≡ Menu

Read About My Favorite Retirement Calculator: FIRECalc

{ 13 comments }

In my last post, Do we really need $6,340,998 to retire?, I used the AARP retirement calculator to check how much money we’d need to retire. The result was a bit ridiculous for a regular family to accumulate. Today I’d like to show you my favorite retirement calculator – FIRECalc. If you are near retirement, this is a great tool to check if your portfolio will hold up over time. Even if you are 10 or 20 years out, it can show you a reasonable goal to shoot for.

FIRECalc

FIRECalc is a bit tricky to explain. It’s more of a simulator than a calculator. It takes your retirement fund, expenses, and the length of your retirement, then run them through the stock market simulator.

It’s easier to take a look at an example to see what FIRECalc does. This example is from their ‘How It Works’ page. 3 people retire in 1973, 1974, and 1975. They all have $750,000 in their retirement funds and withdraw $35,000 per year. Their portfolios are identical – 75% stock index fund and 25% bond index fund. From this info, you’d think that they would have similar retirements, but you would be wrong. Each line on the graph below shows the value of their retirement portfolio as time goes by.

favorite retirement calculator FIRECalc review

These 3 people have very different results and the only variable was the year they retired. This graph shows the results from 3 different starting points, 1973 to 1975. FIRECalc will run your data through every market cycle from 1871 to the present time and show you a big chart with all the possibilities.

Let’s run the same example through FIRECalc. (click on the picture to see larger chart)

  • Spending: $35,000
  • Portfolio: $750,000
  • Years: 30

favorite retirement calculator FIRECalc review

Result from FIRECalc:

FIRECalc looked at the 111 possible 30 year periods in the available data, starting with a portfolio of $750,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 111 cycles. The lowest and highest portfolio balance throughout your retirement was $-1,029,531 to $3,806,818, with an average of $896,280. (Note: values are in terms of dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 25 cycles failed, for a success rate of 77.5%

Understanding the charts: Don’t try to follow any individual line — with most scenarios, there are just too many of them. But if you look at the mass of lines, and the zero axis (the red line), you can get a clear visual representation of how frequently your strategy would have failed (dropped below zero) or succeeded. The objective of presenting the information this way is to allow you to get a “big picture” sense of the way your strategy would have performed historically.

Bottom Line

The bottom line is this – FIRECalc predicts this portfolio will outlast the owner 77.5% of the time according to historical data. These historical data includes financial upheavals such as the Great Depression, high inflation, and the recent Recession.

If you are near retirement, you can input other relevant data to increase the accuracy of the prediction. You can add pension, social security, retirement date, asset allocation, investment fee, and add or subtract a lump sum on certain dates (college tuition for example.) The goal is to increase your success rate to as close to 100% as possible.

Early Retirement

FIRECalc is a bit less useful if you are just starting out since you don’t have much of a retirement fund yet. I think it’s most useful for people who are mid career or are nearing the Retire By 40 deadline. My Exit Strategy is to work hard and build a modest nest egg before 40, but don’t draw on it until you are in your 60’s. So let’s modify the example portfolio and see if FIRECalc will give a better result.

  • Spending: $35,000
  • Portfolio: $750,000
  • Years: 50 (add 20 years to our calculation window here)
  • Optional: Set Up for a Future Retirement (just scroll down a bit)
  • What year will you retire?: 2032 (The date we’ll start drawing down on the retirement portfolio.)
  • How much will you add to your portfolio until then, per year?: $0 (Assuming no more additional investment.)

favorite retirement calculator FIRECalc

Putting off withdrawal will make a huge difference in the success rate of a portfolio. If you accumulate $750,000 (or even $500,000) by the time you are 40 and put off withdrawal until you are 60, then your portfolio has a very good chance of outlasting you. This will give you a 20 year window from 40 to 60 years old to pursue your interests and live life on your own term. It’s not that hard to cover the monthly cost of living if you live a modest lifestyle. This opens up the opportunity to change careers, become self employed, or do whatever you want.

Putting off withdrawal is the overlooked 4th step that I forgot to add in a recent post – 3 Easy Steps to Retire By 40. I’ll update it with a link to this post.

I think FIRECalc is pretty well known to the early retirement community, but if you haven’t tried it yet, head over to FIRECalc and see if your retirement portfolio will hold up in the long haul.

Get update via email:
Sign up to receive new articles via email
We hate spam just as much as you
{ 13 comments… add one }
  • [email protected] October 5, 2012, 2:37 am

    I’m still young, but after setting up my emergency account, i’m looking for ways to set up a retirement account. This article is great, it helped me a lot understanding some main points. thanks for sharing the calculator and making my path easy.

  • Manette @ Barbara Friedberg Personal Finance October 5, 2012, 5:37 am

    Aside from our 401K contributions, my husband and I have also started with a separate retirement savings account. I can see that FIRECalc will be a big help with our retirement account. Thanks for sharing the information!

    • retirebyforty October 5, 2012, 8:53 am

      You’re welcome. I have a lot of fun with FIRECalc. It’s fun to try different scenario and see the crazy chart. 🙂

  • Sean @ One Smart Dollar October 5, 2012, 6:43 am

    My wife and I both have Roth IRA’s and I have a SEP-IRA. I am going to have to take a look at this in a little closer detail. I love sitting down and running the numbers so see where we stand and what we need to do to get to the account levels we want.

  • Kurt @ Money Counselor October 5, 2012, 7:46 am

    Very cool Joe, thanks. My wife is keen on analyzing scenarios, so I’m going to sic her on this project for us.

    • retirebyforty October 5, 2012, 8:56 am

      Have fun with it. I think you will like messing around with the input and see the crazy result charts.

  • Mr. Everyday Dollar October 5, 2012, 9:43 am

    This looks like a great tool for the toolbox. Thanks for cluing me into it!

  • krantcents October 5, 2012, 1:42 pm

    My plan was always to delay withdrawal of my retirement funds. Unfortunately, I have to start withdrawing when i turn 70 1/2. I plan on withdrawing 3% or less because I expect to live 30 years in retirement. If I am wrong, I erred on the conservative side.

  • Rich In The Heart October 5, 2012, 6:51 pm

    That is an outrageously awesome calculator, and the forum associated with it has A LOT of helpful folks that have already ESR (early semi-retired) – meaning they work when/if they want, or work minimally.
    When I go to retire, I plan on pulling about 3%-3.5% and then indexing for inflation after that.

    • retirebyforty October 8, 2012, 2:32 pm

      You are right about the forum. It’s quite interesting to browse. I’ll update the post with that info.

  • Roshawn @ Watson Inc October 6, 2012, 4:47 am

    Great tool! Thanks for the recommendation! A $6 million + retirement is nice, but being practical suggests, most people would do swell with less than 25% of that given some of the dismal retirement figures I have been seeing.

    • retirebyforty October 8, 2012, 2:33 pm

      $6 million is out of reach for most families. Most people will have to work until they drop dead and still wouldn’t get there…

Leave a Comment