In my last post I gave an introduction to my favorite retirement planning tool called The Crowdsourced FIRE Simulator (cFIREsim for short). For those of you new to the community, FIRE stands for Financially Independent, Retired Early.
That post sparked a conversation with the creator and he graciously agreed to an interview. His name is Bo and while I haven’t met him in person, I envision him to be some sort of programming wizard with a keen understanding of personal finance and early retirement. Bo of cFIREsim is to retirement planning what Bo Jackson was to sports.
If you haven’t already, be sure to give it a test drive. You can also get the latest updates on the tool by following him on Twitter.
Who are you and what did you create?
My name is Bo (on several FIRE websites, I go by “bo_knows” which is a homage to Bo Jackson, one of my favorite athletes during my childhood), I’m 32 years old, and I’ve created a “Retirement Simulator” in my spare time, largely as a learning experience.
For those unfamiliar, how would you describe cFIREsim?
cFIREsim is a tool to help people understand how their specific retirement situations would have played out in history. This goes for people close to retirement as well as people still well within the “accumulation” phase of life. cFIREsim uses historical data from 1871-present to paint a picture of what your portfolio would have done over all of those years and it is aimed to tell you whether or not your retirement succeeded (by default, “success” is defined as not running out of money before you die).
What inspired you to create cFIREsim? How much work has it been?
This is a somewhat long story and I’m sure that people might think it to be weird for a 32-year-old to be passionate about such a project.
My interest in the whole subject of “early retirement” began soon out of college. My girlfriend’s (now wife) parents managed to completely retire at age 52, and the whole prospect of that really intrigued me. I had always thought that 65 was the standard retirement age and that only extremely lucky or extremely rich people could buck the trend (see what I did there?). This led me to do a few Google searches on the terms “early retirement”, and I came across entire communities devoted to the subject.
A very well-known tool in the early retirement and investing community is called FireCalc. This is a great tool for visual-minded or math-oriented folks to tinker with their particular retirement scenarios and see how they play out. I loved it. The problem? It stopped development in 2007 when the creator (who was already retired) sold the website, packed up his things, and began a worldwide tour via sailboat. After that, many users would come up with small bugs or suggestions for improvements that simply had to be ignored.
I figured that someone with some web programming experience and the knowledge of retirement/investing/inflation would be able to create such a tool AND respond to feedback on new feature suggestions and new-found bugs.
It has been more work than I anticipated. I’ve been working on cFIREsim for about 6 months on nights and weekends. The first month was spent pouring over FireCalc outputs and comparing it to the dataset that is used (economist Robert Shiller’s data) in order to literally reverse-engineer FireCalc. Once I had a proof-of-concept working in Excel, I started my web programming and have been improving it ever since (with a lot of help from a few users who latched on to the project).
Who should use cFIREsim?
Anyone interested in planning retirement and especially those who love to tinker with numbers.
What is the spirit behind the word ‘crowdsourced’ in the title? How can users support this effort further?
Wikipedia defines “crowdsourcing” as the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employees or suppliers.
The whole spirit of this project was to continue on with the functionality of FireCalc, but constantly improve it with user feedback. Users can support this effort by registering on cFIREsim’s forums and expressing their opinion on the tool. Is there something that you’d like to see added? Did you find a bug that annoys you? Report it on the forums.
What is the source of the historical data? How often is it updated?
Stock, bond, and inflation data is taken from economist Robert Shiller of Yale University, who compiles this data for other academics to use. It is freely available on his website. Gold data is taken from the Federal Reserve. I’m working on getting data on smaller asset classes (like Large-Cap Stocks vs. Small-Cap stocks) but this data is pretty much impossible to come by before 1927.
What advantages does cFIREsim have over FIRECalc?
As of this interview, there are a few things.
- cFIREsim is in active development with the help of its users.
- cFIREsim provides more flexibility for additional Savings/Spending inputs (that can be both one-time or recurring).
- Rather than the traditional “constant-dollar %” or the “% of portfolio” withdrawal methods, cFIREsim provides the ability to model a few different variable-spending models.
- cFIREsim allows for simulating a retirement from a single start year, rather than ALL of the data points. This was a big request from folks looking to simulate the WORST years in history.
- cFIREsim’s inputs are all on one page. Some people reading this might think this is a silly thing to mention, but there have been a lot of complaints in the past about FireCalc’s mutli-tab interface.
Are there any drawbacks or limits to the tool? What does cFIREsim not simulate?
cFIREsim does not simulate what could happen in the future. It does simulate all of the worst situations in the past that have happened (Great Depression, 2 World Wars, Stagflation of the 1970s, etc), and if you believe that the future will be no worse than the past, then the tool can be very helpful in guiding your retirement.
What is your favorite feature?
Personally, the feature I like the most is the fact that you can add up to 40 individual Spending adjustment inputs, and 40 individual savings/income adjustment inputs. It drove me nuts that I couldn’t use FireCalc to factor in the future downsizing of my home (thus a lump sum addition to my portfolio), paying for 2 kids’ college tuitions at different times in my retirement, factor in for part-time work for X number of years, and factor in 2 different pensions all at the same time. The first thing I did in cFIREsim was allow for a LOT more of those inputs.
What features would you like to include in the future?
I’m currently working on a registration/login system that ties into the discussion forums on the site. This will allow users to save their simulation parameters and reload them from the database with the click of a button. This is going to allow for eventually doing side-by-side comparisons of 2 or more simulations… which is very exciting to the numbers tinkerer in me.
I’d really like to add more robustness to the Monte Carlo system by properly correlating bull/bear markets to the right Asset Class movements, as well as clumping the good/bad years together to simulate multi-year bull/bear markets as they are in real life. If that sentence went over your head, don’t worry… I’ve been learning about Monte Carlo simulations and random distributions on the fly… which is sort of why I’ve put off adding to it more 🙂
What have you learned while dealing with the inner workings of a simulator like this? Any lessons learned?
The biggest thing I’ve learned is just how much inflation can suck the life out of a portfolio. I’ve had to do a lot of testing to make sure that the inflation numbers are calculating correctly, and boy are there some wicked inflation numbers in the late 1960’s and throughout the 1970’s.
People that think they can stash their money into investment vehicles that have returns below inflation are dreaming if they think they can maintain the same lifetime when the proverbial sh*t hits the fan with inflation. Using variable-spending patterns during those bad years, the default cFIREsim scenario ($1M portfolio, $40k spending) would see people needing to lower their spending down to $18k/yr to survive those times, even with the standard stock/bond allocation. I don’t think I would be able to reduce my spending by more than 50% and still feel comfortable.
What are your FIRE goals and dreams?
I hope that my wife and I can continue to sock money away until our early to mid 40’s, and then possibly move to some part-time work (if possible) until our children are off to college. That would allow us to fund our lifestyle while still letting the portfolio grow, and would add a lot of free time to our schedule. After that, we’d be in good shape to retire completely.
Though, because I’ve built and played with cFIREsim so much, I know that my future will lie somewhere within a whole range of possibilities.
Great stuff. Thanks for the interview, Bo. I certainly appreciate your efforts. As he says, this is a crowdsourced solution so if you have any comments, questions, or suggestions please leave a comment here or register at cFIREsim and engage in the forum there.