Financial Independence Daily FI discussion thread - October 30, 2020 |
- Daily FI discussion thread - October 30, 2020
- Whelp, I did it. Today is my last day.
- Trying to coast into FIRE but dealing with pressure to work toward promotions
- Weekly FI Frugal Friday thread - October 30, 2020
- Do you include "bubble" stocks in your FIRE calculation?
- Don't Overlook EE Bonds As A Tool For FIRE Planning
| Daily FI discussion thread - October 30, 2020 Posted: 30 Oct 2020 01:08 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]  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Whelp, I did it. Today is my last day. Posted: 30 Oct 2020 09:47 AM PDT After 20 years in IT Engineering, I'm bailing. I've been saving at least 20% of my income, investing in mostly large-cap stocks, and I'm finally able to step off that ledge. Mostly thanks to having held AAPL since 2003, I've finally hit 25x my salary, and way past that if you don't count the amount I saved towards getting here. House is paid off, wife is still working full time, and I'm going to go on her health insurance for the time being. It's been a ride. I left my long-term position in Fortune 100 IT after 8 years, because they completely re-wrote my job description from SAN Engineer to Automation Coder. I suck at code, I hate coding, and I'm no good at learning it. Plus, the way they were handling the "culture shift" was... Out of touch. So I did a 6-month contract, and hated it. It was obvious that they thought of contractors as "the help", despite it being a 20% pay raise from my last, generous job. You don't pay someone like that to publish email newsletters. Got my "dream" job, at the local university. Finally, no more long commute. Very "The Monkey's Paw" situation. I got what I asked for, in the worst way possible. The egos here are ridiculous, and they clash like hyenas over a kill. 90% of it is just one coworker and how the boss thinks his antics are funny instead of a clearly fireable offense. So I'm gonna take a good 3-6 month break, and reevaluate. Do I need some coast income, or can I be completely independent? We'll see. I know I want something where everything isn't so life and death, with million dollar IT infrastructure just waiting to fail in hitherto-unknown and spectacular fashion. Maybe volunteer at the cat shelter. Maybe try bartending. Maybe just take a nice, long time to decompress and breathe. [link] [comments]  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trying to coast into FIRE but dealing with pressure to work toward promotions Posted: 30 Oct 2020 09:11 AM PDT Hi. I'm not sure this is the right forum, but I am looking for advice on dealing with pressures to work toward a promotion, even though I feel mostly fine with my current title and salary. I have just under 10 years until I can FIRE and really do the RE part of FIRE, when I will be just over 50 years old. I work in a technical field. My department (and company) tends to push promotion within our career tracks. The work doesn't change much except that I would need to give more presentations, be accountable to more senior people, be involved in more technical discussions. Okay, it's not much, but enough to alter my lifestyle and eat into my hobby times, which I enjoy greatly. Getting the promotion also requires some major hoops that I would rather not jump through. As younger peers get promoted above me, my manager's hints are stronger that I pursue a promotion. And it starts to wear on me. I'm genuinely happy when people get promoted, especially for those whom I've mentored. But it's been incredibly difficult to bounce back from hearing it from time to time. I feel like the impression of me is that I'm not doing in enough in general. All my reviews are great, but it's been making it very difficult to continue to coast into FIRE in my current role. I sometimes want to tell the managers and directors what my FIRE intentions are, but i think that will make my situation worse. Or it could just be me. tl/dr: Looking for advice on dealing with pressure to work toward promotions when I'd prefer to stay at my level until I reach FIRE. [Update: I had to do the calculations... 7 years until I can FIRE from my current job] [link] [comments]  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weekly FI Frugal Friday thread - October 30, 2020 Posted: 30 Oct 2020 01:08 AM PDT 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]  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Do you include "bubble" stocks in your FIRE calculation? Posted: 30 Oct 2020 04:28 PM PDT I'm wondering if I should include "bubble"/"meme" stocks that are high risk/very volatile in my FIRE calculations when using the 4% rule (actually for various reasons I actually prefer using a "3% rule", but that is neither here nor there). A few years ago I bought a tech stock with a small % of my portfolio meant as a "gamble"/"play" amount. Once it doubled in value I sold off half so essentially I recouped what I put in and am now just playing with "house money". So I'm happy to just hold it long-term and see where it goes (and if it crashes oh well). Anyways, I got lucky and it's now at 10x the original value I bought it for, making up well over 10% of my portfolio. It's still not a huge amount but enough so that it definitely impacts my FIRE calculations depending on whether or not I include it in my portfolio total. The benefit of including it is obviously that we get to retire sooner (both me and my spouse hate our jobs so we would definitely like to retire ASAP and not work any longer than we have to). However, the con is that this is high-risk/very volatile so there is a chance that 10%+ of our portfolio could evaporate in the next tech crash, which would obviously negatively impact our withdrawal amount significantly. Unlike the indexes/blue chip stocks we hold, I would not be as confident that the value would recover after the crash. Curious what other people do in this case? Ignore it completely, include it, or include a portion (say for example, 50%)? [link] [comments]  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Don't Overlook EE Bonds As A Tool For FIRE Planning Posted: 30 Oct 2020 02:20 PM PDT EE Bonds (https://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm and https://www.reddit.com/r/personalfinance/wiki/savingsbonds) are often overlooked but I like to keep them in mind as a great possible option in my FIRE Toolbox, especially when equivalent yields on a marketable 20-year treasury today is 1.5%. Here's why: Pros:
Cons:
Citation on EE Bonds Doubling after 20 years: https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eeratesandterms_eebondsissued052005andafer.htm
Possible Use Cases where EE Bonds Shine
Arguments against EE Bonds
I personally really share a ton of beliefs with the first argument against EE bonds. Today, I will be arguing against my beliefs and show counter examples to all three arguments against EE bonds. EE Bonds Yield To Maturity Table (24% marginal tax bracket)The biggest con of the EE bonds is it's 3.53% interest rate is fixed at year 20. If you cash out your EE bonds in year 19, 11 months in, right before the treasury doubles it, you'll only be getting $10k instead of $20k, or a (Yield-To-Maturity)[https://www.investopedia.com/terms/y/yieldtomaturity.asp] of 100%. Here is a table of for how long you hold an EE bond and the pre-tax/tax-adjusted yield you need on the remaining duration to make cashing out a EE bond financially worthwhile.
For example, in year 5 of holding an EE bond you need 15-year treasuries to have a 5.83% yield to make it financially worth it to cash out your EE bond if you're in the 24% tax bracket. If you're in the 0% tax bracket it's 4.43%. Likewise, at year 10 the 10-year treasuries need to yield 6.50% - 8.55%. I like to think of EE Bonds as a 20 year CD with a 1 year lockup, a 1-3 year put option, and a severe all interest accrued early redemption penalty from years 3-20. EE Bonds vs Buying a Marketable 1.5% 20-Year Treasury ExampleArgument:
Here is how the math works out using a bond calculator (https://dqydj.com/bond-pricing-calculator/): First off, EE bonds NAV does not fluctuate with interest rates. You can cash out a $10,000 EE bond for any time after 1 year for $10,000. For a $10,000 1.5% treasury bond that jumped 2 points and it now has 15 years duration your bond is worth $7,681 on the open market. Add 5 years of 1.5% coupons being $750 and your position is $8,431. The EE bond still saved you $1,569 with your ability to redeem at the $10,000 face value + 0.10% nominal interest(not calculated). EE saves an extra $180 with the tax deferral if you're in the 24% income bracket for the 5 years of coupons too. Winner: EE-Bond to the tune of $1,569 + possibly $180 from tax deferral it saved you from NAV loss. Yes, you will probably want to hang onto the EE bond for the 4.43% YTM opportunity cost, but if you think rates may drop and you want early capital gains on the new 20 year treasuries, or if your situation changes and you think you'll want the money before 15 years, you're still massively ahead if you decide to cash out the EE bond vs had you purchased the 20 year 1.5% treasury bond. One caveat to keep in mind though is if you're in a 20 year treasury bond fund, this is a much harder position to calculate in, as 1/20 of the fund is buying new treasuries each year and selling treasuries each year to keep a constant duration. If interest rates rise very gradually then the bond fund may smooth out/hide NAV losses from the increase in yields of the newly purchased bonds. On the other hand, if you're investing in EE bonds you also probably have a ladder going and can choose to cash out ones you bought a year ago as well to take advantage of the new yield in treasuries. EE Bonds For Portfolios ExampleArgument:
While true, for accumulators, an EE bond doesn't do as well as a 90% stock, 10% bond portfolio. Using Personal Capital from the year 2000 - 2020s, $1,000,000 starting balance, $40,000 added annually, for accumulators the money weighted return rate (MWRR) is around 3.95%-4.29%, beating the 3.5% EE-bond: PV Results For 4% SWR withdrawers though, the MWRR tells another story. These MWRR rates are all under 3.5%! They range from 3.08% to 3.40%! For this portfolio adding in some EE bonds to help with withdrawal would have been superior. We can see the 4% rule so far for those who retired in 2020 with this 90-10 portfolio looks to be dire. EE-Bonds are just one tool you can use for asset allocation purpose of your bonds. They should only be considered when you have a bond component to your portfolio. Looking at Vanguard's Total Bond Market holdings they allocate 20% to 20+ year long term treasuries. I'd personally would not allocate no more than 10% of your bond portfolio to EE bonds. If you're 90% stocks/10% bonds then you'd need a $1 million portfolio before buying 10k of EE bonds a year is worth your consideration, ignoring other decisions such as mortgage liability matching. 80% stocks/10% bonds - $500k. 70% stocks/30% bonds - $333k. At a 10% "of bonds" portfolio rule it will be very unlikely you'll need to sell EE bonds to rebalance into stocks or other treasuries. It's just not going to happen. I'd consider EE-Bonds as a tilt, just like tilting to small value in stocks, to try to gain a little bit extra yield and tax advantage space. Winner: Toss up, you'd be rich if you can predict the future. You cannot predict the future. There are withdrawer portfolios that having EE bonds that can potentially help. On the other hand my example was pretty contrived as you probably don't want to retire on a 90/10 portfolio with 4% SWR. EEs are an attractive tilt when nominal treasuries rates are so low. My suggestion is if you want to tilt to EE, do so with no more than 10% of your entire bond holdings. A 5% - 10% tilt warrants consideration. If you're one to deploy a small value tilt then you should do the same with the EE side for the extra yield given current market conditions. Mortgage Liability Matching ExampleRight now a 30 year mortgage has competitive rates of 3%, under the 3.53% tax deferred rates of an EE Bond. Furthermore, it may be possible to itemize interest deductions on your mortgage, and if you fall in that camp it may only be a 2.28% after-tax rate if you're in the 24% marginal tax bracket. On the other hand we want a paid off mortgage in early retirement, as carrying a mortgage is a huge risk to sequence of returns. Lets say we just bought a mortgage, and we plan to FIRE in 20 years, and want the mortgage to be paid off by year 20. EE bonds warrant a serious look with their safe 3.53% nominal rates vs paying off a 3% mortgage early. (Obviously if you have a 3.53% or higher mortgage and can't refinance to 3%, paying the mortgage off early is superior.) Just to make the math easy assuming $10k of EE Bonds (even though you can get around the limit through trusts), I'll liability match a $1,666/mo mortgage, which costs $20,000 a year. Per the 4% Safe Withdrawal Rule to cover this mortgage in the last 10 years to avoid sequence of return risk, you will need a portfolio that is $500k larger - ouch. $20,000 / 0.04 = $500,000. However, if we liability match with EE bonds doubling in 20 years, we only need a portfolio of $100k extra dedicated to EE bonds, as we are guaranteed $20k nominal income per year ($10k interest, $10k principal) for years 20-30 of the mortgage. I'll be using this calculator: A 30 year mortgage at 3% annual interest rate of $395,315 will be $1,666.66/mo. It's an interesting math problem as if you make $10k/year payments ($834/mo extra) for 17 years to the above $1,666.66/mo mortgage, you'll pay off the 3% mortgage and save 96,363. However, you've paid $170,000 of illiquid equity into your mortgage doing so. With EE Bonds doubling you'll save $100,000 and "paid it off" at year 20 when the EE bonds start doubling, while having liquidity access if you need to cash EE bonds early. So, because of the interest of EE bonds you can stop paying extra to your mortgage at 10 years, save $70k in liquidity, and have $3,637 extra left over vs paying off the mortgage. 100,000 - 96,363 = 3,637. Of course the mortgage is "paid off" at year 20 vs year 17 though. Unfortunately, I can't find a calculator that would model what would happen if you made extra payments for only the first 10 years though to equal the scenarios a bit more. I'll give it a shot by calculating it with the amortization table. At 30 years in the original mortgage balance you'll have paid $204,684.97 total in interest, and have a $184,114 remaining balance. For the remaining 20 years a bank would re-amortize the payment to be $1,021.09, so your extra payments would be $646/mo to get your original $1,667/mo payment. With the 10k/year extra payments are a total of $88,738.12 in interest. For the next 20 years at the original $1,666.66/mo mortgage rate you'll pay $31,612.58 in interest. So by paying $834/mo into the 3% mortgage for 10 years, then making the original payments, equivalent to the EE bond scenario, you'll pay a total of $120,350.70 in interest. Your savings is 204,684.97 - 120,350.70 = $84,334.27 savings. So with the EE bond liability matching route you've "paid off" the mortgage one year earlier, and have $15,665.73 extra cash vs if you paid the equivalent amount of money into a 3% mortgage for the first 10 years then made your original monthly payments. Winner: EE-Bond SummaryArgument:
I've shown how EE-Bonds can potentially be useful for FIRE planning. They are extremely safe. In this low interest rate environment they can be effective tools, such as liability matching reducing sequence of returns risk for $100k cost vs building a portfolio $500k larger to cover the last 10 years of a 30-year mortgage. (Or you can pay down the remaining 10 years of the mortgage when you FIRE straight out of your portfolio.) Even if you don't have a specific known future payment to match, adding some extra fixed income can help with withdrawing down a portfolio as certain withdrawer portfolios may have a money weighted return rate (MWRR) that could be less than 3.53%. EE-Bonds are a useful low cost "insurance" option to consider. Finally, all the above investment options carries significant risk for significant reward. For anything involving venture/PE/real estate the minimums start at 25k to 500k for accredited investors. With EE bonds the minimums are $25 per bond and you can withdraw in $25 increments. Finally, of course, EE-Bonds are not ideal if you have a need for money less than 20 years, for people aggressively saving for FIRE in 15 years (ie 50% savings rate or higher), but they still warrant consideration. They could still help out with income for in year 5 of FIRE after all. In my 90% stocks the withdrawer situation 2003 was looking pretty nasty so having some EE bonds kick in by then would still be very helpful. Lastly, I would not even consider an EE-Bond when we're back to 2.5% - 3% CDs/savings accounts, 4% mortgages, etc. They're only an interesting option to consider in this current extreme low interest rate environment. [link] [comments]  |
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