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We're OK, no we're not OK...disparity of opinion
Old 07-11-2016, 12:55 PM   #1
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We're OK, no we're not OK...disparity of opinion

I made financial blunders as a young adult, recovered, made more blunders, recovered. So, my whole approach has been that anything can be recovered. I'm also pretty good at grasping reality and understanding that "this is real, therefore I must..." For instance, I lose jobs sort of often, got raises slowly - my brain is badly disorganized and while I've been able to improve, I never was able to produce as effectively as other employees. So, since my reality is that income was not assured, I steadfastly avoided debt, and when I did buy a house, I took on second jobs, got roommates or whatever, to get it paid off fast.

I got into a lucky spot circa 1995, found a small technology niche that kept me employed nonstop for 20 years...by which time the niche had shrunk and is now an afterthought. Got laid off in 2013, took a few other jobs, but was definitely not suited, and fed up with the stress, I decided to stay unemployed long enough to assess things.

My assessment was that we had enough. Several outside wealth managers agree. My wife, however, cannot believe that it's OK to quit work in your 50s - we're gonna die, it seems.

Poor thing has gone out and got a crap job that's high stress. I feel for her, but as they say, I didn't cause her emotion, therefore I can't fix it. I'm trying to be supportive. And in fact, I'm not retired, I'm just using this time to develop a small electronics manufacturing company. I've had some success and very small income, but nothing big - won't have sizeable income, I figure, for 3-5 years.

Since I see others doing this, I'll do so as well, would be interesting to see responses.

Debt: zero
Home: worth $500k or so, purchased with cash
Vehicles: Two of them young enough that we'll be 80 before they need to be replaced
Total 401k/IRA/investments: let's just call it $1 mill
Social Security, when we take it at age 70: $39k for me, half again for spouse
Current spending level: Approx $35k per year and declining
Longevity expectation: 40 more years, based on family history

Plan: Using the Income For Life plan, we extract 3-5 years worth from the portfolio - when the market is at a relatively high spot - and put that into something like an annuity or other vehicle we can draw from regularly. Therefore, the money on which we're living is not coming from funds at market risk. And..we can accept a bit higher risk in the market to achieve better long-term results, since a temporary down won't impact our ability to spend.

What's not accounted for: impact of her having a job, or my business making earnings. I don't see those as negatives, yet....

Will be interested to see comments.

Thanks!
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Old 07-11-2016, 01:40 PM   #2
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I say it depends where you are in your 50's and how much of your investments are in tax deferred accounts. If your taxable savings will get you by until you reach 59.5 then it seems the rest of your savings should get you by until you are 70. After that, SS will cover more than you need. So, if you can get by until 59.5 then you are set.
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Old 07-11-2016, 01:55 PM   #3
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From the numbers you gave, you might be able to do it. I question if you have fully covered the cost of medical. You could also downsize you house for additional capital. Have you run FireCalc?
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Old 07-11-2016, 03:20 PM   #4
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Originally Posted by aaronc879 View Post
I say it depends where you are in your 50's and how much of your investments are in tax deferred accounts. If your taxable savings will get you by until you reach 59.5 then it seems the rest of your savings should get you by until you are 70. After that, SS will cover more than you need. So, if you can get by until 59.5 then you are set.
Oh, I didn't realize I hadn't given those details. I turned 58 in May, wife will be 61 later this year.

Help me understand why taxable versus deferred matters...we have so little income that we would pay no taxes on withdrawals unless they get 'big'. Last year our Fed taxable liability was $320, state was $450, approx, 2/3 of it from wife's just-over-min-wage job. I also had $4k of income, but it was more than offset by expenses, so Schedule C showed zero.

Also, something I neglected to mention...of my 401k plans, the largest one of them is from employment with a company that laid me off the year I turned 55. By IRS rules, that means I can draw from that account without penalty.

Thanks!
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Old 07-11-2016, 03:28 PM   #5
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Are you sure about your expenses? $35k a year for a couple isn't very much.

That said, if your expenses are right then you have plenty. Firecalc and other similar stochastic planners should "prove" it. Also, you can always claim SS earlier than 70 if your investment results are adverse.

Even at $50k a year, you'll need to set aside $600k for 58 to 70 assuming 0% real return, leaving you $400k to leave invested. The SS will more than cover your living expenses and you'll still have whatever the $400k has grown to left.
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Old 07-11-2016, 03:33 PM   #6
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From the numbers you gave, you might be able to do it. I question if you have fully covered the cost of medical. You could also downsize you house for additional capital. Have you run FireCalc?
Medical is clearly an uncertainty. The Firecalc website has a link to "average spending" and when I gave it our rough info, it claimed that the average for a retired couple our age (below SS age) averages $812 per year in medical spending....how can that happen?

Do you have a good link to something that helps predict medical spending?

For the moment, my wife's job gives us access to insurance for about $2400/year. If we weren't on that plan, we'd investigate ACA, but if your income is below something like $24k, ACA doesn't apply, and you're on local Medicaid.

I've been to the FireCalc website but I can't say that I fully understand what the software does. Why would I want to know if I could survive market conditions like the great depression? In such conditions, I leave the market. If the software can handle entering a portfolio management plan, then it would make sense. I need to learn more about FireCalc. Is it a download or online, etc.

Thanks!
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Old 07-11-2016, 03:50 PM   #7
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I've been to the FireCalc website but I can't say that I fully understand what the software does.
Start here: FIRECalc: How it works

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Originally Posted by OxidizedDreamer View Post
Why would I want to know if I could survive market conditions like the great depression? In such conditions, I leave the market.
Yep, always a good idea to get out after the market has tanked. That "sell low" strategy is a real winner.
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Old 07-11-2016, 04:02 PM   #8
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Originally Posted by OxidizedDreamer View Post
Debt: zero
Home: worth $500k or so, purchased with cash
Vehicles: Two of them young enough that we'll be 80 before they need to be replaced
Total 401k/IRA/investments: let's just call it $1 mill
Social Security, when we take it at age 70: $39k for me, half again for spouse
Current spending level: Approx $35k per year and declining
Longevity expectation: 40 more years, based on family history

...
It would be useful even for you to define exactly
401k = x
IRA = Y
investments =N

As yes you probably can withdraw from 401K now, depending upon employer rules.
Touching IRA prior to 59.5 will mean 10% penalty.
investments - if liquid are good source of income, dividends would be tax free.
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Old 07-11-2016, 04:04 PM   #9
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If I read your SS right I think you are wrong. You may get $39k at 70, but your wife will not get half. She will get half of what you would get at full retirement age. I.E. 66 or 67 most likely. I don't know the age for a 58 year old. (I doubt this has much effect, but it may)

From the SS site:
Full retirement age (also called "normal retirement age") had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.
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Old 07-11-2016, 04:04 PM   #10
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Yep, always a good idea to get out after the market has tanked. That "sell low" strategy is a real winner.
Well, at least it seems to be popular.
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Old 07-11-2016, 04:06 PM   #11
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my guess is that the firecalc $812 in medical spending average probably doesn't include insurance premium cost just what ave expenses not covered by health insurance
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Old 07-11-2016, 04:28 PM   #12
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Yep, always a good idea to get out after the market has tanked. That "sell low" strategy is a real winner.
I agree. It's a wonderful strategy because it gives you the opportunity to start fresh with a brand-new set of investments (assuming you have any money left) and not be bogged down by all those loser investments (aka looser investments).

I still haven't been able to ascertain if selling at the very bottom is a science, an art, luck, uncanny intuition or if I've just been blessed.
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Old 07-11-2016, 04:41 PM   #13
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Your DW the "poor thing" has gone out and gotten a "high stress" crap job that gives you highly subsidized health insurance.

You are rather flip in your comments about her,but you do "feel for her"...if this is you trying to be supportive I think you might try a little harder. I realize you might be joking a little here but it sounds a little rough.


I suggest you dig a little deeper into the ACA rules investigate your wife taking her spousal early say at 62 and show her how you can replace her insurance and income. How much money does she make? This might help her sign off on ER.
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Old 07-11-2016, 05:34 PM   #14
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Medical is clearly an uncertainty. The Firecalc website has a link to "average spending" and when I gave it our rough info, it claimed that the average for a retired couple our age (below SS age) averages $812 per year in medical spending....how can that happen?

Do you have a good link to something that helps predict medical spending?
$812 for annual medical spending sounds low to me, but I'm comparing that amount to what we spend annually. DH and I retired at 59/52, with no access to employer-subsidized insurance. Our medical expenses for the 6 years we've been retired have averaged $16K per year ($12K for insurance premiums and the rest to pay for deductibles, co-pays, and other out-of-pocket costs). Since DH went on Medicare in March, our medical spending so far this year is running $3k less than this time last year. You can see why $812 per year for two under-age-65 people sounds suspect to me. Or maybe DH and I are just outliers.
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Old 07-11-2016, 06:47 PM   #15
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Yep, always a good idea to get out after the market has tanked. That "sell low" strategy is a real winner.
I recommend you read up on what a "trailing stop loss" is. The market goes up, and up, and up...and you keep bumping your sell signal to 10% below the current figure.

If the market IS going to tank, say down 30%, then it must FIRST go through the 10% down spot, right? So, if a sell signal dumps everything at 10% down, that's the max you can lose during a market tank. You have to figure out a formula for when to get back in, though.

I don't do it that automatically...rather, I am vaguely aware of the news, and if I hear of a story that's repeated over and over, I go find out about it and ask "is this likely to shake the economy to its roots or burst the current Big Bubble?". By doing this, I have missed the three largest declines since 1987. Simply missing the 50% slide from 07 to 09 automatically put me 2X ahead of anybody who remained in the market during the entire 19 months that their portfolios were beaten bloody.

BTW, very few people actually stayed for that one...Forbes claims that only 8% of individual investors actually remained in the market during the entire slide.

I got back in the first time the market came back 10%, so I got most of the upslide too.

But...I considered that level of effort to be reasonable during wealth-building years. Now I plan to turn that work over to wealth managers who will do the "tactical management" for me.
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Old 07-11-2016, 06:59 PM   #16
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ACA: I actually read the whole bill when it came out. I know it pretty well. ACA subsidies are only available if your income is between 100% of the poverty level and 250% of the poverty level - for your region and family type. Where we live, it's $15,390 for a family of two adults. Below that annual income, ACA will not subsidize, but instead expects you to file for your state's Medicaid.

It's on this web page, scroll down to the section that begins with "Who's Eligible?"

Or is there a different part of ACA you think I missed?

Of course, there's another option - we can just buy insurance. Just because one is eligible for Medicaid, doesn't mean one has to take it. All of the ACA-approved plans are available to purchase outright (part of the ACA regulations), but ACA simply won't offer you a subsidy if your income is not beteween the lower and upper limits.

A couple years ago when we looked at the ACA option, a plan we were considering, by Cigna, I think, was $750/mo for an 80/20 plan. $8400 a year for the insurance, routine care covered with modest copays, so it would be a known expense unless surgery/hospitalization kinds of things happen. If that happened, well we keep our emergency fund above the health care plan's max out-of-pocket expense.

Now that I think of it, this IS the health cost, isn't it? The now readily available insurance plans.



Spouse: I used her words to describe the job...best way to honor someone's opinion that I know of....she tells me I'm very supportive, in fact, over our years, has asked me to cut back on the support a few times LOL. She's adorable...and honest about knowing her financial fear is not grounded in any real thing. Doesn't mean she's figured out how to outgrow it though. She really despises the health care plan, but the company doesn't have options.

Spouse won't take before 70, she's set on that decision. It's hers to make so I'm fine with that. She had state income some years ago, and is eligible for a small pension, but "small" is the operative word - $180/mo or so if she draws at 62. Help, but not much.

I actually think we're in fine shape. Nothing says we will never earn again, and we have shown over and over that when we needed to, we were able to slash expenses to the bone. I think our demonstrated flexibility gives us a lot of potential. She's not so convinced, and I've not really been able to figure out which aspect she's not satisfied with except "we're too young".
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Old 07-11-2016, 07:09 PM   #17
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ACA subsidies are available up to 400pct of Fed poverty level.

Stop loss market orders can execute way below their trigger levels hence the huge intra-day price swings during market drops especially in the first couple of minutes after market open. Remember end of day prices are what are normally reported.

Lots of smoothing happens if you only look at end of day prices.

Even if you get out successfully, what is your strategy to reenter the market? The majority of a years gains result from only a few days activity that you need to be present to take part in.
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Old 07-11-2016, 07:19 PM   #18
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You have to figure out a formula for when to get back in, though.
Yes, there is always that little irritating problem. I could never figure it out and gave up trying when I was relatively young.

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BTW, very few people actually stayed for that one...Forbes claims that only 8% of individual investors actually remained in the market during the entire slide.
Many of us on this forum were in that 8% and went for the ride - both down and back up. We never had to figure out the right time to get out and get back in.

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Now I plan to turn that work over to wealth managers who will do the "tactical management" for me.
The problem with this approach is finding managers both skilled at and dedicated to managing your wealth rather than than their own.

Best of luck to you.
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Old 07-11-2016, 07:48 PM   #19
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Yes, there is always that little irritating problem. I could never figure it out and gave up trying when I was relatively young.
I did it the same way I figured out the 10%. I downloaded DJIA daily closing prices going back 50 years (The DJIA was measured and controlled VERY differently before the end of WWII, so there is no sense at all to consider ups/downs prior to those major management/reporting changes). To figure out my "down" point, I tested at 10%, 15%, 20%. and simply asked, "what portion of the time that the market dips by this much does it go on to go twice as far?". Some folks use support lines or moving averages, but I wanted something that could be cacluated quickly. Turned out 10% was a pretty good sign. If you stop out at 10% down, then 1/3 of your stop-outs avoid massive calamity.

For the "when to get in", I sought all those times that the market went down 10% and kept going. I applied the test of "if down 10%, and it has a 5" up after, what percentage of the time does it continue to climb instead of turning around and falling further". 5% became 8%, etc. I think I ended up at 12% - after I've triggered on 10% down, I have to see 12% up...or a return to the previous value.

Took a day with Excel.

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Many of us on this forum were in that 8% and went for the ride - both down and back up. We never had to figure out the right time to get out and get back in.
Sorry to hear you took the loss. For those of us who got out prior to any downswing (this one was easy to see - the oldest bank in the world went bankrupt? That would send shivers down every investor's back around the world), our portfolios doubled in 19 months. For me, that pulled retirement 4 years sooner. I'm willing to put some brain power into thinking for that kind of result Of course, at the time, I didn't know it would be that powerful.

I do other things to outmaneuver the SPX, too, mostly by careful fund selection and quarterly review.

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The problem with this approach is finding managers both skilled at and dedicated to managing your wealth rather than than their own.
Well, it's not so much a "problem" as an investigation. If they won't expose their track record, they're off the list. If they do expose their track record and won't explain their methods, they're off the list. Also, if they invest you directly into funds and stocks, they're off the list. What you want are wealth managers who have access to non-traded vehicles such as private equity firms that are bootstraping expansions of existing fine companies. One in my current portfolio has been up 22% YOY for 6 years and a trailing stop of only 3% has never been triggered.

Picking a wealth manager (I'm not wealthy, that's just their title) is like forming a relationship with anybody else, and if you're close to retirement age, you've done that a lot and probably have a good spidey sense.

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Best of luck to you.
You as well.
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Old 07-11-2016, 08:07 PM   #20
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Op, you fibbed on your introduction. That brain is not disorganized.
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