(upbeat music) - Welcome to the BogleHedge Chapter Series. This episode was hosted by the Chicago Virtual Chapter and recorded April 15, 2021. It features Lauren Bolin, the developer of Seafire Sim. BogleHedge are investors who follow John Bogle's investing philosophy for attaining financial independence. This recording is for informational purposes only and should not be construed as investment advice.

- All right. Well, thank you for inviting me, Jim, and whoever else was involved in that email chain. My name is Lauren. I am the developer and creator of this site called Seafire Sim. Let me, I'm gonna start sharing here. - Yeah, I'm gonna stop sharing. - Which screen?

This one. - Yeah. - Okay. Bear with me. All right, so I'm the developer and creator of this sort of retirement back-testing calculator called Seafire Sim. Sort of a mouthful. Marketing and SEO are not my thing. I developed this sort of in 2013, actually as a side project, and it's sort of been this passion project of mine.

I have a very loose agenda here. There are a lot of things on this calculator to go over. I'll try to hit at least every one a little bit. We can go into more depth if people have questions on specific things. And always, you know, one of the most important things about my site is the first word, crowdsourced.

I really like to take other people's input. When I was developing this thing, the whole reason I developed it was because of other people's input. And I'll get into that a little bit on the history. So at the end, if your question isn't answered, my email is at the top of the website.

You can feel free to contact me anytime. Plenty of people do. So here's sort of a rough agenda I'm gonna go over. Just sort of introduce myself a little more. I talk about how I developed this project and go over a little bit of my sort of development practices, which I won't get too much into the tech details or tech nerdery, but I have a little bit of information out there if you're the kind of person that's interested.

Then I'm gonna sort of go over basic functionality on the site, some of the more advanced features. My favorite part of the site, which is the different spending plans. And then I'm gonna go over some sort of fictional scenarios to show you how someone would use it given your situation, whether you're paying for two kids college at two different times, or maybe you're still saving for retirement, or maybe you're gonna have a part-time job in retirement.

All those things can be done on this tool and it's kind of useful. Then at the end, I can talk about any sort of questions. So before I go anywhere, I guess I'll introduce myself again. My name is Lauren. I'm a software developer by trade. Me and my wife lived in the suburbs of DC.

We have two kids and I've been interested in sort of the retire early, the fire movement, probably since 2008 or nine, when your money, your life was really the only resource. I was kind of really involved in the internet when it became more of a blogging thing with Mr.

Money Mustache and various other people. And now that sort of movement is quite rampant out there. And I'm happy to see it. At some point in my life, I was a moderator on Mr. Money Mustache forums, was a moderator on the Reddit financial independence site. So I've been around.

So a little bit of history about Seafire Sim. Really this project was born out of conversations I had with people on earlyretirement.org. So for those of you who don't know, I mean, I think most of you would, but earlyretirement.org is sort of the forum website that happens to be attached to a website called FireCalc.

FireCalc, if you look at it today, is really a sort of retirement calculator that looks like it was written in the '90s. And I believe the data is updated yearly still. But the reason it hasn't been updated, and not to diss them honestly, 'cause I like their project in general, but the reason it hasn't been updated is 'cause the person sold it.

He retired and is living on a boat as far as I know. So bravo to him. But the folks at earlyretirement.org get a lot of clicks for having that site up there. So it's good. But in, I'd say around 2011 or 2012, I was hanging around on those forums, and it was pretty clear that there were people asking for new features on this website.

No one was there to make those new features. So it was a lot of people sort of screaming into the void. I was not a software developer at the time. I was trying to learn it. And I thought that, hey, this would be a great project. One of the things that was useful for me is that FireCalc outputs a CSV file at the end.

And it's kind of a mess, a lot like cfire-sims-csv, but it's essentially a data dump of every single iteration of the simulation. So I figured if I looked at this long enough, I could reverse engineer it and figure out what's going on. And it turns out it was right.

I think it took me a month of nights and weekends of just sort of going through the steps to figure out what was going on, how they were applying inflation and doing all the calculations. But I did reverse engineer it, and I started putting some code out there. I took a lot of input from folks on that forum and from folks on Reddit and other places during that time.

There's a couple of people who are either on this call or will be listening that were a big part of that. I've never actually heard his name said out loud, but Jerome Moisand is a Boglehead in your group that was a big help back then. And there's a user named Ciamond that also I spoke to quite a bit about 10 years ago.

So if you're out there, thank you for your help. And anyway, I put this project out there in 2013, and personal finance and FHIR is sort of my thing. And I actually used it as a way to shift my career. Now I am a software developer by trade, so it's great to be paid for something that you like.

But real quick, going over sort of general development practices of how this tool work or how I work on this tool for any of you nerds out there. I host this on a platform called DigitalOcean, which I believe just had an IPO recently. So go DigitalOcean, I am not an advisor.

Don't take my word for that. I sort of viewed the websites written in Python and a framework called Django as a MySQL database. And I use a lot of Docker containers. And of course, there's some JavaScript written in there for the form magic that you see. In the past, I've written it in PHP.

Then I rewrote it completely in AngularJS. Then I rewrote it completely in Python. So it's gone through a few iterations. One of the things I know a lot of people are concerned about is testing. How do I go about testing this? When I add a new feature, does it change the outputs?

This is kind of a tricky question. Some of the time, it does change the outputs. And the question is whether or not that's the intended thing. I talk to a lot of people when I make changes that actually affect the outputs. A very big example of this is I would say sometime in 2014, I'll provide a link that we can attach to this video or the thread in the Bogleheads forum.

But sometime in 2014 or so, someone came up to me in the forums and said, "Hey, how do you calculate the bonds on your site?" And I gave them the formula that I'd been using. It's based on the GS10 long interest rate that's publicly available data that's gone back for 150 years.

Someone's printing in my office. They came to me and they offered some information and we sort of hashed out the mathematical formula. Well, it turns out that... Sorry, this is really loud and bothersome. How many pages? It turns out that the FireCalc and a lot of different sites were calculating the bond rate incorrectly.

We sort of went over it as a group and came up with a slightly different formula, which actually affected some of the success. I would say that there's probably a two or 3% difference in success rates between CFIR-SIM and FireCalc given the amount of bonds you have in it.

So this is sort of like an interesting point in testing where it's just gonna be different. I do have lots of unit tests. And for those who are not software developers, sort of unit tests are pre-built tests that have predetermined outcomes. And every time you make a change in your software, you can just run them immediately and see what happens.

If those predetermined outcomes are different, it will let you know. So I do keep an eye on that. Honestly, the biggest thing that I rely on is user testing. Almost, I would say 95% of the bugs that happen on my site are just UI bugs. I was mentioning to Jim before everyone came on that JavaScript is the programming language that lets you kind of mess around with the UI.

That's not my day job. I'm not used to doing anything with JavaScript. So sometimes little UI bugs get in there. And lastly, I've mentioned this before, but I always take advice from users. I'm always looking for new features or quality of life things. I don't wanna make this thing too complicated in the end.

So I reserve the right to shoot things down. But over the years, I've added a lot to the site based on suggestions and it's been great. All right, all right. That is basically some of the back end history of this. And I'm gonna go through some of the basic functionality on the site and see if any questions arise.

So I'm gonna refresh this just in case. When you arrive here on the site, you're presented with what I call the giant form. There's a lot of inputs here. You can open it up depending on what you select for even more inputs. But there's sort of this basics section that I'll go over in the beginning.

A little bit of the back end data is to know is I go off of Robert Schiller's dataset, which is pretty common. Robert Schiller's dataset has like sort of the S&P 500 equivalent stock index for the last 170 years and also has the bond rates. And I also have a separate data source for gold.

One thing that I would say is lacking in this program is historical cash data. I've never been able to find a good historical cash data that goes back all the way to 1871. There's quite a few that go back to 1900 and I've never bothered to sort of jam those together.

So that being said, I offer the ability for you to put in how much cash you think, how much growth you think cash will have in your portfolio. Maybe this is a lesser tended to feature because I don't have a lot of cash, but. So the basics here are sort of, I would say pretty common for a lot of retirement calculators you have a retirement year, you have a retirement end year, better known as your mortality.

You have sort of a check here for what kind of data you wanna use. I almost always use all historical data, but some people like to really nitpick on the worst periods of history and see if their portfolio would have survived, which is useful, but I mostly like to see everything.

And then you sort of have your portfolio value as it stands now, which is important. And then what your yearly spending is now in today's dollars. So I'm not gonna assume people's knowledge here, but everything on this page is essentially in today's dollars, which means you don't wanna inflate these numbers for the future.

If you're gonna retire in 30 years and right now you're spending $40,000 a year, sure, maybe in 30 years, that's gonna be $70,000. Don't put that in this calculator. Everything is in today's dollars. I personally find it easier to wrap my brain around when everything's in today's dollars. And everything does get adjusted by inflation as you'll see on the output.

So initial spending. Spending plan is something I'll go over later. There's quite a bit in here, quite a bit of complexity in there. But right now, this is inflation-adjusted spending, which will adjust this initial value up and down based on historical inflation, which is a pretty common feature in I think some of these calculators.

Here's sort of a dropdown for what kind of inflation type you have. So this is CPI, this is the historical inflation. You can do your own flat rate inflation if you really want to. Some people like to use this for sort of bad scenarios where they're like, oh, maybe inflation's gonna be 4% for the rest of eternity, or maybe it's gonna be 2%.

I'm not sure, but I tend to use historical myself. Those are sort of the basic things that you need to run this in general. Everything else below here is sort of adding details to make it more of a fine-grained simulation. So like I mentioned before about cash, here's your portfolio area.

Important to note that this is essentially the portfolio that's gonna be throughout your simulation. Now, you may ask, I'm gonna change my portfolio, maybe I'm gonna get more aggressive, or maybe I'm gonna get more conservative as I get closer to retirement. You can do that. I do have the functionality in there to provide what's called a glide path, which sort of takes your allocation at one point and moves it slowly to another point over a certain amount of years.

So the default here is 75% equities, 25% bonds. I think this is a pretty standard default for a lot of retirement calculators. If you want to do those glide path type things, you would uncheck this, keeping the allocation constant. It will reveal a new panel here. And so in this particular situation, this person is retiring in 2021, which is this year.

There are some financial gurus that seem to think if you start off in a conservative portfolio and slowly move to a more aggressive one during retirement, that that's a viable thing. So I wrote in here, we're starting off with a 50/50 portfolio, and here is the start year of the glide path, and here's the end year of the glide path.

So over a 10-year span, it's gonna slowly ratchet it up to a 90/10 portfolio. I would say one of my personal to-do lists for features would be to add the ability to do more than one of these. I think it's pretty common for people to change their allocation throughout their investment careers multiple times.

So I wish I could do this twice or three times, but right now you have the ability to do it once. For simplicity's sake, I'm gonna hide this for now, but this can be pretty useful in trying to model different risk scenarios. So I'm gonna click this button and make that thing disappear.

You'll sort of notice that a lot of things on this website appear and disappear based on your inputs. Hopefully that that's intuitive. I haven't found a lot of people have a problem with that, so hopefully it's not too bad. Rebalance annually is an interesting thing. I don't know your own personal views, but I think most folks that are interested in planning their own retirement are rebalancing annually or twice annually.

I mean, maybe people are doing it every quarter. I don't know. All this means is it's rebalancing your funds back to this portfolio every year based on the simulation. If you don't do that, it'll just let the simulation drift. It'll let your equities go up and up and up or your bonds go up and up and up during certain times in history, and it'll never rebalance.

That's certainly an interesting thing to simulate. You can try it out on your own and see the effects of that. And lastly, one thing I haven't mentioned here is fees. This is essentially the average fees across your entire portfolio. I know that that's not ideal. People have different fees and different accounts because they have different funds in them.

For the purpose of simplicity, I put this in here as just an overall average on your portfolio. This is like some sort of average of Vanguard funds that I found out there, so I put it in there. All right, below portfolio, we start getting into some of the inflows and outflows that you can add to your simulation.

And starting with the most popular, at least in the United States here, I do have several people from Australia and the UK that visit this site and make use of other adjustment types. But since I'm in the US and I will be collecting Social Security hopefully, I added this.

So we have two different Social Security fields, one for yourself, one for your spouse. By popular request, I've made it so that you can change this from a monthly to an annual number. I used to have everything annually, but most people think in monthly terms when it comes to Social Security, how much am I getting each month?

So whichever you put in there, it will do the right thing on the backend of the simulation. Of course, you can model different start years. I know lots of people try to figure out whether it would be worth it to take Social Security early or take it at the full retirement age.

You can certainly do different simulations based on start year. And of course, I used to not have an end year in here. I used to just assume, hey, this is gonna be, you're collecting this for the rest of your life, but lots of people want to model their spouse's deaths.

So I added an end year in here and you can model different people's deaths and changing of values in here. So this is essentially one example of what I call an adjustment. It's sort of a general term for the inflows and outflows of money in your portfolio each year in the simulation.

A pretty common theme, and I'll show you right here, this is the generic, this is the general adjustment section. So you can put up to, I believe I've allowed up to 10 adjustments in here. There's no reason I couldn't increase it. I just have kept it at 10. But this is essentially where you would put your pensions, where you would put a different spending things that would happen during retirement.

Maybe you're gonna retire and then you're gonna start paying for your kid's college. So you know, my kids are gonna be in college in 2030. And then I've got another kid in college, 2033. So I would model a couple of different spending things. Good old in-state tuition in Virginia right now is roughly 15,000 a year.

So this is sort of a general thing that you can do with these adjustments. I have pension availability in here, any sort of income and savings, which could be, I mean, it could be anything. It could be, you've got a part-time job, you're renting a house out and you're a landlord.

So this is your rent. You can also make this a one-time thing. So imagine you're gonna sell your house. You can uncheck this recurring box, which will sort of gray out the end year. And this particular adjustment will only happen on 2030. So these things, these kinds of things are pretty useful.

Some of the inputs in here might look familiar. You know, amount per year, that's pretty simple. This label here, you know, I find this useful mostly because there's an ability to come back to your simulations later. So real quick, I'm just gonna run this and sort of ignore the output because I can click this link and it will reload the exact same things, exact same inputs that you entered before.

I'll talk a little bit more about that when I'm on the output page. I apologize for jumping back and forth. So this label is important. This is also important. Some people have been known to mess up and put the wrong thing in here where they meant spending and they put savings.

And they're like, why do I have so much money at retirement? It's like, well, you said your kid's college was actually a savings or income stream instead of a spending stream. So that's an interesting thing that you need to look out for. One sort of option in here that might be a little different for you is this value here.

I wasn't really aware, this is where the crowdsourcing comes in. I wasn't really aware of this because I don't have a government pension. I know that there are other, my wife has a, she has a private pension. And actually, I think this applies to it, but I don't pay much attention to her pension and stuff.

But this little checkbox essentially is for pensions. So a lot of pensions will have this setup where they'll tell you, hey, you're gonna get $5,000 a year once you start collecting your pension. That value is often frozen and it's always gonna be $5,000 until you start collecting. And then only after that will it be adjusted for inflation.

So if you have a pension that's like that, you'll wanna click this button and have this clicked, inflation adjusted, and it will stay at $5,000 until you start collecting it. Now, that may seem intuitive, but anything on here that you select inflation adjusted for that's in the future, for instance.

So I just unchecked this and this is nine years in the future. What's gonna happen is even though you're not taking this pension until 2030, this adjusts that value for inflation every single year. So nine years down the road, this might suddenly be $7,000. That wouldn't normally be a problem for a lot of things, but like I said, pensions have this knack for being frozen in time until you start actually taking them.

So this is a worthwhile thing. I forgot to mention at the very beginning of this, some of the things at the top of my site. Fairly recently, I've started writing tutorials that sort of describe some of this functionality. So if you miss something on here and you don't wanna go back through the video, you can certainly check out this tutorial section.

I'm gonna click here real quick. Right now, I sort of only have information about the basic section and what the output looks like, but I definitely have, I've already written articles for spending plans. I just haven't gotten them up yet. And I definitely am gonna talk more about some of these things.

I'm gonna quickly scan over essentially the information that I'm gonna put in this demo. So hopefully that's helpful. And go back here. Okay, so adjustments. Recurrent, the recurrence button, I sort of mentioned. Does this occur over a span of years or is it just once? And then whether or not this is inflation adjusted or not is pretty straightforward.

Just like above, you can choose the inflation type. It can either be the historical CPI or it can be a flat rate. I actually know that a lot of pensions have a flat rate adjustment, so that can be pretty useful. And let's see. I believe that that is essentially a quick scan through of all available inputs without touching spending plan.

So spending plan has lots of different things that show up after you click the appropriate spending plan. And I'm gonna go over that in just a moment. Firstly, though, I'm going to refresh this page, have the default scenario, and we're gonna talk about the output page. So this is a pretty standard situation.

In fact, I'm pretty sure this is the exact same inputs that FireCalc does. This is a 30-year scenario. It may look like it's 29 years, but it counts this year and this if you, it's 30 years. With a million dollars and $40,000 spending per year, this is the classic 4% rule.

I'm gonna hit Enter or hit this button up here. And this lovely rainbow graph is what you would see when you hit Run Simulation. There's a lot going on on this page. I've tried really hard on this site to put as much information out there as I can without making it too confusing.

However, I do understand that because I'm the one who wrote this, I know where everything is, and it might look a little wild to someone who hasn't checked it out. So I'm gonna go over a couple of the sections here. So the first thing you're gonna see is this really big, wild rainbow graph.

So what this is is essentially every single simulation of 30-year span over the course of history, starting in 1871. And what I mean by that is, let me see if I can, I think I wrote a pretty nice graphic of this. Oh, no, I got rid of the graph.

Oh, wait. Output tab. No, I got rid of the graphic. That's a bummer. So what you have to imagine is this data goes back to 1871. So it's gonna take your inputs and it's gonna go to 1871 and put them in as a theoretical million dollars and a theoretical $40,000 spending.

And it's gonna run the data from 1871 to 1901. And it's gonna see how your portfolio would have done. Then it's gonna start a new simulation in 1872 and go to 1902 and so on and so forth until you get all the way to the 2020 data, which if I try real hard, I can find it in here.

But this results in sort of this cool graph and you can kind of get a sense of what's going on here. There are periods of, if you hover over this, it sort of hovers on an entire simulation. So right here, it's kind of hard to see in the blues, but that blue line dips down really far.

This was not a good period in time. In fact, this is the classic beginning of the stagflation period in the late '60s and early '70s. So what this represents is your portfolio over time. Now, like I mentioned before, this is today's dollars. So it's adjusted to make it easier on your brain to figure out what this is worth.

So if you started with a million dollars, this is worth roughly six times as much. However, in nominal dollars, this is probably way more. I'm just gonna make a speculative guess and say this is like $11 million, double that or more in nominal dollars. Now, how do you figure that out?

You could go into the CSV up here. I guess I will open this up. This is sort of stream of consciousness. So if you click on this button, you're gonna get this long named CSV file. I don't even have Word on here. I don't even have Excel on here.

Where'd my screen go? All right, it's gonna load it up. And this is not gonna be very easy to show people, but this is a very long file and it has every year of every 30 year period in this simulation. So if you go to the top, it says the cycle start year is 1871.

So this is the 30 years starting in 1871 and it has your starting portfolio and has the inflation adjusted portfolio as the spending and the inflation adjusted spending. So for this particular one, which is the one I think I was highlighting, if we look at the ending portfolio, and this is just a quick tangent, ending portfolio right here, what was the ending portfolio of this one?

3.2 million and the inflation adjusted was higher. Gotcha. Anyway, this is a bit of a tangent, but good to know that you can look at all the numbers there. This here is a big ugly link that will allow you to get back to your same inputs. A lot of people ask me why I don't have a login system so that you can save your data.

I have taken a hard stance on that because I don't want to deal with keeping the data anonymized, to be honest. Right now, as it stands, I have a database full of people's inputs. I have no idea who put them in and I'm okay with that. I'm not in the business of selling data.

I don't make any money from this site. This is a 100% passion project and I want to keep it that way. So I anonymize the data and I put it into here as a link so you can get back to it rather than have a login system that's tied to your email.

Maybe that makes you feel good. Maybe that makes you feel like this tool is clunky. I'm not sure. Okay, back to this chart. Real quick, as I'm scrolling through here, if you look below down here, I can't point to it while being on the screen, but if you look below, it says that the year is 1953, the cycle start year of this particular simulation was 1935.

And at this point in time, the portfolio is 1.3 million. So as you go through here, you can kind of get a good idea of what happened in history. Very similar to this chart is right next to it, the inflation adjusted spending over all the simulations. Now, a lot of people get confused when they first see this and they say, why is it a flat line?

Well, because you chose $40,000 as a spending point and because you chose it to be just straight up inflation adjusted, it's $40,000 every single year. And it sees that there, you see it there. If we choose other spending plans, which are variable, which we will go over in a bit, they definitely go wild over here.

And we'll talk about that. Okay, there are a lot of numbers here and without getting too verbose, I'm gonna talk about the most important ones and then let you sort of figure it out after that. I think the most important thing is this little section here right below the portfolio chart.

This is the success rate. Success on this tool is defined as you still having any money in your portfolio when the simulation is over or when you're gone. You can have $1 in your account and it will be a success. If you look on this chart, there are a couple of these.

This is the very last year of this portfolio. It started off with a million dollars, it's down to 50,000, but that person made it to the end. That's a success. So out of a possible 121 different 30,000, 30 year periods in history, this particular setup would have only failed five times.

This is essentially the definition of the 4% rule that is often cited. The 4% rule is not 100% successful, it's 95% successful, which for most people is good enough. Yeah, I'm not gonna tell you what success rate is desirable. You can look and read a lot about that topic.

One of the recent papers that sort of has blown my mind recently is Michael Kites, a financial planner, has written a paper that essentially says that if you do a Monte Carlo simulation, which is different than this, this isn't just historical data. If you do a Monte Carlo simulation, which is randomized data, and you have a 50% success rate for retiring, that if you did that every single year, you'd be fine, as long as it was 50% every single year.

Now, do I feel comfortable with 50%? Probably not, but that's up to you to decide. Some people need this to be 100%. It's totally however your brain works. This number here is sort of what your portfolio was at retirement for this particular scenario. Because I retired right now on the scenario, it's just exactly what you put in as an input for your portfolio.

Beyond that, this entire side, the left side, is all talking about portfolios. This entire right side is talking about your spending. I have all sorts of statistical numbers in here. I've got the average ending portfolio. I've got the average yearly withdrawals. I've got the average total withdrawals. I've got the median, the standard deviation, which is sort of the volatility.

I've got the highest value, the lowest. And then by popular demand, I put in the lowest 10%, and the lowest 5%, just to see sort of what the slices of the statistical pie are here for these particular simulations. You'll sort of notice that a lot of these numbers are the same.

That's not a bug. When you have very flat data, it tends to end up like that. Like I said before, the spending is $40,000 flat every year, inflation adjusted. So these numbers are all gonna be the same, just like over here. I'm not gonna go over this entire chart for spending, but I will say that I've split it up into quarters and the first five years.

These are sort of very, these are both statistics that are very often cited in sort of financial planning articles, or people even on the Bogleheads forums will say, the first five years is the most dangerous part of retiring. So I've included sort of statistics on spending for these different time periods.

Now, someone asked me recently, like, do these quarters mean only the retirement period? And the answer is yes. If I wrote that I was retiring in 2031, so 10 years of pre-retirement simulation, this information would only be including the retirement period. I'll let you look at some of these later.

I don't wanna get too verbose on this page. The last thing I'll talk about is this. I kind of hide this a little bit because it's long and most people don't wanna see it, but if you click this show button, it brings up a extra chart. Now, these are the single years where the portfolio was the lowest out of all the simulations.

It tells you what the portfolio was. Now, if you look, five of these failed. So of course we have five zeros, but look at this guy. I didn't see it before, but in a starting year of 1967, in year 28, it got down to $4,000. Actually, this makes sense because right here, starting year of 1967, the very next year, it goes to zero.

These are just individual data points. People like to see how low it goes before failure. If you happen to have a simulation that has 100% success, it's still interesting to look at how low it has gone in the past. So keep this little section in mind if you're the kind of person that likes to look at the very edge cases of things.

I don't usually look at this very often, but to each their own. Okay, I've gone over this. Another basic functionality to note is if you look up here, I have these two little tabs. When you submit the form, it doesn't refresh the page. It opens a little tab here and puts the information here.

If I click back onto the Inputs tab, I see my same inputs that I had before. This is just the regular default data. Now, what you can do is you can do things like this. The retirement end year is 2050 in this case. Well, what if it was 2055?

I'm gonna leave everything the same, but what if it was a longer period of time? What if I think I'm gonna live till I'm 95? If you notice up at the top here, it loaded a new tab called Sim 2. This shows the statistics for what I just put in.

It failed another extra couple of times because it's trying to eke out another five years of retirement. But most importantly, what I wanted to show you is that you can click between these tabs and essentially have a bunch of different simulations out at once. Whichever tab you were last on, when you click on the Inputs tab, it will load the inputs for that simulation.

It will tell you that it loaded it. And if you look, this is the input that I used for Sim Tab 2. If I go back to one and then go back to the inputs, it will load it from Sim Tab 1, which was 2050. It does that for everything on this page.

So it's kind of useful if you're sort of iterating through and trying to find a very specific time that how many years you can retire or things like that. So this is a very useful feature. I personally like it. You can also hit this little red X, which I hope is intuitive, and it will make it go away.

Let's see. One last thing. I guess I missed this. So I haven't gotten to do a lot of these yet, but if you click this button, Open Investigation Options, it opens this little extra spot down here. Once upon a time, this was a very popular thing on the site.

And I can't remember if FireCalc does something similar, but essentially what this does, if you click this little slide thing, it's gonna look for the maximum initial yearly spending for this amount of success. This is actually a typo. I should just delete this and just say for this amount of success.

So if you type in 95 here, it's gonna run the simulation many times to figure out what is the maximum number of spending here to get 95% success. Oh, I unchecked it right before I hit Enter. Let's go back. This one takes a little bit longer 'cause it actually runs multiple scenarios in a row.

So I would not worry too much about it spinning. Okay, this looks a lot like the other simulations, but down here, I sort of write this little note just says investigation was complete. Then it tells you the maximum initial spending is $40,507 exactly. And it results in 9,504. I would say that this is accurate within $10 usually.

Just the way that I'm iterating through the thing, it makes it really inefficient to find it down to the $1. I'd rather it spit out something very close. So if you were to put this amount back in the Inputs tab, it would give you the same, it should give you the same amount of success.

Boom, 9,504, perfect. Really hoping I can make it through this demo without displaying a bug in real time. Okay. All right. I've gone over most of the basic stuff. The spending plans I've yet to go over, Jim or whoever else, Keith, I don't know if we wanna take any questions now.

- All right, we're recording. - All right. Spending plans. Spending plans are my favorite part of this tool. Honestly, this is the thing that I mess with the most in terms of my own personal situation. And I think that it's a pretty undervalued thing. I am not a, I'm gonna say this a lot.

I work for a financial firm and I am not, this is not part of their work. And I know all the legal disclaimers. I am not a financial planner. However, I know that people do not spend the exact amount of money or same amount of money every year. And modeling that is kind of unrealistic.

Ideally, people are vacillating between a spending high and a spending low, and they know roughly what their average spending is. We can do that with these different variable spending plans. VPW was just asked about in the question and answer section. So I'm gonna go over that one first. So VPW is a, essentially a spending plan or a variable spending plan.

Or a withdrawal plan, if you will, that was come up, that came up with on the Bogleheads forums. I can't remember the username off the top of my head. I want to say, was it long invest? Anyway, one of the users came up with this and the premise of this is pretty simple.

Well, the premise is simple, but the calculations are complicated. The premise is that this user would look at sort of the standard inflation adjusted simulations. And they would see that a person who had a million dollars and spent roughly 40,000 a year would end up with a portfolio of $6 million at the end.

And they thought, you know what? You can't take it with you. I wanna spend all the money. How can I do that in a safe way? And the models, basically, if you look here, if you go back to inflation adjusted, you can't just say, I'm gonna spend 60,000 a year.

I gotta back this up. You can't just say, I'm gonna spend 60,000 a year because if you spend a flat 60,000 a year, it fails a ton. And it's just not sustainable, you can't do that. So he wanted to find a safer way to get as close to zero at the end of life as possible.

What he did was take a combination of sort of writing his own annuity each year based on the end point of your simulation. Excuse me, talking too much. So he wrote out a sort of annuity formula and then based it on whatever future value you wanted. So these two values are new values when you select VPW.

And this is sort of a rate of return that the aforementioned annuity is based on. And this future value is essentially what you want your portfolio to be at the very end. Now, this number is largely ignored in the VPW. I believe it has some significance to the starting point but it very quickly gets changed along the way.

So just in case I changed some other things, I'm gonna refresh this real quick to the defaults then I'm gonna switch it to VPW. And then this is the default stuff. I'm just gonna run the simulation and see what happens. So you'll see that it says 100% success. Now that means that the portfolios were above zero when the person died.

Now, if you look at this chart on the left, it looks a lot different than the other ones. If you look, everything is spiraling down to zero but it falls just short. So the math behind this allows you to spend it down so that you essentially end up with less money at the end of retirement.

Now, if you look on the right here, this is the first time you've seen the spending graph become a variable graph. Now, if you look here, this might be sort of unfathomable. This is a million dollar portfolio. And at some point spending is getting to be like $200,000 in a year.

How can that be? Well, I mean, it follows the market sort of gains for a given year. And every single year it's calculating based on the current portfolio and how many years you have left to live and the expected return rate, what it thinks you're gonna have at the end.

So it keeps increasing that. Well, it really just varies it up and down. But so if you look here, it goes up and down quite a bit. But if you see here, if you look at the average spending for this entire simulation, it is quite a bit above 4%.

But if you look on the left side of this chart, the average ending portfolio is 85,000. This is as close to zero as we can get without failing before your end of life. So this is an interesting example of something crowdsourced. Someone on the Bogleheads forum was writing the sort of thesis for this and you can find it out there.

It's still a very, I think it's a very trafficked thread. But that person came to me in like 2015 or 2014 and asked if I can make this happen as part of the website and I did. So it's kind of an interesting way of thinking about spending if you're willing to spend it all down.

And before I move on to the next one, one thing to note is you can change the future value. If you're planning on spending more than normal, but you want more than just zero left at the end, maybe you wanna leave 200,000 to your kids or something, you can change this future value and it tries real hard to make things happen at 200,000.

Actually, it seems to not have done that. I told you I was trying to make it through the entire video without a bug, but here we go. I'll have to check that out. So if you look, some of these portfolios, they actually dip down to zero. It looks like they're failing right before the end.

So that's interesting. Anyway, we'll move on to the next one. All right. So when you have inflation adjusted, of course, this is the not inflation adjusted scenario. Essentially, it takes your spending and never changes it. That means over time, your actual value of your money is gonna go down because inflation's gonna be sort of reducing the value of it.

So if you run this really quick, you'll see on the right side here that inflation really changes things. Now, what's interesting here is in the early 1800s, there's quite a bit of deflation. So even though you're not adjusting your spending here, your inflation adjusted value of that spending is going up.

But the vast majority of sort of modern times, the value of that money is going down quite a bit. If you look at sort of the averages here, really you're averaging 30, you're averaging lower than 40,000 per year if you never adjust it. And I don't know if anyone's, I can't remember from our poll who frequents earlyretirement.org, but it's a common trope on early retirement that you don't wanna be eating cat food in retirement.

So if your spending reduces to half of what it started, you might be in trouble. Okay, I'm gonna go back. What's next? Percent of portfolio. Okay, this is a pretty simple one on its surface, but there's some nuances that a lot of people miss. So percent of portfolio pops up one new field called the yearly spending, which is a percentage of the portfolio for that given year.

So when we talk about the 4% rule, if you're not familiar, which I hope you are if you're here, but if you're not familiar for people out there, the 4% rule is based on a study where they had portfolios of people at retirement and starting at retirement, their starting spending was 4% of that portfolio value.

Then from then on out, no matter what the portfolio did, you just only adjusted your spending for inflation. So every year wasn't 4%. It was just the very beginning. This particular spending plan, percent of portfolio, every single year, it's going to take your portfolio value and then adjust your spending based on that.

If you start off with a million dollar portfolio and somehow it gets to be $2 million, well, 4% of $2 million is $80,000. And that's what it's gonna set your spending to. So if you run this, you'll see on the right, that the spending is wildly varied. If you would have retired in the '80s, your spending would have gotten up to $157,000 by using this method.

Now, this says here that it's 100% success rate. Now that is true. And that is true because no matter how high or how low your portfolio gets, it's gonna only take out 4%. So if you look here, the spending in this year was only $15,000. That's because the portfolio dropped quite a bit.

By definition, if you're only ever taking 4% of the portfolio, it's almost never gonna go to zero. So how do we simulate these on a more realistic manner? If we go back here, I'm gonna introduce this other section of the variable spending that is very important. It's a concept of a spending floor and a spending ceiling.

So, well, I'm gonna go back to the tab real quick. If we look here, we're trying to spend 4% of our portfolio. Now, if you're trying to stay within the realm of $40,000 inflation-adjusted spending, you look at this chart and you say, wow, it's really, I mean, it doubles or triples sometimes, and it goes down to the major, I'm eating cat food level.

How do we fight against that? We do that with spending floors and spending ceilings. So the idea of a spending floor, and I'm gonna choose a defined spending floor value, is that the simulation will never allow the spending to go below the floor. So in this case, this is a 4% rule.

I personally like to think like, hey, I can take a 10% haircut on my spending and be okay. So I'm gonna put the floor to be $36,000. Now, if we just run this as is without doing the ceiling, if you look on the right, you'll see some very distinct flat bottoms.

It never goes below the $36,000 that we set, and that's great. However, it also goes out of control in these other places. Now, maybe you want it to go out of control. Maybe you wanna set a floor, and when your portfolio goes crazy, you can go crazy too. That's great.

Some people are trying to pay more attention to their average ending portfolio to make sure that they can pass money along for some sort of generational wealth. So if we go back to the inputs again, what we can do is we can rein in the spending by setting a ceiling.

Now, like the floor, you might've guessed, the ceiling makes it so the spending will never go above a certain amount. So let's say we have a $40,000 target. Let's go crazy and say, if in good years, we can spend up to $60,000, that'd be great. And we're gonna run that.

Now, this might look a little wilder 'cause this is sort of to scale. So when the values went up to 157,000, they looked a lot more squished, but now they're within 24,000 of each other. So if you look, there's some very distinct flat tops and flat bottoms. It's bouncing around in between the spending floor and the spending ceiling.

I love this feature. I think that it's one of the more realistic things that happens in retirement. Most people will have sort of this idea in their head of what they wanna spend, and they'll have like a sort of belt tightening amount in their head that they don't wanna go below.

And then on good years, maybe they'll spend more. This allows you to do that. I really like this feature. So that's what that looks like. One of the things you can do is set the floor to be the value of your adjustments. So if your retirement is dependent on a lot of social security and pensions, and say this person has $30,000 worth of pensions and social security, if you can set the floor to be that, then it's a quick and easy way to deal with the floor.

I don't have that same ability for the ceiling 'cause I think it's kind of silly to be able to select your adjustments as the ceiling, but maybe someone can convince me otherwise. But they're of percent value. Wow, it's 9.30 Eastern already. (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music) (upbeat music)