Goal Seek

Post questions about how to use the planner, user inputs, how the planner works, and comments and suggestions.
wfobrien
Posts: 4
Joined: Fri Jul 29, 2016 10:55 am

Goal Seek

Post by wfobrien »

Hi,,,new here. I must have used a dozen diffent simulators from Firecalc to Fidelity, etc....FRP is my favorite. The variation of parameters is tremendous. I can really simulate my situation with relative accuracy...

That said I started playing with the Goal-Seek parameters. Can anyone offer an explanation of what the minimal return represents? I assume average and STD? Also is it affected by the returns at the return boxes?

Thanks for any help

Bill

jimr
Posts: 614
Joined: Thu Feb 28, 2008 6:48 pm

Re: Goal Seek

Post by jimr »

The goal-seek on portfolio return setting causes the planner to ignore the return/std dev that you enter on the main page and instead try to find the return that results in the target probability of success that you enter for goal-seek in the settings window. The planner automatically tries several return/std dev pairs from a pre-defined list of returns and their associated standard deviation values.

Depending on the settings in your exact plan, goal-seek may not be able to converge on an answer in the limited number of simulation runs that are done. If this happens, you'll notice that the probability of success output will not equal the Target probability of success that you configured in settings.

Even though the goal-seek option ignores the return/std deviation that you configure on the main page, any return/std deviation override settings that you configure in the top of the additional inputs window are still used.

All that said, I find that I use goal seek less and less now that the planner includes the sensitivity analysis feature. Goal seek was introduced a few years before sensitivity analysis. Most of the things you can do with goal seek can also be done using sensitivity analysis and sensitivity analysis does a better job with the visualization of the the range of possible results (imho).

I hope that makes sense, please don't hesitate to post a follow up if it didn't or if you have other questions.

Jim

wfobrien
Posts: 4
Joined: Fri Jul 29, 2016 10:55 am

Re: Goal Seek

Post by wfobrien »

Thanks Jim...appreciate it. Again great program...extremely flexible. Question is the goal seek answer the return and in parenthesis the std?

jimr
Posts: 614
Joined: Thu Feb 28, 2008 6:48 pm

Re: Goal Seek

Post by jimr »

wfobrien wrote:Question is the goal seek answer the return and in parenthesis the std?
Yes. it should be on the right-hand panel next to the graph in bold.

wfobrien
Posts: 4
Joined: Fri Jul 29, 2016 10:55 am

Re: Goal Seek

Post by wfobrien »

Hi Jim,,,started using the Sensitivity Analysis instead....very nice. Works much better......thanks for the advice and again thanks for an outstanding tool....

Bill

wfobrien
Posts: 4
Joined: Fri Jul 29, 2016 10:55 am

Re: Goal Seek

Post by wfobrien »

Hi Jim....Ive been using the Sensitivity Analysis to model varying scenarios. 2 particular models I use are straight up Investments versus buying an Annuity Floor with a percentage of the Investments. The Annuity's ability to be successful as well as offer a larger range of safe spending is noticeable. Can you offer any insight into the reason that might be for the program-even though it makes logical sense. It sure makes adding an Annuity with SS an attractive means to insure success.....

Thanks for any insight Bill

jimr
Posts: 614
Joined: Thu Feb 28, 2008 6:48 pm

Re: Goal Seek

Post by jimr »

The annuity has the advantage on being a fixed income source that isn't subject to volatility. The payment is the same from year to year no matter what. OTOH, a risky investment portfolio has highly volatile returns. This causes something called sequence of returns risk. Even though the average return of an investment portfolio is usually much higher than the internal (embedded) return of the annuity, the volatility of those returns drags down the results.

We usually want to build a retirement plan with a very high probability of success to be comfortable. The downside is that doing so makes it likely that we'll spend less than we could have and leave a lot of money on the table. A plan that has a 90% probability of success means that 40% of the time you'll die with a lot of extra money in your portfolio that you could have enjoyed, but didn't. When using an annuity, you don't need to build in that extra cushion, because its designed to last exactly as long as you do.

If you haven't checked out the site bogleheads.org, you might want to have a look. It's a great community of diy investors, with a few famous bestselling financial planning authors mixed in. Their primary focus is low-cost investing a la Jack Bogle of Vanguard fame, but they also spend lots of time discussing exactly this sort of stuff and helping each other understand better.

NearlyRetired
Posts: 3
Joined: Tue Jul 28, 2020 4:14 am
Location: United Kingdom

Re: Goal Seek

Post by NearlyRetired »

Firstly, I wanted to say how much I enjoy and use this program. It seems to cover all the bases for me and I love its simplicity to use :)

There is one thing I cannot work through, and that is how to determine what a starting portfolio balance would need to be, given planned spend etc over the years.

I can see that there is an option to do this via the goal seek function, but when I use this and then look at the detailed tab, the "Additional Withdrawal with taxes" is the same value as "Expenses to fund". This column is correctly adjusted when running the scenario normally so I am wondering if I am doing this correctly, or misinterpreting the results.

jimr
Posts: 614
Joined: Thu Feb 28, 2008 6:48 pm

Re: Goal Seek

Post by jimr »

I'm afraid I don't quite understand exactly what's going wrong when you say "Additional Withdrawal with taxes is the same value as Expenses to fund"

That may be expected in some scenarios, but I'm assuming that's not what you expect. So using some made up numbers, could you give an example of what the columns show normally and then what they show with goal seek enabled?

Another option is to send an example frp file by email to info@flexibleretirementplanner.com.

If you send a file, please realize that email is fundamentally insecure and not private, so you'll want to remove any personally identifiable information from the file and either send the file from an anonymous email account or change around the numbers in the scenario so no personal financial information is disclosed.

NearlyRetired
Posts: 3
Joined: Tue Jul 28, 2020 4:14 am
Location: United Kingdom

Re: Goal Seek

Post by NearlyRetired »

Sorry Jim, I forgot to switch notifications on, so only just seen your reply!

Here is an example of what I am talking about.

With a standard run, i.e. just run the simulator with my various settings I get the following columns filled on the "show more detail" tab from the main screen (these are made up numbers):

Code: Select all

Expenses to Fund	RMD Used for	After Tax	Additional		Taxes on		Add'l
			Expenses	Income		Withdrawal		Withdrawal		Withdrawal
													with Taxes
1234			0		0		1234			55			1289 
If I run exactly the same scenario through, this time with the Goal Seek set to 98% success rate to determine Retirement Portfolio value needed to sustain withdrawals I get:

Code: Select all

Expenses to Fund	RMD Used for	After Tax	Additional		Taxes on		Add'l
			Expenses	Income		Withdrawal		Withdrawal		Withdrawal
													with Taxes
1234			0		0		1234			0			1234
The simulator doesn't seem to work out any taxes in the Goal Seek situation, which is what I am querying - I would have expected the same value as in the normal run, with just the goal seek value produced. As it is different I am checking if I am using or interpreting this correctly.

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