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Please help with second attempt at FIRE!
Old 12-03-2013, 11:01 PM   #1
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Please help with second attempt at FIRE!

Cheers to everyone here!

Lurker since 2010, admirer of the experience and opportunities available here for the taking since I found this site.

You can read the sordid details in my bio, but the summary is that DH and I attempted FIRE in 2007 (baad timing), failed for several identified reasons, returned to FT employment, now going for it again in 2014.

I'm an RN, 54, no pension, currently making $50k/yr gross at flexi PT work. Last day 12/31/13. Burned out and don't wanna do anymore. DH is Truck driver and business owner, 59, same scenario. We have zero debt, including paid off home currently valued at approx 450k. Educational loans, car loans, nada. Have always lived simply and within our means. Obamacare health insurance new scene for 2014--awaiting final premium estimate but expecting around $650/mo Med+Rx. (previously bought group insurance thru my employment).

Our port consists of an amalgam of stuff left over from two previous attempts to let money managers run the show--they never seemed to "get" the FIRE concept, and performance never met projections. Over time have lost about 100k in the market, so have some tax credits could use to offset dividends/cap gains. Currently too much cash, from recently matured CD's and a recent freak out episode by DH during guvmnt budget whoops leading to a broad sweep out of select holdings.

Ran FIRECALC through the paces, scenarios succeeded most of the time up to about 70K/yr spending, consistent with our retirement budget, but I worry that assumptions are for 75/25, and not sure that we have the tolerance for being so all in.

Total port $1.67 mil, as follows:

Unqualified cash:

CD @1.09 maturing 2/2014 $55,484.
Capitol 1 savings @ .75% $151,672.
Local Bank savings zero interest $ 8,000.
TD AMeritrade MM cash holding accts $ 718,291

Qualified cash:

Simple IRA and IRA cash MM holding accts $ 288,823.

Unqualified Stock (VTI,KO) $ 137,625
Qualified stock in IRA/SIMPLE IRAs (SCHV, PAA) $ 40,805.
Unqualified Mutual Funds (SWSSX) $ 32,785
qualified TD Mutual funds fund $ 84,513

Unqualified Variable Annuity $160,725

It's been suggested that we should live off a portion of the unqualified cash and put the rest to something that will generate growth and income down the line, and also ideas offered that it makes more sense to live off the divi's and cap gains as long as kept at a 15% tax rate, as this can be wirtten off against preexisting losses sitting on the tax books,

I welcome any/all help through your ideas, suggestions, and constructive criticism. We have always been able to work hard and save money over time, but have never quite gotten the part where it should work for us quite right. Help!
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Old 12-04-2013, 04:10 AM   #2
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Quote:
Originally Posted by copperdogs View Post
Ran FIRECALC through the paces, scenarios succeeded most of the time up to about 70K/yr spending, consistent with our retirement budget, but I worry that assumptions are for 75/25, and not sure that we have the tolerance for being so all in.
Go to the "My Portfolio" tab on FIRECalc and reduce the % of equities to 40 or 50 percent and see how much that changes your results. You'll likely find your success rate is about the same as with 70%.
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Old 12-04-2013, 05:58 AM   #3
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Have you included any Social Security in your estimates? With two career earners, I suspect that you have significant SS resources accrued at this point.

Even with talk of possible reform, estimates that include 70% of what you have accrued under current law may be reasonable. With no pensions, this would make a significant difference in your allowed spending and/or any safety buffer.

-gauss
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Old 12-04-2013, 06:05 AM   #4
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Cheers to everyone here!

...Currently too much cash, from recently matured CD's and a recent freak out episode by DH during guvmnt budget whoops leading to a broad sweep out of select holdings.

Ran FIRECALC through the paces, scenarios succeeded most of the time up to about 70K/yr spending, consistent with our retirement budget, but I worry that assumptions are for 75/25, and not sure that we have the tolerance for being so all in.....
Welcome to the forum.
The good news is that you are in a place of safety at this point in time with your assets being almost all cash. (but as you probably know, not safe in the long run). Congrats on your achievements amassing your portfolio, house paid off and debt free.

Based on what is highlighted in red, you probably are not ready emotionally for a 75/25 portfolio and this will hurt your wealth if you cannot stick with it. Investing is almost all emotional.

I recommend you take some time and read about how to DIY with your money. The reading list below should help.

An updated FIRE recommended reading list (with a military twist)
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Old 12-04-2013, 08:03 AM   #5
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An important thing to remember is that,i in a way, we are all in 100% cash at close of market each day. Each day we make a conscience or unconvinced decision to maintain our existing AA. Find an AA that you are comfortable with and begin working towards it. I took almost 2 years to get to my desired AA. Most here would suggest that you look to reduce expenses as much as possible.
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Old 12-04-2013, 08:06 AM   #6
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[QUOTE="Gatordoc50;1386844"]An important thing to remember is that,i in a way, we are all in 100% cash at close of market each day. Each day we make a conscience or unconvinced decision to maintain our existing AA. Find an AA that you are comfortable with and begin working towards it. I took almost 2 years to get to my desired AA. Most here would suggest that you look to reduce expenses as much as possible.[/
Conscious or unconscious decision.
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Many thanks...
Old 12-04-2013, 10:01 AM   #7
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Many thanks...

...to all who have taken their time to weigh in on our situation for us.

Not yet savy enough to clip and post portions of responses just yet, but in time, grasshopper.

I went back to FIRECALC as REWahoo suggested and did appreciate the shift in stock/bond ratio tweaks more inline with our tolerances. Thanks!

As Gauss mentioned, yes, SS was factored into several FIRECALC runs, for full retirement ages of 66 and 67 respectively (which adds approximately $1500/month income for each of us). SS bennies for us are not that robust, as during a portion of our working time vast majority of income was derived from S-Corp dividends rather than earned income proper. I need to do more reading I now realize, though, on strategies for when to pull the SS ring(s)...

Thank you, Free To Canoe, for the reading list link! Without a doubt it is because of our discovery (and implementation) back in the 80's of philosophies such as YMYL and Tightwad Gazette that we are where we are today, but there are so many sterling resources in your link yet untapped. And as a nurse for over 30 years I have been reminded everyday that life is short, and time is sweet (and that if you don't have your health you don't have much).

And my unabashed ignorance here... What is "AA?"
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Old 12-04-2013, 10:07 AM   #8
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AA = Asset Allocation

More definitions here: * Acronyms and Slang Frequently Used on the Forum *
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When I hit 70, it hit back

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Old 12-04-2013, 10:10 AM   #9
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You might want to consider a portfolio of zero stocks. If your expenses are low enough, then in relation to your savings you have already "won the game" and you can take risk off the table by simply investing in assets like TIPS, I bonds, CD ladders, inflation indexed annuities, etc.

Here is an article from William Bernstein on why he advises clients approaching retirement to do this -

The worst retirement investing mistake - Sep. 4, 2012

Here is another article on retirement and sequence of returns risk -

How to avoid sequence-of-return risk - Robert Powell's Retirement Portfolio - MarketWatch

Added -

I should have put zero stocks for your basic living expenses plus LTC coverage (insurance or reserves).
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Old 12-04-2013, 10:23 AM   #10
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Thank you daylatedollarshort.

I am home today with a sick pet, so shall get reading!
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Old 12-04-2013, 12:42 PM   #11
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Thank you daylatedollarshort.

I am home today with a sick pet, so shall get reading!
Welcome ! I have a feeling you are going to succeed this time around with FIRE. Hope the pet is feeling better - I hate when my dog is sick - would rather it were me
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Old 12-04-2013, 12:55 PM   #12
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It's been suggested that we should live off a portion of the unqualified cash and put the rest to something that will generate growth and income down the line, and also ideas offered that it makes more sense to live off the divi's and cap gains as long as kept at a 15% tax rate, as this can be wirtten off against preexisting losses sitting on the tax books,
You have said several things here, which may not follow from one another. Although qualified dividends are treated like LTCGs is various ways, I do not think that an unlimited amount of net capital loss can be combined with qualified dividends to arrive at a single number to put on the 1040. However , I am not sure, since I have never dealt with this situation.

Please let us know what information you are able to find out on this.

Ha
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Old 12-04-2013, 01:21 PM   #13
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You might want to consider a portfolio of zero stocks. If your expenses are low enough, then in relation to your savings you have already "won the game" and you can take risk off the table by simply investing in assets like TIPS, I bonds, CD ladders, inflation indexed annuities, etc.

Here is an article from William Bernstein on why he advises clients approaching retirement to do this -

The worst retirement investing mistake - Sep. 4, 2012

Here is another article on retirement and sequence of returns risk -

How to avoid sequence-of-return risk - Robert Powell's Retirement Portfolio - MarketWatch
I've read these articles and I've heard and read Bernstein before on this issue. I don't think that he says that you should have zero stocks. Powell quotes Bernstein as follows:

Quote:
Bernstein defines a risk-free portfolio as one adequate for a basic retirement—a so-called liability-matching portfolio. With a liability-matching portfolio, you earmark certain assets to pay for your basic retirement expenses, or liabilities. “Anything in excess of that can be invested in risky assets,” said Bernstein. “For some folks, that’s going to mean a 100% fixed-income portfolio, and for wealthier clients, something far more aggressive.”
So, lets look at what that means. He isn't saying that anyone retired should have zero stocks. He also clearly isn't saying that a person with lots of extra assets should have zero stocks. In fact, quite the opposite. The most likely person for a zero stocks portfolio is one who has just enough to meet basic expenses but not any extra amount. For people who aren't super wealthy but have more than enough to basic expenses I don't think he has any issue with owning equities.

I thought about how this might apply to DH and I when the dust clears (i.e. our 2 kids at home are out on there own) in about 3 years.

Hypothetically (if I take SS at 62 - I'm undecided), we have roughly $46k a year of our expenses covered by SS (DH is already on SS). I think our basic expenses are about $55000 a year. So that is a $9000 a year shortfall. Bernstein says you need to have 20 to 25 times that amount to retire.

OK, that is somewhere between $180,000 and $225,000. Let's be conservative and use $225,000.

Now, if DH and I 3 years from now have $225,000 portfolio Bernstein says we should have no equities. Fair enough.

But let's say we have a $500,000 portfolio or a $1,000,000 portfolio. Bernstein would have no issue with us having equities for the amount over $225,000. In fact, the larger the portfolio the more equities we could have. Even a $500,000 portfolio could be 50/50 Asset Allocation.

Let's say I don't want to just protect the $55,000 basic retirement expenses and want to protect what I think of as my normal desired retirement spending at that point which is about $65,000. There is a shortfall of $19000 and so he would say to have $360,000 or $475,000 not in equities. But gain depending on the size of my total portfolio my asset allocations could more equities than not equities.
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Old 12-04-2013, 01:44 PM   #14
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I've read these articles and I've heard and read Bernstein before on this issue. I don't think that he says that you should have zero stocks. Powell quotes Bernstein as follows:
You are right. I should have said zero stocks for their basic expenses and LTC coverage. With not the highest SS amounts, 70K yr spending, no pensions, early retirement ages and long term care to think about, I didn't think there would be a lot left for riskier investments. However, I didn't run the numbers in a planner and still should have phrased it differently.

I did link to the articles with the detailed explanations.
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I am appreciative of the recent discussions
Old 12-05-2013, 11:04 PM   #15
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I am appreciative of the recent discussions

...regarding our particular retirement scenario here.

Having read both linked articles, I see that here does seem to be relative serious merit to the protective side of a port with no more than 20% stock (at least initially) in retirement, with perhaps an increase in the later years.

Keeping the fixed investments in shorter term vehicles does allow for a more agile response as rates change, but that also goes both ways--we sure treasured that last 5-year Key Bank CD at 5.2% when we couldn't find anything that paid much over 1%...

We still have much to learn.

BTW Pet surgery deemed a success; she's feeling better, albeit in a leg cast for two more weeks. Definitely need to "up" that portion of the retirement budget if the last month is any indication of the pet cost column!
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Old 12-06-2013, 12:27 AM   #16
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You are going to live on $70K in a $450K home
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Old 12-06-2013, 01:47 AM   #17
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You are going to live on $70K in a $450K home
I am not following why that would be a problem. Could you explain?
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Old 12-06-2013, 06:25 AM   #18
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I am not following why that would be a problem. Could you explain?
I guess its where you live and your property tax rates and what maintenance the house requires. Here in Ohio, the real estate taxes would be 10-15% of the $55K living expenses.

Our legislature also just repealed real estate reductions for future seniors and lowered taxes on business.
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Old 12-06-2013, 11:47 AM   #19
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I guess its where you live and your property tax rates and what maintenance the house requires. Here in Ohio, the real estate taxes would be 10-15% of the $55K living expenses.

Our fine government here also just repealed real estate reductions for future seniors.
With Prop 13 in California, it is possible for retirees to have million dollar homes and pay relatively little in property tax.
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Old 12-06-2013, 11:52 AM   #20
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BTW Pet surgery deemed a success; she's feeling better, albeit in a leg cast for two more weeks. Definitely need to "up" that portion of the retirement budget if the last month is any indication of the pet cost column!
Glad to hear the surgery was a success. Vet bills are really a budget wild card for us. One trip to the emergency vet, a test or two, a follow up visit and there goes $500.
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