Bogleheads® Chapter Series - FI Calc Demonstration

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00:00:04.640 | Welcome to the Bogleheads Chapter Series.

00:00:07.280 | This episode was hosted by the Chicago Virtual Chapter

00:00:10.360 | and recorded May 5th, 2021.

00:00:13.160 | It features James Please, the developer of the FICALC product.

00:00:17.320 | Bogleheads are investors who follow John Bogle's investing

00:00:20.040 | philosophy for attaining financial independence.

00:00:23.120 | This recording is for informational purposes only

00:00:25.600 | and should not be construed as investment advice.

00:00:29.760 | OK, perfect.

00:00:31.760 | Yeah, so thanks for taking the time, again,

00:00:33.840 | on such short notice to join this chat with me

00:00:36.960 | and hear a little bit about FICALC.

00:00:40.040 | I guess a little bit of history on the app is I've

00:00:44.440 | been a big fan of FIRACALC and CFIRSIM

00:00:47.000 | and other retirement calculators for some time.

00:00:50.120 | And I kind of had three goals going into building this app.

00:00:55.120 | One was I wanted it to work on a mobile phone

00:00:57.840 | because I use my mobile phone a lot.

00:01:01.280 | And just in my experience in the industry,

00:01:03.280 | I know more and more people are using their mobile phones.

00:01:06.600 | So that was one goal that I wanted.

00:01:08.480 | And then another goal that I wanted

00:01:09.880 | was when I first went to those calculators,

00:01:13.080 | I was a little bit overwhelmed because they seemed so complex.

00:01:16.480 | So it was really important to me that I

00:01:18.640 | create a lot of guides that document

00:01:21.000 | how the calculator works.

00:01:23.080 | And really, the goal of the guides

00:01:24.880 | is if anyone has any questions about it,

00:01:28.200 | they should be able to find it here.

00:01:30.600 | I'm not sure how successful I was.

00:01:32.440 | Maybe you guys can let me know.

00:01:34.080 | But yeah, so that was kind of the goal behind the guides.

00:01:38.200 | And then the third thing that I wanted

00:01:40.600 | was for there to be at least the same amount of features

00:01:45.000 | as FIRACALC and CFIRSIM, and ideally a little bit more,

00:01:49.600 | just so that there's also some added functionality

00:01:53.120 | to the calculator as well.

00:01:55.560 | I know-- I don't think FIRACALC has been updated in some time,

00:02:00.200 | but I know CFIRSIM just had a rewrite.

00:02:02.840 | I'm not too sure.

00:02:03.920 | I haven't had a chance to look at it too closely,

00:02:06.240 | so I'm not too sure.

00:02:08.520 | There may be things that are in CFIRSIM that aren't in FICALC

00:02:12.080 | and vice versa.

00:02:12.920 | I'm not too sure.

00:02:13.720 | But yeah, what I can do is I can speak

00:02:16.360 | to kind of what is in FICALC.

00:02:21.800 | So yeah, so a little bit of background

00:02:25.800 | on just this general kind of calculator,

00:02:28.360 | just in case there's anyone in the call who is newer

00:02:32.480 | to this kind of calculation.

00:02:33.720 | But basically, obviously, we can't know the future.

00:02:37.040 | It'd be great if we could know, hey,

00:02:38.800 | I've got this amount of money right now.

00:02:41.440 | I think maybe my retirement will be 30 years long.

00:02:46.080 | I'd love to know if I'll run out of money or not,

00:02:48.080 | if I want to spend this much money each year.

00:02:51.480 | We don't know that.

00:02:52.520 | But what we do know, what we can look at, is historical data.

00:02:55.960 | So we can say, hey, what if you retired in 1970

00:02:59.680 | and had a 30-year retirement?

00:03:01.520 | Would you have run out of money or not?

00:03:03.920 | Then you can say, well, what about 1971?

00:03:06.480 | You can check all of the historical data that we have.

00:03:09.880 | And that's represented here in the interface

00:03:12.400 | by the number of simulations that we run.

00:03:15.000 | This is the number of times that we run a simulated--

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00:05:26.320 | Here's an example of a reason why you might have

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00:05:31.320 | You might say, hey, why don't you

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00:05:47.320 | --retirement length, and then we'll

00:05:49.320 | really stress test an idea.

00:05:52.320 | Maybe that would give me more confidence in my plan.

00:05:56.320 | Well, if you click Learn More, that's

00:05:58.320 | going to open up this guide.

00:06:00.320 | And there's actually a section here

00:06:02.320 | that kind of describes some of the problems

00:06:05.320 | if you go with a retirement that's too short

00:06:07.320 | or a retirement that's too long.

00:06:09.320 | So I won't get too much into the details of that right now,

00:06:12.320 | but that's just kind of like one of the benefits

00:06:16.320 | that I think the guides provide.

00:06:18.320 | It can kind of give you some guidance

00:06:20.320 | on some of the range of parameters

00:06:24.320 | and a way to think about these different inputs

00:06:26.320 | and really the effect that they can have on the algorithm that's

00:06:29.320 | being run.

00:06:30.320 | So that's a little bit of a tangent there,

00:06:33.320 | but I'll move on and we can talk about the portfolio.

00:06:36.320 | So in FICalc, you input your initial portfolio value

00:06:42.320 | in a dollar amount.

00:06:44.320 | And then what you get to do is you

00:06:46.320 | get to specify the allocation that you want.

00:06:49.320 | So for instance, 80% equity, 15% bond, and 5% cash,

00:06:53.320 | that's the default.

00:06:54.320 | And then also the default is that it rebalances annually.

00:06:58.320 | Now, if you click into this, you can

00:07:01.320 | see that there are a number of different configuration choices

00:07:05.320 | that you can make.

00:07:06.320 | So maybe you're not interested in rebalancing.

00:07:08.320 | Maybe you just don't think that it's worth the effort

00:07:11.320 | or you just want to see the impact of not doing

00:07:13.320 | that work would have had historically,

00:07:16.320 | or you can turn that off.

00:07:17.320 | Or you can do something like rebalancing every five years

00:07:20.320 | if you want.

00:07:22.320 | Another thing that you can do is you

00:07:24.320 | can specify what's commonly called a glide path, where

00:07:29.320 | the allocations change over time.

00:07:32.320 | So maybe at the start, you want to be pretty aggressive

00:07:35.320 | and have this 80% equities portfolio.

00:07:38.320 | But toward the end of your retirement,

00:07:40.320 | you might not be as interested in larger swings

00:07:44.320 | in the value of your portfolio.

00:07:46.320 | So maybe you would cut that down to 50% equities and 45% bonds.

00:07:54.320 | And then maybe you want to see the impact of that kind

00:07:57.320 | of slow progression over time.

00:08:00.320 | And then the last thing that you can change about your portfolio

00:08:04.320 | is how quickly you reach that new value.

00:08:11.320 | So the default is that it's just evenly.

00:08:14.320 | So halfway through-- so this is a 15-year retirement.

00:08:18.320 | I'm sorry, a 30-year retirement.

00:08:20.320 | So at year 15, you're halfway to your new values.

00:08:24.320 | Well, you can change that to be instead quickly,

00:08:27.320 | which would get you there to that final value a little bit

00:08:30.320 | quicker.

00:08:31.320 | Or you could do slowly.

00:08:32.320 | So in this situation, you'd be hanging around 80-15,

00:08:38.320 | 80% stocks, 15% bonds.

00:08:41.320 | You'd be hanging around that for quite a bit longer.

00:08:44.320 | And then toward the end, it would speed up

00:08:46.320 | and kind of get you to that 50%.

00:08:50.320 | So just a few different options to kind of configure

00:08:54.320 | how you might want your glide path to look.

00:08:57.320 | And you can see the results that that might have on the results.

00:09:02.320 | James, there's a question about breaking up the stock bond

00:09:05.320 | value into small value sectors and things like that.

00:09:09.320 | Is it basically what you just showed us?

00:09:13.320 | Yeah, let me see if I can open up the chat window just

00:09:17.320 | so I can see that.

00:09:19.320 | OK, here we go.

00:09:20.320 | Here we go.

00:09:21.320 | Is there any ability to break into, say, US small value?

00:09:24.320 | Yes.

00:09:25.320 | Great question.

00:09:26.320 | And the short answer is no, not right now.

00:09:31.320 | It's all equities.

00:09:32.320 | And it's all basically the S&P 500.

00:09:35.320 | And the reason for that is because the data source

00:09:38.320 | that I'm using for FICALC comes from an economist

00:09:42.320 | named Robert Shiller.

00:09:45.320 | He's a guy-- you may have heard of something called the CAPE.

00:09:48.320 | Well, he's the guy who came up with that.

00:09:50.320 | And he also publishes market data all the way back to 1871.

00:09:56.320 | Unfortunately, his stock data tracks the S&P 500.

00:10:02.320 | And if you go to his website-- and actually,

00:10:06.320 | if you click the Info button on historical data,

00:10:09.320 | that will actually include a link.

00:10:12.320 | It's his name, Robert Shiller.

00:10:14.320 | And that will take you to the data source.

00:10:18.320 | And then also on this page, he kind of

00:10:20.320 | describes a little bit about what the data is.

00:10:24.320 | So the short answer is I would love

00:10:26.320 | to be able to split that up to have small cap, large cap,

00:10:30.320 | things like that.

00:10:32.320 | But just due to the data source that I'm using right now,

00:10:37.320 | that's not possible.

00:10:39.320 | There is another data source, and it's the one

00:10:41.320 | that's used by the Trinity Study and Bengen's original paper.

00:10:50.320 | They both use the same data set.

00:10:53.320 | And I do think that that one breaks down things

00:10:56.320 | in way more detail.

00:10:58.320 | But it's like $500 per year to get that data set.

00:11:01.320 | And it's just not tenable for me to put that bill.

00:11:07.320 | Bonds, great question.

00:11:09.320 | And I'll also answer the other one by Robert Strauss.

00:11:12.320 | But first, I'll do the bonds, since that's also

00:11:15.320 | about the data source.

00:11:17.320 | So let's see here what he has about bonds,

00:11:23.320 | because I know it's listed here.

00:11:26.320 | Maybe I have-- maybe I have a description here.

00:11:43.320 | It may be tracking 10-year treasury

00:11:53.320 | notes, but I would need to look that up.

00:11:57.320 | Unfortunately, the information on this page

00:12:01.320 | isn't structured in a way that makes it really easy

00:12:03.320 | to skim and get that out.

00:12:04.320 | But I'm going to say for now, I think

00:12:06.320 | it's 10-year treasury notes.

00:12:09.320 | And then, does retirement assume starting at age 65?

00:12:13.320 | And then, how do you set the age?

00:12:15.320 | So here's an interesting thing.

00:12:19.320 | Starting-- there's no start age in FICalc.

00:12:23.320 | It's all based on how long you think

00:12:25.320 | your retirement might last.

00:12:27.320 | So it's based on--

00:12:30.320 | yeah, so it's based on just how long you think

00:12:32.320 | your retirement might last.

00:12:33.320 | So if you're 65 years old, well, maybe you

00:12:36.320 | might think that a 30-year retirement seems appropriate.

00:12:40.320 | So you might go for 30 years here.

00:12:42.320 | If you're 50 years old, maybe you

00:12:44.320 | might bump that up to 45 or something like that.

00:12:47.320 | So yeah, I know other calculators

00:12:50.320 | have that start year and then maybe also

00:12:53.320 | like an estimated age or something like that.

00:12:56.320 | But in FICalc, it's all based on that length

00:12:58.320 | of your retirement, if that makes sense.

00:13:02.320 | I hope that answers your question, Robert.

00:13:05.320 | And thank you, Lady Geek, for posting that link

00:13:10.320 | to the data source.

00:13:13.320 | Cool.

00:13:14.320 | So unless there are any other questions

00:13:16.320 | about the portfolio--

00:13:17.320 | Oh, back on that age thing.

00:13:19.320 | So it really wouldn't know when RMDs might kick in, right?

00:13:22.320 | Or would it?

00:13:24.320 | Correct.

00:13:25.320 | It would not.

00:13:26.320 | That's something that you would need

00:13:28.320 | to factor in manually through something

00:13:31.320 | like additional income or additional withdrawals, which

00:13:36.320 | we can talk about once we get there.

00:13:38.320 | Cool.

00:13:45.320 | So for withdrawal strategy, another thing

00:13:48.320 | that I wanted in FICalc or something

00:13:50.320 | that I thought could differentiate it

00:13:52.320 | from other calculators was just adding more withdrawal

00:13:55.320 | strategies.

00:13:56.320 | So yeah, I think there are potentially

00:13:59.320 | more withdrawal strategies in FICalc

00:14:02.320 | than some of the competitors.

00:14:04.320 | They might not all interest you, but they

00:14:06.320 | might be worth checking out.

00:14:09.320 | Maybe you'll learn about the things

00:14:10.320 | that you value in your withdrawal strategy

00:14:12.320 | by seeing what these different strategies prioritize.

00:14:16.320 | And they might not all be familiar to you.

00:14:19.320 | So maybe sensible withdrawals, maybe that's

00:14:22.320 | something you haven't heard of.

00:14:24.320 | Well, for each one, there is a button

00:14:27.320 | that says Learn About This Strategy.

00:14:29.320 | And if you click it, there's a little bit

00:14:31.320 | of information describing maybe who came up

00:14:34.320 | with this strategy, what the goal of the strategy is,

00:14:37.320 | maybe some of the math behind it,

00:14:41.320 | the equation that it uses, and also some examples.

00:14:46.320 | And then I tried to, in the last paragraph,

00:14:50.320 | kind of compare it maybe to a strategy

00:14:52.320 | that you might understand and maybe mention some downfalls.

00:14:59.320 | Like for instance, sensible withdrawals

00:15:01.320 | suffers from these high withdrawal fluctuations

00:15:03.320 | from year to year.

00:15:05.320 | So yeah, so if a steady withdrawal amount,

00:15:09.320 | like what you might get with constant dollar

00:15:11.320 | is important to you, then you might want

00:15:13.320 | to consider other strategies.

00:15:15.320 | So for each of these different strategies,

00:15:21.320 | you can then configure it based on that particular equation.

00:15:25.320 | So for instance, for constant dollar,

00:15:27.320 | you can specify how many dollars you want to withdraw each year.

00:15:32.320 | And then you can choose to adjust that for inflation or not.

00:15:37.320 | Whereas for, say, custom BPW, you

00:15:41.320 | can adjust the PMT values that are part of custom,

00:15:47.320 | part of the custom BPW algorithm.

00:15:51.320 | And yeah, so another one is Guyton-Klinger.

00:15:54.320 | So this one is the most complicated withdrawal strategy

00:15:58.320 | that I'm aware of.

00:15:59.320 | It just has these three rules.

00:16:01.320 | They're a little bit complicated.

00:16:03.320 | And it creates this larger form, but you're still

00:16:05.320 | able to fully configure Guyton-Klinger based

00:16:09.320 | on the paper where they kind of introduced

00:16:12.320 | and described this method.

00:16:14.320 | So one thing that may come in a future update

00:16:24.320 | is there's a difference between the intention

00:16:29.320 | behind these withdrawal strategies

00:16:31.320 | and there's a difference between your ability

00:16:36.320 | to configure things and what the creators of these strategies

00:16:39.320 | want you to be able to do.

00:16:41.320 | So from what I could read on the Bogleheads forum,

00:16:44.320 | one of the original authors of BPW, Long Invest,

00:16:52.320 | he really did not want you to change the PMT formula

00:16:56.320 | values of BPW.

00:16:58.320 | So that's why custom BPW is separate from that,

00:17:01.320 | because it allows you to modify those things.

00:17:03.320 | But it's different enough from BPW that it's separate.

00:17:09.320 | And another one is the endowment strategy.

00:17:11.320 | So these values here that the Yale University endowment

00:17:19.320 | team published, there's no flexibility

00:17:23.320 | from what I could read in adjusting these values.

00:17:26.320 | So for that reason, it's not adjustable here.

00:17:29.320 | But I'm thinking of adding a future update where

00:17:31.320 | there would be an advanced option setting.

00:17:33.320 | And it would say, hey, adjusting these values

00:17:36.320 | may change the behavior of this strategy in such a way

00:17:39.320 | that it goes against the intention of the author.

00:17:44.320 | But you're allowed to do that if that's something

00:17:49.320 | that you're comfortable doing.

00:17:51.320 | Tom, I see you noticed here that you may have noticed

00:17:53.320 | a potential error here in the description of Vanguard

00:17:57.320 | dynamic spending.

00:17:58.320 | I'd be curious to hear more about that

00:18:00.320 | if you're able to elaborate.

00:18:03.320 | Do you want me to comment now or wait till the end?

00:18:08.320 | If you want to comment now.

00:18:09.320 | I think that the 5% is if your portfolio changes.

00:18:15.320 | If your default withdrawal is 4%,

00:18:18.320 | but then your portfolio drops a lot,

00:18:21.320 | it might be that the 4% is actually

00:18:24.320 | looking like far larger percentage

00:18:26.320 | of your current portfolio balance.

00:18:29.320 | So then it caps it at only 5%.

00:18:32.320 | So it's 5% of the current amount, I thought.

00:18:36.320 | But maybe just reread their white paper on it.

00:18:43.320 | Same thing with 2.5%.

00:18:45.320 | I think if your portfolio grows rapidly,

00:18:49.320 | the current value of the portfolio--

00:18:51.320 | because the standard withdrawal rate's

00:18:53.320 | based on this Bingen-style approach.

00:18:58.320 | But it allows, I thought, depending on the amount

00:19:04.320 | or depending on the current value you're spending based

00:19:07.320 | on your current value of your portfolio.

00:19:10.320 | Cool.

00:19:11.320 | That's super helpful.

00:19:12.320 | I'll have to give that another read.

00:19:14.320 | You're right.

00:19:15.320 | I'm not sure it means your program is incorrect.

00:19:17.320 | But I think at least the description may be reread it.

00:19:21.320 | Right.

00:19:22.320 | Yeah, I'll have to give that another read.

00:19:25.320 | And yeah, I'll be sure to--

00:19:28.320 | well, I don't know how I can contact you all.

00:19:30.320 | But yeah, I'll take another look at that for sure.

00:19:32.320 | Thanks for calling that out.

00:19:33.320 | So yeah, so there are a couple of different withdrawal

00:19:41.320 | strategies there.

00:19:42.320 | And another thing that you can do

00:19:44.320 | is specify these minimum annual withdrawals

00:19:47.320 | and maximum annual withdrawals.

00:19:49.320 | And some of these strategies, they're

00:19:53.320 | pretty untenable if you just don't specify

00:19:56.320 | any mins or maxes, like percent of portfolio.

00:19:58.320 | I mean, the available spend can go down way, way low.

00:20:03.320 | If maybe you're trying to shoot for around $40,000 a year

00:20:06.320 | and you do percent of portfolio and it only withdraws $15,000,

00:20:10.320 | that might be a pretty tough year for you.

00:20:12.320 | So this kind of allows you to say, hey, most of the time,

00:20:16.320 | hopefully that 4% hovers maybe around $40,000.

00:20:20.320 | But I can flex down to $35,000.

00:20:22.320 | And then that kind of ensures that your available spend

00:20:26.320 | always stays at $35,000 at that minimum.

00:20:29.320 | And then you can also do it in the opposite way as well.

00:20:32.320 | You can see here with this percent of portfolio,

00:20:35.320 | shoots way up to $160,000.

00:20:36.320 | You may not need that.

00:20:37.320 | So you can kind of restrict that as well

00:20:40.320 | and see the impact of that on the results.

00:20:47.320 | So that there is the withdrawal strategy.

00:20:50.320 | And I'll just hop on over to additional income.

00:20:55.320 | So the way additional income works is maybe you

00:20:59.320 | might get a side job.

00:21:01.320 | And it's going to bring in $10,000 a year.

00:21:04.320 | Maybe you're expecting a raise or just an increase

00:21:09.320 | in that amount.

00:21:10.320 | That's tracking inflation.

00:21:11.320 | So you adjust that amount for inflation.

00:21:14.320 | And maybe you're going to do that for the first 10 years.

00:21:17.320 | So that's kind of the flexibility provided

00:21:22.320 | by this idea of additional income.

00:21:25.320 | And maybe you plan to work forever.

00:21:28.320 | So you can just do income repeats indefinitely

00:21:31.320 | if you don't want to put that end year into it.

00:21:34.320 | Or you might say, I'm going to take 10 years off.

00:21:36.320 | And then maybe I'll get that side job.

00:21:39.320 | And then I'll work indefinitely.

00:21:41.320 | So that's kind of what additional income allows you to do.

00:21:45.320 | And if we open this up-- well, OK, we have it here.

00:21:49.320 | So this kind of shows a few of the different use cases

00:21:53.320 | that additional income is intended to help you model.

00:21:57.320 | Some of these, there may be room for a specific feature

00:22:03.320 | to allow it to be a little bit more maybe

00:22:06.320 | accurate or more powerful for the use case

00:22:08.320 | that you have in mind.

00:22:09.320 | But for now, it all needs to be entered as additional income.

00:22:13.320 | So one example is rental property cash flow.

00:22:16.320 | If you have a pension, Social Security, part-time job,

00:22:20.320 | private inheritance, any of those things

00:22:23.320 | that you might get as money for a given year,

00:22:28.320 | is this where dividend income would be entered as well?

00:22:32.320 | Dividend income is factored in through these assets

00:22:35.320 | that you get here.

00:22:36.320 | So you would not need to do a separate dividend income

00:22:41.320 | as additional income.

00:22:43.320 | This would be-- these are mainly just--

00:22:45.320 | these are all things that are separate from the portfolio

00:22:50.320 | that's defined above, if that makes sense, Greg.

00:22:53.320 | Cool.

00:22:58.320 | So there are things that I would like

00:23:03.320 | to add to additional income based on feedback

00:23:06.320 | people have messaged me.

00:23:07.320 | So I know that it's not the--

00:23:10.320 | I know that it doesn't support all of the features

00:23:12.320 | that everyone needs for everything, but it's a start.

00:23:15.320 | And the way that additional income works

00:23:17.320 | is it reduces the withdrawal that you actually make.

00:23:22.320 | So one thing that's a more complicated idea in FICalc

00:23:29.320 | is this difference between the target spend that you have

00:23:35.320 | and the actual withdrawal that you make.

00:23:38.320 | So just to show an example, if we go over to constant dollar

00:23:41.320 | and we do $40,000 per year and we adjust it for inflation

00:23:45.320 | and we add in a job and that gives us $40,000

00:23:50.320 | and we adjust it for inflation, it starts immediately

00:23:54.320 | and it goes forever.

00:23:55.320 | We will never actually withdraw from our investments

00:24:02.320 | because this additional income that we've got

00:24:05.320 | has fully covers the amount that the equation determined

00:24:11.320 | that we should withdraw, if that makes sense.

00:24:14.320 | And if this were, say, $20,000, then we

00:24:17.320 | would spend that money that year and then

00:24:20.320 | we would withdraw the remainder, which would be $20,000,

00:24:23.320 | as determined from the constant dollar strategy.

00:24:26.320 | Now, if you pull in $60,000 a year,

00:24:29.320 | you're going to take that first $40,000

00:24:31.320 | and this calculator assumes that you spend all of that $40,000

00:24:36.320 | that the withdrawal strategy calculates,

00:24:40.320 | but then that additional $20,000, that gets then

00:24:44.320 | reinvested into your portfolio.

00:24:46.320 | I assume everything is in after-tax dollars.

00:24:51.320 | For additional income, yes, you would definitely

00:24:55.320 | want to be doing after-tax dollars for this.

00:24:57.320 | So I'll move on to additional withdrawals.

00:25:04.320 | And so, yeah, so sometimes you might

00:25:12.320 | know that you're spending $40,000 a year,

00:25:16.320 | but also you know that you need a car.

00:25:18.320 | And maybe you want to factor in buying a new car or a used car

00:25:23.320 | every 10 years or something like that.

00:25:25.320 | Or maybe you're saving up for someone's college

00:25:29.320 | or just other things that might come up

00:25:34.320 | that you need to factor in.

00:25:36.320 | Well, you can do that through additional withdrawals.

00:25:39.320 | So you could do college, and you could say,

00:25:42.320 | OK, we're going to spend up to $30,000.

00:25:45.320 | We'll adjust that for inflation.

00:25:47.320 | That's going to happen in four years.

00:25:50.320 | And it's going to start in 10 years,

00:25:53.320 | and it's going to repeat for four years.

00:25:55.320 | So that's the additional withdrawal.

00:25:59.320 | And the way that that works is that this

00:26:01.320 | is just tacked on top of whatever the withdrawal

00:26:04.320 | strategy calculates.

00:26:06.320 | So if the withdrawal strategy calculates $40,000,

00:26:10.320 | then when this year occurs, that's

00:26:13.320 | going to be a $70,000 withdrawal.

00:26:18.320 | And then Rob says, when you say after-tax,

00:26:21.320 | anything to deal with Roth versus taxable versus tax

00:26:24.320 | deferred.

00:26:26.320 | So for additional income, these are just

00:26:29.320 | kind of assuming that they're just

00:26:32.320 | dollars that you're receiving.

00:26:34.320 | They would be after-tax dollars.

00:26:37.320 | There's not really any way to specify things

00:26:40.320 | like a Roth or taxable or tax deferred for FICAL.

00:26:46.320 | It doesn't get into the details of the specifics

00:26:49.320 | of where your money is.

00:26:52.320 | For instance, just looking at the portfolio,

00:26:55.320 | it's just equities, bonds, and cash.

00:26:57.320 | This isn't saying half of this is in a tax-deferred account

00:27:03.320 | and the other half is taxable.

00:27:04.320 | It's not getting into that level of detail.

00:27:07.320 | It really does track kind of the math

00:27:11.320 | that Fangan and the Trinity study used,

00:27:14.320 | which to my knowledge don't make that distinction

00:27:18.320 | between where the accounts are.

00:27:21.320 | But that'd be a great feature to add for sure down the road.

00:27:25.320 | And then CS69 says, how can everything

00:27:28.320 | be an after-tax value if you don't specify

00:27:30.320 | the type of account the assets are in?

00:27:32.320 | Well, I hope what I just said kind of matches that.

00:27:37.320 | Again, if you're familiar with the Fangan study,

00:27:39.320 | the Trinity study, the way that this calculator works

00:27:44.320 | is very similar to that.

00:27:45.320 | It does just add a few additional ideas

00:27:47.320 | like additional income and additional withdrawal

00:27:49.320 | that those studies didn't factor in.

00:27:51.320 | But it's still kind of the same idea though.

00:27:57.320 | So the returns on equity, bonds, and cash are pre-tax returns.

00:28:02.320 | The cash withdrawals are after-tax.

00:28:04.320 | Correct.

00:28:08.320 | So taxes are currently not taken into account

00:28:11.320 | when it's calculating things like returns and growth

00:28:14.320 | and things like that.

00:28:15.320 | And that is something that people have asked.

00:28:18.320 | And then cash withdrawals are after-tax.

00:28:23.320 | Do you mean additional withdrawals here, Bradcom?

00:28:25.320 | Yes.

00:28:30.320 | Correct.

00:28:31.320 | That would be after-tax.

00:28:34.320 | Cool.

00:28:41.320 | So moving on down to historical data,

00:28:45.320 | the full data set goes back to 1871.

00:28:49.320 | But you might want to restrict your data

00:28:52.320 | for different reasons.

00:28:54.320 | So for example, one reason that you might want to

00:28:56.320 | is that the S&P 500 didn't exist before 1926.

00:29:00.320 | So if you look, Robert Schiller describes

00:29:02.320 | how he creates this data for 1871 through 1926.

00:29:08.320 | You might read that and say, hey,

00:29:11.320 | that sounds kind of weird to me.

00:29:13.320 | I don't want to trust that.

00:29:14.320 | I don't want to include that data.

00:29:16.320 | Also, Bengen's analysis and the Trinity study

00:29:20.320 | limited their data set using 1926 as the start date

00:29:26.320 | because they didn't do any of that sort of computation

00:29:29.320 | that Schiller did to create that earlier data set.

00:29:34.320 | So that's one reason why you might want to limit your data.

00:29:38.320 | And that's also why the default value that the data is

00:29:42.320 | limited to is 1926 for that reason.

00:29:47.320 | So that's just another configuration option

00:29:51.320 | provided by the calculator.

00:29:53.320 | And then for user preferences, two little quick things

00:30:00.320 | that I just mentioned.

00:30:02.320 | If you look, there's a little bit of motion

00:30:05.320 | when these pop-ups appear.

00:30:08.320 | And you might not like that.

00:30:10.320 | Well, if you turn this off, then it's

00:30:13.320 | going to get rid of that so that it's a little bit less annoying.

00:30:16.320 | And also, if you're colorblind, you

00:30:18.320 | can choose one of these options.

00:30:20.320 | And it might make some of these charts

00:30:22.320 | over here look a little bit--

00:30:26.320 | be a little bit more easy to read.

00:30:29.320 | So definitely worth checking those out

00:30:31.320 | if either of those things appeal to you.

00:30:33.320 | So just thought I'd mention that.

00:30:35.320 | So that's kind of like all the configuration stuff.

00:30:38.320 | And I'm going to hop on over to the questions.

00:30:42.320 | Tom Pruess, "I thought the Bengen study assumed

00:30:44.320 | you paid your taxes with the money you withdrew.

00:30:47.320 | That is, the withdrawals were pre-taxed.

00:30:51.320 | Can anyone confirm?"

00:30:52.320 | So Tom, just to clarify, that is my understanding as well.

00:30:56.320 | And that is how this calculator works as well.

00:30:58.320 | So if you're withdrawing $40,000 a year here,

00:31:01.320 | you're going to get a tax bill.

00:31:04.320 | FICALC does not include that tax bill into this.

00:31:07.320 | So you would need to include that into your spending,

00:31:10.320 | if that makes sense.

00:31:12.320 | And then Lady Geek, "What statistical distribution

00:31:15.320 | do you use to stimulate over that data?"

00:31:20.320 | Are you referring to these charts here or something else?

00:31:24.320 | Lady Geek?

00:31:27.320 | Yeah, I was just trying to understand--

00:31:31.320 | you know, when you get those nice charts there,

00:31:34.320 | there's an underlying--

00:31:35.320 | you know, when you're making 121 runs, what are you varying

00:31:39.320 | and by how much?

00:31:40.320 | That's where the magic goes.

00:31:42.320 | Everybody calls it a Monte Carlo.

00:31:44.320 | Monte Carlo is just another name for running

00:31:47.320 | statistical distribution.

00:31:48.320 | But nobody really describes the underlying models

00:31:51.320 | or the distributions used to create those curves.

00:31:54.320 | So just a little interest in the model itself.

00:31:59.320 | Yeah, so I can--

00:32:00.320 | I'm going to--

00:32:01.320 | I think I'll answer that as I describe

00:32:04.320 | what is in these results.

00:32:06.320 | So how about I start describing the results?

00:32:09.320 | And then once we--

00:32:10.320 | let me say, like, describe--

00:32:12.320 | like, get down to this chart and describe it.

00:32:14.320 | And then let me know if you still have questions.

00:32:16.320 | How does that sound?

00:32:18.320 | OK, cool.

00:32:21.320 | So one thing-- you know, if you read the Bingen study,

00:32:26.320 | if you read the Trinity study, they

00:32:28.320 | talk a lot about this idea of success rates.

00:32:31.320 | Well, if you click this--

00:32:33.320 | you know, what is a success rate?

00:32:35.320 | What does it mean to be successful or not?

00:32:38.320 | Well, if you click this, you can see

00:32:40.320 | what the definition is of success for the strategy

00:32:44.320 | that you've chosen.

00:32:46.320 | So for a category of withdrawal strategies

00:32:50.320 | that I call longevity, success is

00:32:53.320 | defined as the portfolio never running out of money.

00:32:56.320 | So in the Bingen study, if on that 30th year,

00:33:00.320 | the portfolio had $1 left, Bingen

00:33:03.320 | would say that that's a success.

00:33:06.320 | Now, you might disagree.

00:33:08.320 | But that's the definition that Bingen used.

00:33:10.320 | And that's also the definition used here

00:33:13.320 | in this success rate number.

00:33:16.320 | Now, that doesn't tell the full story.

00:33:18.320 | And that's why I introduced these two other values that

00:33:22.320 | might be of interest to people.

00:33:24.320 | So the first is this idea called nearly failed.

00:33:28.320 | So if you click that, you can see what that means.

00:33:31.320 | That means that the end portfolio value

00:33:33.320 | is less than 35% of the initial portfolio value.

00:33:36.320 | Now, the reason I added that is because, you know,

00:33:39.320 | if I was, you know, toward the end of my retirement

00:33:43.320 | and my portfolio value was down, was

00:33:46.320 | almost a third of what I started with,

00:33:48.320 | I might be a little bit concerned.

00:33:51.320 | So that's why I added that there.

00:33:53.320 | Because I think that's a piece of information

00:33:55.320 | that people would find meaningful.

00:33:58.320 | But that was not captured in those studies.

00:34:00.320 | And we're seeing here that it's 0%.

00:34:02.320 | And that's because I added some of these additional incomes.

00:34:05.320 | So I'm actually going to refresh the page

00:34:07.320 | to wipe all that data out.

00:34:09.320 | And you can see here that with this sort of default $1 million

00:34:13.320 | portfolio with this $40,000 strategy,

00:34:17.320 | we're getting 5% of these simulations

00:34:21.320 | as being nearly failed.

00:34:23.320 | And then another thing that, you know,

00:34:25.320 | people are interested in are this idea of a large portfolio

00:34:28.320 | where in FI Calc, that's defined as the end portfolio being 300--

00:34:36.320 | sorry, 300% larger than the initial portfolio value.

00:34:40.320 | So some people, you know, they want

00:34:41.320 | to maximize how much they spend in their life.

00:34:44.320 | They don't want to have lots and lots of money left over.

00:34:48.320 | So you can actually see with the constant dollar strategy,

00:34:50.320 | you get a third of your simulations

00:34:54.320 | with this large end portfolio.

00:34:56.320 | Now, if you go down to something like the endowment strategy,

00:34:59.320 | you're going to see here that it does

00:35:01.320 | a little bit of a better job at, you know,

00:35:04.320 | not getting to that nearly failed state

00:35:07.320 | or to that large end portfolio state.

00:35:09.320 | So that might be something that might be interesting.

00:35:17.320 | All right, percent of portfolio.

00:35:19.320 | All right, cool.

00:35:20.320 | So why does percent of portfolio use longevity?

00:35:23.320 | It seems it should never be able to run out of money.

00:35:28.320 | So I'm going to answer that.

00:35:29.320 | But first, let me get into a strategy that is not longevity.

00:35:35.320 | So an example is VPW.

00:35:38.320 | So if you think about it, so one of the qualities of VPW

00:35:43.320 | is that in the final year, your portfolio is $0, right?

00:35:48.320 | So if you look here at this chart, it's $0.

00:35:51.320 | That is by definition.

00:35:52.320 | That is the goal of the strategy.

00:35:54.320 | And all three of the strategies in this maximized spend bucket

00:35:57.320 | have that in common.

00:35:58.320 | So if you use that Bengen or Trinity study definition

00:36:02.320 | of success, then you're always going

00:36:04.320 | to get a 0% success rate.

00:36:06.320 | So instead, the success is defined

00:36:12.320 | as when two things are met.

00:36:14.320 | One is that the portfolio is exhausted.

00:36:17.320 | And the final year withdrawal is greater

00:36:21.320 | than or equal to your minimum specified withdrawal.

00:36:24.320 | So if you say that you always want

00:36:26.320 | to be able to withdraw $20,000 and you specify VPW,

00:36:30.320 | and on that final year, you're only able to withdraw $15,000,

00:36:35.320 | that's considered a fail for VPW.

00:36:39.320 | So it's a little bit of a different definition.

00:36:42.320 | It's unique to FICalc.

00:36:45.320 | You may disagree with that.

00:36:46.320 | You might agree with it.

00:36:47.320 | Definitely open to feedback about that.

00:36:50.320 | And then for percent of portfolio--

00:36:52.320 | OK, so why is this one measured as longevity?

00:36:55.320 | It seems it should never be able to run out of money.

00:36:57.320 | Well, the strategies that tend to not run out of money

00:37:06.320 | are ones that are good fit for longevity.

00:37:09.320 | The point of longevity is that it shouldn't run out of money.

00:37:12.320 | So if you devise an algorithm that literally can never

00:37:17.320 | run out of money, it's still good to evaluate it

00:37:22.320 | as a longevity one.

00:37:23.320 | Because the alternative is, which is the maximized spend,

00:37:27.320 | what they have in common is that that final year always

00:37:30.320 | drops you to $0.

00:37:31.320 | Percent of portfolio doesn't have that quality,

00:37:34.320 | so that's why it's longevity.

00:37:36.320 | I hope that makes sense, David, but I'm definitely

00:37:38.320 | open to hearing alternative perspectives on that.

00:37:45.320 | So moving on down, there's a little bit of analysis that--

00:37:52.320 | oh, well, actually, one thing I want to say.

00:37:55.320 | An additional-- something I'd like to add in the future

00:37:57.320 | to FICalc would be the ability to adjust these values.

00:38:05.320 | You might say less than 35%.

00:38:07.320 | I'd be pretty worried if it was less than 45% or 50%.

00:38:10.320 | Well, I think users should be able to configure that.

00:38:14.320 | Or you might say--

00:38:15.320 | David, you might say, this is a bad definition of success

00:38:20.320 | for percent of portfolio.

00:38:22.320 | Well, you should be able to modify that.

00:38:24.320 | So that's a feature that I'd like to add.

00:38:27.320 | I don't have it yet.

00:38:28.320 | And then also the ability to add additional analysis

00:38:32.320 | blocks that might be something that appeal to you.

00:38:36.320 | So kind of beginning to blur the line a little bit

00:38:41.320 | between this calculator app, which

00:38:44.320 | has more restricted functionality,

00:38:47.320 | and a spreadsheet app, which would really

00:38:49.320 | give you kind of limitless flexibility with how

00:38:52.320 | you modify that data.

00:38:55.320 | And on that note, I will mention that you

00:38:58.320 | can download all the data in FICalc as a CSV

00:39:00.320 | and then load that into a spreadsheet app

00:39:02.320 | if you want to do your own analysis.

00:39:04.320 | So you can do that.

00:39:05.320 | Cool.

00:39:06.320 | So portfolio at the end of the retirement,

00:39:09.320 | this just tracks information about that final portfolio

00:39:13.320 | value.

00:39:14.320 | So one thing I would like to add would be a way to specify,

00:39:18.320 | say, what's the portfolio like at year 5?

00:39:23.320 | What about year 10?

00:39:24.320 | What about halfway through?

00:39:26.320 | I don't have that yet.

00:39:27.320 | You can only look at the final year.

00:39:29.320 | But I think it'd be pretty cool if you could also

00:39:31.320 | specify kind of like the time scale that you'd like to see.

00:39:35.320 | If you click these three blocks over here,

00:39:38.320 | you can actually see a sorted list

00:39:41.320 | of all of the in-portfolio values.

00:39:44.320 | If you click Largest, then they'll

00:39:45.320 | be sorted biggest to small.

00:39:47.320 | If you click Smallest, they'll be sorted smallest to large.

00:39:51.320 | And then if you click $0 Portfolios,

00:39:54.320 | it's going to show-- oh, whoa.

00:39:57.320 | We've got a bug here.

00:39:59.320 | Well, I'll have to fix that bug.

00:40:01.320 | It's not showing the $0 ones.

00:40:03.320 | But it should be showing the $0 ones.

00:40:07.320 | So yeah.

00:40:11.320 | And then here we go.

00:40:12.320 | We got these charts.

00:40:13.320 | So this chart is meant to show the quantiles of the data.

00:40:19.320 | So it's supposed to show the median value.

00:40:21.320 | It's then supposed to show the values that

00:40:24.320 | are within 50% of that median.

00:40:28.320 | So 25% larger, 25% smaller.

00:40:35.320 | Yeah.

00:40:36.320 | And then the 90% quantile, and then the 100% as well.

00:40:41.320 | And then it also shows the initial portfolio value.

00:40:44.320 | So you can kind of see about where these values sit.

00:40:50.320 | So one thing to keep in mind is that these charts,

00:40:55.320 | they're kind of a V1 version of the chart.

00:40:59.320 | The mode should actually be what's at the peak.

00:41:01.320 | But right now, it's the median.

00:41:03.320 | So that's just something to keep in mind

00:41:05.320 | is that the actual distribution curve would

00:41:07.320 | look a little bit different.

00:41:09.320 | So just keep that in mind.

00:41:11.320 | It's more meant to communicate the idea.

00:41:14.320 | OK, cool.

00:41:15.320 | So we have a question from Mosh.

00:41:18.320 | And I'm sorry if I'm mispronouncing that.

00:41:20.320 | Constant dollar minus minus dollars, additional income,

00:41:25.320 | plus dollars.

00:41:27.320 | So the net result is what the calculator uses

00:41:31.320 | is a portfolio withdrawal.

00:41:36.320 | Assuming constant dollar is greater

00:41:38.320 | than additional income plus portfolio return.

00:41:42.320 | Just give me one second.

00:41:43.320 | I'm going to read that again to make sure I understand it

00:41:45.320 | before I respond.

00:41:58.320 | Mosh, I'm going to ask maybe if you could elaborate a bit more

00:42:03.320 | on that final paragraph.

00:42:04.320 | I'd be happy to answer it.

00:42:05.320 | But I'm having trouble following along

00:42:08.320 | with what you're asking there.

00:42:11.320 | I totally understand.

00:42:12.320 | Hopefully you can hear me.

00:42:13.320 | I can hear you, yeah.

00:42:14.320 | Awesome.

00:42:15.320 | Thanks, James.

00:42:16.320 | Terrific looking tool.

00:42:18.320 | So what I think I'm asking, and I think you've confirmed it,

00:42:21.320 | but I wanted to just be sure.

00:42:23.320 | Because if I'm not sure, I suspect other people

00:42:25.320 | aren't sure as well.

00:42:26.320 | When we're looking at the calculator,

00:42:28.320 | you have a constant dollar withdrawal.

00:42:30.320 | Let's say, for the sake of discussion, $40,000.

00:42:33.320 | That's where you start as your default.

00:42:35.320 | Let's say at some point, 10 years--

00:42:37.320 | so I retire early.

00:42:40.320 | And after 10 years, I get Social Security.

00:42:43.320 | And let's say my Social Security is, let's say, $20,000.

00:42:47.320 | So obviously, the net of those two numbers is $20,000.

00:42:51.320 | So logic would tell me that that $20,000

00:42:54.320 | should come out of the portfolio, not the $40,000.

00:42:57.320 | And I just wanted to verify that that's

00:42:59.320 | obviously plus any portfolio return.

00:43:02.320 | So that's all I was trying to say

00:43:04.320 | in that kind of convoluted last paragraph.

00:43:06.320 | So is that accurate what I said?

00:43:09.320 | That's accurate.

00:43:10.320 | And thank you so much for explaining that.

00:43:13.320 | Yes, that is an accurate description

00:43:15.320 | of what happens in this calculator.

00:43:18.320 | That's what I assumed.

00:43:19.320 | And I appreciate that, James.

00:43:21.320 | Assuming if I download the CSV file,

00:43:24.320 | I can then look at that and actually see it in the data,

00:43:27.320 | see it behaving that way.

00:43:29.320 | You should be able to, yeah.

00:43:30.320 | And I think once we click into some of these years,

00:43:32.320 | we can see that as well.

00:43:34.320 | And on that note, that kind of is a good segue down here

00:43:38.320 | into this available spend.

00:43:40.320 | So this is called available spend and not withdrawal amount.

00:43:45.320 | So although constant dollar is saying--

00:43:48.320 | people talk a lot about withdrawing.

00:43:51.320 | This is saying that you have that $40,000 a year.

00:43:54.320 | It is not saying that you actually

00:43:56.320 | withdrew $40,000 that year.

00:43:59.320 | So that's an interesting thing, right?

00:44:03.320 | Because this withdrawal strategy is

00:44:06.320 | a little bit different from maybe

00:44:08.320 | what you would want to spend.

00:44:10.320 | But it does actually determine, based

00:44:13.320 | on your additional income, what you actually

00:44:15.320 | do have available to spend.

00:44:19.320 | And what you can kind of see here

00:44:21.320 | is that these charts aren't optimized

00:44:24.320 | for every single use case.

00:44:26.320 | So it's kind of weird.

00:44:28.320 | It's like this straight line.

00:44:29.320 | But this is kind of how it renders when--

00:44:33.320 | well, look at that.

00:44:34.320 | It says average initial withdrawal amount.

00:44:36.320 | I need to update that label there to say average spend

00:44:40.320 | amount.

00:44:42.320 | So yeah, because it's saying all withdrawals are $40,000.

00:44:46.320 | But it's actually all available spend is $40,000.

00:44:50.320 | And then if we even turn this off for a minute,

00:44:54.320 | you can see, again, this is another example

00:44:56.320 | where the chart hasn't been optimized for every use case

00:45:01.320 | or just kind of every situation that you

00:45:03.320 | might find yourself in.

00:45:05.320 | And the reason that this chart is displaying this way

00:45:08.320 | is because you're pretty much always withdrawing $40,000

00:45:11.320 | unless you run out of money.

00:45:12.320 | And then you withdraw $0.

00:45:16.320 | So yeah.

00:45:18.320 | OK, cool.

00:45:19.320 | So I'll move on down to simulations by star year.

00:45:22.320 | So this is another kind of distinguishing feature

00:45:24.320 | that I wanted to include in FICalc, which was the ability

00:45:28.320 | to really drill down into a particular year

00:45:31.320 | and see information about that year.

00:45:33.320 | So just at a high level, there are

00:45:35.320 | three color-coded values for each year.

00:45:42.320 | A red year, that means it ran out of money entirely.

00:45:45.320 | These yellow years or orange years,

00:45:48.320 | that means it almost ran out of money.

00:45:50.320 | It's less than about a third.

00:45:52.320 | And then these blue years, that's

00:45:54.320 | when you end with a lot of money with that over 300%

00:46:00.320 | of the initial portfolio.

00:46:01.320 | So just kind of at a glance, you can kind of see, OK,

00:46:04.320 | look at that.

00:46:05.320 | The '60s, start of the '70s, that was a rough time.

00:46:10.320 | Maybe around the turn of the century,

00:46:12.320 | that was also a bit of a rough time.

00:46:14.320 | And then you can kind of see that there

00:46:16.320 | were these more booming times in between those.

00:46:23.320 | And then when you say ran out of money,

00:46:24.320 | you mean according to the planning available amount

00:46:27.320 | for that year, agree?

00:46:29.320 | What I mean is that if you say--

00:46:33.320 | I mean, really what I mean is when you say ran out of money,

00:46:36.320 | it means the end result is that you

00:46:38.320 | have $0 in that portfolio.

00:46:40.320 | So if I click into one of these and I

00:46:42.320 | look at this portfolio value, boom.

00:46:44.320 | We hit $0 in 1990, several years before the portfolio ended.

00:46:54.320 | So that means that any red means that there's

00:46:57.320 | $0 in that portfolio, either on a final year

00:47:00.320 | or in any year during the retirement, really.

00:47:04.320 | And then are those end portfolio numbers

00:47:06.320 | considered in constant or inflation-adjusted dollars?

00:47:09.320 | Every dollar that you see on this page is in first-year dollars.

00:47:14.320 | And actually, if you just give me one sec, I will show you.

00:47:23.320 | So if you come to this page and it's your first time

00:47:26.320 | visiting the page, you'll see this message here

00:47:29.320 | that kind of explains that CS69.

00:47:32.320 | So all dollar amounts displayed have

00:47:34.320 | been adjusted for inflation to be in first-year dollars.

00:47:37.320 | So I hope that's clear enough to help

00:47:41.320 | kind of allow you to kind of understand

00:47:43.320 | what's on the page here.

00:47:46.320 | All right, so what I'll do is I'll hop on in.

00:47:48.320 | I'm actually going to turn back on that.

00:47:51.320 | OK, I must have deleted it.

00:47:53.320 | But I'm going to turn on that Social Security for $20,000

00:47:57.320 | starting 10 years in, lasts forever,

00:47:59.320 | adjusting it for inflation.

00:48:00.320 | So I'm going to turn that on, and we're just

00:48:02.320 | going to hop on in here.

00:48:03.320 | So you can see that has a pretty cool result

00:48:07.320 | on our retirement here.

00:48:09.320 | And what I'll do is I'll hop into 1972,

00:48:11.320 | and we'll see what happens.

00:48:13.320 | So what you can do is you can see portfolio information

00:48:19.320 | about this particular retirement from 1972 to 2002.

00:48:24.320 | So you can see the median, average, standard deviation,

00:48:27.320 | largest, smallest down here, final value.

00:48:30.320 | So you kind of get this information.

00:48:32.320 | And then you can kind of also just visually see

00:48:34.320 | how that portfolio changed over time.

00:48:39.320 | And then also, if you come down here,

00:48:41.320 | you can see the same thing for that available spend.

00:48:43.320 | And you can see that it's always showing $40,000.

00:48:48.320 | So I think one of the highest impact features

00:48:50.320 | I could update to FICALP would be showing the withdrawal

00:48:54.320 | that you made on the same chart as the available spend.

00:48:58.320 | I think it'd be pretty cool to see that you're actually

00:49:02.320 | withdrawing $40,000 for these first 10 years.

00:49:05.320 | And then when Social Security kicks in,

00:49:07.320 | that would show you drop that down to $20,000.

00:49:10.320 | And then you would kind of see that $20,000 a year withdrawal.

00:49:14.320 | You can't see that right now.

00:49:15.320 | You do have to download the CSV and dig into that.

00:49:21.320 | And then, so you're just using the X year blocks.

00:49:23.320 | Is there any option to randomly change the sequence of returns?

00:49:27.320 | Great question, Rob.

00:49:28.320 | In the works, not done yet.

00:49:31.320 | So I actually have it pretty much working.

00:49:34.320 | But the problem is that right now,

00:49:37.320 | it can run 120 SIMs pretty quickly in the browser.

00:49:40.320 | But I had it run like 100,000 or like 250,000

00:49:44.320 | to try to be a legitimate Monte Carlo simulator

00:49:50.320 | and a competitor to some of the other ones that are out there.

00:49:54.320 | But right now, the algorithm is too slow

00:49:58.320 | to do all of that in the browser.

00:50:01.320 | So I either need to improve the efficiency of the algorithm

00:50:04.320 | or move it to the server.

00:50:07.320 | And on that note, one thing I'd like to mention

00:50:09.320 | is I care a lot about privacy.

00:50:14.320 | FICalc doesn't store any of your data anywhere.

00:50:17.320 | No information that you type into this calculator

00:50:20.320 | leaves your device.

00:50:23.320 | I don't ever want that to change.

00:50:25.320 | And also, if you click Privacy, you can kind of

00:50:27.320 | see our privacy policy, which is we don't store your data.

00:50:34.320 | We don't sell your data.

00:50:36.320 | That's not what FICalc is about.

00:50:38.320 | I do have Google Analytics on the site.

00:50:40.320 | And that's because I just like to see who's using it

00:50:43.320 | and things like that and where they're using it from.

00:50:45.320 | I'd love to move off Google, honestly,

00:50:47.320 | and maybe go with a more privacy-focused alternative.

00:50:52.320 | But it's just a time commitment.

00:50:54.320 | And I think that it would also cost me a little bit of money.

00:50:58.320 | So I just haven't been able to justify that.

00:51:02.320 | And then on that note, there is actually a single ad.

00:51:05.320 | And FICalc-- I'll show you it right now.

00:51:07.320 | Here it is.

00:51:08.320 | I hate this ad.

00:51:11.320 | I'll probably remove it.

00:51:13.320 | But I was just trying to think of ways to justify it.

00:51:18.320 | There are a lot of features that I'd

00:51:19.320 | like to add to this calculator.

00:51:20.320 | But it's really hard to justify spending potentially

00:51:23.320 | hundreds of hours when I'm doing the big-time investment.

00:51:30.320 | It's not currently earning me any money.

00:51:34.320 | Cool.

00:51:35.320 | Talk about the programming tool.

00:51:37.320 | Yeah, it's built in a framework called--

00:51:41.320 | well, so the programming language that I'm using

00:51:44.320 | are HTML and CSS, which you have to use for the web,

00:51:47.320 | and JavaScript, which I use for some

00:51:50.320 | of the interactive behaviors.

00:51:52.320 | And then within JavaScript, there's

00:51:54.320 | a framework called React that makes it a little bit easier

00:51:59.320 | to build interactive web applications like FICalc.

00:52:04.320 | So FICalc is a React front-end application.

00:52:09.320 | And other than that, kind of everything that you see

00:52:11.320 | is custom.

00:52:12.320 | So that's pretty much the TLDR of the tech stack there.

00:52:17.320 | And I'm trying to think of what else.

00:52:24.320 | You know, I actually want to head back a little bit

00:52:27.320 | and go back to a question that Lady Geek asked a little bit ago

00:52:32.320 | about the statistical distribution.

00:52:35.320 | I'm curious if that question has been answered, Lady Geek,

00:52:39.320 | or if you still have an open question about that.

00:52:42.320 | Yeah, it's more of a fundamental question.

00:52:45.320 | Like, you run 121 simulations.

00:52:49.320 | Simulation number one, you get a data point.

00:52:53.320 | What do you vary on simulation number two?

00:52:56.320 | What parameters are varied?

00:52:58.320 | And that's where I'm trying to understand the statistics.

00:53:03.320 | What parameters are you varying in with what distribution?

00:53:06.320 | I guess it's just more of a curiosity than anything.

00:53:09.320 | That makes sense.

00:53:10.320 | Yeah, so this is not a Monte Carlo simulator

00:53:17.320 | that has things like small perturbations on data.

00:53:23.320 | It's using Schiller's dataset, unmodified.

00:53:28.320 | Simulation one starts at 1871.

00:53:31.320 | Simulation two starts at 1872.

00:53:34.320 | That's the only difference between the first sim

00:53:37.320 | and the second sim.

00:53:38.320 | So there are 121 sims being run here

00:53:41.320 | because that's how many 30-year intervals there are

00:53:45.320 | between 1871 and 2020.

00:53:51.320 | And Tom mentioned a good point that if you

00:53:54.320 | change the number of years, you'll

00:53:56.320 | get more or less simulation.

00:53:59.320 | So if I bump this up to, say, 120,

00:54:01.320 | you can see only 31 sims are run.

00:54:04.320 | Whereas if I knock this down to five,

00:54:06.320 | we're going to see 146 because there are just

00:54:08.320 | more five-year intervals that fit in the dataset.

00:54:12.320 | So it's more like a sliding window?

00:54:16.320 | Yeah, I think sliding window is an accurate way to describe it.

00:54:19.320 | Yeah, that's what I said.

00:54:22.320 | That's why I ask very basic questions.

00:54:24.320 | Well, I learn a lot, certainly.

00:54:26.320 | But because it's also a use of terminology,

00:54:30.320 | because when you say Monte Carlo, I'm thinking normal,

00:54:33.320 | log normal, all the classical.

00:54:35.320 | But now you're talking about variation

00:54:38.320 | of the actual dataset in time where

00:54:41.320 | your start and end points are.

00:54:42.320 | So I think that's a different perspective

00:54:44.320 | of what people are assuming, well, me,

00:54:48.320 | of the underlying mechanics here.

00:54:52.320 | That makes sense.

00:54:53.320 | Yeah, and there's a lot of proprietary information

00:54:55.320 | on the-- no, the commercial tools, everybody kind of

00:54:57.320 | hides exactly how they do it, and they all claim accuracy.

00:55:00.320 | And this is very open, very clear.

00:55:03.320 | So that's good.

00:55:05.320 | So one thing that you might be interested in

00:55:07.320 | is there's a section in the guides called How It Works.

00:55:10.320 | And it really is intended to be a very clear description

00:55:15.320 | of everything that happens.

00:55:16.320 | So you can even go on to what happens in one simulation year

00:55:21.320 | and that kind of stuff.

00:55:22.320 | So that might also interest you.

00:55:25.320 | So definitely check that out as well.

00:55:30.320 | Yeah, because the other nice thing I heard that--

00:55:34.320 | let's say I'm very--

00:55:36.320 | I'm an engineer, but very detailed

00:55:38.320 | on getting the basics right, especially

00:55:40.320 | when I did a lot of things for the wiki.

00:55:42.320 | Terminology is so important.

00:55:45.320 | Because as soon as you said everything

00:55:47.320 | is brought back to year one dollars,

00:55:50.320 | it made perfect sense.

00:55:52.320 | Because in finance, that's the main difference

00:55:55.320 | between-- actually, between engineers and finance people.

00:55:58.320 | As engineers think forward in time,

00:56:00.320 | finance brings everything backward in time.

00:56:02.320 | So that's why they talk about net present value.

00:56:05.320 | You talk-- you reference things in the present time.

00:56:08.320 | And that's just a different mindset than engineers.

00:56:11.320 | I think of things about 20 years out

00:56:13.320 | and how is my product going to work.

00:56:15.320 | And of course, I have perfect data.

00:56:16.320 | But so they say that it's a matter

00:56:19.320 | of defining the basics fundamentals.

00:56:21.320 | I see you threw a few equations in your explanations,

00:56:24.320 | which is good.

00:56:25.320 | So thank you.

00:56:27.320 | Yeah, absolutely.

00:56:28.320 | I'm 100% in agreement about the importance

00:56:31.320 | of making sure that the terminology is--

00:56:34.320 | that the correct terminology is used

00:56:36.320 | and that the explanation of what's going on

00:56:38.320 | is as clear as possible.

00:56:40.320 | I would love for FICalc to be completely transparent.

00:56:44.320 | It may not be there yet.

00:56:46.320 | But if anyone sees something that seems

00:56:48.320 | like an unanswered question, just let me know.

00:56:50.320 | And I would absolutely add something

00:56:52.320 | to the guide that explains that.

00:56:56.320 | And I see here we have a question from Jaina or Jana.

00:57:00.320 | Sorry if I'm mispronouncing that.

00:57:02.320 | But it's just asking a little bit about my background.

00:57:05.320 | Yeah, I'd love to share that.

00:57:09.320 | So I'm kind of a hybrid role, designer, engineer.

00:57:14.320 | I work at Netflix.

00:57:16.320 | I've been interested in fire and that kind of thing

00:57:20.320 | for a little over 10 years now, I guess.

00:57:24.320 | And yeah, I've just kind of always thought

00:57:26.320 | how it would be pretty cool to give back to the community.

00:57:29.320 | I've learned so much from blogs, from forums,

00:57:33.320 | just from all the resources and tools people have made.

00:57:36.320 | So I just always thought it'd be really cool

00:57:38.320 | if I was able to build something that people found valuable.

00:57:42.320 | So that kind of motivated me to put FICalc together.

00:57:46.320 | I hope at least some people find it useful.

00:57:50.320 | Yeah, so that's a little bit about me, I guess.

00:57:55.320 | Barnes is asking, FICalc uses first year dollars.

00:57:59.320 | So after, say, 10 years, I'll be removing $40,000

00:58:03.320 | plus whatever inflation was over the intervening 10 years, correct?

00:58:07.320 | It's a great question, Barnes.

00:58:08.320 | And let me try to clarify.

00:58:10.320 | Every dollar that's displayed on this results page

00:58:15.320 | will be adjusted for inflation to be in first year dollars.

00:58:19.320 | But that does not mean that the underlying calculation

00:58:23.320 | is keeping everything in first year dollars.

00:58:26.320 | So your question about it would be removing

00:58:29.320 | $40,000 plus whatever inflation was,

00:58:32.320 | that's something that you specify at the withdrawal strategy level.

00:58:36.320 | So for constant dollar, you specify that you want $40,000 per year.

00:58:41.320 | And then you specify, I do want to adjust this amount for inflation.

00:58:48.320 | Now, because that is specified,

00:58:51.320 | that's why when we come down here and we see this available spend,

00:58:55.320 | we see that everything's $40,000,

00:58:57.320 | because you specified in the withdrawal strategy

00:59:01.320 | that it's going to adjust for inflation.

00:59:03.320 | So over time, it's actually increasing

00:59:06.320 | that amount that you're withdrawing each year,

00:59:08.320 | the actual number of dollars.

00:59:10.320 | And then when we actually display the results,

00:59:13.320 | we show it in current year dollars,

00:59:15.320 | because I think that that's a little bit easier

00:59:17.320 | for you and just users and myself to kind of evaluate that.

00:59:22.320 | Now, if we turn this off, we can kind of see

00:59:25.320 | things are going to start going crazy

00:59:27.320 | because we're no longer adjusting it for inflation.

00:59:30.320 | So in first year dollars, it's really going to track inflation.

00:59:36.320 | And we're going to see a more variation

00:59:39.320 | in actual purchasing power that you have.

00:59:41.320 | And then Rob says, what inflation projection do you use?

00:59:45.320 | So this is using the CPI data from Robert Schiller.

00:59:48.320 | And I think it's -- I'm not sure.

00:59:50.320 | I know there are different kinds of CPI,

00:59:52.320 | so it looks like he says consumer price,

00:59:58.320 | all urban consumers.

01:00:00.320 | That may be the one he's using.

01:00:01.320 | You definitely want to give this paragraph a read

01:00:03.320 | just to make sure that that is the actual one.

01:00:06.320 | But yeah, it's CPI, U.S. based,

01:00:08.320 | and potentially the all urban consumers CPI value.

01:00:13.320 | Okay, cool.

01:00:15.320 | So we have another question from David.

01:00:18.320 | I think there are two basic categories of SEMs,

01:00:21.320 | historical, aka backtesting, and Monte Carlo.

01:00:26.320 | Cool.

01:00:27.320 | Yeah, David, that lines up with kind of my understanding as well.

01:00:30.320 | I think there's value in both.

01:00:32.320 | I definitely appreciate the backtesting approach,

01:00:35.320 | and I also like the Monte Carlo approach,

01:00:37.320 | as you've described it.

01:00:39.320 | I did start work on a Monte Carlo version of FICalc.

01:00:43.320 | It's not done yet, but, you know,

01:00:46.320 | people have expressed to me that they find value in that as well,

01:00:50.320 | and I think it would be pretty cool if that were an option available.

01:00:56.320 | So I'm trying to think if there's anything else worth touching on.

01:01:00.320 | I think one thing I want to mention again is, like,

01:01:02.320 | this thing works great on your phone,

01:01:04.320 | and most users of the app do browse it on their phones.

01:01:09.320 | So definitely, you know, if you have a phone, you know,

01:01:12.320 | check it out.

01:01:13.320 | If you're just at the grocery store and just wanted to run a quick

01:01:16.320 | calculation, perhaps add the word "backtest simulation" and footnote it.

01:01:22.320 | It's a great point.

01:01:24.320 | I definitely agree.

01:01:25.320 | Maybe adding the word "backtesting" or "historical" or something like that

01:01:29.320 | right here on the calculator could make that a little bit more clear.

01:01:33.320 | Plus one to that.

01:01:34.320 | Thank you.

01:01:43.320 | You know, I'm going to just hop into the guides real fast just to see if

01:01:47.320 | anything comes to mind that we might want to call out.

01:01:51.320 | So this -- I will call out one thing.

01:01:55.320 | So when you click "learn about this strategy,"

01:01:57.320 | you're going to get this description here.

01:02:00.320 | Well, if you go into the guides, there's another page.

01:02:04.320 | There's another section for the withdrawal strategies,

01:02:07.320 | and right now they don't link up.

01:02:09.320 | So there's a separate description of Bettenklinger here than there is in the

01:02:14.320 | calculator.

01:02:15.320 | And you might be thinking, "What the heck?

01:02:17.320 | Why would you do that?

01:02:18.320 | Why not just have one?"

01:02:20.320 | I definitely want one.

01:02:22.320 | I'm just not there yet.

01:02:23.320 | I plan to really -- the goal was to really go really detailed here on the

01:02:29.320 | guides.

01:02:30.320 | And they are a little bit more detailed than what's in the actual

01:02:33.320 | calculator.

01:02:34.320 | For instance, it has this, like,

01:02:35.320 | strengths and weaknesses section for each of the strategies.

01:02:38.320 | And, again, that's based on my opinion.

01:02:40.320 | So you might have a different opinion, which is fine.

01:02:43.320 | But if you do, I'd love if you shot me an e-mail,

01:02:45.320 | because I'd love to hear more about it.

01:02:48.320 | And then, yeah, I guess one other thing I want to mention is,

01:02:53.320 | if you want to save a calculation -- so here we go.

01:02:55.320 | We've got this Guyton-Klinger calculation.

01:02:57.320 | Let's do a 35-year retirement.

01:03:00.320 | And let's rebalance every five years.

01:03:03.320 | You can hit save.

01:03:05.320 | You can -- there's this button over here, save or share.

01:03:09.320 | And it gives you this URL.

01:03:11.320 | And if you copy that URL, you can then paste it into a new tab,

01:03:15.320 | and that's going to load that back up.

01:03:18.320 | So as you can see, we've got Guyton-Klinger here.

01:03:20.320 | We've got that five-year rebalance, and we've got that 35 years.

01:03:24.320 | So that's kind of how you can share a calculation,

01:03:27.320 | if you want to send it to a friend or family member.

01:03:30.320 | And then you can also bookmark that,

01:03:32.320 | and that's kind of how saving your calculations works as well.

01:03:36.320 | And then just briefly, a few, like,

01:03:40.320 | high-impact things that I think could be interesting to add.

01:03:43.320 | One would be this idea called similar results.

01:03:48.320 | So what if you run this calculation for 35 years and $1 million?

01:03:53.320 | Well, what if, when you scroll down to the bottom here, it said,

01:03:56.320 | well, what would the results be if you had done 40 years and $1.1 million?

01:04:02.320 | And just kind of a brief summary of that.

01:04:05.320 | And then there would be a link, and you could click in,

01:04:07.320 | and you could kind of view that.

01:04:09.320 | So that would just be a way to kind of get a quick glance at some minor tweaks

01:04:13.320 | that might interest you.

01:04:15.320 | And then another one would be a way to set up two calculations side-by-side

01:04:23.320 | and kind of do a side-by-side comparison.

01:04:25.320 | Right now you can do it by having two browser windows side-by-side,

01:04:30.320 | but some people expressed to me that they would find value

01:04:33.320 | in there being just one in the -- just one in the app.

01:04:40.320 | [MUSIC]

01:04:43.320 | [MUSIC]

01:04:48.320 | [MUSIC]

01:04:53.320 | [MUSIC]

01:04:58.320 | [MUSIC]

01:05:03.320 | [MUSIC]

01:05:08.320 | [MUSIC]

01:05:13.320 | [MUSIC]

01:05:18.320 | [MUSIC]

01:05:21.320 | [MUSIC]

Bogleheads® Chapter Series - FI Calc Demonstration

Chapters