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Old 05-21-2012, 11:38 PM   #1
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Just turned 40 and new to the forum

Howdy I am hosehead, I am new to the forum and have enjoyed reading the posts over the last few months. I just turned 40 in March of 2012. I donít have an age that I plan to retire at the moment but I would like to be able to retire by 50 at the latest. I am married and have two children aged 9 and 7. I currently live and work overseas which allows me to save an even larger portion of my income than I have been used to. I have been with this company almost two years and am blessed with a great 401k and defined benefit pension plan. Of course this blessing will also make it hard to leave when I am tired of it. Anyway here is my current status:

∑ $403k in my 401kís (both at Vanguard)
∑ $44k pension (current cash value)
∑ Six rental homes (free and clear) with gross rents of $5,900 month, ~$4,000 net
∑ Rent my primary residence in Texas (so currently no housing costs)
∑ $66k 529 accounts
∑ $95k Cash
∑ $64k Muni-bonds

All the investments accounts contain bond and stable value funds. I have essentially no stock exposure because after analyzing my investment return from 1999 to 2012 it was so pathetic that I did not understand why I would want to go through more decades of turmoil like that. I did what they said, dollar cost averaging, stuck it out through the ups and downs, my entire 401k in low cost Vanguard funds, and still nowhere close to the ď8%Ē I was supposed to get for being such a diligent investor. So in April 2011 I moved out of stocks after rebuilding the losses from the last recession. Yes I am cynical on the stock market and I can tell from other posts that might hurt my growth potential but I see nothing on the horizon that makes me think stocks will be a great thing for the next decade. Vanguard keeps reminding me that I am outside my target allocation but I have still done nothing.
The biggest wildcard for me is health care. I have a wife who is Type1 diabetic and both my children require maintenance drugs. I feel I could be ready to retire in just a few years if it wasnít for that. If I can stick it out until I am 50 I would get great retiree coverage from the company but that is 10 years away. I value life much more than money but I cannot neglect my responsibility as a husband and father so health coverage really concerns me. I welcome all input and have really enjoyed reading the many individual experiences out here.
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Old 05-22-2012, 05:48 AM   #2
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Hosehead, welcome to the forum. Good luck over the next decade as you work to achieve your objectives.
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Old 05-22-2012, 07:40 AM   #3
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Welcome to the forum. You didn't say what you would estimate you retirement living expenses but I see you are well on track to retire at 50 with an income over $100K in today's dollars. I'm not quite sure of what you mean by a "defined benefit" pension plan and then you assign it a cash value. I've typically only seen values for "defined contribution" plans.

I am concerned about totally abandoning the stock market. There have been many periods of low stock market returns only to be followed by major booms. Don't let recent results (10 year periods) keep you from being on board for the historically greater returns of equities. You don't need to go "all in" but you should consider something in the 40 to 60% range (only my opinion).

Heathcare is a continuing wildcard and it will get less clarified in the short term. I think we may need several more years to hopefully get something that anyone could consider the subject settled. Even then, I expect it to be a continuing issue. Everybody wants great health care and they want it cheap. The problem is somebody had to pay for it. There's lots of work to do. Hopefully, your employer will retain its retiree heath benefits.
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Old 05-24-2012, 01:38 AM   #4
Confused about dryer sheets
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Welcome to the forum. You didn't say what you would estimate you retirement living expenses but I see you are well on track to retire at 50 with an income over $100K in today's dollars. I'm not quite sure of what you mean by a "defined benefit" pension plan and then you assign it a cash value. I've typically only seen values for "defined contribution" plans.
The company has a defined benefit plan that you can take either as the annuity type option or a cash payout. Talking to all my US coworkers it seems that almost all of them take the cash option when they leave. The db plan has a calculation of: multiplier x number of years x highest three year salary. However since most people take the lump sum payment they let vanguard (pension administrator) show us cash value as well as current estimated monthly payout.

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Originally Posted by 2B View Post
I am concerned about totally abandoning the stock market. There have been many periods of low stock market returns only to be followed by major booms. Don't let recent results (10 year periods) keep you from being on board for the historically greater returns of equities. You don't need to go "all in" but you should consider something in the 40 to 60% range (only my opinion).
Right now I am enjoying riding on the sidelines and seeing my accounts gradually go up with dividend income. However, I hope after this election cycle and seeing what happens in Europe maybe I will feel better about getting back in the stock market. I just personally feel there are too many negative signs right now for me to feel comfortable. But I am disappointed as my projections don't look near as good at a 5% annual growth rate.......
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Old 05-24-2012, 11:40 AM   #5
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Welcome from Nashville!
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Old 05-24-2012, 11:56 AM   #6
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Welcome aboard. Sounds like you've made great progress at your age, well on the way to FI - a great goal in itself, independent of ER. Looking forward to reading your future posts...
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Old 05-25-2012, 02:25 AM   #7
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Welcome, hosehead.
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Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 06-18-2012, 07:37 PM   #8
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Early retirement means you have to really be aware of longevity risk and inflation risk.
You better look into what happens to bonds if (or when) interest rate rise, as you may be surprised by negative returns (i.e. your problem with stocks).
Suggest you also look into portfolio of sustainable dividend paying stocks, and reduce focus on price movement in favor of dividend payment and dividend increases. Better yields and inflation protection. welcome! (which feels strange as I just joined today)
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Old 06-18-2012, 09:39 PM   #9
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Welcome, Hosehead!

Not to pile on, but you're underweight in stocks. Most academic studies, including the hallmark Bengen (4% withdrawal) Study indicate that to sustain the withdrawal rate in retirement, a 50% stock allocation is the floor.

For a second opinion, check the allocation of the year 2022 target funds provided by Fidelity/Schwab/Vanguard... they are probably > 50% stock... the TSP L2020 fund is ~56% in stock.

But then again, if you already have 6 rental properties free and clear, you should be giving ME investment advice. I certainly don't begrudge you in believing the stock markets are now fundamentally flawed, and that asset allocation models based on views in the rear view mirror are bogus.

P.S. Coo-roo-coo-coo-Coo-coo-coo-Cooooooo!
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Old 06-18-2012, 09:47 PM   #10
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Originally Posted by ejw93 View Post
Most academic studies, including the hallmark Bengen (4% withdrawal) Study indicate that to sustain the withdrawal rate in retirement, a 50% stock allocation is the floor.
FWIW, FIRECalc says there isn't much to gain once you get to 35-40%:
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File Type: gif stock allocation graph.gif (2.0 KB, 126 views)
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Old 06-18-2012, 10:57 PM   #11
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Originally Posted by ejw93 View Post
Welcome, Hosehead!
Not to pile on, but you're underweight in stocks. Most academic studies, including the hallmark Bengen (4% withdrawal) Study indicate that to sustain the withdrawal rate in retirement, a 50% stock allocation is the floor.
But then again, if you already have 6 rental properties free and clear, you should be giving ME investment advice. I certainly don't begrudge you in believing the stock markets are now fundamentally flawed, and that asset allocation models based on views in the rear view mirror are bogus.
We go back & forth on this.

As you've noted, there's not much in the literature that looks at owning residential rental real estate as an ER portfolio. And yet one of the asset classes that manages to (in the long term) (more or less) keep up with inflation is... real estate.

Most of the anti-stock investors are struggling with inflation-- they either have to buy a lot of I bonds, or make hedonic adjustments to their expenses, or die sooner. However IMO the one group that's successfully ER'd without stocks has been the landlords.

Of course by the time you get to the numbers of successful landlords who have ER'd, the demographic group is probably so small that none of the economists have gotten around to studying them.
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Old 06-19-2012, 11:03 AM   #12
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Originally Posted by Michael108 View Post
Early retirement means you have to really be aware of longevity risk and inflation risk.
You better look into what happens to bonds if (or when) interest rate rise, as you may be surprised by negative returns (i.e. your problem with stocks).
Suggest you also look into portfolio of sustainable dividend paying stocks, and reduce focus on price movement in favor of dividend payment and dividend increases. Better yields and inflation protection. welcome! (which feels strange as I just joined today)
I understand your POV, but it's not obvious to me that one is better than the other.

Bonds will pay yields, dividend stocks will pay dividends, that's pretty much a given (and roughly equivalent returns). There's no doubt that interest rates will rise and that bond fund NAVs will suffer a predictable (for given interest rate rise) correction, that's why most people seem to recommend sticking with shorter duration these days to reduce the NAV loss. But the underlying price of dividend stocks isn't a given either. Historically stock prices have been far more volatile than bond NAVs and interest rates have risen (and fallen) before.

I'm not saying your wrong, I'm questioning the odds of one over the other. I'd be interested in why you feel dividend stocks are certain to provide "better yields and inflation protection," IOW more likely to provide a positive net return (price & dividend).
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Old 06-19-2012, 09:22 PM   #13
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Originally Posted by Midpack
I understand your POV, but it's not obvious to me that one is better than the other.

Bonds will pay yields, dividend stocks will pay dividends, that's pretty much a given (and roughly equivalent returns). There's no doubt that interest rates will rise and that bond fund NAVs will suffer a predictable (for given interest rate rise) correction, that's why most people seem to recommend sticking with shorter duration these days to reduce the NAV loss. But the underlying price of dividend stocks isn't a given either. Historically stock prices have been far more volatile than bond NAVs and interest rates have risen (and fallen) before.
%
I'm not saying your wrong, I'm questioning the odds of one over the other. I'd be interested in why you feel dividend stocks are certain to provide "better yields and inflation protection," IOW more likely to provide a positive net return (price & dividend).
We are in extreme times re all time lows in interest rates. Very short term bonds are t-bills i.e. cash I.e. "risk free" return. Beyond that you are taking risk, so it becomes a risk/ reward analysis. Bonds have extremely limited upside and don't pay you much to offset the risk. Stocks are more variable but many believe have better risk/reward trade off and can pay 1-3 times on yield. The trick is to be ready to buy more on dips ( from your cash reserves). To do that you need confidence in what you are buying as a sustainable business. This is just part of one way of investing.
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Old 06-20-2012, 09:43 AM   #14
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We are in extreme times re all time lows in interest rates. Very short term bonds are t-bills i.e. cash I.e. "risk free" return. Beyond that you are taking risk, so it becomes a risk/ reward analysis. Bonds have extremely limited upside and don't pay you much to offset the risk. Stocks are more variable but many believe have better risk/reward trade off and can pay 1-3 times on yield. The trick is to be ready to buy more on dips ( from your cash reserves). To do that you need confidence in what you are buying as a sustainable business. This is just part of one way of investing.
It's a thorny issue indeed. Here's a good article that shares your POV, though I can find other (compelling) articles that hold up the principle risk with (dividend) equities as a counterpoint. I'll agree it's getting tempting to move some money from bond funds to dividend equity funds. If nothing else, I need to figure out what I'll do when interest rates do begin to rise.
Dividend Stocks, Bonds And The Real Enemy - Seeking Alpha
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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