FIRE Calculator – The best Withdrawal Rate for your retirement
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Compute the success of various withdrawal rates with different portfolios.
How does this work?
The FIRE calculator calculates the success rate of a withdrawal rate for a given situation. The calculator will try a retirement simulation starting at every possible month in the given period between the start and end year. Here is what happens during the simulation:
- You start with a certain amount of money.
- Your portfolio value is adapted based on the returns each month.
- Money is withdrawn each month from your portfolio.
- The withdrawal is based on the withdrawal rate and the initial portfolio.
- Your withdrawal is adjusted for inflation every month.
- The portfolio is not rebalanced.
For instance, if you simulate between 1950 and 2000 with 20 years of retirement, the calculator will try to do a retirement simulation starting from every month between 1950 and 1980.
The data being used is the same data as the data from the Trinity Study. I am using U.S. Stocks and Bonds.
How to increase my retirement chances?
There are several ways you can increase your chance of success in retirement.
First, you can choose a better portfolio for your case. Ideally, you want a large allocation to stocks if your risk tolerance permits it. This will allow your portfolio to grow more. Then, you want broad index funds with very low fees.
Another way is to choose a better withdrawal rate. Simply said, a lower withdrawal rate will increase your chances of success. This means lower returns will not hurt your portfolio too much.
Using this FIRE calculator
First, choose how much money you have in your portfolio (the initial value). And, choose the period you want to consider for simulation by choosing the start and end year.
Then, choose how many years you want to simulate retirement. Choose how much of your initial portfolio you want to withdraw each year (your withdrawal rate).
Finally, choose your investment portfolio. Once you are done, click Simulate. After a short moment, the result should be presented to you.
Need more options?
Would you like to try out more advanced options such as glidepaths, cash cushions, and complex portfolios?
Then, you should try out my Advanced FIRE Calculator. The advanced version contains many more options, allowing you to text complex retirement simulations. However, since there are many options, it can be more confusing, so you need to know what you are doing.
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Hi Baptiste,
Your blog posts and these calculators are very helpful!
I did not see a Comment field on the Advanced FIRE Calculator page so I am adding it here. Did you ever look into the user being able to enter the expected CAGR value for each investment type? Also, did you ever receive a request to be able to account for Taxes? For instance, in the US, we have federal, state and local taxes annually, which can vary greatly between states. For simplicity, perhaps a user could input enter a single % value representing the combined annual tax rate. Finally, it may be helpful to have an optional Annual Expenses in Retirement field. This could be considered the non-negotiable, spending floor.
Thank you,
Rich
Hi Rich
I have enabled comments on the advanced FIRE calculator as well, this was not on purpose. Thanks for letting me know.
No, I did not look into that because all my code is based on historical simulations. I would have to change the code entirely to handle CAGR for this tool. To be honest, this is not the focus of this tool.
For taxes, can you put them in fees? There is a fee percentage under the portfolio. Otherwise, you can also increase your expenses accordingly, and the calculation will work the same.
For optional expenses, are you talking about some amount of expenses flexibility? This can be done slightly by using the “Current” method of withdrawal and then setting the minimum.
Hi Baptiste,
Sorry for my late reply, and if I have any misunderstandings of the tool’s purpose.
There may be a couple of limitations with using the portfolio “yearly fees” field for annual taxes. The rates are not the same. Also, the portfolio subject to management fees might be pre-tax and may only be a portion of the net worth, as the user may have other taxable holdings outside of the investment portfolio (probably also generating taxable interest income).
I understand now about CAGR and the historical simulations focus.
Yes optional expenses are the flexibility, i.e. if the portfolio had a down year, you would reduce or eliminate optional spending but there is a required minimum (floor) for the mandatory annual spending. Obviously the Average/Median/Minimum/Maximum spending figures are calculated in the results of the simulation, but I don’t see a field to input any expense, only the withdrawal rate and the other withdrawing options, which are all expressed as a percentage. It seems that I would just need to experiment with different withdrawal % rates to see how the simulation results match our retirement expenses, which we have good estimates for (both mandatory and optional).
To get a better handle on our situation, I tried entering our Social Security estimates. With the Withdrawing options set to Standard, it works, but there is a message: “Oups, something went wrong! Error: Social security is only implemented for standard withdrawal method” if Withdrawing options is set to Current.
I also tried entering data in the Cash cushion section with data in Social Security. There is a “Oups, something went wrong! Error: Social security and cash is not implemented” message. The Cash cushion section works if the Social Security section is not used.
Thanks,
Rich
Hi Rich
I think I see what you mean with these taxes being different than expenses. But honestly, it’s going to be difficult to model them properly into the tool without complexifying everything.
You have a good point; it’s currently difficult to deal with absolute expenses since most things are based on percentages. I will see what I can do about that.
Many features don’t work together because I have never implemented them for my articles. I have added these two combinations to my TODO list and will work on them when possible.
Thanks for your feedback!
I added support for cash cushion and different withdrawal methods with social security.
One issue I have with the 4% rule is that most people have fixed short term costs, and one can construct a scenario where a few unlucky years mean 4% is no longer enough to cover those. It could be interesting to modify the calculator to take a given withdrawal target + an inflation rate, and use that instead. I’d expect this would make downward trend fail faster, lowering the success rate a little.
Hi Chino
I am not sure I get your idea. This is already using an inflation rate and a kind of target which a percentage of the initial portfolio, no?
Hey Baptiste,
Apologies for not explaining it well. Let me reformulate with an example:
I have a starting capital of 2.5M and fixed living costs of 100’000, equating to 4%. I invest everything, and have a few unlucky years. My capital is now down to 1.5M. If I cannot reduce the expenses, I will now have to withdraw 6.6%, considerably reducing my chances of a long term run. Conversely, having to stick to 4% assumes I have variable costs with big margins for reducing expenses, which seems unrealistic or anyways quite disruptive.
The suggestion is this: instead of a fixed %, allow to input a fixed cost, which is what people can plan for.
I believe that this will lead to a slightly more pessimistic simulation, which would make unlucky streaks spiral downward faster, as the % of the withdraws will increase above 4%. It will also make lucky streaks stay up longer, as you won’t need to withdraw as much %.
The comment about inflation is a minor aspect – the fixed costs will actually increase over time, so applying inflation to them means people can set a standard of living and expect to keep it.
Hope this is makes sense.
Hi Chino
Maybe it’s me :)
If you have a starting capital of 2.5M and 100k expenses, it’s indeed exactly the same as using 4% withdrawal in my calculator. The withdrawal rate of the trinity study always apply to the initial portfolio and never adjusts to the current portfolios (there are dynamic strategies that can do that).
So, my calculator seem to be doing exactly what you want.
If you start with 2.5M, 4% withdrawal and get to 1.5M, you will still withdrawal 100k (adjusted for inflation). The withdrawal will not go down (unless there is deflation).
If you want a withdrawal rate based on the current portfolio plus a minimum (fixed costs?), you can use the advanced calculator.
Ah, my bad. I had jumped to conclusions on how 4% would be computed. Thanks for clarifying.
No problem, that’s a very common misunderstanding of the original 4% rule.
Nice to see a calculator for Switzerland! If I have rental properties in another country (and mortgages), what would be the best way to include these?
Hi Ana
Usually, I recommend deducting your net income (in retirement) from your retirement expenses. For instance, if you need to 6000 CHF per month to live and you get 1000 CHF per month in retirement, you will only need 5000 CHF per month in retirement.
Great info and explanation.
Question and comment:
What is the inflation rate you are using? I believe historical US inflation rate for that period is about 3-3.1%. Just confirming.
For your stock/bond splits, could you add 25% and 75% options? Temple study and many of your examples for instance use 75% stock/25% bond. But that is missing from the drop down.
Hi David
I am using monthly historical inflation from the US.
I am working on an advanced version of this calculator that should be ready in the coming weeks and it will let you create complex portfolios. So, you’ll have to wait a little :)