A Financial Thought from an Early ER

[Telly]

A Financial Thought from an Early ER

Not that I was a profligate spender before ER, I surely wasn't, or else I wouldn't be ER'd now. But when working, if something came up that needed big $, like purchase of a a new/used car or some emergency or whatever, I may have griped about the cost, but I knew I would earn my way out of it. There was always more where that came from.

In ER, that's gone. Now it's seed corn, planting and harvesting. I've got what I've got, and that's it.

Financially, I think that is the biggest "issue" with ER, other than health care insurance cost. It's a loss of a safety net. It has not caused me any actual problem, but it is something I think about. I think I value money more now, certainly if it's in big chunks, than I did before.

If someone has a big pension, then this thought probably doesn't come up.

 

[bow-tie]

Re: A Financial Thought from an Early ER

Well said. I am especially sensitive to this since I would love to FIRE or semi-FIRE by age 40-ish. But not knowing how health insurance will factor into that, my plan could very well be wishful thinking.

Oh well, must press on and take our chances.

 

[SteveR]

Re: A Financial Thought from an Early ER

...But when working, if something came up that needed big $, like purchase of a a new/used car or some emergency or whatever, I may have griped about the cost, but I knew I would earn my way out of it. There was always more where that came from.

In ER, that's gone. Now it's seed corn, planting and harvesting. I've got what I've got, and that's it...

Bingo! Ding! Ding! Ding! Give that man a cigar!

You do in fact have what you have and will have what your investments will make for you over time. Unless you have a pension or a fat inheritance coming your way...or unless you want a part time j*b; you will only have what you have saved in the past and will only be able to spend in the future what your nest egg will allow.

It can be a sobering thought and should give anyone pause before they jump off the "gravy train" of work.

 

[ESRBob]

Re: A Financial Thought from an Early ER

If you can find your way to a part time job instead of a part time "j*@$!b", then this can address the problem. They are out there! I'm thinking math tutor, yoga teacher, artist, surfing instructor, small-time landlord, basketball coach... There are ways to make a few bucks in ER that don't hurt...

 

[califdreamer]

Re: A Financial Thought from an Early ER

This is something that has weighed on my mind as I've contemplated how much passive income I'll need to ER. Earlier today I forked over $3,300 for a new transmission and related work. It will be well worth it if I can get two or three more years out of the car. But, as OP brought up, it sure is nice to have fresh cash coming in to take care of these inevitable expenses.

 

[MasterBlaster]

Re: A Financial Thought from an Early ER

Bingo! Ding! Ding! Ding! Give that man a cigar!

You do in fact have what you have and will have what your investments will make for you over time. Unless you have a pension or a fat inheritance coming your way...or unless you want a part time j*b; you will only have what you have saved in the past and will only be able to spend in the future what your nest egg will allow.

It can be a sobering thought and should give anyone pause before they jump off the "gravy train" of work.

The issue in my mind is...

If I quit working now my lifestyle will be some fixed level. But if I keep working, then that level goes up. This is due both to the fact that I'll then need the nestegg for a shorter period of time plus the nestegg gets added to. In addition if the market fairy is kind the nestegg even grows on it's own. When I get out the calculator and do some compound interest calculations I can dream big (a little bit ) about what my lifesytle could be.

That big dreamin' though is somewhat tempered by having to get up early every day though.

Stories like CFB's where his lifestyle ambitions don't quite jive with his fixed nestegg induce me to perhaps keep working just a little longer.

 

[Lusitan]

Re: A Financial Thought from an Early ER

This is due both to the fact that I'll then need the nestegg for a shorter period of time plus the nestegg gets added to.

It's the first part of that sentence that always makes me more eager to FIRE

We're all here for a very short period of time - I want to enjoy it.

 

[TromboneAl]

Re: A Financial Thought from an Early ER

I knew I would earn my way out of it. There was always more where that came from.

In ER, that's gone. Now it's seed corn, planting and harvesting. I've got what I've got, and that's it.

Interesting, because for me it's the opposite. While working I always felt that the more I could save, the earlier I could retire and/or the more I'd have when retired. I never had the feeling that I could work more to replace spent income.

Now that I'm retired, I feel free to spend up to my 4% SWR each year, and that's more than I normally spend.

 

[Meadbh]

Re: A Financial Thought from an Early ER

when working, if something came up that needed big $, like purchase of a a new/used car or some emergency or whatever, I may have griped about the cost, but I knew I would earn my way out of it. There was always more where that came from. In ER, that's gone. Now it's seed corn, planting and harvesting. I've got what I've got, and that's it. If someone has a big pension, then this thought probably doesn't come up.

I admit this does worry me. Despite the fact that my costs of working would feed and clothe a medium sized family, without a pension, I will be at the mercy of the markets. That's why I am doing all my calculations based on projected retirement spending that's significantly higher than my current annual personal expenses.

 

[ESRBob]

Re: A Financial Thought from an Early ER

Mead,
I'd love to watch that violin move closer to your goal without having to wait 6 years... how much higher than current spending are you estimating your income needs? Are you counting the taxes you pay now, or are you estimating lower income taxes in retirement? Spending doesn't always go down in retirement, but it doesn't usually go up by a big amount, either. Would you be able to be comfortable setting aside a single cash amount for contingencies rather than a percent of spending? It might amount to the same thing, but when people are trying to buffer against unknown risks it helps to look at it from all different angles.

 

[youbet]

Re: A Financial Thought from an Early ER

If you can find your way to a part time job instead of a part time "j*@$!b", then this can address the problem. They are out there! I'm thinking math tutor, yoga teacher, artist, surfing instructor, small-time landlord, basketball coach... There are ways to make a few bucks in ER that don't hurt...

Well...........maybe, maybe not.

Like OP, I feel my days of earned income are over. My pre-RE career does not transfer well into part-time work so I'd likely be doing something for low pay. That's OK if it's something easy and interesting and earning the money is optional, say for having extra cash to take mom to dinner more often. But I'd just hate having to do menial part-time work to support life's basics. Ugh.........

So I planned to not have to work again, even with blaaaah market performance. If I have to I will, but the idea that picking up part-time work to handle income shortfalls will be quick and easy doesn't apply to me.

 

[SteveR]

Re: A Financial Thought from an Early ER

Well...........maybe, maybe not.

Like OP, I feel my days of earned income are over. My pre-RE career does not transfer well into part-time work so I'd likely be doing something for low pay. That's OK if it's something easy and interesting and earning the money is optional, say for having extra cash to take mom to dinner more often. But I'd just hate having to do menial part-time work to support life's basics. Ugh.........

So I planned to not have to work again, even with blaaaah market performance. If I have to I will, but the idea that picking up part-time work to handle income shortfalls will be quick and easy doesn't apply to me.

Agree.

My professoion also does not translate to part time work. I don't really want to be a WalMart
greeter and bagging groceries is not in my ER plan. My bad back does not allow for cutting grass and my lack of certain skills does not allow for customer service related work. McDonalds does not appeal to me and my Spainish is a bit rusty to last long slinging burgers.

Guess I will have to find a way to live off my investments instead and travel the country in my RV. Working for a wage will not be much of an option. If I really have an issue with money then the only course will be consulting...which would be about as attactive to me as cleaning toillets in a public restroom.

 

[free4now]

Re: A Financial Thought from an Early ER

I struggle with that thought too... when you're working and saving, it's pretty much clear that the longer you keep doing that the better off you will be financially.

I'm doing the FIRE thing on a pretty marginal budget which is why I do think I'll probably go back to work sometime.

The advantage of doing it really young like I am (mid-thirties) is that I can always bail back out into the work world if needed, so I don't have the feeling that my current spending levels are going to have to be the same for the rest of my life.

What you might not expect when you are working though is that the unexpected "needs" drop in FIRE. You have more time to plan things... I now have the time to get my tires rotated for free every 10k miles so I know that my 80k tire warranty will be in effect and will pay for new tires if they go bad earlier than expected. Whereas when I was working I would have probably missed one of those rotations, voiding the warranty, and meaning that I would have been on the hook for the tires myself.

Similarly, when I was working if there was an expensive toy or course or trip or workshop that I wanted to do, I might go ahead and do it. But in FIRE I have the time to consider other alternatives and often can find something that will make me just as blissed or educated or happy or engaged without shelling out big money.

Case in point, when I was working I spent a lot of time and money on building a fancy audio/video system in my living room for watching TV and movies. I paid $60-80/month for satellite TV service so I could get the HDTV channels. But now in FIRE I find that I'm happier getting out and doing things with people instead. I discontinued my TV service completely and feel like my life is fuller. I do miss the rush and anticipation of researching some new gadget and acquiring it, but overall I find that was actually not really satisfying anyway.

 

[wstu32]

Re: A Financial Thought from an Early ER

pretty good posts. thank you all for your input

 

[lazygood4nothinbum]

Re: A Financial Thought from an Early ER

i like esrbob's point that work is not a dirty w*rd. but like other posters, when i look (& yes, i admit it, i have looked) at the want ads, i don't see a single job i care to do. but then i never had the luck of the career anyway.

between savings, house & inheritance i'm in--not great but--pretty good shape. i won't have travel & the house & the boat that my parents had, rather i can only have one or the other. i won't even have the house & non-stop travel like some but i can have summer travels while keeping the house or nonstop travel if i sell.

i'm completely comfortable with these choices. in fact, i even look at such choices as good because although i am a homebody, i am also one who yearns to explore. i am lazy and easy to find comfort in the security of my house. but i know that my life will be richer once i step out and away from that front door.

a poster a while back caught my attention when mentioning that he considered moving to a third world country as his job. i immediately liked that idea and i have been letting that type of thinking become part of my retirement plan. it fits in very well with what i read in boglehead's guide that it is more efficient to spend less than it is to make more money. it fits in well with my character in that i never found a job i enjoyed doing. and it forces me into the life of adventure i've always wanted but never had the courage to pursue.

sometimes, a little insecurity is not such a bad thing.

 

[Cut-Throat]

Re: A Financial Thought from an Early ER

In ER, that's gone. Now it's seed corn, planting and harvesting. I've got what I've got, and that's it.
Financially, I think that is the biggest "issue" with ER, other than health care insurance cost. It's a loss of a safety net. It has not caused me any actual problem, but it is something I think about. I think I value money more now, certainly if it's in big chunks, than I did before.
If someone has a big pension, then this thought probably doesn't come up.

I think that is the value of buying an immediate annuity. If you don't plan on leaving money to an heir, at least you know you have some money coming in to handle the basics. This will give you the freedom to spend a little more money.

Also delaying SS to age 70 is another way to alleviate this 'seed corn' anxiety. Provding a Cola income stream for more than you need and having a some on the side for LTC if needed is one way to prevent being a miser. However if you want to save a pile for your heirs or don't like the thought of seeing your "Pile" reduced when your alive, don't go these routes. They are terrible 'investments', insurance companies may fail and the government can go broke -- But these are all safer than any job I ever had!

 

[W2R]

Re: A Financial Thought from an Early ER

Not that I was a profligate spender before ER, I surely wasn't, or else I wouldn't be ER'd now. But when working, if something came up that needed big $, like purchase of a a new/used car or some emergency or whatever, I may have griped about the cost, but I knew I would earn my way out of it. There was always more where that came from.

In ER, that's gone. Now it's seed corn, planting and harvesting. I've got what I've got, and that's it.

I have been assuming all along that saving for ER should not stop after retirement. I have built in extra funds in my basic budget for infrequent but predictable large expenses such as new cars, on a prorated basis, and I'm not necessarily talking about that; I am talking about the need to save funds above and beyond such predictable needs, to cover the unexpected large expenses. You never know what life will throw at you, as we have had so amply demonstrated to us down here in New Orleans.

If I lead a charmed life then my post-retirement excess savings will just lead to a higher income using the same SWR. Otherwise, I will have considerably extra funds to see me through unexpected disasters, market crashes, runaway inflation, and so on. Expect the worst and prepare for it, and then when it doesn't happen celebrate!

 

[MooreBonds]

Re: A Financial Thought from an Early ER

I remember a similar discussion related to this before, and I knew that one or two people (youbet) also had the view...but it relieves me to hear that there are several people who share my assumption that the sometimes quoted phrase of "you can always work part-time or go back to work" is easier said than done...whether it's because of flashbacks to corporate settings, or your working experience not easily hired after being away for a few years.

If I lead a charmed life then my post-retirement excess savings will just lead to a higher income using the same SWR. Otherwise, I will have considerably extra funds to see me through unexpected disasters, market crashes, runaway inflation, and so on. Expect the worst and prepare for it, and then when it doesn't happen celebrate!

 

[OkieTexan]

Re: A Financial Thought from an Early ER

assumption that the sometimes quoted phrase of "you can always work part-time or go back to work" is easier said than done...whether it's because of flashbacks to corporate settings, or your working experience not easily hired after being away for a few years.

It is not as easy as I thought for a 55 yr old to go back to work. I still attend meetings and participate in a professional association. There are hundreds in there who have been jettisoned from jobs with the security features (health insurance, pension, etc.). They call themselves consultants, contractors, and entrepreneurs and many can work enough to bring in good $$. However, the 'security' is long gone from their employment.
A recent Vanguard study calls it the "work and play" path to retirement.

Guess I will have to find a way to live off my investments instead

I discovered early on in ER that I would have to somehow change the "paycheck to paycheck" way of thinking during my work years. I struggle with it; but my goal is to accept the fact that a good ER plan could melt down quickly if I worry too much about money. Risk is just a part of living.

but when people are trying to buffer against unknown risks it helps to look at it from all different angles.

That's one thing I really enjoy about this forum. There are lots of "different angles".
Pretty soon, I find one that fits a little better. A friend of mine has a favorite saying that helps me see a different angle. He says to read the obituary page in today's paper and ask "How many of those folks chose to be there today?" It shrinks my problem almost immediately!

 

[Meadbh]

Re: A Financial Thought from an Early ER

Mead,
I'd love to watch that violin move closer to your goal without having to wait 6 years... how much higher than current spending are you estimating your income needs? Are you counting the taxes you pay now, or are you estimating lower income taxes in retirement? Spending doesn't always go down in retirement, but it doesn't usually go up by a big amount, either. Would you be able to be comfortable setting aside a single cash amount for contingencies rather than a percent of spending? It might amount to the same thing, but when people are trying to buffer against unknown risks it helps to look at it from all different angles.

ESRBob, good questions, thank you!

I have a unique situation right now in that I have a salary which is taxed at medium rates, and is plenty to live on. In addition, I have a corporation, which is taxed very efficiently and accounts for ~2/3 of "my" total income. I haven't taken any dividends from the corporation and when I do, I will pay tax on them. My plan is to do that during retirement when my tax rates will be lower. Currently I spend over $20K on work related expenses, which will disappear after ER. But some of them are travel related, and I do think I will have personal travel! I suppose you could say that my idea of calculating on the basis of increased expenses I am building in a cash reserve.

 

[ESRBob]

Re: A Financial Thought from an Early ER

Mead, Congrats on building up a little cash machine in your corporation. Gee, if that spews out 2/3 of your total income it looks like a winner. More pesky questions: if you were to bail on your salary job and spend your time in your corporation instead, might you be able to boost its profits up enough to cover lost salary, and have plenty of free time and quality of life left to burn? Anyway, sounds like you've been doing your homework so not suggesting your plan isn't sound -- buffers are always nice if you can stay comfortably in the workforce long enough to build them up... for some of us that wasn't an option!

 

[Gone4Good]

Re: A Financial Thought from an Early ER

it relieves me to hear that there are several people who share my assumption that the sometimes quoted phrase of "you can always work part-time or go back to work" is easier said than done.

Count me among that group.

I think it's safe to assume that most of us will become basically unemployable a couple years into retirement (Wal-mart greeters aside). This is especially true during difficult economic times when even Wal-mart greeter jobs may be in short supply. And logic follows that it will be precisely during difficult economic times when ER's will be thinking about reentering the workforce. I, for one, am not building a retirement plan around the idea that after 5+ years out of the workforce I'll be able to just run out and get a job at a time when the unemployment rate is 10%.

Another assumption that deserves close examination is the one where "I'll just cut my expenses when things get tough." Of course you will, but how much fat are you allowing in your budget and how happy will you be with your ER choice once you need to start cutting? A sobering example involves a person who retired in 1966 with a 4% initial withdrawal rate, 65% equities, and used Guyton's "Capital Preservation Rule"*. By 1979 the retiree's real standard of living would be cut by 47%. Following Guyton's prosperity rule (the reverse of the CPR), the retiree's standard of living would not increase again for a decade, with the first increase in 1989. And even after the 80's booming stock market, that increase brings the real standard of living up to just 58% of what the retiree started with. The retiree doesn't get back to even until 1999.

It's advisable to think not only of whether a portfolio "survives" but how happy you'll be along the way.




*The Capital Preservation Rule says that if the current withdrawal rate increases 20% above the initial withdrawal rate then spending is reduced by 10%.

 

[DangerMouse]

Re: A Financial Thought from an Early ER

As we are planning on retiring at 45 with a smaller nest egg than some here, DH and I have discussed the possibility of getting part-time w*rk if need be or what we something special. Unlike most, we are quite keen on trying something totally different. If need be we might go fruit picking for a month or so at a time. It's hard physical labour but for people who have spent their whole lives stuck in front of computers playing the corporate fresh air it seem attractive. No need to have a special wardrobe or sit through endless meeting listening to people in love wiht the sound of their own voices, just fresh air and exercise wearing a pair of shorts.

 

[youbet]

Re: A Financial Thought from an Early ER

As we are planning on retiring at 45 with a smaller nest egg than some here, DH and I have discussed the possibility of getting part-time w*rk if need be or what we something special. Unlike most, we are quite keen on trying something totally different. If need be we might go fruit picking for a month or so at a time. It's hard physical labour but for people who have spent their whole lives stuck in front of computers playing the corporate fresh air it seem attractive. No need to have a special wardrobe or sit through endless meeting listening to people in love wiht the sound of their own voices, just fresh air and exercise wearing a pair of shorts.

With the emphasis on "exercise!"

 

[Cut-Throat]

Re: A Financial Thought from an Early ER

Another assumption that deserves close examination is the one where "I'll just cut my expenses when things get tough." Of course you will, but how much fat are you allowing in your budget and how happy will you be with your ER choice once you need to start cutting? A sobering example involves a person who retired in 1966 with a 4% initial withdrawal rate, 65% equities, and used Guyton's "Capital Preservation Rule"*. By 1979 the retiree's real standard of living would be cut by 47%. Following Guyton's prosperity rule (the reverse of the CPR), the retiree's standard of living would not increase again for a decade, with the first increase in 1989. And even after the 80's booming stock market, that increase brings the real standard of living up to just 58% of what the retiree started with. The retiree doesn't get back to even until 1999.

It's advisable to think not only of whether a portfolio "survives" but how happy you'll be along the way.

*The Capital Preservation Rule says that if the current withdrawal rate increases 20% above the initial withdrawal rate then spending is reduced by 10%.

The SWR that is put out with FieCalc has inflation factored into it already, so your standard of living would not be reduced! If you just continued at 4% without a COLA, you would be cutting back! - Quite dramatically!