<![CDATA[Early Retirement & Financial Independence Community - FIRE and Money]]> http://www.early-retirement.org/forums/ en Mon, 06 Sep 2010 02:14:29 GMT vBulletin 60 http://cdn.early-retirement.org/forums/images/early_r/misc/rss.jpg <![CDATA[Early Retirement & Financial Independence Community - FIRE and Money]]> http://www.early-retirement.org/forums/ Poll:Let the housing market collapse http://www.early-retirement.org/forums/f28/poll-let-the-housing-market-collapse-51969.html Sun, 05 Sep 2010 22:06:44 GMT http://www.nytimes.com/2010/09/06/bu...06housing.html...]]> http://www.nytimes.com/2010/09/06/bu...06housing.html discusses helping current owners or future owners. I think that many current owners would not be hurt by a collapse in the housing market. Only owners who bought in the last 5 years or so would be hurt. Many folks have owned their homes longer and have not used their homes as piggy banks.

To get a pulse on this, a poll.

Would you be harmed significantly by a collapse in the housing market? For this poll, a collapse would be a 30% drop in the value of your home. If you don't own a home, you can answer no.

A 30% drop would change the value of our house back to when we bought it in 1994. ]]> FIRE and Money LOL! http://www.early-retirement.org/forums/f28/poll-let-the-housing-market-collapse-51969.html TSP - Treasury, Bond and Stock Funds http://www.early-retirement.org/forums/f28/tsp-treasury-bond-and-stock-funds-51967.html Sun, 05 Sep 2010 17:47:53 GMT www.tsp.gov). I've got most of my funds in G...]]> I've been going over the recently revamped TSP site (www.tsp.gov). I've got most of my funds in G and have been thinking of moving some into other funds to diversify. I'm also considering moving some IRA funds I have in banks and credit unions into the TSP because of the super low rates out there. I know I tend to be conservative (to a fault) and worry about missing out on some gains.

Here's a description of the 3 most popular funds from the TSP site:

G - The G Fund invests exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP. The earnings consist entirely of interest income on the security.

F - The F Fund invests in a bond index fund that tracks the Barclays Capital U.S. Aggregate Bond Index. This broad index includes U.S. Government, mortgage-backed, corporate, and foreign government (issued in the U.S.) sectors of the U.S. bond market. The earnings consist of interest income on the securities and gains (or losses) in the value of the securities.

C - The C Fund invests in a stock index fund that fully replicates the Standard and Poor's 500 (S&P 500) Index. The earnings consist primarily of dividend income and gains (or losses) in the price of stocks.

Here are the returns since inception and for the past 10 years:

G - 6.15% since inception date of 4/1/87, 4.62% last 10 years
F - 7.10% since inception date of 1/29/88, 6.39% last 10 years
C - 9.31% since inception date of 1/29/88, (0.94%) last 10 years

I've always thought stocks and bonds yielded much more than treasuries in the long term and this is the price I’m paying for the lower risk G fund. In looking at the long term returns, however, I was surprised to see a much smaller difference than I anticipated.

I'm now questioning moving anything out of the G fund. Why give up the safety of the G fund for a relatively small difference? I realize over time the difference in returns would be pretty significant, but I'm not getting any younger and don't know if the risk is worth it. What am I missing here?

BTW, the annualized rate for August 2010 in the G fund was 2.64% - low, but not bad these days. For the last 12 months, the G averaged 3.10%. ]]> FIRE and Money Purron http://www.early-retirement.org/forums/f28/tsp-treasury-bond-and-stock-funds-51967.html SWR with taxable portfolio http://www.early-retirement.org/forums/f28/swr-with-taxable-portfolio-51966.html Sun, 05 Sep 2010 15:48:13 GMT My background info: http://www.early-retirement.org/foru...all-51856.html

Based on 47 years of retirement and the value of the portfolio after paying taxes and retiring our mortgage, the maximum constant spending power FIRECalc SWR with zero failures is 3.5%, and on the surface the corresponding annual withdrawal amount matches our current lifestyle.

My question concerns the treatment of income taxes with respect to consumption. I perceive several possible approaches:

1. All taxes must be paid from the SWR amount. In tax-sheltered portfolios, this amounts to a simple tax on spending and seems likely to be the unspoken assumption of FIRECalc and analyses like the one in http://www.amazon.com/Unveiling-Reti...Myth-Jim-Otar/.

In taxable portfolios on the other hand, income taxes apply to investment results rather than spending. This leads to a counter-intuitive result. In high-return years, taxes will be high, and the portion of the planned annual withdrawal available for non-tax expenses will be reduced. Conversely, in low-return years, more of the withdrawal will be available for consumption.

To take an extreme example, imagine a year in which a taxable $1M portfolio with a $35K SWR experiences a $200K short term capital gain. The taxes on the gain would consume the entire annual withdrawal and then some.

2. Taxes on unearned income must be paid from the portfolio rather than the SWR amount. This policy also creates a large disparity in the experiences of tax-sheltered and taxable portfolio holders. A retiree with a tax-sheltered portfolio would pay ordinary income tax out of withdrawals and would enjoy high investment returns from tax-free compounding.

A retiree with a taxable portfolio would pay no income tax out of withdrawals and would therefore be able to consume more. That retiree's investment returns would be reduced significantly by taxes.

For example, consider a $1M portfolio with a $35K SWR and a $200K short term capital gain. The retiree with the tax-sheltered portfolio winds up with $1,165,000 in the portfolio and spends, say, $28K on consumption and $7K (20%) on income taxes. The retiree with the taxable portfolio pays Federal, state, and local income taxes at a higher rate (say, 35%), winds up with $1.2M - $35K - $70K = $1,095,000 in the portfolio, and spends $35K on consumption.

As an another example, adjust the above scenario by turning the $200K gain into a $200K loss. The retiree with the tax-sheltered portfolio still spends $28K on consumption and $7K on income taxes. The portfolio is worth $765K. The retiree with the taxable portfolio spends $35K on consumption and acquires a $200K carry-forward tax loss to offset future gains. That portfolio is also worth $765K.

3. Reduce the SWR for taxable portfolios to provide for withdrawals equivalent to the after-tax portion of the amount available from an identical tax-sheltered portfolio. In our example, the SWR for a taxable portfolio would be 2.8% in order to provide the spendable $28K available to the retiree with the tax-sheltered portfolio.

4. Use precise financial calculations to normalize the two scenarios and establish a mathematical relationship among FIRECalc, tax-sheltered, and taxable SWRs.

Clearly option 1 doesn't work for taxable accounts, and options 2 and 3 are just simple stabs in the dark. Has anyone worked on option 4? Are there any rules of thumb to account for the differences between taxable and tax-sheltered scenarios? And (for extra credit :)) what about SWRs for Roth portfolios, which enjoy the best of both worlds? ]]> FIRE and Money Marc1962 http://www.early-retirement.org/forums/f28/swr-with-taxable-portfolio-51966.html <![CDATA[William Sharpe's paper: Adaptive Asset Allocation]]> http://www.early-retirement.org/forums/f28/william-sharpes-paper-adaptive-asset-allocation-51962.html Sun, 05 Sep 2010 13:35:14 GMT He suggests that conventional Asset Allocations (by rebalancing to the initial AA) be adjusted (adapt).


http://www.stanford.edu/~wfsharpe/retecon/wfsaaap.pdf ]]> FIRE and Money chinaco http://www.early-retirement.org/forums/f28/william-sharpes-paper-adaptive-asset-allocation-51962.html <![CDATA[Where did Penfed's promo CD's go?]]> http://www.early-retirement.org/forums/f28/where-did-penfeds-promo-cds-go-51957.html Sun, 05 Sep 2010 00:37:41 GMT Just tried to log-on to Penfed's website to see how much money was left to fund their promotional CD rates / reservation. Can no longer fine that webpage. I was on it a few days ago. Did they exhaust the $240 million that they were looking for? I've reserved 5% CD's in the last 2 weeks. ]]> FIRE and Money hogtied http://www.early-retirement.org/forums/f28/where-did-penfeds-promo-cds-go-51957.html More Unprepared Folks http://www.early-retirement.org/forums/f28/more-unprepared-folks-51952.html Sat, 04 Sep 2010 20:54:33 GMT I can see someone that only had $250K being concerned about illness (healthcare expenses?), but that divorce item at the end of the quote is the real... I can see someone that only had $250K being concerned about illness (healthcare expenses?), but that divorce item at the end of the quote is the real killer of a retirement plan IMHO.

Quote:
Even though more than one-third of affluent Americans have seen their finances take a hit from unexpected life events, still 70% don't think their retirement plan takes into account the potential for such emergencies, according to Merrill Lynch's Affluent Insights Quarterly study.

The study, which surveyed 1,000 individuals with at least $250,000 in investable assets, showed investors are most worried about a serious illness. Second to that, they fear another downturn, and that was followed by job loss and divorce.
Affluent Investors Feel Unprepared For Life Emergencies ]]> FIRE and Money mickeyd http://www.early-retirement.org/forums/f28/more-unprepared-folks-51952.html Advice needed on withdrawal decision http://www.early-retirement.org/forums/f28/advice-needed-on-withdrawal-decision-51948.html Sat, 04 Sep 2010 15:35:05 GMT Retiring from teaching in 2 years (will be age 55 then). I will have a TRA (teachers retirement annuity) at that time-- with two options-- do I take... Retiring from teaching in 2 years (will be age 55 then). I will have a TRA (teachers retirement annuity) at that time-- with two options-- do I take $3000/month for 10 years followed by $1000/month for life, or do I take the other option of $2000/month for life?

I currently have about a million net worth (liquid mutual funds, 401k, home). I live a simple lifestyle (simple home I own--part of my net worth; single). My mother is in her 80s with advanced Alzheimers in a memory care facility and when she passes (I don't mean this to sound cold, just factoring it into my finances) I will inherit about $50k from her life insurance. My goals on retiring at 55 include moving somwhere warmer, low cost of living (like Prescott, Arizona), and buy a small home for around $200k.

I just am not sure which of the two TRA annuity options is the better choice?
randall ]]> FIRE and Money randall http://www.early-retirement.org/forums/f28/advice-needed-on-withdrawal-decision-51948.html Fidelity: Anyone here ever let them manage your money? http://www.early-retirement.org/forums/f28/fidelity-anyone-here-ever-let-them-manage-your-money-51947.html Sat, 04 Sep 2010 13:13:02 GMT I am wondering if anyone here has ever just turned over their account to Fidelity to manage (stocks, bonds)? And did you make any profit doing this... I am wondering if anyone here has ever just turned over their account to Fidelity to manage (stocks, bonds)? And did you make any profit doing this or did you just break even at the end of the year after your account paid all their expenses?

Some years ago a friend of mine had a broker manage her account for a year or two and found she just broke even. Not sure who she used, tho, but just remember the story. (She buckled down and did it herself after that.)

But two things: I am in the beginner stage in my mind and will be taking a number of overseas trips and can't watch the stocks, so it is a consideration for a couple years.

Anyone here actually give it all to Fidelity to manage is the question, tho???????? Worth it or not???? ]]> FIRE and Money Orchidflower http://www.early-retirement.org/forums/f28/fidelity-anyone-here-ever-let-them-manage-your-money-51947.html decision time: sell rental, re-rent, or move back in? http://www.early-retirement.org/forums/f28/decision-time-sell-rental-re-rent-or-move-back-in-51940.html Fri, 03 Sep 2010 19:31:56 GMT Hello all!

Some background for those who don't know our story...in 2005 we bought a townhouse (DH's company paid all closing costs) and lived in it for 6 months. We then were sent on assignment, during which time we rented out the townhouse (using a property management company).

We are now back in the area with plans to stay indefinitely. Our renters have given notice and will be out by the end of September. We are currently renting ourselves and our lease is up Jan 2011.

So we have some decisions to make:
  1. Re-rent the property (not sure how long it may take - not willing to manage ourselves...but mngmt co took a long time to fill last time and a bit leery about this)
  2. Move back in, converting it to residential (love the property, but not the location due to traffic - like where we are currently renting much better - but willing to move back in if it makes sense financially)
  3. Sell the property (about a $15K loss in property value due to current real estate market). In this case we would either continue with renting our current place or buy a smaller, cheaper townhome here.
I contacted our accountant for advice - to do a full analysis he estimates charging us $350 to $500. I've been trying to decide if I can crunch the numbers myself, and my research to date has been making my head spin.

Should I bite the bullet and pay my accountant to crunch numbers, or is this something we should be able to figure out if we just continue to study it? ]]> FIRE and Money simple girl http://www.early-retirement.org/forums/f28/decision-time-sell-rental-re-rent-or-move-back-in-51940.html Now even girls are playing the Ponzi game http://www.early-retirement.org/forums/f28/now-even-girls-are-playing-the-ponzi-game-51938.html Fri, 03 Sep 2010 16:53:05 GMT In a club that I thought was only reserved for the bad boys, it seems that there is a place for the bad gals too. Women's lib?

Quote:
A New Jersey-based investment advisor has been charged by the Securities and Exchange Commission with stealing $11 million from clients through a Ponzi scheme she ran over the past 13 years.
The SEC charged that Sandra Venetis of Systematic Financial Associates Inc. in Branchburg, N.J.—one of the state’s upper-income suburbs—preyed on clients who were retired or unsophisticated about investments.
NJ Advisor Charged In $11M Ponzi Scheme ]]> FIRE and Money mickeyd http://www.early-retirement.org/forums/f28/now-even-girls-are-playing-the-ponzi-game-51938.html Purchasing SPIA through Fidelity http://www.early-retirement.org/forums/f28/purchasing-spia-through-fidelity-51934.html Fri, 03 Sep 2010 14:34:41 GMT A substantial percentage of my retirement funds are in an IRA at Fidelity and I think that at least a part of my withdrawal strategy will consist of... A substantial percentage of my retirement funds are in an IRA at Fidelity and I think that at least a part of my withdrawal strategy will consist of a SPIA. Fidelity seems to offer immediate annuities (or maybe just facilitates securing same) through insurance company business partners.

Is it reasonable to purchase the SPIA directly from the IRA?

I have to admit that this is a bit of a mystery to me. What are the best alternatives? ]]> FIRE and Money misanman http://www.early-retirement.org/forums/f28/purchasing-spia-through-fidelity-51934.html Going to 100% stocks http://www.early-retirement.org/forums/f28/going-to-100-stocks-51933.html Fri, 03 Sep 2010 14:11:28 GMT Just kidding. Did someone recently call the near-term market bottom last week? I want to thank them for that. Just kidding. Did someone recently call the near-term market bottom last week? I want to thank them for that. ]]> FIRE and Money LOL! http://www.early-retirement.org/forums/f28/going-to-100-stocks-51933.html NPV of a COLA pension http://www.early-retirement.org/forums/f28/npv-of-a-cola-pension-51931.html Fri, 03 Sep 2010 10:24:15 GMT I was tweaking the numbers in my signature the other day and I got to thinking about how to evaluate the cash equivalent of my company pension... I was tweaking the numbers in my signature the other day and I got to thinking about how to evaluate the cash equivalent of my company pension (defined-benefit, COLA, 1.2% of monthly payout as contribution for worldwide no-deductible health insurance, all that good stuff).

If I retire on my 50th birthday, I would get 2500/mo immediately, 4000/mo if I deferred taking the pension until age 60, and some pro-rata amount if I start to take it at a point in between. If I w*rk till I'm 60 (ha ha ha), I would get about 6000/mo.

So the 750K value in my signature corresponds to 30K/year now, and a 4% withdrawal rate from some hypothetical pile of money. Is that a reasonable number to be using?

This is an entirely theoretical, navel-gazing, net-worth exercise, of course. :D ]]> FIRE and Money BigNick http://www.early-retirement.org/forums/f28/npv-of-a-cola-pension-51931.html How does my Budget Look? http://www.early-retirement.org/forums/f28/how-does-my-budget-look-51929.html Fri, 03 Sep 2010 02:11:56 GMT I start my first-full time job in a couple weeks. My starting salary is around 45k plus any incentive pay (not included in numbers below). I have... I start my first-full time job in a couple weeks. My starting salary is around 45k plus any incentive pay (not included in numbers below). I have made a preliminary budget and wanted to know what you guys thought of my strategy. Overall, I plan to spend around 30k a year and save 15k. I live in a realatively low-cost area. Below is the outline of where the savings will be placed.

1. Max out Roth
2. Max out Health Savings Account ($2400)
3. Save 7.8% is 401k (must contribute 6% to get entire match)
4. Save $400 in cash (mainly emergency fund & future house downpayment).

I expect to recieve a bonus this year/early next year for passing the CPA exam. I plan to use this money to boslter my Emergency fund.

Currently the only debt I have is about 3k in student loans. I have a paid-for car 2yr car.

I do have a couple questions. First, would you continue to max out the the HSA after the first year? After the first year, I will have enough to pay my total out of pocket costs for any given year. Should I continue to throw money in there even with the uncertainty of where healthcare in this country is going? I do love the tax benefits of the HSA though. If it makes a difference, I am currently healthy and expect to spend far less than my deductible each year.

Second question is more about cash management. Several of my budget items are accurals of sorts (vacations, christmas gifts, auto maintaince, etc) Do a lot of people have these "accruals" automatically taken from their checking account and put into a seperate savings account for when the expenses arise or just leave the cash in the checking account?

Anything I might be missing? ]]> FIRE and Money RedHawk http://www.early-retirement.org/forums/f28/how-does-my-budget-look-51929.html Cheap Internet Access http://www.early-retirement.org/forums/f28/cheap-internet-access-51923.html Thu, 02 Sep 2010 17:41:01 GMT Hello frugalistas,

right now MIL pays about $45 a month + taxes for a DSL connection which is both slow and unreliable. She doesn't really use the internet that much except for ordering stuff and checking her bank account online. So she doesn't need super fast connection speeds or a large bandwidth. She is also thinking about dropping her landline and use exclusively her new, supercheap prepaid T-mobile plan (another great ER.org tip).

No, she doesn't want to tap into the neighbors' unprotected wifi networks.;) And there are no businesses around her house offering free wifi access.

So I count on you guys to find her another great deal!

Thanks! ]]> FIRE and Money FIREdreamer http://www.early-retirement.org/forums/f28/cheap-internet-access-51923.html