflation was manually set to zero.
- Bernicke phased spending reductions and the minimum spending for the 95% Rule are based on annual spending rather than on annual withdrawals.
- Another year of data added
December 24, 2006: Fixed error in accounting for investment expenses when using mixed portfolio option for investments.
July 31, 2006: Removed option "Link for recreating this scenario" and made this standard behavior in the standard success rate process.
July 9, 2006: Corrected a labeling problem on the results chart showing end of cycle portfolio balances. Thanks to DKS for catching the shifted labels.
June 16, 2006: Added detection of obsolete browser (IE on Macintosh, which was discontinued 6/03) that fails to properly pass the user's entries to the processing function. Suspect browsers are flagged before any data entry.
May 29, 2006: Temporarily changed withdrawal amount to use average of spending based on start of year and year end inflation rates. The issue: The inflation calculation for FIRECalc assumes your spending for the year is at the inflated amount for that year. Is this too conservative, and would the outcome change significantly if we instead use an assumption that the change in inflation during the year was linear and the spending was spread throughout the year? The results: The impact was negligible -- no change in SWR, under $1000 change in average ending portfolio after 30 years, and only $19/year difference in annual spending for 100% safe withdrawals, using default conditions. The process was changed back to use the full year inflation rate.
May 24, 2006: Added extra blank lines at the bottom of the page for advanced version for Firefox browsers only, as those browsers do not expand window properly when user expands the descriptions for the optional spending options. [May 30 - changed screen size code so this no longer applies.]
May 15, 2006: Version 2 testing completed.
Changes
for Version 2:
The new version is different in a lot of respects. Here are the differences that seem most important:
- First -- don't look for it to match exactly the results from the original, although it will be close. The algorithm is basically the same, but was redeveloped from scratch, and uses newer data and different default settings. There are a few changes in assumptions that are (mostly) listed below.
- FIRECalc shows a single retirement cycle starting in a sample year (which you can change) as a line chart with year end balances, and a bar chart showing how each of the possible cycles performed, to give you a visual representation of the success rate.
- You can select the Standard FIRECalc or an Advanced version. Both use the same calculations, but for clarity, the standard version hides almost all of the options.
- The Advanced version allows numerous changes to the withdrawals over te years, and changes to the portfolio (such as from proceeds of sale of a house).
- You can elect to see a graphic timeline of withdrawals, to illustrate changes entered in the Advanced version.
- The Advanced version allows use of your own selection of data, and offers a few options not in the advanced version.
- Six different sets
of results:
- Same as the previous version, a percentage success rate when given a portfolio and a withdrawal rate
- Get a withdrawal rate that will achieve a specified success rate with a given portfolio.
- Find out how much you need to increase your portfolio to allow a specified withdrawal rate and still maintain a specified success rate, if you enter a future retirement date.
- Find out how the allocation to stocks and fixed income affects your success rate and portfolio balance. (Advanced version)
- Look at the impact of investment expenses on your success rate and portfolio balance. (Advanced version)
- Look at the results of accelerating or deferring retirement. (Advanced version)
- You can enter a future retirement date and annual contributions towards your retirement portfolio. FIRECalc will automatically switch from contributions to withdrawals once your retirement date is reached.
- Instead of entering the number of years until some event (such as reducing withdrawals because you will be paying off a mortgage at some future date), you can now enter the calendar year of the event.
- In addition to CPI and PPI, you can now enter any percentage rate you choose. (Advanced version)
- I no longer include partial "cycles" since 20-30 cycles that aren't the full x years will paint a falsely optimistic picture.
- Current year withdrawals are taken at the beginning of the year, but since they will be used to meet currrent year expenses, they are adjusted for the actual inflation in the current year.
- All reported and graphed numbers are inflation-adjusted except where explicitly stated otherwise.
- You can select "monte carlo" and get a run with a market performance that has an inflation rate, average portfolio growth rate and standard deviation that you specify. (Advanced version)
- You can select a market performance without volatility. This is not realistic, but it is useful for some types of testing. (Advanced version)
- You can override the start date, and use historical information starting in any year after 1870, as long as there are enough years to perform a meaningful test. (Advanced version)
- You can specify how much you want in the portfolio at a minimum at the end of the term. (Advanced version)
- A link is provided that will recreate the scenario that you have just run. You can save or email the link by right-clicking on it and selecting "copy shortcut". (Advanced version)
- A link to open or download an Excel file is provided with the portfolio balance chart. The Excel file contains the yearly portfolio balances (in current dollars) for each year of the term you have selected, and for each starting year in the period. (Advanced version)
- FIRECalc has data through 2005.
- Ty Bernicke's Reality Retirement Planning: A New Paradigm for an Old Science describes extensive research showing significant reductions in spending with age (not related to reduced assets or income). If selected, this option will reduce your current dollar withdrawals from your nest egg (based on your initial withdrawal setting, but not other adjustments) by 2-3% per year starting at age 56, and then stabilizing at age 76 to keep up with inflation. This option may be selected. You should read his article for details if you plan to use this option.
- The "95% Rule" as described by Bob Clyatt in Work Less, Live More (Nolo, 2005) is offered as an option. In this option, withdrawals are not adjusted from inflation, but are based onthe value of the portfolio as of the withdrawal date, rather than the starting portfolio.