Mindy:
Will my money last in retirement? It’s the ultimate question for anyone chasing financial freedom and absolutely the biggest question at the heart of the fire movement. Whether you are just starting out or you are fine tuning your path to early retirement, we’ll explore what it really takes to ensure your money not only lasts, but continues to grow in retirement. If you have ever wondered how to achieve true financial freedom, this episode is for you. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and joining me just a little bit later is my not a simulation co-host Scott Trench. Normally this is the part of the show where he would insert his own little pun, but he’s not. We’ll get back to that next week. But for right now, BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting today we are bringing on Lauren Boland.
Mindy:
She is a dear friend of the podcast and integral to the fire community through her C Fire sim calculator that she created way back in 2013. This is an episode that relies a lot on video, so if you are not watching this on our YouTube channel, you might want to hop on over there and watch it there. You can also open up the fire sim calculator. It is at the letter C as in cash. See fire sim SI m.com. Follow along, input your own numbers, look at what we’re actually talking about. It is an excellent tool and we are going to be discussing it on the show today using screen sharings. If you would like to fire along, hop on over to our YouTube channel, which is youtube.com/biggerpockets money. Lauren Boland from the seafire sim.com. Welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.
Lauren:
It’s always great to talk to you, Mindy and Scott. I’m sure it’s going to be great by association.
Mindy:
Love that. Okay, so Lauren, let’s jump right in. What is your money story? What does that look like?
Lauren:
Oh, that’s a tricky one. I think so I’d say that my money story starts off when I was a kid. I grew up in sort of a lower middle class family. My dad, my parents were divorced, so we sort of had money issues in that fashion and I think money was always hard when I was growing up. We definitely ran to times where it was maybe not going to be able to pay the mortgage or it was going to be hard to get a car repair and things like that, and that really stuck in my brain for all the way through adulthood, honestly, till now, which is, that’s a whole other therapy issue to talk about. But when I got to college, I worked hard, worked toward the end, and when I met my now in-laws for the first time at graduation, I had learned that they retired at age 51 and I didn’t know that that was really possible where I grew up.
Lauren:
People worked until their bodies gave out, people worked until they died. So that really sparked a knowledge in me that I just needed to go find out how that was possible. And at the time when I was 22 or whatever, I didn’t really want to ask them. It seemed like an embarrassing thing, how did I not know this? And so I really took my early twenties to try and figure that out. And so since then I’d say we really focused on hitting pretty high savings rate numbers until we had kids and then things leveled off, but we’re still pretty good compared to the average American. And I’d say right now we’re probably fine. We both work and I have it in my cross hairs to figure out when to pull the trigger there on retiring early, but we’re in a great place because of early decisions we made.
Scott:
Can you give us a little bit more context about your career and what you did or what you do during?
Lauren:
Yeah, absolutely. So my undergrad was sort of a generic IT degree type thing and I got a master’s in systems engineering, and so I did a lot of different jobs around those things in the defense contracting world. And then sometime around 2011 or so I started to learn programming, computer programming on my own. I didn’t really get much of that during my undergrad and eventually I actually wrote Cfar Sim as a project to sort of get more real world examples of large code bases under my belt and try and do something of a passion project. And it turned out to be a long lasting project. That was in 2013.
Mindy:
This is 11 years old,
Lauren:
This is 11 years old, and it is what launched me into becoming a software engineer. So I’m currently a software engineer with a big university.
Mindy:
That’s awesome. Okay, so you created this as a project. When did you release it to the world?
Lauren:
Yeah, so I created it as a project. I released it in 2013 and really if you haven’t heard this, it’ll be a good surprise, but it was intended as a better fire calc. If you’re familiar with the old site fire calc, it’s still out there. It is attached to a site called early retirement.org. It’s forums, and I had learned on those forums. I was hanging out in those forums. I learned that people were clamoring new features on this thing. Why can’t we have this? Why does it work this way? Why can’t we add this thing? And I learned behind the scenes that they didn’t have anyone that was developing it. They had bought that fire calc from someone who had literally sailed off into the sunset as an early retirement on a boat. So I tried to fill that gap.
Mindy:
Okay, so let’s walk through the sea fire sim.com calculator. For somebody who has never seen this before, what numbers are you running? What is this? What is the purpose of this?
Lauren:
Yeah, I mean on a larger scale, the purpose of this is to visualize what it would look like for you to save some amount of money for a number of years and then stop saving and use that money for living expenses. I think personally, one of my big things about retirement projections like this is that humans are really bad at trying to think about things that are more than a few years in the future. They’re not really good at thinking in compound interest, and so showing people visually what would happen if you were to retire and use your money for expenses is sometimes a daunting task for the brain. So I want to show them visually. So my good friend Chris Mula over there who is a blogger out there, he has written about retirement calculators a ton, and he classifies CFI sim as a medium fidelity sort of retirement calculator, which means you’re not going to put in individual account balances and things like that.
Lauren:
You are going to be putting in sort of rough numbers and giving it some historical guidance, and then it’s going to give you sort of an output that will point you in the right direction. So for this, you’re putting in just sort of an overall portfolio value. So the default is a million dollars and then you’re giving it an overall sort of asset allocation based on equities, bonds, golden cash. I use those particular things because the data is readily available from the Robert Schiller dataset. So that is why those four people have asked me, why not crypto, why not this? And that’s the answer to that.
Scott:
Where do I put my home equity?
Lauren:
That is a great question you,
Scott:
Oh man, wow. Well that’s not, we got beat up for not including that in our net worth and our discussion the other day on our, Mindy, you and I and look at that, Lauren doesn’t, not even a field to enter it on this calculator. I love it. There shouldn’t be because that doesn’t have anything to do with your retirement, so love it.
Lauren:
Exactly. And we can get into this a little later, but there are ways to model taking some of that equity out, downsizing your property, those are all things that do add to your investible assets,
Scott:
And once you do that, I think you should include that in your calculation. But until then, nope,
Lauren:
A hundred percent, a hundred percent.
Mindy:
Scott and I will continue this conversation with Lauren Boland about how to calculate your fine number in a minute. But first I want to tell you about Momentum 2025 BiggerPockets Virtual Investing Summit starting February 11th. We are kicking off this awesome eight week series that’s going to completely change how you think about real estate investing in 2025. Every Tuesday afternoon, you are getting direct access to some of the sharpest minds in real estate. We’re talking about 18 guest experts who are crushing it right now, folks who are actually out there doing deals and building serious portfolios. Whether you’re juggling a nine to five or looking to scale your existing business, we are covering it all. Want to know how to navigate this wild market? We’ve got, you need to figure out how to keep more of your money at tax time. Our experts are bringing their A game with real strategies you can use right now, but here’s what makes this really special.
Mindy:
You’re not just sitting back and listening. You’ll be connecting with other investors in small mastermind groups. Think about it, real feedback on your deals, brainstorming sessions with people who get it and direct access to pros who’ve built massive portfolios and we’re throwing in over $1,200 worth of resources, books, planners, even discounts to our next BiggerPockets conference. Everything you need to hit the ground running. Head over to biggerpockets.com/summit 25 to grab your spot. Don’t miss the early bird deal. If you sign up before January 11th, 2025, you can snag a 30% discount. All right, let’s get back into it with Lauren. Scott, I’m really glad that you asked that question. It gives me the opportunity to say anybody who is using the CFI SIM calculator or simulator or whatever, I’m going to call it a calculator throughout this whole episode, and if you have a problem with that listeners, then I’m really sorry, I’m not trying to offend you, but there is an about link right up at the top left hand corner about questions.
Mindy:
Click on that and read through it. This is a free resource that offers a whole lot of information. Is it going to cover absolutely every single situation out there possible? No, because it’s a free resource. Lauren likes to sleep. Sometimes Lauren has a family and a job. It is a great starting point. It is a great, let me see if I can do it. If you run your numbers and Lauren’s beautiful calculator says you have a 0% chance of success, well then something has to change or you are just going to work for your entire life. So I love that this gives you a starting point. It gives you some reassurance or it gives you some things to work on. Oh, I guess a 100% bond portfolio at age 25 isn’t really the best choice or all cash. Lauren, you brought up that there’s no crypto.
Mindy:
That was actually the first thing I looked at in here, but also, okay, there’s no crypto. So if you have crypto, throw that to the side just like Scott’s home equity, put that to the side and run this with all of the options that there are here. I have 0% of my net worth in gold, so that’s just going to say zero on here. But if somebody had way more net worth in gold, then their simulation would change and it can tell you, oh, the bond portfolio isn’t such a great option at your age. Or maybe you’ve got such a high period of success or such a high potential for success that you could add a little bit more bonds into your portfolio for some rebalancing. But I want to point out before anybody starts listening and like, oh, well it doesn’t say this and it doesn’t say that this is a free resource that’s really flipping awesome. What is that number up at the top? How many simulations have been run? Oh, as of right now, 35,476,501. I would say that people like this,
Scott:
I would say that about 600,000 of those are Mindy as well. We got about 34 8 in other people doing this. Let’s get into the tool here. Let’s go through these fields and talk about these things. These are self-explanatory. Retirement, the year your retirement starts, the year retirement ends, what is data method?
Lauren:
So I would say I put a caveat on the self-explanatory because I think the self-explanatory for a lot of data and finance nerds having experience in software engineering and user interface design, things like that. People don’t necessarily know that and I think it is tricky sometimes to put this much data on one page and make it super understandable. So to your question, data method essentially is you’re choosing whether or not you’re going to use historical data for this or sort of a constant rate. So if you’re in a spreadsheet making your own thing, you’re probably going to use a constant rate. You’re going to say, I don’t know, stocks make 9% or whatever, and inflation is two and a half percent and bonds make 4%, something like that. I’m just making these numbers up. That’s a constant rate of return using data. It’s going to use this equity data, bond data and cash data from the Schiller data set that goes all the way back to 1871.
Lauren:
So fundamentally, the way I like to explain this is if you’re running a simulation that is 30 years long, okay, so say you’re trying to retire by 60 and you’re being conservative and you’re like, I’m going to make this simulation till 90, it’s 30 years long. The way that this works is it takes every string of data that’s 30 years long, so starting let’s say 1871 to 1901 and it plugs your portfolio numbers along with your expenditure numbers into it and see how would your portfolio do over that 30 year chunk. Then it does it again over the 1872 to 1902, again over 1873 to 1903, so on and so forth, all the way to the current data. That’s why you see these lines, Mindy is now on the output page and you see these lines that are vastly different. If you hover over one of those lines, it will make it sort of bold and it will show you the entire track of that particular 30 year chunk or whatever you choose, which tells you when you retire, it really matters. Look at that. Depending on when you retire, you could end up with 6 million in the scenario that she set up or it fails in a couple of those blue ones in the bottom. So yeah, that is essentially what this historical data method gives you.
Scott:
Awesome. So that’s the default option and the one I always use, I haven’t been bothered with some of these other ones, but you’re saying you could also just say, I want to look at what happens if I just do a 1966 and now I just get one of those lines.
Lauren:
So the individual one is definitely a feature that people were asking for and the reason it defaults to 1966 is I’m sure maybe because of the data implications, it’s probably one of the worst times in history you could have retired because massive inflation and a down stock market, were sort of a sideways one, so
Scott:
There’s the most conservative possible. You take one of the most horrific times to retire in the history that we have data for and you say, let’s start with that one and if we pass that, we’re probably pretty good and that’s why you’ve picked that,
Lauren:
Right? Something like that.
Scott:
Awesome. Well let’s do this. Let’s change this number to 2.5 million and the reason I’m going to change 2.5 million for the rest of our discussion here is because about we get pulled our audience about how much it takes to be considered rich in America and 50% of the audience said a number up to 2.5 million and 50% said above 2.5 million. Maybe the rest of the people in America don’t think that’s accurate, but that’s what the BiggerPockets money audience thinks and that at a 4% rule should equate to about a hundred thousand dollars in spending. So
Lauren:
It’s great you’re doing this. I’ve thought for years that I need to change that number. I really only have it at that number because the sort of original Trinity study had those as sort of the default numbers.
Scott:
Well, I’m going to email you some feedback then. This is the complete department right here, right, exactly. Recall numbers for this and then we have walk us through what the spending plan and inflation type mean here.
Lauren:
So I’m going to go in the opposite order since inflation type’s sort of easier to talk about. So inflation type is essentially, I think there was only two choices, but it’s been a while since I’ve clicked anything other than the historical. So CPI or historical just uses our US CPI data set from for inflation. So its ups, it has its downs and just like the data on the equities, you get a random sampling based on the 30 years that particular simulation is. I tend to use that because it shows some periods of deflation actually in the late 18 hundreds. It shows some periods of massive inflation and it shows some sort of flat line sort of area. So I like to use that. You can also use a constant number, which is like you can choose 3% or 2.5%, which sometimes is better. Maybe you change your data set to be a smaller amount of years and you just want to do a constant number.
Lauren:
So that’s the simpler of the two. So spending plan, I could talk for an entire hour just on spending plan, but basically this is going to determine how your spending number changes over time. So the very two basic most basic ones are you’re either going to have it inflation adjusted or not Inflation adjusted. So not inflation adjusted means if you’re spending a hundred thousand dollars this year, next year you’re spending exactly a hundred thousand dollars, not a penny more the year after that you’re spending a hundred thousand dollars again, even though what that a hundred thousand dollars is worth isn’t paying for as many goods. So that’s not inflation adjusted. If you choose inflation adjusted, it is going to slowly increase your spending along the lines of inflation, whichever you pick in the inflation type. So if you choose CPI historical and one year it’s 3.5% inflation, your spending is going to be raised by that much.
Lauren:
So typically people choose that because your going to try to have the same buying power through a certain period of time. Some people lower their expenses at different periods of time and that’s also a choice. Now if you go beyond that, there is a lot of options in there. So if Mindy’s controlling it, you choose the variable spending plan, it’ll highlight one of the other features in here, which is a spending floor and a spending ceiling. So I’d say guess I can’t remember the last count, but there’s a handful of what are called variable spending plans that change your spending based on certain market conditions. So the variable spending plan right there will change your spending based on how well the market is doing in a good market. It allows you to spend more in a bad market, allows you to spend less. However, from a data standpoint, when you allow that to happen, you get weird things that happen. If you start off at a hundred thousand, you might have one year where it dips down to like $60,000 worth of spending and realistically maybe you can’t do that. So you can set a floor that is the lowest it’ll ever go and you can set a ceiling to be the highest it’ll ever go. Those floor and ceilings are active for any of the variable types of spending.
Scott:
Awesome. This is super powerful. Any other, I mean this is something that we could go into all day because it looks like has six different other options here. Can you give us an overview of what these other options are for those who want to truly nerd out the next level in using these tools? I just stick with the inflation adjusted spendings. I think it’s the most simple way to run the calculation.
Lauren:
The short elevator speech is essentially some of these are methods that are developed by different financial planners or financial analysts out there that have spent time researching this. And then some are community-based. VPW is one that I believe was developed by people in the Bocal heads community and that’s essentially the die with zero one where it will change your spending based on trying to have a certain life expectancy and you end up with $0 at the end.
Scott:
Awesome. And then these other ones are further research opportunities for our listeners since we need to keep moving so many powerful parts of the tool here on that.
Mindy:
Absolutely. If you are wondering what we’re talking about, Scott is showing his screen on our YouTube channel and he is running various numbers all throughout this whole scenario and I’m doing my own numbers that are a little bit different. And Lauren, what do you consider to be a good success rate? I’m at 90%. I’m like, oh, some of these portfolios are pretty high and if I would’ve retired in 1922, boy would I be wealthy
Lauren:
Despite being a person who has developed a tool like this, I will tell anybody who asks that that is not as simple question. That is a much more complex question than you think, and there is wild debates about what is a good success rate. Some people will only accept a hundred percent success rate in all of their different simulations across different tools. That is way too conservative in my opinion. Some people have written, I know Michael Kites has written a paper about Carlo simulations and essentially says if you have any sort of flexibility in your plan, as long as any given year you have a 50% success rate, you’re probably going to be fine and you redo that every single year, you have a 50% success rate going fine going forward, you’ll probably be fine. What do I think? I mean I personally look to see if it’s above 80% to feel good, I’m not going to go for a hundred percent. I think that that will end up making people work too long and if you ask anybody who’s used tools like this, you can really easily have a false sense of precision by just tweaking certain things to make it do what you want it to do.
Mindy:
Well, and I think that’s really important to note, you can get yourself all, oh, well, if I think I call it eraser math or I think I’ve heard it called eraser math. Oh, well I did it this way and I didn’t like the numbers, so let me erase something and try over. Well, what are your actual numbers? This only works with your actual numbers or your goal numbers. If your goal is a million dollars and you only have 500 right now, that doesn’t mean you run it at 500 to be like, oh, I guess I’m never going to retire. You run it at your goal numbers and if the goal numbers work, great. If the goal numbers, what is it on just 1 million, 1 million with 40,000 spending
Scott:
The million with 40,000 spending and the 2.5 million with $100,000 in spending should be identical, right? Mathematically, is that right Lauren?
Lauren:
That is right. That is right. Should be identical.
Scott:
I actually have a question on that, Lauren, because I’ve been thinking about this and I think, and I haven’t gone and modeled it out myself. I would have to do it in a spreadsheet because I’m not the superstar engineering programmer that you are here, but there’s something about how it’s harder, it’s not linear, right? To generate a hundred thousand dollars in income on a 2.5 million portfolio because there’s taxes that are involved. Is that factored into this simulation at all?
Lauren:
That is a great point Scott, and I want to definitely tell people, and I tell people in about section and tutorials, taxes are not included in this. This is meant to be more of a simple gut check situation and if you are using this tool to actually try to set your retirement plans without paying attention to taxes, then you’re going to have a bad time and I suggest that you factor that in. So if you’ve done calculations of your own for any amount of time, you could probably guess some sort of tax rate that you’re going to have based on your particular assets. And I would add that in. So in your case, if you have a hundred thousand dollars income and you think that some amount of it is capital gains and some amount of it is whatever other income, add on 10 or 15% to account for that.
Lauren:
Now to be clear, the Trinity study Benin study doesn’t really account for taxes either. So it’s a balancing act and I’ll also, I want to double back to what Mindy said is what’s important to know about this kind of tool is you don’t necessarily have to just go off of your goal numbers. You can set up a period of time where you’re accumulating and then tell it when you are going to retire. So if you set the retirement year into the future and add sort of an adjustment down below about how much you’re going to be adding to the portfolio every year, you could sort of have a two phase situation. Things are different when you do it that way, but you can make that happen.
Scott:
Okay, let’s do it. I got 1.5 million portfolio today. I want to spend a hundred thousand dollars in retirement starting at 2035, and we’re going to have that be a 40 year retirement. I’m going to live until 2075, so alright,
Lauren:
You’re going to live till 20, 20,027 is what you wrote.
Scott:
That’s right. 2075 for typo for that, that puts me at a 85, so maybe 85. I’m going to take care of myself, eat right, all that kind. Good stuff. Okay, so now how do I add in how much I’m going to add to the portfolio?
Lauren:
Yes, that’s a great question. So honestly, one of the most powerful things about CFI R SIM is something that I have left up to people for their imagination a little bit and trying to figure out how to best use it. So the bottom section of CFR SIM has this little section and it says add adjustment on it and every time you click add adjustment, it sort of dumps in another section of where you can put in something that adjusts your portfolio. Okay, this is going to sound very simple, but there’s a lot of applications. So you can add either an income and savings adjustment which adds to your portfolio or you can add spending adjustment which takes away. So any sort of situation in which you think you can think about that will add money for any period of time one year or five years or 10 years or forever or any sort of situation you can think about that spends for any period of time.
Lauren:
You can add in here and add a label. So if I were you, I would type in something like under label I’D type in contributions or working time W2 job or something like that, and you can put in how much you’re going to add to your portfolio every year. So he’s typing in 10,000 and then what’s important is you choose a period of time that lines up with your retirement. So starting years, 20, 24, ending years, whatever you put up above for your retirement date. And just like a lot of the numbers above, you can choose whether or not to inflate this number with inflation numbers or constant numbers or just not. There you go. So you’re getting a different kind of number situation.
Scott:
I like that number
Lauren:
40 million. Yeah, good lord. The timing on that is amazing. What year does it say
Scott:
1921? You started 1921.
Lauren:
See what’s happening there is your working period is right during the Great Depression and you’re dumping money into it.
Scott:
Nice. I like it.
Lauren:
You’re hitting the lows perfectly.
Scott:
Okay, awesome. And then if I want to say I’m also going to get a inheritance or a gift from a family member of 50 grand here, I could just add that, right?
Lauren:
You can add that and you can uncheck the little box that says recurring, which will then just allow it to happen for one year whichever year you choose.
Scott:
Awesome. So I can put that in 2026 or whatever and then I can just keep adding these as far as I want to go essentially
Lauren:
As far as you want to go. Yeah, I add things like college tuition for my two children who are going to be going to college at two different four year periods. I sometimes create scenarios where I’m going to downsize my home. We live in a high cost of living area. What would it look like to sell our house pocket half of the equity and move somewhere cheaper? Lots of different scenarios like that exist and it’s great to put those things into your simulations and I highly recommend people in general to do different calculations, whether it’s on a spreadsheet or with a tool doing a conservative one sort of median sort of simulation and an optimistic one and making your decisions based on that.
Scott:
Awesome. So now I can add my home equity because I’m actually going to downsize in 2028 and that then allows me to add a one-time contribution here. So that’s where you add home equity on there, which I think is just a fantastic, okay, so we have these adjustments
Lauren:
And so I’ve told people before there’s some other higher fidelity tools that do a better job at giving you sort of frameworks for all the different situations that these might occur, but really in the backend it’s just doing an adjustment like I am. It’s just changing your income stream or your spending stream for some number of years
Scott:
I think I always want to call it, this is a fantastic tool, 35 million use cases, but if you are planning for a number that is much higher than a hundred thousand dollars per year in annual spending, you need to start being pretty careful because that’s when taxes really threw this out and I’m working on this concept, I have not gotten there yet, like I said, but it’s geometrically harder, it’s way harder to generate a high income and sustain it for a long period of time and then generate a low one, not just because of the asset base but because of that dynamic of the tax situation with pull in there. So this is probably not, you should probably be very conservative with these numbers, which I think you would agree, Lauren, if you’re trying to generate like 250 K for example, like a fat fire level of retirement wealth,
Mindy:
Absolutely. Okay. What I like is playing with the numbers. So I have my actual portfolio value in here right now and I am playing with, okay, what if I spent a hundred thousand dollars, which feels really rich to me and I make a hundred percent, I’m never going to run out of money. Then I bump it up to 200,000. It says you’re going to do it, I bump it up to 300,000. It says, now you’ve got some problems. So then you can play around with this a little bit. I can’t fathom a year that I spend $300,000, but I certainly can’t fathom multiple of those years in a row where that would come and wipe out my portfolio, but it’s still above 50%. Michael Kites is 50% number here. So that’s when I think you can really start having some fun with this. I mean, this has to be a fun thing. This shouldn’t be stressful or am I ever going to retire? Look at what you are at now and where you want to be. I could see people using this to potentially avoid one more year syndrome. Lauren, she says from her own job.
Scott:
Let’s also track about something here because I’ve talked to a lot of people along with Mindy on finance Fridays and BiggerPockets money and I don’t see very many fire people with the 75 25 stock bond portfolio. It’s all a hundred zero, right? Mindy, what’s your bond portfolio look like?
Mindy:
Pretty similar to maybe even less than yours. Scott, what’s yours at?
Scott:
Mine’s a hundred percent equities and let’s you count my one hard money note, which matures this month that I have. So it’s all stocks. Lauren, what’s yours?
Lauren:
Ours is probably around 90 10 and it fluctuates obviously, but yeah, I feel like ever since I was in my twenties I had to sprinkle in some sort of bond because going a hundred percent felt weird. But honestly from all the literature I’ve read and things, and I mean I’ve poured over big urns website, I mean a hundred percent seems great to me. And there’s a lot of papers that say if you’re not a hundred percent once you retire, you should slowly work your way to a hundred percent and that’s a better success rate.
Mindy:
A hundred percent bonds,
Lauren:
No a hundred percent stocks. It’s basically the reverse of traditional thinking.
Mindy:
We have to take one more final ad break, but more from Lauren after this. Thanks for sticking with us. Let’s jump back in. Okay, yeah, I am a hundred percent stocks when it comes to things that I can enter in my portfolio on seafire some, I’ve got some random syndications and random private notes and things like that, but I’m zero gold, zero cash, zero bonds, zero crypto. If you had that.
Scott:
There’s no field for crypto, which I think is great. I think I would not consider any crypto part of my retirement plan. So I love the fact that it’s not even an option in your spreadsheet or in your calculator here. That’s fantastic, Lauren. Great forward thinking from you. That’s a sharp, sharp thinking that’s pun from my crypto. One thing I wanted to ask about here is how does that change? So we had a 96% success rate, by the way, I think this is a key output here. The success rate is one of the first outputs below this big nice pretty graph rainbow chart here. And it was 96% success rate. When we have a 60 40 stock bond portfolio, it drops by 0.8%, but the average ending portfolio balance goes from, let’s see what it was. What we have here is a 96% or success rate for a 4% withdrawal on a 2.5 million portfolio and the average ending balance is 5.2. What I think is interesting and why most people perhaps are right to have a hundred zero equity stock bond portfolio, at least from historical data perspective is because the failure rate only drops by 0.8%, 0.8 percentage points and then the ending portfolio balance increases by nearly $2 million over these time periods. So I don’t know, have you found that that is the case for a lot of people to use the simulator, but they’re assuming a hundred percent 0% stock bond portfolio?
Lauren:
I think that that is true that a lot of people go for a hundred percent. And what’s great, Scott, is that if you play around with this enough, you’ll realize that what you just demonstrated, the higher stock percentage being not really a different change in success, but much higher portfolio rate that is amplified when you start to do some of the variable spending methods and you set a hard floor in a hard ceiling because what that ends up doing is it gives your portfolio extra breathing room during down times to sort of recover and then when things go back up, it will increase it. So yeah, if you’re using variable spending up, so exactly, that’s exactly what you should do there. So what Scott did is he had the a hundred thousand dollars base spending and he set a floor of 75,000 and a ceiling of 25,000. Now you got to make sure that your own personal values will allow you to drop 25% in your spending in a down market, but that is decent chunk to do. But doing that will often highlight some of these sort of allocation changes.
Scott:
Remind us for our non-engineering whizzes, what is a Z value?
Lauren:
Yeah, so the about or the tutorial section, it’ll tell you essentially that is just how much the variable spending changes. So for instance, if the market’s up 10% one year, if the Z value is 0.5, it’s going to increase your spending by 5%, it’s going to use half of the increase of the market, and if it’s down, it’s going to do the same thing. So if the Z value is one, it’s going to perfectly follow the market. Like market’s up 20%, your spending is going to be up 20%.
Scott:
You thought of everything, this is fantastic. This is a really, really, really strong tool here. Now let’s ask another question here. I got rental properties. This is BiggerPockets. A lot of folks listening are going to have a rental property or two. And let’s just for the sake of argument, let’s not factor in a mortgage amortization. Let’s assume the rental property is paid off and I’m going to get, let’s say I got $500,000 in paid off rental property portfolio generating $35,000 a year in cashflow that I’m willing to count on at retirement. How would I model that in here?
Lauren:
Yeah, absolutely. And honestly this is one of the more asked features or additions that people say like, Hey, you should add stuff regarding real estate rentals. And my current answer to that is like, hey, this is sort of a medium fidelity sort of tool and we’re not super detailed. However, you can do a pretty good job at doing that. So what I would do if I were you is I’d have probably two different adjustments. One is going to be your rental income minus whatever, maintenance expenses, whatever for whatever period of time you’re going to hold that property. And then a second adjustment would be probably your best guess at when you’re going to cash out of that, if you’re going to, so you could have a sale date and figure out what you’re going to sell that property for.
Scott:
Okay, so I would just add these in. This would not be a rental property sale would not be a recurring item, it would be an inflation adjusted rental property. Housing is one third of the CPI. So it is by definition and inflation adjusted stream of income for the most part. Some puts and takes in there. So I would do that. I would do the same thing. I would also consider a rental cash flow estimate, inflation adjusted more or less, especially over a long time horizon for 30 years. And that’s how you would add these to it. And I’d say, okay, 500,000 in capital gains at some point in the future, let’s do that in 2065 and then I’ll have this one goes from 20 when I retire here, I retire 2024. Okay, 2024 through 2065.
Lauren:
Exactly.
Scott:
Awesome. And now my portfolio is going to a hundred percent succeed every single time because that’s the power of adding real estate to the calculation here.
Lauren:
I mean it’s just adding another income stream. You’ve got yourself a job just by owning that asset.
Scott:
That’s also a wonderful thing here. Maybe that’s a way to think about it, is that 0.8% offset is failure rate for the portfolio is more than offset by a rental property, which in some ways provides an income stream similar to what the bond portion of a portfolio might do. So that’s an interesting learning. I wasn’t expecting to come up with that to go through that today on this, but that’s the cool about this tool.
Lauren:
Yeah, one of the things I like to encourage people to do is use the adjustments to simulate part-time work because that’s a very common thing in the fire community. Like, oh, I’m going to drop to part-time for some number of years. And you can do that. You can say you’re retiring this year, but you can add five years of part-time work and see how that affects your success rate. And frankly, it’s nice to see that. I wish a long time ago I was able to have a little more dynamic and fancy situation where if the market drops within first five years of retirement, you can put in a dynamic sort of part-time job that you go back into the workforce and see how that affects your portfolio. One of the fears of a lot of fire folks is sequence of returns risk. But anyway, in general, a part-time job, adding it in there, adding in an income stream for some period of time, seeing how that affects your success rate is a great exercise.
Scott:
Awesome. And if you want a more different way to insert rental property cashflow and rental, rental property equity, you can keep that to yourself and send compliments to Laura and via the email me button at the top of the screen.
Lauren:
I like the theme here, Scott.
Scott:
Yeah, awesome. Are there any other sections? So we’ve gone through the kind of core sections here. We have a basic section which allows us to talk about the dates we want to retire, portfolio value and how we want to assume we’re going to withdraw, which I think are very, very, there’s very, very clever setup here, but it requires folks to educate on this. We’ve got the portfolio which has very simple and effective mechanism of excluding all of your home equity, all of your cryptocurrency, all those other good things, and just including the assets that you probably should be depending on for your retirement here. And then we have the ability to add adjustments and you have a major placeholder here for social security, which is not something you can edit. We have not covered this yet, but did you want to add anything?
Lauren:
Yeah, just real basic. I’d say that before I mentioned some other tools, do a good job at trying to show users what sort of different adjustments they can come up with without just trying to be creative. And one of the things that was most asked for when I was developing this is please put in a placeholder that already shows social security. And yes, that does make this more US centric, but I’m using US data and I am in the us so there you go. But really behind the scenes, all that is is just another income adjustment and maybe that’s a theme here. You can think of a lot of these things as just an inflow and outflow and like, hey, that’s what this game is.
Scott:
So Lauren, I’m, what am I? I’m 34 right now, and so social security is way off in the distance. How would you teach someone to get these values in here and make accurate assumptions for far away from retirement?
Lauren:
Great question. So my suggestion to people is to visit my ssa.gov website. It is tied to your social security number. Sometimes it takes a couple of weeks for you to fully register there. I believe that you have to get a piece of actual mail, snail mail and have a pin for them to verify you. But once you are verified on that website, it has your working record from the very first time you had an actual W2 job all the way back till then and shows every year your adjusted gross income and will calculate your benefits and what it’s going to give you when you retire. I personally am on the side that thinks that people that are below, actually I can’t remember the age below, their mid to late fifties are going to have less benefits. So I tend to take my number and say that I’m going to get 75% of it. That’s the latest estimate that younger folks are going to get out of the social security program. So I take the number from their web government and subtract out 25%.
Scott:
So for the most part, this number, for the most part for practical purposes, I just ignore, I’ve never even put the number, I never put a value in at all into that category when I’m running these simulations, I probably should, but it’s like why would I, because that’s so far off in the future. I personally wouldn’t be comfortable allowing a portfolio to dwindle to nothing without social security coming into play. And for my intents and purposes, I’ll leave it there, but if you don’t want to do that, you can go through the work product of going to my social security ssa.gov to go and get that information.
Lauren:
Yeah, that’s very conservative you Scott, but I respect it.
Mindy:
Could we run over to the results page, Scott, on any one of these that you’ve done?
Scott:
This has all the assumptions we just talked about 2.5 million portfolio, a hundred thousand dollars spending. We’ve got our Z value defined at 0.5, spending floor spending ceiling. Super realistic here, 35,000. Oh nope. I do have the $35,000 in rental income that’s added in there and that puts in a hundred percent stock portfolio, no bonds. So this is the output tab that you’re asking for, Mindy?
Mindy:
Yes. I just want to run through what these numbers mean. So the success rate a hundred percent. Okay. That’s real easy to understand. The spending over time that just shows the spending that you’ve been doing that particular year that corresponds with the portfolio on to the left, is that correct?
Lauren:
That is correct. So the spending over time, it’s important to note to people that number one, this entire page is inflation adjusted dollars. So this is in today’s dollars, which highlights, I think honestly one of the things that Scott said before is when you’re not adding taxes in there, also your portfolio can run away. Well, it’s even a bigger effect than you think because the nominal dollars is actually higher. So all this is inflation adjusted and what that means is the spending over time chart, if you just use inflation adjusted spending, it should be flat. Okay, it’ll look like just a line. And that’s sometimes confusing to people, but over time you’re spending this same amount. Scott right now has one that has crazy lines on it and that’s because it’s using the variable spending plan and it’s changing the spending every year based on the market and it very visibly is hitting the ceiling and the floor that he put in the inputs page. So yeah, overall you have a portfolio chart that shows the overall value of your portfolio and then you have the spending side that shows what your spending is.
Scott:
Lauren, I obviously, as you could tell, had a tremendous amount of fun going through the spreadsheet. It’s not a spreadsheet, I’m sorry, I keep referring to a spreadsheet. It is the tool that you’ve built here that is absolutely fantastic, really well researched, tons of great data like ups. Thank you so much for sharing it, building it, and sharing all of the ways to use it with us today. This was a lot of fun.
Lauren:
I’m always happy to talk to people, this and nerd out and it brings me lots of joy to hear people who have used it and retired because they’ve looked at the numbers and felt safe about it.
Mindy:
Alright, Lauren, this is fantastic. I so appreciate your time walking us through this calculator or simulator, whatever, so that people can see all the different ways that they can check out their numbers and run all the numbers, click on all those things and change everything and see how it can best suit you. Where can people find you and where can people find your calculator?
Lauren:
Yeah, right now you can go to C Fire Sim. So the letter C, fire sim SI m.com. I’m also on Blue Sky. I’m trying to give up Twitter. That’s tough. And those are the primary places you can find me. You can also find me in the Financial Independence subreddit, which I recently started being one of the moderators for, again, for my second stint. I’m a big fan of community and I really enjoy that place. So those are the places you can find me on Blue Sky. My tag is just CFI sim and then on Reddit you can look me up. My username is Lauren knows. Lauren knows. And I do know
Mindy:
Knowledge knows like Knowledge
Lauren:
Knows
Mindy:
Not Face Knows Lauren, K-N-O-W-S. Okay, awesome. I am again so thankful for your time today. This was so much fun. And I’ll talk to you soon. I’ll see you in Cincinnati at Economy.
Lauren:
Yes. I can’t wait to see you in Cincinnati. I love economy so much and I will be going as much as I can.
Mindy:
Yeah, the Economy conference is super awesome. It’s sold out this year, but stay tuned for tickets for next year. Alright Lauren, thanks again and we will talk soon.
Lauren:
Thank you so much Mindy.
Mindy:
Alright, that wraps up this episode of the BiggerPockets Money podcast. He is the Scott Trench and I am Mindy Jensen saying If I don’t see you around, I’ll see you a square.
