fireplanner.uk

Ever since I began my FI planning, I’ve played with a compound interest calculator to project my expected progress. I’ve become adept at using it to see how the pot should grow during my “accumulation phase”, and then taking those results and using them as the basis for another calculation, this time of how the pot is expected to dwindle during my retirement.

It’s a cumbersome process. Even more so if I set out to see how much gain I can take from pensions, whilst leaving myself enough of a bridge fund until pension access age.

This led to me putting out a call to my Facebook friends. Could anyone help me put together a one-page website with a complicated chart?

Jim came to the rescue. A friend of a friend, I only know Jim slightly but we’ve met a couple of times and been Facebook friends for perhaps twenty years. He was confident he could help, and willing to work for a thank-you in whisky.

We spent the next month hammering out just how it should work. Jim knew little about SIPPs and ISAs, whereas I could geek for England on drawdown optimisation and tax allowances. Together we hammered out fireplanner.

 

fireplanner.uk

Fireplanner is a free illustration tool, letting you put in your own inputs (savings, growth rate, desired retirement spending, etc) then producing a chart of how your portfolio should fare.

It quickly does everything that would take me a few hours to work up via various passes with the compound interest calculator. Moreover, I can instantly see the effect of retiring a year sooner, or of shunting more of my savings into SIPP rather than ISA.

Imperfect

 

It’s not perfect. We could have bolted a great many more things on, but we resisted the urge. In its present form, it gives an illustration for one person. Why not for a couple? That would be more complicated to use. Why not add workplace pensions, a second Defined Benefit pension, some capital from a house sale in five years time, etc… The answer to the feedback was always the same - it makes it messy to use. As it stands now, it’s fairly simple to grasp and to use. And people with complicated situations can usually fudge the inputs to achieve something close to their reality.

For my part, I think the elephant in the room remains: what growth rate to use? We default to 5.7%, as a representative long-term average figure. It seems a reasonable figure to give the most likely outcome. It’s not a worst case scenario, though. What should we use for a worst case? 0%? Maybe. Guessing the worst that could possibly happen in our lifetimes is tricky. Stock market dips are fairly common, but usually easily ridden out during the course of saving for retirement. More extreme shocks come along every so often, including once-in-a-century financial catastrophes. The best way of coping with them, rather than a permanently reduced withdrawal rate, is probably what people naturally do anyway - to temporarily reduce your spending during a downturn. You’d save taking that big ticket holiday until the withdrawal isn’t going to hurt your portfolio so much.

Inflation 

A more mundane aspect to growth percentages is accounting for inflation. How do we know what we’ll need to spend to live a comfortable life in decades to come? Well, we neatly sidestep this problem. People will be much more accurate if asked to input their spending in today’s money, as well as their savings in today’s money. This just leaves us with the growth rate to amend to get the inflation right. Fortunately we know quite a bit about historic inflation rates - they average around 3%. So to use fireplanner fairly accurately, just take 3% off any gross growth rate you use - for instance if you expect 10% total growth, use 7% as a netted down figure.

The Retirement Living Standards

 

Speaking of predicting retirement spending, this is also an area where people wildly over-estimate. Ask them how much they’d need to retire and they’ll tell you £5 million, or some equally extravagant figure. To confound these people I’ve included the option of automatic inputs using the Retirement Living Standards. These are numbers from government funded research into what retirees actually need, intended to give people guidance on what size retirement pot they need to build.

 

There are options for people living singly or as a couple, in London or in the rest of the country, and at three spending tiers. The first tier is pretty basic, while the other two tiers reflect the sort of retirement that people do aim for. There’s more on their website about what their spending assumptions include.

 

Play...

Have a play. Let me know if it breaks. See how much quicker you could reach FI using pensions. Try both optimistic and pessimistic growth rates. Think about how bad a growth rate you need to plan for.