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Thinking of RE
Old 08-21-2004, 04:41 PM   #1
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Thinking of RE

Hello everyone!
I wanted to thank everyone for all the excellent advice and info on this message board. I have been lurking for awhile and have read many of your suggested books over the years (Retire at 35, Four Pillars, YMOYL, Millionaire...). My favorite is Terhorst's.

I'm 39, divorced, rent, no kids, very healthy, and manage all my finances and portfolios. Current finances:

IRAs 185K (Traditional and Roth)
Brokerage 115K
Ind Stock 75K (Private company stock from options)

QQQ 51%
Schwab 1000 28%
Individual Stock 21%

I'm comfortable with the risk associated with the stock market. Started investing in no load mutual funds many years ago, then individual stocks...now looking to diversify more. I know the QQQ percentage is far too high for RE..... and I'm thinking about moving most of the QQQ's into the S&P 500 or the Wilsher 5000. I was completely out of the market from March 2000 to March 2003. I owned many tech stocks (including some MF Rule Breakers) in the mid to late 90s....and removed all my chips from the table when a money manager that I follow (Bob Brinker) made his call to pull out of the market in early 2000. I have never invested in , nor am I very familiar with Bonds or TIPS.

I have worked in product developement for the past 15 years...kinda burned out on it....been there done that.......and more and more, I find myself wanting more time to pursue some dreams (and goof off) while I'm young and healthy. I figure I can always work later if I want to.

I love to travel and surf.... and still have many places I want to explore. I took a year off in the late 90s to travel and surf.....loved it! I'm accustomed to budget travel and can travel full time on approximatley 4% of my net worth (Central America, South America, South East Asia....). I have run the FIRE calcs...and budgeted for health care, taxes, and flights. I have traveled extensively for business and pleasure to Europe, Asia, US, Canada. I feel very fortunate to have had that opportunity.

For health care, I'm currently paying $180/month for Cobra PPO. I'm thinking of switching to a higher deductible HMO and Nomad travel insurance....hoping to get both for $100-$125 per month.

Any advice on RE, asset allocation, or health care is appreciated.

Thanks!

Surfs Up
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Re: Thinking of RE
Old 08-21-2004, 06:51 PM   #2
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Re: Thinking of RE

Hi Surf,

If your skills get too rusty from all that surfing it might
be harder to get back into the workforce than you
think.

I hate to burst your bubble, but your financial assets
look too marginal for permanent RE at your age. You
probably need to figure a way to make some money
while you are having all that fun. You can't tap your
IRA without paying a 10% penalty until age 59.5 and
you will blow through your after tax funds in the next
20 years without some sort of outside income.

As for investments, you need to stabilize your portfolio
with some fixed income. I suggest you put your IRA
into one of Vanguard's Target Retirement funds, say
the 2035 which is 80% stock and 20% bonds, and
forget about it for the next 30 years.

As for your after tax investments, buying individual stocks is a loser's game in the long run. IMHO. you
should re-read Bernstein's "4 Pillars ...." or one of
Swedroe's excellent books and take their advise to
heart.

Cheers,

Charlie
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Re: Thinking of RE
Old 08-22-2004, 06:11 AM   #3
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Re: Thinking of RE

Surfs Up:

Charly gave you good advice on your investments

Having followed this board for a while, I am sure that you've noticed most of the posters (new, as well as old) are on the conservative side.
You are probably above average for a single male age 39 (Net Worth). My youngest daughter that is 38 has nowhere near what you have, but she's not talking or even thinking of retiring.
My advice would be to continue to do the good job acquiring net worth, and you could probably retire for good in another 10 years or so.
Of course being single, with no responsibilities, I can understand how it would be tempting to think along the lines you are apparantly considering. At age 39 and single, you can practically live on air, if you're outgoing and personable.
If you are bound and determined to do this, you should probably concentrate on educating yourself with alternative life-styles. (You'll need it).
Surfing and traveling does sound like fun.
Good luck, Jarhead
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Re: Thinking of RE
Old 08-22-2004, 07:37 AM   #4
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Re: Thinking of RE

Hi Charlie,
Thanks for the advice on stabilizing my portfolio with some fixed income. I'll look into the Vanguard Target Retirement fund 2035. Agree that it is difficult to get above average returns and diversification with individual stocks.

Regarding the IRA withdrawls, I believe you can take small SEPP withdrawls (with no penalty) at any age as long as you continue to take them until 59.5 ?

Just ordered Swedros What Wall Street doesn't want you to know from the library.

Thanks again,

Surfs Up
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Re: Thinking of RE
Old 08-22-2004, 07:57 AM   #5
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Re: Thinking of RE

If you can't stand doing what you were doing (for a living), you're in a good position to try something else. I'm afraid I agree with the others, that for a few more years, you're going to have to make some real money, and put most of it away, to become FI. But is there a skill you have that you can make money consulting? Writing? Is there something you can sell on eBay? (That probably won't put away the big bucks unless you work very, very hard on it.) If you travel and surf, is there a product (native artwork) that you can buy as cheap as dirt and sell back home (back to eBay, for example) for huge profits? Someone I read about in our local paper does that with African art. She seems to be raking it in.

I humbly agree with the other posters here. The research shows that it's good luck if we make money with individual stocks. Being well-read financially is to be more deeply steeped in a great nationwide hoax that is being perpetrated by a huge network of financial advisors, brokers, financial press, and is kept alive by the dreams of making a killing. Those dreams are so easy to keep alive - just publish a story about this or that stock that ran up steeply (and neglect to include information about everything else that was in those stockholders' portfolios at the time). And it's boring. Cheap index funds are boring.

Read Bogle. Read the coffeehouseinvestor.com. Look at the many sites devoted to index investing. That Swedroe is a great resource for this, as well.

We'd all like to believe we are smarter than the research, that OUR stock picks (or our broker) will beat the market, that WE (or our broker) will find the sleeper before anybody else knows about it. I'd sure like to believe it. And for fun, I keep a fraction of a percent of my net worth in sharebuilder. You should have seen how much eBay was up! Before it went down again. . . .

Anne
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Re: Thinking of RE
Old 08-22-2004, 08:00 AM   #6
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Re: Thinking of RE

Quote:
Regarding the IRA withdrawls, I believe you can take small SEPP withdrawls (with no penalty) at any age as long as you continue to take them until 59.5 ?
These are called SEPPs (Substantianlly Equal Periodic Payments) or 72(t) exceptions. *intercst has a good writeup on them.

http://www.retireearlyhomepage.com/wdraw59.html

As for retiring with your current amount I don't think it could be done too easily. One way to look at it would be to consider a reduced work life now with "retirement" at 65. The IRA could provide for that regular retirement. It would grow to $650K inflation adjusted by then (assuming an average return of 5% after inflation). That plus whatever SS provides would give you at least as good an income as the reduced work life time. The rest of the stash plus whatever odd and temporary jobs you can get would have to provide for the years until then.

I have considered such a reduced work approach myself (though with more cash) but only as a fallback if something happens to the Silicon Valley tech industry or if I get so burnt out that I have to go. Until then the amount that I save every year brings greater value than stopping right away.

How fast are the savings to your accounts? How much do you really need to get out now? How about doing contract work and then only working part years?
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Re: Thinking of RE
Old 08-22-2004, 08:05 AM   #7
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Re: Thinking of RE

Jarhead,
Thanks for the note. I agree that my plan is far riskier than most on this forum. But, if the Terhorst's pulled it off at 35 with a relatively small net worth (and John Galt)....why not give it shot? Worst case senario seems to be that I would have to go back and work to make some money.

Assumptions I made on FIRE calc.

Inputs
16K expenses
12K Social Secuirty starting in 22 years (from IRS calc).
100% stock market
Die at 99

Outputs
4.21 % beginning withdrawl
Sucess Rate 99.2%
Mean balance at death : $32.2 M

Also, I should have mentioned that when I do settle down, it will be a warm tropical location, with good surf and warm water with much lower expenses than the US. I live in San Diego now, but its too expensive and the water is too cold My favorite places so far are Panama, Costa Rica, Nicaragua. But I want to check out south america and mexico first.

Thanks!

Surfs up
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Re: Thinking of RE
Old 08-22-2004, 08:09 AM   #8
 
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Re: Thinking of RE

Quote:
100% stock market
I think you might want to lower this to at least 80%. Play with FireCalc and you'll see that you won't hurt your return that much and won't have to deal with the volatility of a 100% stock allocation.

Usually a good rule of thumb is take 110 -age and that is what your stock allocation should be (e.g. 40 years old = 70% in stocks)
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Re: Thinking of RE
Old 08-22-2004, 08:28 AM   #9
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Re: Thinking of RE

Anne,
Thanks for the feedback. I'll check out some of your suggested readings. Interesting ideas regarding importing products....I was involved in importing sporting goods from Europe and China for several years. I also have been thinking about building a very small hotel in Costa Rica. I have been crunching the numbers on a spreadsheet to see if they make ROI sense...but right now I'll take Paul Terhorst's advice and not make any major investments or purchases for two years....to keep from doing something really stupid

Surfs Up
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Are you sure on those SS numbers?
Old 08-22-2004, 08:31 AM   #10
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Are you sure on those SS numbers?

Surfs_Up,

At the risk of being the bearer of bad assumptions, $12K SS sounds kinda high for ER at 39. I retired at 42 and my projected top end is more like $9800. Hopefully you have a better earnings history...

The SSA's mailed statement assumes that you keep working until age 62. I don't know about the IRS' calculators, but the SSA's online calculator has three versions. The second version has you enter your actual work history numbers and then you can zero out everything after age 39. If you're not using that one then you might want to recalculate.

Speaking as someone with a couple years' expenses in cash and the rest of our retirement portfolio in stocks, even to me your allocation looks pretty aggressive. We handled 40% volatility during Sep 2000 with only minor teeth-grinding but yours must be even more breathtaking. Two bad years (1973-4 redux) coupled with withdrawals for living expenses could put you right back into the workforce. I'd love to see you post your portfolio over on Vanguard Diehards and shake up those old fuds.

If I couldn't live in Hawaii then I'd pick San Diego... unless Hawaii finally opened a decent taco shop. But considering the cost of SD real estate & electricity, added to the sprawl & traffic (and even pollution?!?), it's starting to turn into a suburb of LA. For me the harbinger was watching Starbucks open a franchise directly across the street from Kensington Coffee Co. You're right, ERing there on your assets would be a heckuva challenge.

OTOH I regretted finding the Terhorst's book after I'd turned 40 and learning that I was already five years behind schedule. You're single and you can take all sorts of draconian lifestyle-downshifting plasma-selling measures to reduce your expenses and raise income. If you don't try ER now then you'll spend the rest of your life rueing this missed opportunity. As you say, if it doesn't work out after a few years then you can always look for a real job. If you think your numbers are good and you're committed to leaping into stomach-churning volatility without an apparent safety net, then you should buy a bunch of warm-water wax & head south.

Although I'm not sure how easy it is to tweak a stop loss or cover a short from Baja...

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Re: Thinking of RE
Old 08-22-2004, 08:40 AM   #11
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Re: Thinking of RE

Hyperborea,
Thanks for the link and advice. Right now I'm unemployed with a one year non-compete that is about to end. So, I'm not adding any savings now. I have considered living in the US and working part of the year and Costa Rica the other half...but many complications and costs.

Surfs Up
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Re: Thinking of RE
Old 08-22-2004, 08:43 AM   #12
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Re: Thinking of RE

Cutt throat,
Thanks for the allocation advice...I'll look at lowering the stock % and see how the results look.

Surfs Up
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Re: Thinking of RE
Old 08-22-2004, 09:10 AM   #13
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Re: Thinking of RE

Nords,

42...nice work ! I did run zeros on all future years to come up with $1000 per month for SS. I have 23 years of earnings on the mailed SS form. I did input zeros for the remaining years. I'll run again on the SSA site. If I work my ass off full time for 22 more years and make equivalent wages...... I'll get $266 more per month...no thanks! Although some on the site may want me to keep working...to keep their SS checks flowing

I'm used to volatility. I owned Amazon, Celera, Microsoft, Cisco, Ebay.....in the mid to late 90s so I have no trouble sleeping at night with the QQQ volatility. But I'm going to diversify this position soon.

I have managed my Schwab porfolio from Costa Rica, Nicaragua, Panana. How much is plasma getting these days? I just found Terhorsts book last year, so I'm years behind him also !

Thanks for all the insight,

Surf Up

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Re: Thinking of RE
Old 08-22-2004, 09:13 AM   #14
 
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Re: Thinking of RE

I was in a similiar position a few years ago with significantly more savings. I moved to Maui and am loving it here.

Consider moving to Hawaii and finding a job here. You'll have good surf year round, and will be able to save more money towards an early ER. Hawaii is also an excellent location for surf trips to Pacific islands and Indonesia.

You didn't mention what you do for a living, but it sounds like a technology job. There are tech jobs here in Hawaii. You could also start your own tech company, or do contract jobs. The pay will be lower than what your making in Ca., but you're not here for the career. Also, unless things change, you'll never own a house here. Housing prices are insane. A small 100 sqft shack, in a drug infested neighborhood goes for $400K+. Rents however are reasonable, as many homes are built as multi-family dwellings. See recent posts by Nords which describes the all the great things about living in Hi.

Good luck,
--John
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Re: Thinking of RE
Old 08-22-2004, 09:34 AM   #15
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Re: Thinking of RE

John Blake,
Thanks for the advice, I like it! I have surfed in Maui, Oahu, Kauai. I love Hawaii. I also spent 4 months surfing Indonesia in 99 (amazing).

I don't work in tech, just invest in it. I have designed and developed snowboards for most of my career...tough job, but somebody had to do it.

Housing costs...I know I'll never own a house in Hawaii or San Diego. If I do want to own a house, I'll buy a piece of land in (say Playa Negra, Costa Rica) for 10K and build a nice small 2-3 bedroom house for 35K...and pay all cash ($45k)...I've priced it out.

What are the rents for small 2 bedroon apartments or houses like where you live?

Thanks,

Surfs Up
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Re: Thinking of RE
Old 08-22-2004, 09:55 AM   #16
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Re: Thinking of RE

Please understand that I'm not a big believer in sanity, also INTJ, and left handed.

If you got an itch - go scratch it. We never let a Mardi Gras or good party (often here at da camp) pass us by when I was in my aggressively frugal years(cheap SOB - heh,heh).

Don't waste a lot of time reading investment books - park your money in a reasonably conservative balanced fund that gives you a yield you can live on - and go.

Don't let stuff own you - you can get wedded to the market (without a kiss) - women are better.

A single Wellesley or even a conservative Target Retirement Income will work.

You can possibly do wild and frivolous part time work to stretch $. Or something socially useful like serving drinks in an ex-pat bar while selling the ER lifestyle.
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Re: Thinking of RE
Old 08-22-2004, 11:06 AM   #17
 
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Re: Thinking of RE

Quote:
What are the rents for small 2 bedroon apartments or houses like where you live?
Approx rents for -
2 br: $1100-1500 per month
1 br: $700-1200
studio: $600-1000

We have a rare north swell coming (6ft hawaii scale). It should be here later today or tomorrow. Then there's another right behind. Everyone is psyched as the south swells have been weak so far this summer.
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Re: Thinking of RE
Old 08-22-2004, 11:30 AM   #18
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Re: Thinking of RE

Unclemick,
Good advice to not let stuff own you and the KISS stategy for portfolio funds. I have lived below my means and have been somewhat frugal over the years...as I'm sure many of you have. Serving drinks to brazilian and scandinavian bikini clad women doesn't sound like to rough of a job

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Re: Thinking of RE
Old 08-22-2004, 11:46 AM   #19
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Re: Thinking of RE

John Blake,
Thanks for the Maui rental info. I could swing Maui if I want to work some. If I don't want to work, I plan to live where rent and cost of living is much lower than coastal US. Apartments or small houses can be rented for $200-$300 (or less) per month in many places including Costa Rica, Panama, Nicaragua, Mexico, Indonesia, Thailand..... I may follow Terhorsts path and be a perpetual traveler for several years till I want to settle down. I owned a house in Seattle for 10 years. The only other big item I would need to sell to be a full time perpetual traveler is my truck.

Surfs Up
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Re: Thinking of RE
Old 08-22-2004, 11:55 AM   #20
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Re: Thinking of RE

JohnBlake,
BTW, it has been fairly flat here in SD this summer...but, we just had an amazing SW swell last week...1-2 feet overhead and perfect at Trestles in Orange County...but very crowded. Good to hear swell is on the way for you in Maui. I love the wave tracking sites Wetsand.com, Surfline.com, Olasperu.com....

Surfs Up
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