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Old 01-12-2009, 04:49 PM   #21
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Old 01-12-2009, 10:48 PM   #22
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"Should" you retire? That's a personal choice. "Can" you retire? It looks like you can as long as your needs are not extravagant.

Please be careful about the higher end of the "3-5% rule" that you quote. The general consensus is that 4% can easily be survivable for 30 years. Pushing it to 5% gets much more iffy. But you are only 40. At this age, with easily 50 years ahead of you, something more like 3% would be a safer bet, and some would say less than that, even.
Grep, thanks for throwing out a more cautious viewpoint. Seems like a few things are getting skipped here in many of the posts.

A) I totally agree (and so does FireCalc), 4% is for a 95% success rate for a 30 year portfolio. A 40 YO has a normal life expectancy far beyond that, and a significant chance of living much longer than average. The OP can check the Vanguard calculator listed on the FireCalc page. W/O running th numbers, I'd guess 3% is closer, but even that can lead to some big draw-downs.

B) Health Insurance? Has the OP really analyzed what they need/want to spend in retirement, versus what they spend today? It's not always the same thing. I've also said it many times: don't retire on someone else's budget.

Usually, but not always, someone currently making $180K/year would likely want to spend more than 60K. Something to consider.

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Old 01-13-2009, 03:40 AM   #23
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Grep: If you are refering to me, I hope your knowledge on other subjects is better than your knowledge of my trading methods.
I use the tool to obtain information. It saves me a great amount of time. I have no idea why you feel I am using a "day trading" program. I only make a few trades a year. My last trade was over 7 months ago.

["(And you might want to have a healthy scepticism of a poster whose very first post is touting a day trading "screening" program.)"

I feel that ignoring inflation when making retirement plans can be a bigger mistake than making a poor choice of what stock or fund to invest in.
At 10% inflation, a $3 mil retirement fund is loosing $300 k in value in the first year.
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Old 01-13-2009, 01:12 PM   #24
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Bottom line, if you can live on $90,000-$100,000 a year, I think you'll be fine........
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Old 01-13-2009, 01:38 PM   #25
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O.k., jchere, you don't day trade, and you use a program to make only a few trades a year, I presume in individual company stocks. If it works for you, great, but in my humble opinion it's about the worst possible advice to propose the same for the typical early retiree, including the original poster.

In my humble opinion, guidance along the lines of the "Bogleheads' Guide to Investing" or Bernstein's "The Four Pillars of Investing" would be far more sensible recommendations.

Also, viewed in the most obvious and direct ways, we are in an environment of recession and deflation, not "10-15%" inflation. Sure, that may change quickly, but for example:

Do you see unemployment going up or down?
Do you see interest rates going up or down?
Do you see home prices going up or down?
Do you see better or worse car incentives?
Do you see gas prices going up or down?

Yes, governments are pumping money into the system, and eventually we may see inflation, but not at the moment. At the moment, cash is king, and it sure wouldn't be king in a "10-15%" inflationary environment.

Anyway, this is all besides the point. The original poster wanted to know if he can retire early. As most posters have pointed out, he can if he invests wisely for the long term and can live on say $90k (including taxes) per year.
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Old 01-13-2009, 03:59 PM   #26
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Haven't seen this in the thread but consider that the probability of financial and world circumstances being the same in 50 years is near nil.

Can't remember where I read it, but one writer considered any calculations showing an 80 pct probability of success over thirty years beats the odds of some cataclysm occurring that changes the equation anyway. I debated long and hard over a 95 pct success rate before coming to the conclusion that a bus could run me over tomorrow.

You've got the money to retire early, the real question I think is: is that what you want to do? In my case, leaving the rat race means a return to University and pursuit of a different profession, without the necessity of earning a living in it. You need to determine if retirement itself is what you seek, or an escape from what you're currently doing.
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Old 01-13-2009, 04:08 PM   #27
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Can't remember where I read it, but one writer considered any calculations showing an 80 pct probability of success over thirty years beats the odds of some cataclysm occurring that changes the equation anyway. I debated long and hard over a 95 pct success rate before coming to the conclusion that a bus could run me over tomorrow.
I think it was Bernstein. I think his argument was something like: think of all the great empires of the world. What is the longest period of time that any of the great civilizations had stability? 400 years? Let's say a human lifetime is 80 years. So there is a 1 in 5 chance (or 20%) of any great civilization coming to an end during a typical human lifetime.
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Old 01-13-2009, 04:32 PM   #28
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There is reason to be optimistic and not obsessively concerned with numbers, especially since the original poster apparently dodged the worst of the recenct down-turn and is investing at reasonable valuations. That's great! Still, I think his major risk is, well, taking on too much risk.

One of the greatest risks that an extreme FIRE type encounters is being too miserly out of the "but what if I'm eating cat food at 90" fear. Yes, indeed, any of us could be hit by a bus tomorrow. But prudence is still absolutely necessary. The OP certainly should plan on capital preservation as befitting a long and healthy life.

One of the more optimistic risks we face is that medical science, particularly our vastly increasing understanding of the human genome, will significantly extend health and life within our own lifetimes. This may easily include the vanquishing of a wide range of diseases that are amenable to genetic understanding and manipulation. Kurtzweil is a proponent of this concept (though he's "eccentric" to put it mildly). Knowing so little about the future, one might view this risk as about as likely as that of our civilization collapsing.
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Old 01-13-2009, 09:29 PM   #29
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Usually, but not always, someone currently making $180K/year would likely want to spend more than 60K. Something to consider.

-ERD50
...................or there might be a better way. But keep this between us or we'll have alot of people here talking stink about Lilo and Stitch. Take $1,350,000 and start a CD ladder. Now we're only looking at 5% average return over the next 20 years. I believe that is conservatively doable. That gives you a withdrawal of $105,000 a year for the next twenty years! Part two: buy 4 $400,000 condo in Honolulu for cash. Yeah sounds stupid not to use the power of leveraging but people here claim it improves your sleep. One house paid off sleep good, four houses paid off sleep Greeeat! Now current rents will net you $87,000 a year and that's with a gross rent multiplier of only 13.3. That gives you $192,000 spending money in year one. Spend like a drunken sailor! Now probably most people will say rents will increase at say 3% annualy so by year 20 your net rents are $152,555 (not so much upside since you have no fixed mortgage being paid off with inflated dollars) plus your $105,000 in CD money.. It actually works out to about $222,000 a year. Now my rents over more than 25 years have increased more like 6% so 20 year rents could be more like $263,227 for a combined income (+CD's) of $368,227! These could rent as vacation rentals so the income could even be 50% higher.

So 20 years have gone by and you've shot through your CD's You still have net rents of $152-263K a year and four properties worth conservatively $3,505,797 at 4% appreciation (my *ss) or more like $8,967,059 at slightly less appreciation than what Waikiki has actually enjoyed in over the last 25+ years. I'd also like to think you've spent at least $40K a year out of your $221K a year on a nice little East Coast hideaway.

Now if you go into the market and get 6% returns and spend the same amount you'll have $1,041,000 at the end of 20 years. And most people here won't even mortgage at 4.5-5% in expectation of a better return over 30 years! OK so maybe you're a believer in long term market results. Lets see what 8% gets you in twenty years, $3,781,851!

I think playing with buckets is too much work and the opportunity of 30% to 40% spills seem very likely!

IMO YMMV

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Old 01-13-2009, 10:39 PM   #30
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Honobob, 5% CD return on $1.35M is $67K, not $105K -- how do you come up with that?

Also an $87K rental income on $1.6M property investment, you also need to pay property tax (1%?), then assuming no maintenance and insurance costs, and 100% occupancy always, that's only about a 4.3% return on your investment, all treated as ordinary income.

I think historic market returns at 7% with a good chunk of it treated as capital gains is more enticing than making money off rentals! Probably the real estate money is more from market appreciation of the real estate itself, not rental income, I'd think?
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Old 01-13-2009, 10:55 PM   #31
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Honobob, 5% CD return on $1.35M is $67K, not $105K -- how do you come up with that?

Also an $87K rental income on $1.6M property investment, you also need to pay property tax (1%?), then assuming no maintenance and insurance costs, and 100% occupancy always, that's only about a 4.3% return on your investment, all treated as ordinary income.

I think historic market returns at 7% with a good chunk of it treated as capital gains is more enticing than making money off rentals! Probably the real estate money is more from market appreciation of the real estate itself, not rental income, I'd think?
1.) You're spending down the $1,350,000 plus interest over 20 years.
2.)$87K is starting NET rents.
3.) 7% leaves you at 60 only $2,472,000 That will only generate $173,000 at 7%.

With real estate you have growing rents of $152,000 to $263,000 and properties worth $3,505,797 to $8,967,057!

I vote for the bigger money!
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Old 01-13-2009, 11:10 PM   #32
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As most posters have pointed out, he can if he invests wisely for the long term and can live on say $90k (including taxes) per year.
.........if only there was another way......
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Old 01-13-2009, 11:24 PM   #33
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1.) With real estate you have growing rents of $152,000 to $263,000 and properties worth $3,505,797 to $8,967,057!

I vote for the bigger money!
So buy a bunch of condos and rent them out instead of put it in the markets? Why isn't everyone else doing that? (Or are they?)
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Old 01-13-2009, 11:32 PM   #34
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So buy a bunch of condos and rent them out instead of put it in the markets? Why isn't everyone else doing that? (Or are they?)
Either because:
1) Some people want to retire, so they resist using their savings to purchase a job.
2) Other hopeless saps don't believe they can pick the real estate market that will be the same in the next 20 years as the randomly chosen city of, say, Honolulu, Hawaii has been. Some dopes aren't even willing to bet their entire life's savings that even the Golden Goose that is Honolulu will remain fertile for 20 more years.
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Old 01-13-2009, 11:42 PM   #35
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So buy a bunch of condos and rent them out instead of put it in the markets? Why isn't everyone else doing that? (Or are they?)
I can't keep track of everybody and wouldn't want to do something just because everybody's doing it unless I saw that it would make me money. If you feel more comfortable doing what everybody else is doing and don't think anyone is renting out properties (wonder who owns the rentals that I don't) then stay in your comfort zone.

I have asked a few friends why they won't invest in real estate and the most honest answer I got was that they were afraid. Some people have no people skills and could not deal with a property manager much less a tenant. Some people are so cheap that they would rather give up good returns than have to pay a plumber to unclog a toilet.

What kind of skills did you develop as a business owner? I'm thinking you were just the money or technical guy. You don't seem to be comfortable in a business setting outside you niche. I'm only saying this because you don't seem to have problem solving skills and are not very attentive to detail. I'm not knocking your accomplishments as you seem to have done very well but I think you may be about to squander your gains.
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Old 01-14-2009, 12:07 AM   #36
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What kind of skills did you develop as a business owner? I'm thinking you were just the money or technical guy. You don't seem to be comfortable in a business setting outside you niche. I'm only saying this because you don't seem to have problem solving skills and are not very attentive to detail.
Isn't that the great thing about the anonymous internet? I could indeed be a clueless company founder who somehow blundered my way up, or I could be trolling you for amusement! (Nah, I'm a nice guy...)

You're right though, I could put it all in Honolulu condos, or land in Wyoming, or a chain of gas/convenience stores in southern Vermont, and make a mint. Or not?

Are you actually early-retired? And you keep it in CD's and condos you rent out?
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Old 01-14-2009, 09:00 AM   #37
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Kabekew, Hono is not retired.

Hono, you do acknowledge that your success is location dependent, yes? Specifically, Honolulu and San Francisco?
When are you going to get out? How confident are you in continued appreciation in those two markets and why? Look at San Diego, great city, beautiful climate, and they got hit big by the downturn. Same with all of Florida. And most everywhere else in the US. And even San Francisco is neighborhood dependent.
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Old 01-14-2009, 09:48 AM   #38
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Are you actually early-retired? And you keep it in CD's and condos you rent out?
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Kabekew, Hono is not retired.
Agreed, I just don't 'get' this part of the thread. The OP asked about retiring, not becoming a multi-property landlord.

It's fine if someone chooses to manage properties and collect the rent and finds those trade-offs acceptable - but it isn't 'retired'.

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Some people are so cheap that they would rather give up good returns than have to pay a plumber to unclog a toilet.
Having to unclog a toilet that is not in your own house (or if just helping a relative/friend) qualifies as a 'job' to me. It sure as heck ain't a hobby (what did *you* do today?)!

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Old 01-14-2009, 10:32 AM   #39
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Agreed, I just don't 'get' this part of the thread. The OP asked about retiring, not becoming a multi-property landlord.

-ERD50
Maybe if you actually read the post you'd get it!!IMHO I never suggested that Kabekew become a landlord in Honolulu from the East Coast. My suggestion was to INVEST in 4 properties. Some people seem to only see what they want to see. That could be a problem.

Also never unclogged a tenants toilet in over 25 years. I discussed my YPYP policy in another thread.
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Old 01-14-2009, 10:43 AM   #40
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Come on, guys! You know what an INVESTOR is! Hes' a guy who fixes toilets, paints houses, exterminates roaches, evicts tenants, screens new tenants, repalces windows, patches drywall, replaces water heaters, etc. Clearly, a guy who does this is an INVESTOR.
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