Financial Independence Daily FI discussion thread - October 27, 2019 |
- Daily FI discussion thread - October 27, 2019
- Worried that future in-laws could derail my own retirement plans– what should I do?
- Dynamic asset allocation for optimal accumulation and decumulation. [Analysis from the Bogleheads forum]
- I just want to be free. Possible to retire mid 40s?
- Supporting a dependent’s retirement with FI/RE approach
- Lean-FIRE'd, but planning to start spending more on car; are my justifications reasonable?
- Just passed 2M NW. Had to tell someone!
| Daily FI discussion thread - October 27, 2019 Posted: 27 Oct 2019 01:07 AM PDT 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]  |
| Worried that future in-laws could derail my own retirement plans– what should I do? Posted: 26 Oct 2019 08:04 PM PDT For context, I'm 26 years old (F) and have been dating my boyfriend for 7 years. We've always planned to get married someday. We're both very frugal people who save a lot and would like to retire early someday, although we don't have any specific spreadsheets or goals or anything like that in place right now. I'm white, and I grew up in a frugal household where my parents really emphasized saving and living below your means. They really value living simply and were never extravagant when we were growing up. They held regular office jobs. My boyfriend is indian, and he comes from a family that's different from mine. His parents came to the US from India when my boyfriend was young. His mom has never worked, and his dad has always run some business of his own– it's some type of IT company or something. They live in a normal, modest suburban house. From the outside looking in, I never would have thought that my "future father in law's" company makes that much money, although I guess I don't really know much about the industry he's working in. It's not a big or famous company by any means. However, he spends money like it means nothing to him. When we were in college, my boyfriend mentioned that his dad had never set up a college fund, and was kind of just paying for his college out of pocket / figuring it out as he went. Now that we've left college, his dad has started to spend all the money he used to spend on my boyfriend's college tuition on other things– expensive cars, house renovations, whatever. My biggest fear is that his dad isn't putting aside any money for retirement at all, and that he'll someday expect his children to "pay him back" and support him through his retirement. It feels so incredibly rude / tacky to voice this concern and ask my boyfriend if he thinks his parents have any retirement savings. But I'm genuinely scared that this is a cultural difference that could surface 20 or 30 years down the road and create a huge issue in my own life. What's the best way to approach this situation? I don't want to offend my boyfriend by suggesting that I think his parents spend too much money and that I worry that they may not have any savings. I realize that I can't know their financial situation from the outside, but my gut just feels like something is off. [link] [comments]  |
| Posted: 27 Oct 2019 09:59 AM PDT Submission statement: This analysis was originally posted by the user Uncorrelated at the Bogleheads forum. The analysis seeks to determine a path-independent optimal asset allocation through dynamic programming optimization that maximizes the odds of both successfully saving for retirement and for spending from a retirement portfolio. I submit that the findings of this analysis are relevant to those on the FIRE path in either accumulation or decumulation, as these findings provide additional insight into existing accumulation/decumulation strategies with respect to asset allocation (e.g. glidepaths) and provide a launchpoint for further discussion about the applicability of this approach to asset allocation determination for the early retiree. Specifically, due to the path-independent nature of the findings, this analysis can be applied to accumulation and decumulation timeframes applicable to the FIRE community (e.g. often <20 years and >30 years, respectively). To repeat, I did not perform this analysis. In order to save the reader some time, I will summarize some of the background and major findings of the original post, including my own interpretation of the findings. I encourage all interested to read the full analysis as it is fascinating, but I hope to provide some key jumping off points for the discussion by highlighting what I think are some of the most relevant findings. To start, here is the rationale for the analysis in OP's own words:
The first scenario involves saving 10k/yr with a goal of having >1M by a fixed date. The following graph seeks to find the asset allocation that maximizes the odds of having >=1M by the end date, relative to current portfolio value and time til that end date: https://i.imgur.com/3MPkpsl.png The Y axis is current net worth, X axis is years til target end date. Red is higher stock allocation, blue is higher bond allocation. The black lines are percentage success rates. So reading some examples:
So far, there are no great surprises here. One very nice feature of this graph is that it is path-independent. This means that regardless of your actual portfolio experience as you save for the first 20 years of retirement, you can always consult the graph with your given portfolio size right now, and given time to retirement right now, and find the optimal asset allocation. One weakness of this graph (but not of the dynamic programming approach in general), is that its particular output is optimized with 10k/yr savings rate. Obviously this chart will look different if higher or lower savings rates are used. In the previous example, the saver doggedly saves to a target retirement date in the future, rather than to a target number. The next chart looks at a slightly more realistic example, in which the saver tries to find the allocation that minimizes the time to reaching the dollar goal (1M), at which point the saver can retire. https://i.imgur.com/QzWF2cs.png This provides some more interesting food for thought. The colors and axes are the same, with the contour lines indicating the average number of years left when the goal is reached. Nearly all savers, regardless of time to goal and portfolio size, are optimally served with a 100% stock allocation until they are nearly at goal (around 85%). In this sub we are certainly familiar with the idea of shifting toward bonds as we get closer to a desired retirement time, but I think it is less common to frame the shift to bonds in terms of getting closer to desired retirement portfolio size. Again, this is path-independent, so if the saver sees a poor market as they approach their desired retirement time and is still <85% of desired portfolio size, they're optimally served by continuing to hold a 100% stock allocation until the portfolio itself reaches around 85% desired size. Then there's a fairly rapid shift to bonds as the portfolio reaches target size. Because this graph is optimized to target size (i.e. no utility to holding >1M), the shift indicated is to 100% bonds as one gets arbitrarily close to 1M. In reality, the saver-turned-retiree needs to spend this money once the target is reached, so the true shift will be towards desired retirement allocation (below) as opposed to 100% bonds. How should a "Trinity study"-like retiree hold their assets in retirement? Again, the Trinity study involves trying to have a positive ending balance (i.e. >$0) at the end of retirement. No one retires with a withdrawal pattern like this or with this definition of failure, but for historical comparison reasons it is reasonable to start here. https://i.imgur.com/GugmHEU.png The Y axis is capital / yearly spend, and its inverse would be the withdrawal rate (not necessarily fixed in this graph). The X axis is years left of retirement, or morbidly years left alive. The contour lines are probabilities of success. We can validate a few intuitive findings from this graph:
We can also see the benefits of path-independence. If you're chugging along in retirement and things are going very poorly (initial capital / yearly withdrawal is falling down the Y axis), you should adjust your allocation to be more aggressive to continue to maximize your chance of success. How do these odds of success compare to not dynamically adjusting your asset allocation? https://i.imgur.com/Atk3gUW.png Some interesting take-aways (caveat that this is for a 25-year retirement timeline):
The last graph I'll link relates the relative value of fixed allocations, glidepath allocation, and dynamic asset allocation: https://i.imgur.com/5ZCvNX2.png For this 25-year retirement window, the maximum of all possible glidepaths provides only a very small improvement in success (OP estimates around 0.6%) over the maximum of all possible constant allocations. The way to read this graph is roughly as follows: the orange line is the best outcome from all possible constant allocations. It is essentially following the line of the graph above, taking only the topmost portion of the overall combined curve of all the constant allocations. The maximum of all possible glidepaths is the line that takes a given withdrawal rate (i.e. 4% or 25x portfolio) and finds the optimal glidepath for that withdrawal rate and its probability of success. It then finds the optimal glidepath for a 4.1% withdrawal rate (which is a different glidepath for the 4% withdrawal rate) and marks that probability of success. Note that it is impossible for one retiree to actually follow more than one glidepath, meaning the maximum of all possible glidepaths cannot be achieved. All of that being said, dynamic asset allocation in a path-independent manner provides a meaningful increase in chance of successful retirement at all withdrawal rates. The rest of the analysis is fascinating, and gets closer and closer to more modern and meaningful interpretations of retirement drawdown scenarios. The work could be further extended in the accumulation phase to account for higher savings rates, and the work on retirement spend-down scenarios can be expanded to include increases or decreases in spending based on portfolio performance (i.e. Variable Percentage Withdrawal). I think there's a lot of food for thought here, and a lot of potential for those on the FIRE path to get a better grasp to answer common questions such as "what should my asset allocation be" (likely 100% stock for a long time) and "when should I consider decreasing my stock allocation" (likely just a few years before retirement, and based on portfolio size and not strictly time til retirement). [link] [comments]  |
| I just want to be free. Possible to retire mid 40s? Posted: 27 Oct 2019 01:46 PM PDT I came to the conclusion that I'm tired of work. Having to listen to demands,so much ungrateful people, forced clock ins, waking up early, going through the daily commute, the fake smiles, I'm sick and tired of all it. I feel like I was sold a lie. I want to live my life as a solitary hermit. I'm age 28, learn about the FIRE movement 3 years ago. I work as an RN in california,night shift making 63$ an hour, base hourly. Evening differential is $2.75, night differential is $4.75. Made 105K total annual last year, as part time, but I picked up extra shifts. On track to make 95k-100k this year, due to burnout.Here are my stats. *Click on links for shortcut. Total Networth: $309,093.03 *Networth includes value of home minus liabilities/ debt Total Investments: $86,554.25 Roth 401k: $81,840.04 ($67,047.88 in 401k, $14,792.15 in roth) Roth IRA (Just started few days ago, so mad I didnt know about it.) $160 Taxable Account: **$4,554.21 (**All in VTSAX, small amount in VOO *mistake) HSA: $496.75 Current cash Savings + Checking account: $6,534.38 Home Value: $ 395,640.00 *Own 20 acres of land, split between me and brother. Bought for 50k in 2016, not sure how much worth now. Debts and Liabilities Credit Card debt: $-559.35 Home Mortgage: $-179,572.99 Annual Spending without including mortgage monthly: $13,122.12 (Very frugal, single guy.) Annual Spending with mortgage monthly: $ 34,482.96 (paying extra to mortgage principal.) *I'm able to pay off my house in 8 more years If I fully focused on it, but Im reconsidering as Im seeing how fast my current investments can grow. Savings Rate: Estimated 40% [link] [comments]  |
| Supporting a dependent’s retirement with FI/RE approach Posted: 27 Oct 2019 05:55 AM PDT My wife and I have been slowly but surely building our retirement plan, but our parents' situation is forcing us to consider how to support them with our plans. To be clear I'm not asking if we should or not support them, for a variety of personal reasons it is just the right thing to do, and we want to be there the way they were here for us when they had to make their own sacrifices. What I'm looking for is a solution that reduces the burden on our finances, but also something that provides them with a sense of independence for them (they do not like to ask or think of themselves as a burden). I was playing with 3 scenarios: 1/ pay them a monthly alimony which we factor in our necessary income for RE. 2/ donate them a lump sum when they retire to invest and withdraw at safe withdrawal levels so that the equity doesn't reduce too much and can be transferred as heritage back to us when they pass away. 3/ Another kind of investment (real estate, small business) that they can manage and generate an income from. This would still allow us to have an equity growth while maybe even leaving some extra revenue for us. I know that none of these options are cost free at the end of the day, but was wondering if there were people who've played with/written about any of those scenarios. Or if there are other solutions I haven't thought about. [link] [comments]  |
| Lean-FIRE'd, but planning to start spending more on car; are my justifications reasonable? Posted: 27 Oct 2019 08:38 AM PDT I don't like driving and I've lean-FIRE'd, so I've always kept my car expenses cheap. So far, I've gone through 2 cycles of buying a recent-model-year used car for ~$15k, and selling it for ~$5k 10 years later when I replace it, keeping my effective annual cost of purchasing a car to ~$1k/yr. However, it's about time to sell my old car and buy a new one, and I'm thinking of buying a recent-model-year used car for ~$15k with plans to sell it for ~$9k after only 3 years (essentially doubling my effective annual cost of purchasing a car. The reason I want to do this is because I feel like cars are improving faster than ever before. The main difference between an economy 1990 car and an economy 2000 car was slightly better gas mileage and safety (better crumple zones and airbags). When I went from a 2000 to 2010 car, I got cruise control, power locks, power windows, and slightly better crash safety. Now, economy cars come with some combination of rearview cameras, adaptive cruise control, blind spot monitoring, snazzy infotainment systems, steering assist, push-to-start, and more. Over time, economy cars will have increasing autonomy features and improved drivetrain systems (PHEVs, then electrics with longer ranges and faster charging times). My feeling is that spending an extra $1,000/yr on driving newer cars will improve my driving safety, make for a more pleasant driving experience, and maybe reduce maintenance costs. Though I realize I might just be getting enamored by shiny new things. Especially since I only drive ~5000 miles/yr (~20 miles/wk plus a few small road trips) and I'm on a lean-FIRE budget. What do you think? [link] [comments]  |
| Just passed 2M NW. Had to tell someone! Posted: 25 Oct 2019 07:20 AM PDT Hey FI Folks! At long last, my Personal Capital NW number has rolled to $2,026,314.76! I keep finances pretty close to the vest, but wanted to share with some folks that would have some appreciation :D I'm 37, married with 3 kids (wife has been home with kiddos) and we've built our stash over the past 8 years: October 2011 - $50K Our current portfolio is: $150K - Cash (just liquidated some as I want to move it to REI) Debts: $300K on mortgage — Annual Compensation: 2012 - 180K, 2013 - 250K, 2014 - 400K, 2015 - 590K, 2016 - 600K, 2017 - 650K, 2018 - 600K, 2019 - 400K (estimated) To be clear: my base annual salary ranged from 130K to 200K. The rest is from RSU stock vests that rallied during my time at the company (RSUs are stock "given" to employees as annual bonus, then slowly vest over the next few years). I demoted myself in 2018 from manager to individual contributor so I could move to LCOL area and won't be getting much more growth there. — Some personal background: Despite only having a 2-year college degree, I moved to San Jose and was fortunate to land a job as a software developer with one of the FAANG in 2011, and have aggressively saved over that time period as well as taking advantage of the crazy tech bull market. 2 Years ago I moved to a LCOL area and work from home now (with same company). My FIRE number is $3M, and I hope to hit that by the time I'm 45, if not sooner. I'm hoping to build a real estate investing side gig until then and do that full time when I leave my day job. If anyone is reading this who is considering getting into web/software development, I would encourage you stay laser-focused on your goals. Follow your gut and take big risks when the right ones come your way. Invest in your "soft skills" as much as your hard skills because being able to communicate effectively and being a team player has really helped me in my career. Also, consider moving to the bay area or wherever the big tech jobs are and network like crazy—investing in yourself to increase your income early on is the best way to start building wealth (as long as you save it!). Okay, that's all, thanks for listening :) Edit: adding annual TC [link] [comments]  |
| You are subscribed to email updates from financial independence / early retirement. To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google, 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States | |
No comments:
Post a Comment