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Old 01-17-2010, 07:43 AM   #101
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I too am amazed by the posts saying how many millions are needed to retire. If I have to have several million I will never be able to do it. But in reality in a few years I can collect a pension and will have my house payed off. With that and a half million or so I will be fine. Will collect Social Security in a few years after that and can cut my withdrawal from my savings. If I am a little short wife and I can work a little part time.

Many people don't even live till they are 60 so wait too long and you will have plenty of money. Dead people don't spend much.

And young people that are going to be multi millionaires in just a few short years with their plan. Well, haven't seen that work out very often. Too many things can happen that you don't have any control over.

I don't know anything about covered calls or any thing like that. But I saw the word "leveraged", leverage works both ways. When its against you, you go broke faster! Those kind of things work until they don't and then its too late for you.
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Old 01-17-2010, 07:54 AM   #102
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I currently bring in $10K/month from writing covered calls. This income is immediately rolled back in to the investment.
I don't know what a covered call is---I am glad you are succesful investing in them and able to generate this sort of cash. However, I don't believe for a minute you can continue to make this kind of coin indefintely--sounds to me like people who made money flipping real estate a few years ago. I don't doubt your past success, but I cannot see how you can depend on continued success. There has to be some risk of your invested capital.
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Old 01-17-2010, 08:37 AM   #103
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Dead people don't spend much.
I'm not sure I believe that -- considering the source of that statement.
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Old 01-17-2010, 08:59 AM   #104
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I too am amazed by the posts saying how many millions are needed to retire. If I have to have several million I will never be able to do it. But in reality in a few years I can collect a pension and will have my house payed off. With that and a half million or so I will be fine. Will collect Social Security in a few years after that and can cut my withdrawal from my savings. If I am a little short wife and I can work a little part time.
I think a lot of people are much more conservative (as in safe, with more money needed) with their estimates now, after seeing how a large portfolio can go down rapidly. I also suspect a fair number of the younger people (early 40s and less) are not considering SS in their calculations. If you plan to retire young, don't have a pension, can't count on SS, and have no idea about what's going to happen with health care, suddenly a couple of million bucks seems more reasonable.

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And young people that are going to be multi millionaires in just a few short years with their plan. Well, haven't seen that work out very often. Too many things can happen that you don't have any control over.
Exactly! Why hold young people's opinions and ideas against them? Most of us had grandiose plans at that age. Heck, I'm 54, and I still plan to through hike the Appalachain Trail. Life steps in, and you either learn and adjust or you get bitter and disillusioned. Listen, agree (or not), and offer advice based on your life experience. They'll either make it or not. As life and time go on, they just might realize that to make it out early might require lifestyle changes and plan readjustments, since the money doesn't always roll in as easily over time as it does in the short term.

Also, don't forget inflation. If I was in my 30s now and planning to retire in my 40s or 50s, I'd want to have a lot more money put away than I needed to retire 3 years ago. Especially with the anticipation of significant (if not runaway) inflation looming.
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Old 01-17-2010, 09:56 AM   #105
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I too am amazed by the posts saying how many millions are needed to retire. If I have to have several million I will never be able to do it.
I've noticed this too and have another theory. I wonder if the people most likely to post their net worth are those with multi-millions. Others, with more modest sums, perhaps keep quiet with their numbers because they feel insecure, worried, hesitant, or don't want criticism. I think it would be easy to post a question like: "I have 10 million $$, when can I retire?" as opposed to saying something like: "I have 600K and SS coming, is retirement feasible?". Anyway, just a thought.
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Old 01-17-2010, 10:56 AM   #106
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Others, with more modest sums, perhaps keep quiet with their numbers because they feel insecure, worried, hesitant, or don't want criticism.
Money talks, and I find myself at a loss for words...

I must have entered the wrong forum with all this talk of a million. I am sincerely praying that 300k in my 401k and 24k a year SS will make it.
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Old 01-17-2010, 11:35 AM   #107
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Money talks, and I find myself at a loss for words...

I must have entered the wrong forum with all this talk of a million. I am sincerely praying that 300k in my 401k and 24k a year SS will make it.
Technically you're not ERed if you are getting SS. If I was under 40 I
would assume no SS and health insurance would rise at a 10% level,
given those assumptions, I think a million would be the minimum.
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Old 01-17-2010, 12:31 PM   #108
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When it comes to money, realism is a hard sell while dreams are always in demand.

Since few here know many board members personally, it is quite difficult to know if the the guy giving the advice knows much, cares at all how it works out for you, or tells his actual experiences and circumstances accurately.

If you expect entertainment you will usually not be disapponted. Same with non financial help- how to fix a toilet and the like. What products really work and which have disappointed. Beyond that, exercise caution.

One thing about telling someone that he or she should plan on getting together $2mm or so is that it is apt to be more robust advice than telling him to quit a good job when he has $1mm. It is at least closer to fail safe advice.

I do believe that quitting early without a COLA is a leap of faith, especially under current political and economic conditions, and current capitalizations of income streams whether derived from equities or fixed income. This likely will not prove to be an easy time to self-fund a long retirement.

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Old 01-17-2010, 01:29 PM   #109
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Technically you're not ERed if you are getting SS.
TJ
Actually TJ, SS is part of your withdrawal calculation even if you're pre-62 and not collecting. Knowing you'll start collecting SS later allows you to withdraw and spend more pre-SS.

For example, I retired at 58. Between 58 and 62 I withdrew an amount that was higher than it would have been if I was not anticipating SS. Now, at 62, I've started SS and withdrawals have decreased accordingly.

I will always consider myself an early retiree since my overall retirement plan is/was based on starting retirement with no pension or SS. Even though I'm collecting SS now, my overall retirement, from 58 until death, is irreversibly impacted by the four years we lived without SS/pension. But it's all just terminology and jargon with lots of variables and overlap. The lines between ER'd or normal retirement, FIRE and SIRE, etc., are blurry.
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Old 01-17-2010, 01:50 PM   #110
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Money talks, and I find myself at a loss for words...

I must have entered the wrong forum with all this talk of a million. I am sincerely praying that 300k in my 401k and 24k a year SS will make it.
I'm sure before beginning posting, you scanned a few threads to get a flavor for the forum. What did you think of the many threads where folks living on less than the 24k/yr SS you'll have commented that it was possible, even easy?

Welcome aboard!
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Old 01-17-2010, 01:56 PM   #111
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It's darned hard to leave this world just as your net worth hits zero.
100% of assets into inflation-linked SPIA achieves exactly that.

(Ignoring provider default risk.)

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It's kinda like winning a war with the last bullet in your arsenal. Doesn't happen. Can't happen. You either run out of bullets too soon, thereby losing the war-----or have truckloads of them when it's over.

Several years ago, while doing planning towards FIRE, I did a lot of playing with the FIRECALC equivalent that my company's 401K plan had. There was really no happy middling ground where I died with a generous estate. Either we ran out of money before we died, or the estate was large and still growing at the end. It was quite sensitive to the input parameters. Really bang-bang. A set that looked good turned out to crash if you changed assuptions about returns even a little bit.

When my wife asked about the results, I told her that it looks like either we'd be living with the kids at the end, or we'd be leaving them with a few million dollars. She voted the latter.
I agree with your analysis. As a result I've completely rejected the idea of running down capital while invested in volatile assets.

In my view, (early) retirement should start in an income-only mode where you are invested in volatile assets followed (optionally after a once-only transition) by a run-down mode where you are only invested in safe assets and are guaranteed not to run out of money.

Initially you take a level of income that is calculated to be indefinitely sustainable. For stocks I would estimate this to be a withdrawal rate of 80%/PE10. If you get this calculation right, then while your net worth may fluctuate with the market, it shouldn't go to zero or infinity. Also, the stock-market suddenly doubling/halving doesn't really make any immediate difference to you, as the withdrawal calculation gives unchanged income in those circumstances. The potential percentage payout from selling up and investing all funds in an inflation-linked SPIA increases as you age, at some point it will pass the indefinitely sustainable income you are taking, at that point you can convert to SPIA.

This plan has 0% failure rate and leaves $0 unspent, while keeping you income as constant in real terms as is realistically achievable.

A legitimate question is why annuitise, since if you do it at the earliest viable opportunity it doesn't increase your income. The answer is that you get more secure and stable income stream. If that's not a good enough reason, then don't annuitise.

(An improvement to the above has just occurred to me, that gives a rising income after the earliest annuitisation point is reached. Need to think about it some more.)
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Old 01-17-2010, 02:15 PM   #112
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One thing about telling someone that he or she should plan on getting together $2mm or so is that it is apt to be more robust advice than telling him to quit a good job when he has $1mm. It is at least closer to fail safe advice.

In 2000/2001 we went to a dinner presentation put on by a financial advisor firm. He told us that they had several clients who quit their jobs in 1999/2000 because of all the money they'd made in the market in the past 2-3 years---and that most of them were back to looking for a job. It's darned hard to get a well-paying job when you are in your late 50's, so these clients were hurting pretty bad.

$1M can drop to $500K in a crash. $2K can drop to $1M. You can live comfortably on $1M. Not so much on 500K.

I retired at 58. Between 58 and 62 I withdrew an amount that was higher than it would have been if I was not anticipating SS. Now, at 62, I've started SS and withdrawals have decreased accordingly.
WOW!!! That's me, too. Even the same ages. But also, I was helped by getting 1 year's salary as severance pay, which we managed to stretch out to age 61 before it ran out.

The potential percentage payout from selling up and investing all funds in an inflation-linked SPIA increases as you age, at some point it will pass the indefinitely sustainable income you are taking, at that point you can convert to SPIA.
I fear that the actual provider default risk is higher than we think. Who woulda thunk that Leyman would go bust? Or that AIG would be on life support?

Too, I think that someone who has been investing wisely and who has run his portfolio to to a couple of million can easily convert that to his own annuity-equivalent. Convert the portfolio to a diversified set of dividedend stocks, and just collect the dividends. My stock/growth account at Fisher has about 65 securities. Converting such an account to 65 names(dividend stocks & preferred stocks) should be plenty diversided enough for safety.
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Old 01-17-2010, 02:42 PM   #113
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The potential percentage payout from selling up and investing all funds in an inflation-linked SPIA increases as you age, at some point it will pass the indefinitely sustainable income you are taking, at that point you can convert to SPIA.
I fear that the actual provider default risk is higher than we think. Who woulda thunk that Leyman would go bust? Or that AIG would be on life support?
I glossed over default risk because it is not an issue for me. I can think of various tweaks to the plan to accomodate those from whom it is an issue, but I didn't want to complicate the original idea.

One possible tweak would be split the safe assets phase in two, investing in safe assets (TIPS ladder?) initially and switch to the annuity once capital was below the guarantee level.
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Old 01-17-2010, 03:04 PM   #114
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My approach to FIRE is biased towards frugality rather than having a ton of money. As long as I LBYM I'll be ok. My ER will start as soon as the house is paid off, about 4 years, and then I'll need $30k per year to live comfortably.
I get $15k from rent, so I only need $300k saved to generate the other $15k. I don't what to 72t, so I'm planning to have enough in after tax accounts to take me from age 52 to 59.5. Once I'm 62 my expenses will be covered by SS, a small pension and rent. I won't need to take anything from savings....I'll be living with a 0% withdrawal rate.
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Old 01-17-2010, 04:10 PM   #115
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Now, $10M will not get wiped out as easily as $1M, but yes, given enough hyper-inflation, it will get wiped out too. $30k/year expenses, 10% real returns with 20% inflation wipes out $1M in ~15 years. $10M will last you 40.

Actually, either sum will last you until the end of time with 10% real returns.
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Old 01-17-2010, 04:44 PM   #116
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It's kinda like winning a war with the last bullet in your arsenal. Doesn't happen. Can't happen. You either run out of bullets too soon, thereby losing the war-----or have truckloads of them when it's over.
This seems like an analogy that makes sense to me. Not that I feel like I am at war with the world (financially) but I certainly want to have enough resources to live well and "win the war" more than I am concerned about maximizing the way I use my resources so that I'm sure to end with zero unused.

I see some people who start companies or make unusually lucrative investments or creations and they can start with nothing and achieve substantial financial independence on their own. But I also see that for ordinary workers, it takes time, LBYM and careful handling of finances to achieve a modest financial independence in their lifetime. While there are likely to be members of the first group in any reasonable future, I am concerned for my kids that the second group will find it harder and harder to amass enough capital to reach FI with ordinary LBYM. I'm not going to make leaving a big inheritance part of my life goals, but I will not be upset if I do leave an unused pile of ammo when I go. I figure that could be the boost that might enable a future generation to LBYM into FI, building on the endowment they did in fact inherit from the generation before. With the "flattening" of the world and general pressure to lower wages, I wonder how much of an endowment culture will emerge. Not just trust fund babies, but ordinary boomers passing wealth to a next generation in such a way the LBYM across generations will become part of the formula for thrifty ERs in the future, while those without a cross generational endowment will require more and more of their salary for ordinary living making saving enough for one's own ER a more difficult proposition than it is now.

As a young adult, I figured $100,000 would be enough to live on for my whole life. As an aspiring ER, I'm now convinced that I really need more like $1MM. If this is going to inflate to $10MM in another generation, I thnk it will be even more uncommon than it is now.
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Old 01-17-2010, 05:07 PM   #117
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I'm not going to make leaving a big inheritance part of my life goals, but I will not be upset if I do leave an unused pile of ammo when I go. I figure that could be the boost that might enable a future generation to LBYM into FI, building on the endowment they did in fact inherit from the generation before.
One never knows whether children will build on their inheritance, or just blow it all over a few years. It would be wonderful if we could feel secure that a future generation might base their FI on an inheritance. It all comes down to "God bless the child who's got his own."



I do plan to leave my daughter something but I still worry. Thank goodness, she and her new husband seem to be starting out on a sane financial framework.
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Old 01-17-2010, 06:40 PM   #118
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Well "said" (sung) W2R!

We are concerned about leaving a nest egg for our daughters. The coming years could be very tough for families that have children to put through college, while trying to save for their own retirement. They have a "plan" but if we are able to leave them some "extra" - it will help put them over the top.

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Old 01-17-2010, 07:12 PM   #119
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Even Warren Buffett said he's not going to draw up an inheritance for his children and they are okay with that.

http://everythingwarrenbuffett.blogs...you-leave.html
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Old 01-17-2010, 07:15 PM   #120
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I thought I read that WB was going to leave his children something in the 10's of million, which is only 1/1000 of his stash, but they will get something.
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