Financial Independence My motivation for FIRE, thanks dad. |
- My motivation for FIRE, thanks dad.
- As an FI'er, what are your thoughts on our imbalanced budget and how it will affect your future?
- 22 Year Old With No Debt, Plentiful Travel, Own House, and Pension
- Forget the 4% Rule: Rethinking Common Retirement Beliefs
- Daily FI discussion thread - February 09, 2018
- Weekly FI Frugal Friday thread - February 09, 2018
- Is there a benefit to starting a Roth conversion ladder when you have more than 5 years worth of expenses in taxable accounts?
- Beyond the advice in the FAQ, is there anything those starting an FI journey later in life should do?
- Investment timing
- Small windfall to invest. How? (in current equity environment)
- New article from Wall Street Journal calls into question the 4% rule based on historic prices of stocks an bonds
| My motivation for FIRE, thanks dad. Posted: 08 Feb 2018 07:22 PM PST I remember very vividly the overwhelming feeling of relief and gratitude when I logged into my Dad's brokerage account after he was suddenly disabled and saw over $2mil in investments alone. My dad was the sole earner in the family (a self employed massage therapist). He never had dreams of FIRE but he just knew to always pay with cash, put money away when you can, and invest. In his early 50's, he suffered a stroke that left him paralyzed and unable to work. The stoke was completely unexpected as he'd been a lifelong endurance athlete. After the immediate shock settled, my first concern was how he and my mother (who had never worked) could keep going. When I saw that balance, I knew we'd all be ok. I thank him for that gift every time I see him and remind him that he saved our family, even though I can't tell if he understands me or not. Because of that money, he and my mom are still able to live independently, travel to see family, and even support my sister as she goes through life.
Now I work and budget and save everyday with the hope that I can give that same security to my kids one day. I couldn't care less about RE, I just want to be the same kind of provider my dad was. His foresight prevented a bad situation from becoming a complete disaster and I'll always be thankful for that.
Sometimes the grind of savings rates, projections, and discipline can get a little overwhelming when just thinking about quitting my job a few years early. I mean, why don't I deserve a quick trip to the Bahamas? For those days that RE just isnt enough to keep you on track, maybe this can help. I know it helps me. [link] [comments]  |
| As an FI'er, what are your thoughts on our imbalanced budget and how it will affect your future? Posted: 09 Feb 2018 12:37 PM PST Without pointing fingers at either party, I'm increasingly worried about our Nation's spending habits, especially because I work in govt. and see an unbelievable amount of waste and poor financial decision making. Since the majority of our population is spendthrifts, and our leadership not being much different, my FI numbers take into account both inflation and the decline of the U.S. dollar. With no end in sight since most folks seem to be more caught up in pop culture than their own govt., I don't think these issues will be resolved anytime soon. With retirement at ~8 years out, and without sounding conspiracy-theorish, I have to believe that the decline of the U.S. dollar and fiscal reputation will have some very real consequences during my retirement and may even impact my ability to RE. Does anyone else believe the same? If so, to what extent do you think there'll be effects and how are you preparing? Investing in other world markets? Foreign real estate? Currency speculation? Bonus question; Why is the FIRE mindset seem to be shunned in govt. and do you think this aversion will impact your ability, and the next generations ability, to FIRE? [link] [comments]  |
| 22 Year Old With No Debt, Plentiful Travel, Own House, and Pension Posted: 09 Feb 2018 06:42 AM PST Kinda feels like her dad being the president of the local steel union had something to do with her success, but it nevertheless offers the glamor side of going through the trade route to FI. The most crucial aspect of this is the early start - we all know how important it is to invest early in the FIRE game - she has a 4 year head start. I can't help but feel that doing trades to FIRE is a pretty viable option. Not everyone has to be a doctor or engineer. [link] [comments]  |
| Forget the 4% Rule: Rethinking Common Retirement Beliefs Posted: 09 Feb 2018 04:28 AM PST Forget the 4% Rule: Rethinking Common Retirement Beliefs Three retirement-savings rules come into question as stocks and bonds get more expensive and retirements last longer By Anne Tergesen, Feb. 9, 2018 5:30 a.m. ET When saving for retirement, calculate your "number"—the amount you'll need without running a big risk of depleting your savings. When in retirement, spend no more than 4% of your initial balance, adjusted annually for inflation. And when investing in retirement, start out with a relatively high percentage in riskier assets like stocks and increase your exposure to safer bonds as you age. These are some long-held rules that most retirement scholars and financial advisers espouse. But with both stocks and bonds expensive by historic measures, and people having longer retirements, researchers are rethinking these rules to better manage the risk of a market decline. "Retiring now is pretty dangerous," says David Blanchett, head of retirement research at Morningstar Inc. "No one knows what will happen in the future, but among those who make forecasts, there is an expectation for lower returns." Here, ways in which three retirement-savings tenets are changing: The 4% rule Conventional wisdom says you can withdraw 4% from your savings in the first year of retirement and give yourself an annual raise over the next 30 years to keep pace with inflation without a significant risk of going broke. For someone with a $1 million portfolio, the formula produces an initial income of $40,000 and—assuming inflation of 2.5%—an increase to $41,000 in year two. But in recent years, the rule's safety has been questioned. While 4% would have worked over every 30-year retirement from 1926 on for an investor with 60% in large-company stocks and 40% in intermediate-term U.S. bonds, it failed in almost half of the simulations researchers recently ran using forecasts of future, rather than past, returns. As a result, "3% is the new safe withdrawal rate," says Wade Pfau, a professor at the American College of Financial Services in Bryn Mawr, Pa., who ran the numbers with Mr. Blanchett and Michael Finke, also of the American College. What should you do if you want—or need—to spend more than 3%? Consider a dynamic approach, Mr. Blanchett says. Many dynamic strategies set their initial withdrawal rate for a 30-year retirement at about 5%. But they require users to cut spending in a year in which their portfolio loses value. One simple example calls for forgoing inflation adjustments following any year in which your investments sustain losses. The downside: Inflation-adjusted income is likely to decline over time. A second method, dubbed "the guardrail approach," provides more latitude to raise spending. Say you retire with $1 million in a portfolio with 60% in U.S. and foreign stocks and 40% in bonds and withdraw 5%, or $50,000, in year one. At year-end, you must recalculate your withdrawal amount as a percentage of your new balance. Assuming your portfolio declines 20% to $800,000, your $50,000 withdrawal—plus an annual adjustment for inflation—now represents more than 6% of your new $800,000 balance. Any time your withdrawal rate rises above 6%, the rule imposes a 10% pay cut for the next year, says Jonathan Guyton, a financial adviser and co-creator of this strategy. As a result, after adjusting the $50,000 initial withdrawal—to $51,000, assuming 2% inflation—the method imposes a 10% pay cut, of $5,100, to produce a $45,900 withdrawal in year two. The good news: You can take a 10% raise following years in which your withdrawal rate falls below 4%. In years in which your withdrawal rate is between 4% and 6%, simply adjust your most recent withdrawal—$50,000 in this example—to keep up with inflation. (But don't take the inflation adjustment following any year in which your investments lose money.) Finding your 'number' This rule calls for amassing a specific dollar amount, such as 10 times your current salary, before retiring. But that can be dangerous, Mr. Blanchett says. Why? During a bull market, your balance may rise enough to tempt you to save less or retire early—setting you up for trouble if the markets reverse course. A better approach, Mr. Pfau says, is to avoid looking at your balance and focus instead on saving a consistent amount annually. Mr. Pfau recommends that someone with 30 years until retirement and a portfolio with 60% in stocks and 40% in bonds save about 16.6% of their annual income a year. A person who plans to work for 40 years should save at least 8.8% a year, he added. Those savings rates would have been high enough to replace half of pre-retirement income over the past 150 years, even amid poor stock-market returns. (When combined with Social Security, the average replacement rate rises to about 80%.) Sticking to a glidepath According to the conventional wisdom, people just entering retirement should have a significant portion of their savings—say, 40% to 60%—in stocks to help their nest egg grow. As they age, most should gradually reduce their stock exposure to protect against market declines. But a recent study by Mr. Pfau and Michael Kitces, director of wealth management at Pinnacle Advisory Group Inc. in Columbia, Md., finds that those who take the opposite approach—by reducing stock exposure in the initial years of retirement and then gradually raising it over time—are likely to make their money last longer. According to the research, those who start retirement by reducing their stock holdings to 20% to 30% of their portfolio and end up with 50% to 70% in stocks can withdraw 4% of their balance per year and give themselves annual raises to compensate for inflation over 30 years, even in the worst market scenarios. (The authors based these simulations on historical market returns rather than accounting for the lower interest rates facing today's retirees.) In contrast, those who keep 60% in stocks throughout retirement or who taper to a 30% stock allocation from 60% are likely to run out of money after 28 years in the 5% of worst-case scenarios, says Mr. Pfau. Of course, if stocks fare well in the early part of retirement, those who use the conventional approach will come out ahead. But the new approach provides better downside protection in the years right after retirement, when retirees are most vulnerable to financial losses. If a bear market occurs then, a portfolio can quickly be depleted by market losses and withdrawals. Write to Anne Tergesen at anne.tergesen@wsj.com [link] [comments]  |
| Daily FI discussion thread - February 09, 2018 Posted: 09 Feb 2018 03:09 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Weekly FI Frugal Friday thread - February 09, 2018 Posted: 09 Feb 2018 03:09 AM PST Please use this thread to discuss how amazingly cheap you are. How do you keep your costs low? How do become frugal without taking it to the extremes of frupidity? What costs have you realized could be cut from your life without pain? Use this weekly post to discuss Frugality in general. While the Rules for posting questions on the basics of personal finance/investing topics are more relaxed here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Posted: 09 Feb 2018 09:12 AM PST Since you're gonna pay capital gains taxes on the taxable accounts you sell, would it be wise to wait to convert to Roth funds that are in a traditional 401(k) or IRA until you only have 5 years of expenses left in the taxable accounts? I would think that at this point, you may want to start converting to Roth even if you already have Roth contributions eligible to withdraw penalty-free to last you more time past the 5 years of taxable because you would want to utilize the years you have a low income to pay income tax some of the money in your tax-deferred accounts. Edit: I should add that I understand that if you have a very large taxable account to last you awhile or you aren't planning to retire that early, then you may have to consider doing some earlier Roth conversions to decrease your future RMDs. [link] [comments]  |
| Posted: 09 Feb 2018 02:13 PM PST FI techniques don't seem like they change based on age that much, and are generally pretty straight-forward, but I thought I'd ask. I didn't see anything in the archives on the topic specifically, and won't have the opportunity to shift into working towards FI until my early 30s, so I want to be as best prepared as possible. [link] [comments]  |
| Posted: 09 Feb 2018 03:33 AM PST I recently did the maths to help my wife get comfortable with the idea of a volatile market and investing. And given the discussions recently on "should I invest in this market" I'd share the gist of my analysis. (pm me if you want the spreadsheet) I took the Base "risk free" scenario of putting everything in a savings account returning 1%, and extrapolated saving 1000 units over 12 years, roughly our fire timeline. Any scenario which returned a higher value at 12 years than this scenario was a success. All interest/dividends are reinvested Next assuming a 3.5% of value annual dividend (slightly below the lifetime FTSE100 dividend rate) I plugged various realistic doomsday scenarios into the model. The only one which failed was a steadily falling market, 5% reduction every year. Other scenarios which were still successful? 40% drop in year 1, slow partial recovery and another 40% drop in year 7, finally returning to parity by year 12. This was actually the best scenario I looked at. Total stash and div income was almost double the Base case.and about 30 % better than steady 5% year on year growth. This is not investment advice, and your decision or not to invest is yours alone. I just like doing the maths and sharing it. [link] [comments]  |
| Small windfall to invest. How? (in current equity environment) Posted: 08 Feb 2018 09:42 PM PST Just got bought out of my firm. Happy to go. About US$5mm. About me. Married, 46, two kids that are still grade school so will need college etc. Wife makes 20k/yr doing what she loves in local Govt, so good health care covered. Home is paid off (1.5m), and have two investment properties worth 2mm but only turnover 20k/yr after tax (yeah I know 1% yield ain't great but very little leverage only a ~200k loan on one). We pretty reliably spend up to 175k/yr on living expenses. Somewhat HCOL town. Various other negligible assets, autos, etc, no other debt outside that 1 investment property. Hoping I can take a year off, maybe do volunteer work and couple entrepreneurial things in mind. Would love to have the 5mm yield me 4-5% ideally to cover living expenses. Somewhat luckily (?) the cash hit my bank Monday so stocks are at least on sale. While I might perhaps look for a high yielding property investment etc over time, I do want to put the cash to work soon. My current approach (starting Tuesday this week) was to invest 1% (50k) each day for next 5 months (100 bus days). Mostly dividend and international blue chip stocks and etfs. For example bought some ishares Financial and international dividend etfs so far. Of course am getting crushed already :) Too fast? Too slow? Bad plan? I've convinced myself this is a sound plan. But am interested in opinions. I haven't been terribly active in equities to date. And I just gotta think bonds are not the way to go right now after the long bull run, inflation perhaps coming, fed rate hikes etc. Any comments much appreciated! [link] [comments]  |
| Posted: 09 Feb 2018 06:54 AM PST Is anyone changing their retirement withdrawal based on the fact that the market may be set for a large downturn in the near future? Has anyone pushed off their early retirement to wait for a market where returns are more certain? Interested to hear about any changes in tact based on this weeks selloff Article here: https://www.wsj.com/articles/forget-the-4-rule-rethinking-common-retirement-beliefs-1518172201 [link] [comments]  |
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