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Old 10-11-2008, 08:15 PM   #21
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haha,

I'm not trying to be too patronizing here, but you do realize that spending the dividend from the stock or selling shares of a stock is essentially the same thing. A dividend is just a forced sale of part of the company. I always have trouble understanding why people can't get past this little mental accounting trick. I'm not saying that dividends are a good or bad thing, just that not reinvesting the dividend or selling shares is more or less the same thing.

- Alec
I hope you are content with being just somewhat patronizing, rather than "too patronizing".

I am not going to debate this point with you- be happy with your approach, and I'll be happy with mine.

But it should be quite clear that dividends are not the same as selling a little bit of stock, for several reasons. One is cost. The other is that they are not dependent on the market price of the stock, but only on the condition, liquidity and cash flows of the business.

Ha
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Old 10-11-2008, 08:25 PM   #22
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Periods like this it is about "walking the talk".
"One day Neo, you are going to realize just as I have that there is a difference between knowing the path, and walking the path."
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Old 10-11-2008, 08:47 PM   #23
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haha,

I'm not trying to be too patronizing here, but you do realize that spending the dividend from the stock or selling shares of a stock is essentially the same thing. A dividend is just a forced sale of part of the company. I always have trouble understanding why people can't get past this little mental accounting trick. I'm not saying that dividends are a good or bad thing, just that not reinvesting the dividend or selling shares is more or less the same thing.

- Alec
But as Ha Ha said the volatility of the dividend income (not the underlying securities) is far less. This last year I've had 21 companies raise dividends (some more than once) with increase ranging from 2% to 20%. I've also had two dividend cuts BAC .64 to .32 and CSE from .60 to .05 (they changed from REIT to a bank). I haven't factored in the BAC cut, but my income is only down modestly this year.


In contrast, the average stock in my portfolio has seen a peak to trough difference of ~100% over the last 52 weeks even among blue chips like GE, CAT, MMM, INTC, UPS. Even among broad based ETFs we see a huge swing VV (Vanguard large cap) 88% VEU (Vanguard total international) 115% We won't even talk the monthly volatility of financials, pipelines, energy related etc. Depending on when I decided to sell my 4% or 5% (which as you say is just an accounting trick) my income would easily vary 100% this year. (Not to mention transaction costs.)


I certainly have flexibility in my budget but not 100%
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Old 10-11-2008, 09:07 PM   #24
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I hope you are content with being just somewhat patronizing, rather than "too patronizing".

I am not going to debate this point with you- be happy with your approach, and I'll be happy with mine.

But it should be quite clear that dividends are not the same as selling a little bit of stock, for several reasons. One is cost. The other is that they are not dependent on the market price of the stock, but only on the condition, liquidity and cash flows of the business.

Ha
You're right. That was too patronizing. My apologies.
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Old 10-11-2008, 10:30 PM   #25
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This is a very interesting question. In light of what happened this week, I think that my approach to retirement has shifted, though I am still on the learning curve and it is hard to say what impact, in the end, this crisis will have on my retirement plans.

I am a big proponent of dividend income and overall my investment income has gone up so far this year despite the big drop in the market and the drop in interest rates. But I am also learning how fast dividends can go away and if this crisis persists much longer, I will probably start seeing my investment income drop. This is a very good rehearsal for me (I am still in the accumulation phase), and I want to see how my investment income is going to fluctuate throughout this crisis. Will I see a reduction and how much of a reduction will that be...

I now know that my wife and I have a natural tendency to tighten our belts when we perceive that we are going through tough times. This year, without much effort or sacrifices on our part, we have been able to reduce our expenses by 10-15% (we didn't have to,we just don't feel like spending money right now). So if our dividend income stays pretty stable and doesn't drop more than 15% during this whole crisis, then I think that it will convince us that a diversified income-producing strategy is the right way to go. But if our investment income craters during the next few years, then I think we will have to look at a different model, perhaps buckets, with a 5-10 year cash reserve.
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Old 10-12-2008, 12:36 AM   #26
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My idea is that auto-pilot ERs are really not possible without pensions. No matter what strategy we choose, it will have it own set of risks. I know some here follow this cash flow method, I hope people will comment on how you are feeling about it now. Some members have suggested that if you don't have a pension it is easy enough to buy one. I think the turmoil that has engulfed life insurers along with most other financial firms will put this idea to rest, at least for the thoughtful.

Ha
Well, I ER'd at 52 in December 2002 without a pension. I ran all the simulations, looked at my budget and things looked ok with a 4% withdrawal on my assets. I set up a standard 60/40 AA with 4 years expenses in cash (my sleep well at night point - it varies a lot from person person). Well, so far so good. The 4 years cash reserve is still there and my withdrawal is now 3% since the pot has grown since December 2002 even after all the girations of the last few weeks. Is it absolutely bomb proof? Am sure not- who knows what the future holds- all I know is that I have really enjoyed the 6 years since ER and wouldn't trade them for the continuation of the rat race i was involved in. There are absolutely no certainties in this world. If one waits to ER until there is an absolute guarantee I'm afraid death at the office is the only option...
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Old 10-12-2008, 12:45 AM   #27
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Well, I ER'd at 52 in December 2002 without a pension. I ran all the simulations, looked at my budget and things looked ok with a 4% withdrawal on my assets. I set up a standard 60/40 AA with 4 years expenses in cash (my sleep well at night point - it varies a lot from person person). Well, so far so good. The 4 years cash reserve is still there and my withdrawal is now 3% since the pot has grown since December 2002 even after all the girations of the last few weeks. Is it absolutely bomb proof? Am sure not- who knows what the future holds- all I know is that I have really enjoyed the 6 years since ER and wouldn't trade them for the continuation of the rat race i was involved in. There are absolutely no certainties in this world. If one waits to ER until there is an absolute guarantee I'm afraid death at the office is the only option...
Congratulations on doing so well. One might point out that you started at a bottom, perhaps similar to where a new retiree would be starting right now if this in fact is close to a bottom.

I too have been retired without a pension, in my case for 25 years. I raised two kids and got divorced and I am still OK. But I too started at a bottom in the early 80s.

I nevertheless think that absent luck or a fortuitous start date, autopilot has a fair chance of not working out. And we clearly don't know what might happen next in this current situation

ha
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Old 10-12-2008, 01:17 AM   #28
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I am with Ha Ha, absent a COLA pensioned I am not a a fan of auto pilot retirement plans.

I think just as no battle plan survives contact with the enemy no withdrawal plan survives its first bear market.

One of the things I've learned the hard way, is that it is too easy for me use my money market "living expenses" to buy stocks in bear market. I've said for years that I am going set up a CD ladder but never really got around to it. I set one up for my mom that is working out ok.

Interest and dividends are nice, but I think I'd feel much better if I really had 3 years living expenses in cash.
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Old 10-12-2008, 01:43 AM   #29
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I am with Ha Ha, absent a COLA pensioned I am not a a fan of auto pilot retirement plans.

I think just as no battle plan survives contact with the enemy no withdrawal plan survives its first bear market.

One of the things I've learned the hard way, is that it is too easy for me use my money market "living expenses" to buy stocks in bear market. I've said for years that I am going set up a CD ladder but never really got around to it. I set one up for my mom that is working out ok.

Interest and dividends are nice, but I think I'd feel much better if I really had 3 years living expenses in cash.
Cliff, this is my problem too. I think the next time we have some decent prices I will sell off at least $100,000 and keep my greedy hands off it.

ha
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Old 10-12-2008, 03:22 AM   #30
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I've not seen any results so far that invalidate any of the firecalc/trinity/etc testing (which made me feel comfortable with getting into ER). But all the smart folks running around like chickens with their heads cut off spouting doomsday talk are definitely making me question my ability to get through this unscathed. It's the talk that's got me down, not the objective market reality.

It was certainly easier to stomach downturns in retrospect, while I was doing my thought experiments before retiring. The difference is that in retrospect we knew where the end of the bears were, but today there's nobody telling us where this is going to end.

I suppose I'm lucky in that I've always thought I'd find some kind of paid work eventually (I'm not yet 40). Hence my username. One advantage to this downturn is that it has gotten me a bit more focused on taking advantage of my free time, knowing that it might come to a close by market force rather than by choice. I'm finding more energy for the difficult-but-rewarding projects in my life, knowing that my time to do them may not be infinite.

And I'm thankful that I had my period of being free of work right at the top of the market. I got to spend that money before it declined in value.
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Old 10-12-2008, 03:56 AM   #31
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A good discussion..

When the market began to tank, we were holding about 32% fixed... mainly intermediate term bonds. Some of those bonds are index mutual funds. (the disturbing part is that those bond funds hold Fannie and Freddie agency and MBS). Now that there is a credit crunch many corporations may fail (which will affect those bond portfolios with losses).

This is an unprecedented financial crisis (in our life time). Today things are different in many ways from 1929. There are some similarities... but too much direct comparison might lead to the wrong conclusions.

I am concerned that this event could affect my ER plans. The traditional safe haven of Bonds does not look so safe. I am beginning to wonder if the only safe bond is a US government bond... but since they are running the U$D printing press at full speed I am not sure how safe that is over the longer haul.

I am confident that things will mend. I am not sure when it will look better and how long it will take... or how much damage (losses) will be sustained.

One big problem for the average American is that defined benefit pensions are a thing of the past for most of us.... we are on our own to figure out how to deal with it.

I believe one important fix needed is a regulatory framework that works....
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Old 10-12-2008, 06:58 AM   #32
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dm..... what do you use for triggers to jump from one budget to the other? Decreases/increases in net worth? Or? If you haven't jumped to Budget 2 or Budget 3 in the crummy market of the past year, what would it take to trigger you to make the jump?
Budget 1 is what firecalc say's we can spend.

Budget 2 is what I think we should be spending.

Budget 3 I'm not playing country club golf and the Porsche's dont get replaced.

I have been tracking my spending for years and we generally spend $5200 per month on average, and do pretty much what we want. Since the recent downturn we are starting to watch our spending alittle more and hopefully will be closer to Budget 2.

I hopefully will never have to worry about budget 3, but I know I could get by on that amount. We would have to cut back on things that we like to do, no trips, spending on the kids, ect.
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Old 10-12-2008, 09:19 AM   #33
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Congratulations on doing so well. One might point out that you started at a bottom, perhaps similar to where a new retiree would be starting right now if this in fact is close to a bottom.

ha
I agree that in a scary way this may be a great time to start ER! If a persons portfolio is still able to support say a 4% WD now after all these debacles, then much better to retire at this time rather than at the top back in October 07 when the Dow was at 14,000. 4% withdrawal of assets at that time would have shrunk to maybe 2.5% now.

All I can say is that we are surely closer to the bottom now than we were Oct 07 and that several years worth of cash is very very important. I certainly don't intend to divert my 4 year cash cushion to stock purchases no matter how cheap the market looks. My AA supports the life style I've chosen and to to risk its fundamentals for some potential gains that I really don't need makes no sense to me.
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Old 10-12-2008, 09:32 AM   #34
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One big problem for the average American is that defined benefit pensions are a thing of the past for most of us.... we are on our own to figure out how to deal with it.
IMO, this is a big reason why so many more people are "feeling" the pain of this crash than previous crashes.

A generation or two ago, anyone who had job security and the promise of a great pension after 30 years of service, plus Social Security, had little reason to even invest in the market, let alone depend on it for their retirement hopes. I think a lot of people shrugged off the '73-74 debacle because people didn't need to be heavily invested to expect a comfortable retirement back then. That has changed.

I know I'd be a hell of a lot calmer if I had one that met most of my living expenses. And the longer this goes on, the more I wish I could go back and change decisions about my occupation and my employer.
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Old 10-12-2008, 10:39 AM   #35
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Budget 3 I'm not playing country club golf and the Porsche's dont get replaced.

I have been tracking my spending for years and we generally spend $5200 per month on average, and do pretty much what we want. Since the recent downturn we are starting to watch our spending alittle more and hopefully will be closer to Budget 2.
So, you belong to a country club, have kids and a wife, drive Porsches, and live on $5200/month?

Sure you do!!!

Ha
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Old 10-12-2008, 12:22 PM   #36
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Wow my bare bones budget is $4000 a month maybe because I live in a high tax state... :confused: It does not include buying stuff for the grandkids, just groceries, utiliites, clothing and property taxes , auto and home insurance and no boat.


My mortgage is paid off, 4 year old car is paid off it is no porsch by any means and I have no credit debt and I still can't travel with this budget. Most of my major expenses go to property taxes and state taxes and my husband still works so we have health insurance. We are still scraping by... Please tell me what state you live in ...[/quote]
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Old 10-12-2008, 12:33 PM   #37
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Budget 1 is what firecalc say's we can spend.

Budget 2 is what I think we should be spending.

Budget 3 I'm not playing country club golf and the Porsche's dont get replaced.

I have been tracking my spending for years and we generally spend $5200 per month on average, and do pretty much what we want. Since the recent downturn we are starting to watch our spending alittle more and hopefully will be closer to Budget 2.

I hopefully will never have to worry about budget 3, but I know I could get by on that amount. We would have to cut back on things that we like to do, no trips, spending on the kids, ect.

Please tell me what state you live in our minimum is budget is number 1.....:confused: If we wanted to pretty much due what we wanted to travel spend on kids it would be twice that
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Old 10-12-2008, 03:17 PM   #38
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Please tell me what state you live in our minimum is budget is number 1.....:confused: If we wanted to pretty much due what we wanted to travel spend on kids it would be twice that
I live about 40 miles outside St. Louis, Mo. Here is a pic of our paid for house and Porsches. My silver one is 35 years old though. And the clubs around here are begging for members. I belong to a very nice Tom Fazio designed club and it runs around $4,000 per year.

We generally don't spend alot on vacations, around $2,000 to $3,000 a year, our real estate taxes are $2,800 a year.

I rechecked my spreadsheet and last year we spent $5690 per month and that includes $5000 to the kids, a $3500 transmission for the truck, and $10,800 in medical insurance. This year we are averaging $5,400 per month. These are after tax numbers.
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Old 10-12-2008, 03:20 PM   #39
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So, you belong to a country club, have kids and a wife, drive Porsches, and live on $5200/month?

Sure you do!!!

Ha
Yes I do. Or actually close to that, I said I think that we should be spending $5,200 per month

Well my kids are 25, twins, so they dont' cost as much as they use to. And I am debt free.

My wife actually drives my Chevy Avalanche more than anything else these days.
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Old 10-12-2008, 08:00 PM   #40
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Yes I do. Or actually close to that, I said I think that we should be spending $5,200 per month

Well my kids are 25, twins, so they dont' cost as much as they use to. And I am debt free.

My wife actually drives my Chevy Avalanche more than anything else these days.
Good Points DM. I think that a lot of people don't quite realize that once you have NO DEBT i.e. house, cars etc are fully paid for -the cost of living is very reasonable and manageable. Owing on those big ticket items has become so ingrained in a lot of people's psychology that quite a few are unable to conceive the amount of freedom that's gained by not following that line of thinking.
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