Firecalc Review

Share

firecalc_reviewHow much money do you need to retire? It’s one of the most difficult questions you’ll ask yourself as you approach your 60s. There are hundreds of retirement calculators out there that aim to help you assess how much money you’ll need when you call it quits. The vast majority claim to be able to predict your financial future simply by plugging in your age, salary, and annual savings. Yet, life isn’t simple enough to rely on such a basic formula. No one really knows how long they’re going to live or what the economy’s going to look like down the road. Firecalc sets itself apart from the pack, because it uses an algorithm based on the trajectory of investment returns from the last 146 years. It avoids patterns and general assumptions, and instead generates data based on the stock market’s historical activity.

Firecalc considers inevitable factors such as stock market crashes, high unemployment rates, recessions, and inflation to determine the health of your portfolio over the course of 30 years. Firecalc utilizes the Monte Carlo Analysis to give you various perspectives on where your money could be headed. The Monte Carlo Analysis delivers a probability distribution that allows you to compare results with risk tolerances. It’s basically a “what if?” aggregator that produces data-driven outcomes to help you make your decision on how you want to use your savings.

These potential portfolio balances are calculated based on your average predicted spending, retirement nest egg, and number of years you plan on using those funds. You can also input pension, asset allocation, and social security. Although these are the basic elements that most retirement calculators look at, Firecalc takes into account historical volatility and actual market trends. As rudimentary as this sounds, Firecalc illustrates its unique objective with three examples: Bill, Betty, and Bob.

All three retired in the mid-1970s with $750,000 in savings. Leaving the workforce behind without social security or pensions, they each put 75 percent in stock index funds and 25 percent in bond index funds. Every January 1, they withdrew $35,000. Fast-forward 19 years later, Bill had nearly run out of cash, Betty only had about $375,000 left, and Bob had grown his fortune by two-fold.

Although Bob was lucky because he jumped in the market when prices were rising, his story is clearly not a common one. Firecalc preaches that it is unsafe to take out the same amount of cash every year. It examines 111 possible outcomes over the span of 30 years with a portfolio worth $750,000 and annual spending quotas. Out of the 111 cycles, 25 cycles failed. Cumulatively, the lowest balance is $-1,029,531, the highest is $3,806,818, and the average figure is $896,280. That means that Firecalc has a success rate of 77.5 percent.

Firecalc performs most accurately when you’re nearing retirement or past the midpoint of your career. However, it best serves folks 60 and older, as traditionally most people first build their nest egg when they’re 40 and only start withdrawing once they’ve reached 60.

Read more of our informative articles:

Join our newsletter

Screen_shot_2017-04-25_at_1.05.57_pm

Subscribe to get the latest "Engineer Your Finances" content via email.

Powered by ConvertKit
About the author

Leave a Reply

This blog is kept spam free by WP-SpamFree.

Join our newsletter

Subscribe to get the latest "Engineer Your Finances" content via email.

Powered by ConvertKit

ModestMoney.com Top Finance Blogs

Archives

SSCP   CAS-002   9L0-066   350-050   642-999   220-801   74-678   642-732   400-051   ICGB   c2010-652   70-413   101-400   220-902   350-080   210-260   70-246   1Z0-144   3002   AWS-SYSOPS   70-347   PEGACPBA71V1   220-901   70-534   LX0-104   070-461   HP0-S42   1Z0-061   000-105   70-486   70-177   N10-006   500-260   640-692   70-980   CISM   VCP550   70-532   200-101   000-080   PR000041   2V0-621   70-411   352-001   70-480   70-461   ICBB   000-089   70-410   350-029   1Z0-060   2V0-620   210-065   70-463   70-483   CRISC   MB6-703   1z0-808   220-802   ITILFND   1Z0-804   LX0-103   MB2-704   210-060   101   200-310   640-911   200-120   EX300   300-209   1Z0-803   350-001   400-201   9L0-012   70-488   JN0-102   640-916   70-270   100-101   MB5-705   JK0-022   350-060   300-320   1z0-434   350-018   400-101   350-030   000-106   ADM-201   300-135   300-208   EX200   PMP   NSE4   1Z0-051   c2010-657   C_TFIN52_66   300-115   70-417   9A0-385   70-243   300-075   70-487   NS0-157   MB2-707   70-533   CAP   OG0-093   M70-101   300-070   102-400   JN0-360   SY0-401   000-017   300-206   CCA-500   70-412   2V0-621D   70-178   810-403   70-462   OG0-091   1V0-601   200-355   000-104   700-501   70-346   CISSP   300-101   1Y0-201   200-125  , 200-125  , 100-105  , 100-105  , 1Z0-803  , 400-051   EX300  , CISM   100-105  , 000-106   400-201   642-732   220-902   70-410  , MB6-703   810-403   70-243  , CAS-002  , AWS-SYSOPS   70-462   70-410   2V0-621   LX0-103   70-461  , 220-902   1Z0-144   70-178   70-270   350-080  , 1Y0-201   1z0-808  , NSE4   102-400  , ADM-201   SSCP  , 200-125  , 640-911   000-104   640-692   300-320   350-060   000-089  , 000-017   1z0-808   700-501   1Z0-051  , 70-177   M70-101   300-209   70-461   3002   N10-006   VCP550   70-487   300-320  , 3002   700-501   NS0-157  , 1V0-601   CAS-002