Mindy: [00:00] 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.
Mindy: [00:29] 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. She is a dear friend of the podcast and integral to the FIRE community through her cfiresim calculator that she created way back in 2013. This is an episode that relies a lot on uh 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, cfiresim.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/biggerpocketsmoney. Lauren Boland from the cfiresim.com, welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.
Lauren: [02:01] It’s always great to talk to you, Mindy, and Scott, I’m sure it’s going to be great by association.
Mindy: [02:06] I love that. Okay, so Lauren, let’s jump right in. What is your money story? What does that look like?
Lauren: [02:12] Oh, that’s a, a tricky one, I think. Um so I, I’d say that my money story starts off, um when I was a kid, I grew up in sort of a lower middle class um family. Um my dad, my parents were divorced so we sort of had um money issues in that fashion. And I think money was always hard. Um 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 uh for all the way through adulthood, honestly till now which is kind of, you know, that’s a whole other uh therapy issue to talk about but um when I got to college, I, you know, worked hard, worked towards 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. Like where I grew up, people worked until their bodies gave out, people worked until they died. Um so that really sparked uh a knowledge in me that I I just needed to go find out how that was possible. And I, you know, at the time when I was 22 or whatever, I didn’t really want to ask them, it seemed like an embarrassing thing, like, how did I not know this? And so I really took my early 20s to try and figure that out. Um and so since then, I’d say we really focused on hitting pretty high savings rate numbers uh until we had kids and then things leveled off but was we’re still pretty good compared to uh the average American. And uh I’d say right now we’re probably FI. Um we both work and I have it in my uh crosshairs to figure out when to pull the trigger there um on retiring early but we’re in a great, great place because of early decisions we made.
Scott: [04:09] Can you give us a little bit more context about your career and what you did? Or what you do during that time?
Lauren: [04:14] Yeah, absolutely. So I, my undergrad was sort of a generic IT degree type thing and I got a master’s in Systems Engineering. Um and so I did a lot of different uh jobs around those things in the defense contracting world and then sometime around 2011 or so, uh I started to learn programming, uh computer programming on my own. I didn’t really get much of that during my undergrad and um eventually I actually wrote uh cfiresim as a project to sort of get more uh 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: [05:06] This is 11 years old?
Lauren: [05:07] This is 11 years old and it is what launched me into becoming a software engineer. So I’m currently a software engineer with uh a big university. So…
Mindy: [05:17] That’s awesome. Okay. So you created this as a project. When did you release it to the world?
Lauren: [05:23] Yeah, so I created it as a project. I really sit in 2013 um and really like this is, this is going to if you haven’t heard this it will be a good surprise, but um it was intended as a better FIRE calc. If you’re familiar with the old site FIRE calc, it’s still out there. Um it is attached to a site like called earlyretirement.org, it’s like forums. Um and I had learned on those forums, I was hanging out in those forums, I learned that people were like clamoring for new features on this thing. Like why can’t we have this? Why does it work this way? Why can’t 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: [06:21] Okay. So let’s walk through the cfiresim.com calculator for somebody who has never seen this before. What numbers are you running? Like what is this? What is the purpose of this?
Lauren: [06:33] Yeah, I mean, on a 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 um stop saving and use that money for living expenses. Um 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 um for expenses is sometimes a daunting task for the brain. So I want to show them visually. So my good friend Chris Mamula over there, um who is a blogger out there, he has written about retirement calculators a ton. And he classifies cfiresim as a medium fidelity, uh sort of retirement calculator which means you’re not going to put in individual account balances and things like that, you’re um going to be putting in sort of rough numbers and giving it um 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. Um and then you’re giving it an overall sort of asset allocation based on equities, bonds, gold and cash. Um I use those particular things because the data is readily available from the Robert Shiller uh data set. So that is why those four. Uhs people have asked me why not crypto, why not this? And that’s the answer to that.
Scott: [08:26] Where do I put my home equity?
Lauren: [08:27] That is a great question. You don’t.
Scott: [08:29] Oh, man. Well, look at that. We talked about including that in our net worth analysis discussion the other day on our uh, Mindy, You and I and and look at that, Lauren doesn’t even there’s 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: [08:48] Exactly. And I you know, we can get to get into this um a little later, but there are ways to model taking some of that equity out, downsizing your property, like that those are all things that do add to your investible assets.
Scott: [09:03] And once you do that, I think you should include that in your calculation. But until then, nope.
Lauren: [09:07] Nope. 100%. 100%.
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Mindy: [12:34] When you’re ready to start your business, Northwest registered agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one. A business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest registered agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest registered agent at northwestregisteredagent.com/moneyfree. Alright, let’s get back into it with Lauren. Scott, I’m really glad that you asked that question. I, it gives me the opportunity to say anybody who is using the cfiresim calculator or simulator or whatever. I’m going to call it a calculator throughout this whole uh episode and if you have a problem with that listeners, then I’m really sorry, I’m not trying to offend you. Um but there is a an about link right up at the top left-hand corner about questions, 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. Because 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, you know, all cash. Lauren, you brought up that there’s no crypto. 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 uh 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, their simulation would change. And it can, it can tell you, oh, you know, 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, you could add a little bit more bonds in into your portfolio for some, 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 does 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. I would say that about 600,000 of those are Mindy as well. So that’s about 34, 8 in other people doing this. Let’s get into the tool here. Let’s go through these, these fields and talk about these things. These are self-explanatory, retirement year, the the year retirement starts, the year retirement ends, what, what is data method?
Lauren: [16:11] Yeah. So I, I would say I would um put a caveat on the self-explanatory because I think this is self-explanatory for a lot of data and finance nerds. Um I having experienced in software engineering and user interface uh design, things like that, people don’t necessarily know that. And I think it’s, it’s tricky sometimes to put this much data on one page and make it super understandable. So to your question, data method essentially is the, you’re choosing whether or not you’re going to use historical data for this or sort of a constant rate. So like if you’re in a a spreadsheet making your own thing, you’re probably going to use a constant rate. you’re gonna say, I don’t know, stocks make 9% or whatever. and inflation is 2.5% and bonds make 4%, something like that. I’m just making these numbers up. Um that’s a constant rate of return. Um using data, it’s gonna use the equity data, bond data and cash data from the Schiller data set that goes all the way back to 1871. Um 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 the 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 um numbers along with your expenditure numbers into it and sees 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. And that’s why you see these lines, um is now on the output page and you see these lines that are vastly different, okay? 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. Um which tells you when you retire, it really matters. Like look at that. Um the depending 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 on the bottom right. So, yeah, that is essentially what this historical data method gives you.
Scott: [18:49] Awesome. So, so that’s the default option and the one I always use, I haven’t even been bothered with some of these other ones, but you’re saying you could, 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: [19:02] Yeah. So the, the individual one is definitely a feature that people were asking for and the reason it defaults to 1966 is I’m sure maybe you know 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 or um sort of a sideways one. So.
Scott: [19:23] So it’s the most conservative possible. You take the one of the 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 picked Right, something like that. Awesome. Well, let’s do this. let’s change this number to 2.5 million. And the reason I’m going to choose choose 2.5 million for the rest of our, our our discussion here is because about we get pull 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 people in America got 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 $100,000 in spending. So…
Lauren: [20:09] It’s great you’re doing this because I’ve thought for years that I need to change that number. I, I really only have it at that number because the sort of original Trinity study had those as sort of the default numbers.
Scott: [20:22] Well, I’m going to email you some feedback then, you know, this is the complete part right here, right? We’re setting our default numbers uh for this. So, okay, so we have and then we have walk us through what um the spending plant and inflation type mean here.
Lauren: [20:33] Yeah, so I’m going to go in the opposite order since inflation type is sort of easier to talk about. Um so inflation type is essentially, I think there’s only two choices. Um it’s been a while since I clicked anything other than the historical. So CPI or historical just uses our um US CPI data set from for inflation. So it has its ups, it has its downs and just like the data on the equities, um you get a random sampling based on the 30 years that that that particular simulation is. I tend to like to use that because it shows, you know, some periods of um deflation actually in in the late 1800s, it shows some periods of massive inflation and it shows some like sort of flat line um sort of areas. So I like to use that. You can also use a constant number, which is like, you know, you can choose 3% or 2.5% that which, you know, sometimes is better. Like maybe you’re maybe you um change your data set to be a smaller amount of years and you just want to do uh a constant number. So, um 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 $100,000 this year, next year, you’re spending exactly $100,000, not a penny more. The year after that, you’re spending $100,000 again even though what that $100,000 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% um inflation, your spending is going to be raised by that much. So typically people choose that because, you know, you’re going to try to have the same buying power um through a certain period of time. Some people lower their um lower their expenses at different periods of time and that’s that’s also a choice. Now, if you go beyond that, there is a lot of options in there. So if you choose um if if Mindy’s controlling it, you choose the variable spending plan, it will highlight sort of one of the other features in here which um is a spending floor and a spending ceiling. So there are, I’d say I I 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 um spending based on how well the market is doing. In a good market it allows you to spend more. in a bad market it allows you to spend less. However, from a data standpoint, when you allow that to happen, you get weird things that happen like if you start off at 100,000 like you might have one year where it dips down to like $60,000 with 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 will ever go. Um those floor and ceilings are active for any of the variable types of spending.
Scott: [24:15] Awesome. This is super powerful. And rather, I mean, this is, this is something that we could go into all day because you have six different other options here. Um can you give us like an overview of what these other options are for those who are want to truly nerd out to the next level in using these tools. I I just stick with the inflation adjusted spending. I think it’s the most simple way to to run the calculation.
Lauren: [24:34] Yeah, the 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 um some are community based, like VPW is one that I believe was developed by people in the vocal head community and that’s essentially the die with zero one where it will particular it will change your spending based on um trying to have a certain life expectancy and you end up with zero dollars at the end.
Scott: [25:07] Awesome. And then these other ones, um our further research opportunities for our listeners since we need to keep moving because there’s so many powerful parts of the tool here um on that.
Lauren: [25:17] Absolutely.
Mindy: [25:18] If you are wondering what we’re talking about, Scott is showing his uh screen on our YouTube channel and he is running various numbers all throughout this whole uh scenario. And I’m doing my own numbers that are a little bit different. And um Lauren, what do you consider to be a a a good success rate? There’s like, I’m at 90% and I’m like, oh, you know, some of these, some of these portfolios are pretty high and if I would have retired in 1922, boy, what I’d be wealthy?
Lauren: [25:52] Um despite being a person who’s developed a tool like this, I will tell anybody who asks that um that is not a 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 100% success rate in all of their different simulations across different tools. Um that is way too conservative in my opinion. Um some people have written, I know Michael Kitsis has is written a paper about Monty Carlos 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 gonna be fine. Like, and you redo that every single year, do 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. Um I’m not gonna go for 100% 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, you know, do what you want it to do.
Mindy: [27:10] Well, and I think that’s really important to note you can get yourself all, you know, oh, well, what if I do 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 number. 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. Like if your goal is a million dollars and you only have 500 right now, that doesn’t mean you run it at 500 and be like, up, 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, like what is it on just 1 million? 1 million with 40,000 spending?
Scott: [27:51] The million with 40,000 spending and the 2.5 million with $100,000 of spending should be identical Right, mathematically, is that right Lauren?
Lauren: [27:59] That is right, that is right. Should be identical.
Scott: [28:02] I actually have a question on that Lauren because I’ve been thinking about this and I think and I haven’t, I haven’t gone and modeled it out myself. I 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 $100,000 of income on a a 2.5 million portfolio because there’s taxes that are involved. Is that factored into this simulation at all?
Lauren: [28:27] That is a great point, Scott. And I want to definitely tell people and I tell people in the 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 like if you’re if you have a $100,000 income and you think that some amount of it is capital gains and some amount of it is, you know, whatever uh other income like add on 10 or 15% to to, you know, account for that. Um now to be clear, the Trinity Study, Bengen Study doesn’t really account for taxes either. So it’s like, you know, it’s a, it’s a balancing act. Um 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. Um 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 can sort of have a two-phase situation. Um things, you know, are different when you do it that way but you can you can make that happen.
Scott: [30:03] Okay, let’s do it. I got a $1.5 million portfolio today. I want to spend $100,000 in retirement starting at 2035 and we’re going to have that be a 40 year retirement because I’m gonna live to be, I’m gonna live until 2075. So, Alright. You’re going to live till 20, 20,000, 2027 is what you wrote. That’s right. 2075. Yeah. I’ve got a typo uh for that. That puts me at 85. I’m gonna take care of myself eat right, you know, all that kind of stuff. Okay. So now how do I add in more? how do I add in how much I’m gonna add to the portfolio?
Lauren: [30:41] Yes. That’s a great question. So honestly, the one of the most powerful things about cfiresim is something that I have left up to people for their imagination a little bit in trying to figure out how to best use it. So the bottom section of cfiresim 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 a spending um adjustment which takes away. So any sort of situation in which you think you you can think about that will add money for any period of time, like 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, you can add in here and add a label. So, if I were you, I would type in something like under the label, I’d type in contributions or working time, you know, 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 now what’s important is you choose a period of time that lines up with your retirement. So, starting years 2024, ending years whatever you put up above for your um retirement date. And just like a lot of the numbers above, you can choose whether or not to inflate this number with with inflation numbers or constant numbers or just not. There you go. So you’re getting a different kind of number situation.
Scott: [32:26] I like that number. 40 million.
Lauren: [32:28] Yeah, good lord. The the the timing on that is amazing. It’s like if you what, what year does it say?
Scott: [32:36] 1921, you start at 1921.
Lauren: [32:38] See, what’s happening there is your working period is right during the great depression and you’re dumping money into it.
Scott: [32:45] Oh, nice. I like it.
Lauren: [32:48] You’re hitting the lows perfectly.
Scott: [32:50] Okay. Um awesome. So, okay, so this this tell and then if I want to, if I want to say I’m also going to get a uh inheritance of or a gift from a family member of 50 grand here, I could just add that, right?
Lauren: [33:02] 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: [33:09] Awesome. So I can put that in uh, you know, 20, 2026 um or whatever, right? Um okay. And then I can just keep adding these as far as I want to go, essentially.
Lauren: [33:19] 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. Um I sometimes create scenarios where I’m going to downsize my home. Like we live in a a high cost of living area. Like what would it look like to sell our house, you know, pocket half of the equity and move somewhere cheaper. Um lots of different scenarios like that exist. It’s and it’s great to put in those put those things into your simulations. And I, I highly recommend people in general to do different calculations, whether it’s on a spreadsheet or with a tool, doing a conservative one, a sort of median sort of uh simulation and an optimistic one and making your decisions based on that.
Scott: [34:09] Awesome. So now I can add my home equity because I’m actually going to downsize in 2028 and uh that then gets allows me to add a one time contribution here. So that’s where you add your home equity um on there which I think is is just a fantastic. Okay, so we we have these adjustments.
Lauren: [34:25] Right. And so what like I’ve told people before, there’s some other like 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 back end, it’s just doing an adjustment like I am, it’s just changing your income stream or your spending stream um for some number of years.
Scott: [34:47] I think I I just want to call it like this is a fantastic tool. 35 million use cases, but if you are planning for a number that is much higher than $100,000 per year in annual spending, you need to start being pretty careful because that’s when taxes really throw this out. And I’m and I’m working on this concept. I haven’t I haven’t gotten there yet, like I said, but the it’s geometrically harder. It’s way harder to generate a high income and sustain it for a long period of time and generate a low one, not just because of the asset base but because of that dynamic of the tax situation um with with the pull in there. So, this is probably not, this is you should probably be very conservative with these numbers. Would you I think you would agree Lauren, if you’re trying to generate like 250k for example, like a fat FI level of retirement wealth.
Lauren: [35:29] Absolutely.
Mindy: [35:30] 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 $100,000 which feels really rich to me. And I make 100%, I’m never going to run out of money. Okay, then I bump it up to 200,000. It says, you’re gonna 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 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, that would come and wipe out my portfolio. But it’s still above 50%, Michael Kitsis is uh 50% number here. So that’s what 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, you know, am I ever going to retire? Look at where you where what you’re at now and where you want to be and, you know, I could see people using this to potentially avoid one more year syndrome. Lauren. She says from her own job.
Scott: [36:45] Let’s also talk about something here because I I’ve talked to a lot of people along with Mindy on Finance Fridays in BiggerPockets Money and I don’t see very many FIRE people with a 75/25 stock bond portfolio. It’s all 100-0. Right? I I Mindy, do you have, what’s your bond portfolio look like?
Mindy: [37:02] Uh, pretty similar to, maybe even less than yours, Scott. What’s yours at?
Scott: [37:06] Mine’s 100% equities unless you count my one hard money note, which matures this month uh that I have. So it’s all, it’s all all stocks. Lauren, what’s yours?
Lauren: [37:15] Ours is probably around 90-10 um and it fluctuates obviously, but yeah, we I feel like ever since I was in my 20, I had to sprinkle in some sort of bond because going 100% felt weird but honestly, like from all the literature I’ve read and things and, I mean, I’ve poured over big Earn’s website. I mean, you know, 100% seems great to me. Um, and there’s a lot of, you know, papers that say, if you’re not 100%, once you retire, you should slowly work your way to 100% and that’s a better success rate.
Mindy: [37:48] 100% bonds?
Lauren: [37:49] No, 100% stocks. It’s basically the reverse reverse of traditional thinking.
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Mindy: [39:52] When you’re ready to start your business, Northwest registered agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one. A business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest registered agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest registered agent at northwestregisteredagent.com/moneyfree. You guys heard our recent episode with David Jackson and I’ll be honest, even as somebody who lives and breathes this stuff, having a pro like David pressure test my plan was a game changer. Domain Money is different because they don’t try to take over your accounts. They provide a flat fee service where a dedicated CFP analyzes your entire financial life with no stone left unturned. No hidden fees, no commissions, just clear, actionable strategy. Go to biggerpocketsmoney.com/cfp and book a free strategy session to see how they can help you reach FIRE faster. This is a promotion for Domain Money, a registered investment advisor with the SEC. BiggerPockets Money receives compensation if you choose to work with Domain Money as a client. I, Scott Trench, have a current client of Domain Money and received non-cash compensation related to this promotional activity. This is not personalized investment advice. For full disclosures, visit biggerpocketsmoney.com/cfp. Thanks for sticking with us. Let’s jump back in. Okay. Yeah, I have 100% stocks. Um when it comes to things that I can enter in my uh portfolio on cfiresim. I’ve got some random syndications and random uh, you know, private notes and and things like that. But I’m zero gold, zero cash, zero bonds, um zero crypto if you had that.
Lauren: [42:07] There’s no field for crypto, which I think is great. I think that, uh, you know, I, 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 spreadsheets. That’s or in your in your calculator here, that’s fantastic, Lauren. Great forward thinking for real. That’s a sharp, sharp thinking. puns for my crypto.
Scott: [42:24] One thing I wanted to to to ask about here is like, how does that change? So we had a 96% success rate by the way I think this is a key output here, right? Is the success rate is the one of the first outputs below this big, nice pretty graph, um rainbow chart here. And 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 100-0 equity and zero, you know, uh a stock stock bond portfolio. Um at least from a historical data perspective is because the failure rate only drops by 0.8% or or percentage points. Um 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 who use the simulator? But they’re assuming 100%, 0% stock bond portfolio.
Lauren: [43:37] I I think that that is true, um that a lot of people go for 100%. And what’s great Scott is that if you play around with this enough, you’ll realize that um that what you just demonstrated, the higher stock percentage being like not really a different change in success, but much higher um portfolio rate that is amplified when you start to do some of the variable uh spending methods and you set like a hard floor and 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 are back up, it will increase it. So, yeah, if you’re you’re using variable spending up exactly, that’s exactly what you should do there. So, but so what Scott did is he had the $100,000 um sort of 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, um if, in a down market. but that is a, you know, decent decent chunk to do but doing that will often highlight some of these um uh sort of allocation changes.
Scott: [44:50] Okay. Remind us for our non-engineering wizs, what what is a Z-value?
Lauren: [44:53] Yeah, so um, in the uh about or the tutorial section, it’ll tell you essentially that is just how much the variable spending um changes. So, for instance, if the market’s up 10% one year, um 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. Um 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: [45:26] You thought of everything. This is fantastic. This is a really, really, really strong tool here. Um now, big, let’s ask another question here. I got rental properties, right? This is BiggerPockets. You know, a lot of folks uh listening are going to have a a rental property or two. And let let’s let’s just for the sake of argument, let’s not factor in the mortgage amortization. Let’s assume the rental property is paid off and I’m going to get, you know, let’s say I got uh $500,000 in paid off rental property portfolio generating $35,000 a year in cash flow that I will own in perpetuity at retirement. How do I how would I model that into here?
Lauren: [46:03] Yeah, absolutely. And honestly, this is one of the more asked like features or like additions that people say like, hey, you should add stuff regarding uh 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, you know, it’s 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, um for, 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 like you could have a sale date and um figure out what you’re gonna sell that property for.
Scott: [46:54] 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 that’s definition an inflation adjusted stream of income for the most part. You know, there’s puts and takes in there. So I would I I would do that. I would do the same thing. I would also consider 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 two in and I’d say, okay, 500,000 in capital gains at some point in the future. Let’s do that in 2065. Um and then I’m going to have uh, this one goes from 20, when did I retire here? I retired 2024. Okay. 2024 through 2065.
Lauren: [47:40] Exactly.
Scott: [47:41] Awesome. And now my portfolio is going to 100% succeed every single time because that’s the power of adding real estate to the calculation here.
Lauren: [47:49] I mean, it’s it’s like it it’s just adding another income stream. You’ve got yourself a job just by owning that asset.
Scott: [47:55] That’s also a wonderful thing here. You know, maybe maybe that’s the 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. Um so there’s some, there’s some, you know, that’s an interesting learning I wasn’t expecting to come up with that on, you know, or to to go through that today on this, but that’s the cool about this tool.
Lauren: [48:24] Yeah, one of the things I like to encourage people to do is use the adjustments to simulate like part-time work because that’s a very common thing in the FIRE community like, oh, I’m gonna I’m gonna drop to part-time for some number of years. And you can do that. Like you can set, you know, you can say you’re retiring this year but you can add like five years of part-time work and see how that affects your success rate. And, you know, frankly, it’s, it’s nice to see that. I, you know, I wish a long time ago I was able to have a little more dynamic and fancy situation where if the market drops, you know, within first five years of retirement, you can like put in a dynamic um sort of part-time job that you go back into the workforce and see how that affects your portfolio because that’s one of the fears of a lot of FIRE folks is sequence of returns risk. So, um 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: [49:22] Awesome. And if you want a more a different way to insert rental property cash flow and rental property equity, you can keep that to yourself and send compliments to uh Lauren via the email me button at the top of the screen. So…
Lauren: [49:35] I like the theme here, Scott.
Scott: [49:36] Yeah.
Mindy: [49:37] Awesome. Are there are there any other section? So we’ve gone through, 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, a portfolio value and how, what 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 uh has very simple and effective uh mechanism of excluding all of your home equity, all of your cryptocurrency, all those other good things and just including the assets um that you probably should be depending on for your um your retirement um here. And then we have um 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: [50:26] Yeah, just real basic, like I’d say that before I mentioned um some other tools that do a good job at trying to um show uh users what sort of different uh adjustments they can come up with without, you know, 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. Um but really behind the scenes, all that is is just another income adjustment. So and maybe that’s maybe that’s a theme here like you can think of a lot of these things is just an inflow and outflow and like, hey, that’s, that’s what this game is.
Scott: [51:11] So I’m, I’m, what am I 30, 30, I’m 34 right now. And so Social Security is, is, you know, well way, way off in the distance. How would you tell someone to get these values like um in here and make make accurate assumptions for someone who are far away from retirement?
Lauren: [51:28] Great question. So my go uh my suggestion to people is to visit the s my ssa.gov website. Um it is tied to your social security number. Sometimes it takes a couple of weeks for you to like fully register there. I believe that you have to get like a piece of actual mail, snail mail and have a 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 a an actual W two job all the way back to 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. Um I personally like am on the side that thinks that, you know, people um that are, you know, below I actually I can’t remember the age, below their mid to late fifties are going to uh have less benefits. So I tend to take my number and, you know, say that I’m going to get 75% of it. That’s the latest sort of estimate that younger folks are going to get out of the social security program. So I take the number from the web government and subtract out 25%.
Scott: [52:39] So for for the most part, this number, I mean, I mean for the most part for practical purposes, I just ignore, I never even put the number, I never even 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, you know, because that’s so far off in the future. I, I I personally wouldn’t be comfortable allowing a portfolio to dwindle to nothing without social security uh coming into play and for my intense purposes. I leave it there. But if you don’t, if you don’t want to do that, you can go through the work product of going to my or going to social security, ssa.gov um to go and get that information.
Lauren: [53:15] Yeah, that’s very conservative of you, Scott, but I respect it.
Mindy: [53:18] Could we run over to the um the results page, Scott on any one of these that you’ve done?
Scott: [53:24] This has all the assumptions we just talked about. $2.5 million portfolio, $100,000 spending. We’ve got our z-value defined to 0.5, ceiling, a spending floor, spending ceiling, super realistic here, 35,000. Oh, nope. I I I do have the $35,000 in rental income um that’s added in there and that puts and 100% stock portfolio, no, no bonds. So this is the output tab that you’re asking for Mindy.
Mindy: [53:48] Yes, I just want to run through what these numbers mean. So the success rate 100%. 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: [54:05] That is correct. So the spending over time, it’s important to know to people that number one, this entire page is inflation adjusted dollars. So this is in today’s dollars which highlights, I think, honestly, uh one of the things that Scott said before is when you’re not adding taxes in there also like your portfolio can run away. Well, it’s even, it’s even like bigger a bigger effect than you think because the nominal dollars is actually higher. Um 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 will look like just a line and that’s sometimes confusing to people, but over time you’re spending the same amount. Um Scott right now has one that has like 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 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 um side that shows what you’re spending is.
Scott: [55:18] Loren, I obviously, as you can tell, had a tremendous amount of fun going through this spreadsheet. It wasn’t a spreadsheet. I I’m sorry, I keep referring to a spreadsheet. It is a the tool that you’ve built here that is absolutely fantastic. Really well researched. tons of great data. Like thanks so much for sharing it, uh uh building it and sharing all of the the ways to use it with us today. This was a lot of fun.
Lauren: [55:38] I’m always happy to talk to people of this and nerd out and it, you know, 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: [55:48] All right, Lauren, this is this is fantastic. I so appreciate your time walking us through this calculator so people can or simulator, whatever, so that people can see all the different ways that they can check out their uh their numbers and and run all the numbers, click on all those things and change everything and see how it how it can best suit you. Uh where can people find you and where can people find their your calculator?
Lauren: [56:14] Yeah, that’s a uh right now, you can go to cfiresim. So the letter C, FIRE, sim, s i m at.com. Um I’m also on Blue Sky. I’m trying to give up Twitter, like that’s that’s tough. And those are the primary places you can find me. You can also find me uh in the financial independence sub Reddit which I’ve recently started being the one of the moderators for again for my, for my, for my second stint. I’m I’m a big fan of community and I really enjoy that place. So those are the places you can find me um with so on uh Blue Sky, my, my tag is just cfiresim and then in on Reddit, you can look me up, my username is Lauren_knows, Laurenknows. and I do know.
Mindy: [57:03] Like knowledge knows?
Lauren: [57:04] Like knowledge knows, not face nose.
Mindy: [57:07] Lauren, K N O W S. Okay, awesome. I am again, so thankful for your time today. This was so much fun. And I will talk to you soon. I’ll see you in uh in Cincinnati at EconoMe.
Lauren: [57:19] Yes, I can’t wait to see you in Cincinnati. I, I love EconoMe so much and I will be going as much as I can.
Mindy: [57:25] Yeah, the EconoMe conference is super awesome. It’s sold out this year, but stay tuned for tickets for next year. All right, Lauren, thanks again and we will talk soon.
Lauren: [57:33] Thank you so much, Mindy.
Mindy: [57:34] All right. 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.
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