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Determining if you are living below your means
Old 12-17-2014, 03:48 PM   #1
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Determining if you are living below your means

As a follow up from a previous thread.

If you use a retirement calculator like FIREcalc, and assuming you have entered all your particular information correctly, it tells you can withdraw a certain amount each year with a 100% success rate. If you spend less than that, would you say that are you living below your means?

Since you really don’t know how long you will live, or how your investments will do, or much of anything else in the future for that matter, how do you know if you are really living, below, within or beyond your means (financially speaking)? Is it just a gut feeling for you? How do you make that determination? Yes I know you might want to hedge your bets (or calculations)
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Old 12-17-2014, 04:00 PM   #2
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I'll defer to others who may be more knowledgeable but my view is that FIREcalc figures out your new/retirement 'means'. It is supposed to figure out a residual rest-of-your-life income.

As such, not spending your yearly allotment would be considered LBYM.
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Old 12-17-2014, 04:05 PM   #3
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Yes.
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Old 12-17-2014, 04:08 PM   #4
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firecalc can be played with to determine the max you can take out and still have 100% success.... for whatever time period you put in. But if you put in a time period to short - you'll likely run out of money. If you put in a time period too long - you're leaving inheritors very happy.

No one has a crystal ball - you take your best, most educated guesses about longevity, income streams (for things outside of the nest egg like SS, pensions, rental income), market returns..... and you roll the dice and plug it into firecalc.

To be really safe - you need to have a huge nest egg AND go live in a van down by the river... supplementing your income as a motivational speaker.

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Old 12-17-2014, 04:08 PM   #5
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Quote:
Originally Posted by Car-Guy View Post

If you use a retirement calculator like FIREcalc, and assuming you have entered all your particular information correctly, it tells you can withdraw a certain amount each year with a 100% success rate. If you spend less than that would you say that are you living below your means?
If you set the # of years in FIRECalc at or beyond your date of death, then yes, you're living below your means - unless the future is worse than the past.
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Old 12-17-2014, 04:21 PM   #6
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Buy only dog food and drink only water. Try not to heat the house or cool it, and make no repairs unless absolutely necessary.

Then you absolutely will know that you are living beneath your means.

Hope this helps.
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Old 12-17-2014, 04:27 PM   #7
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Buy only dog food and drink only water. Try not to heat the house or cool it, and make no repairs unless absolutely necessary.

Then you absolutely will know that you are living beneath your means.

Hope this helps.
I'll pass on your insightful view point to the folks who live under the local bridges, they may find it helps.
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Old 12-17-2014, 04:40 PM   #8
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Why does everyone make fun of living in a van by a river. That is what our plan is. I am serious.

Freedom to move around, no real estate tax, no yard to maintain.

Ok, so it is an RV by a mountain or lake but...
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Old 12-17-2014, 05:14 PM   #9
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For me, in the accumulation phase, I figure if we are saving so much that we are worried about having enough cash for next months bills, then we are LBYM.

Post retirement, i don't think you want to LBYM. I think you want to be able to spend until you die (SUYD, trademarked).


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Old 12-17-2014, 05:19 PM   #10
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We base our retirement plans on 0-1% real from a conservative AA and just use a spreadsheet. I also use the Fido RIP, especially for RMDs / future tax modeling.

Expenses < SS + Pensions + 1% real return.

We won't live in a van and may not even downsize and just stay in the same house in the Bay Area, but otherwise we're both pretty cheap dates. Plus we have hobby job income I don't put in the budget. So unless we both became demented we can make extra money that way if need be.
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Old 12-17-2014, 06:55 PM   #11
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FIREcalc is a tool to plan with and any plan needs to be revisited at least annually, where adjustments can be made as needed. Whether it gives you 100, 85 or 60 percent likelihood of success now, things change. But if you don't start with a plan, you're screwed.


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Old 12-17-2014, 07:21 PM   #12
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My personal answer is as described in my signature lines below.

Well, I do not mind if I spend some principal, but if I can keep my principal intact, then that's LBYM.


PS. The criteria I use acknowledges that my means varies with the market's whim, the political and economic events being played out each day. But it is not any different than when one is still working and gets laid off or furloughed, or incapacitated due to accidents or illnesses.
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Old 12-17-2014, 07:33 PM   #13
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Quote:
Originally Posted by Car-Guy View Post
As a follow up from a previous thread.

If you use a retirement calculator like FIREcalc, and assuming you have entered all your particular information correctly, it tells you can withdraw a certain amount each year with a 100% success rate. If you spend less than that, would you say that are you living below your means?

Since you really don’t know how long you will live, or how your investments will do, or much of anything else in the future for that matter, how do you know if you are really living, below, within or beyond your means (financially speaking)? Is it just a gut feeling for you? How do you make that determination? Yes I know you might want to hedge your bets (or calculations)
To leave beneath one's means, one must first determine exactly what one's means are - - in other words, what one's income is.

During the accumulation phase, many people know exactly what their annual income will be because it is their salary.

During the distribution phase, one's "salary" is one's best estimate of what SWR is best applicable to them. That's not necessarily exact, if one lives unexpectedly long.

Likewise,one's income during the accumulation phase may not be exact, if one is unexpectedly laid off with no severance pay right before Christmas.

For most of us, no income estimate is written in stone. All we can do is to honestly estimate what income we are likely to have.

Here on the Early Retirement Forum, I think most LBYM'ers are living so far below their means that there simply is no question IMO.
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Old 12-17-2014, 07:36 PM   #14
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I'm still banking part of every month's pension check. So, I think I'm in LBYM territory.
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Old 12-17-2014, 07:57 PM   #15
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For me, in the accumulation phase, I figure if we are saving so much that we are worried about having enough cash for next months bills, then we are LBYM.

Post retirement, i don't think you want to LBYM. I think you want to be able to spend until you die (SUYD, trademarked).
+1

I always figured the goal of LBYM was to provide money for saving and eventual retirement. Once I've retired, I think in terms of "probability of not outliving my money". Since I can never truly hit 100% (at least not while I'm healthy), there is no hard "means" number so I can't calculate LBYM.

(If my plan was to live off SS + pension, then I'd have a hard number for comparison, but that's not my plan.)

(and, I might use an acronym here that starts with "S", but it's already trademarked)
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Old 12-17-2014, 08:51 PM   #16
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I've been retired almost 6 months. Wife still works, for now. We are living completely off my pension & what's left of her paycheck after her 401k contributions, which leaves her with $511 net every 2 weeks. We are not taking withdrawals from my TSP. In my estimation, we are LBYM at this time. I asked her tonight when she thought she might retire. She likes her job & is in no hurry, but I expect it will be in around 2 yrs. I will have another pension that will come on line around that time, and we may also begin portfolio withdrawals. Maybe then we won't be LBYM anymore. I dunno...



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Old 12-18-2014, 07:50 AM   #17
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After looking at what happened to Sony this week, it might not be a bad idea to own a little silver and gold, bury a little cash in the backyard to be ready for anything. We don't have any guarantees that somebody won't use technology to really screw up the world.....it could happen......looking 20 or 30 years out it's smart to be prepared for anything. It doesn't cost a lot but I give each of my grandkids a 1 ounce silver coin each Christmas. Happy holidays!
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Old 12-18-2014, 08:15 AM   #18
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IMO owning a little physical gold and silver is the final key to near 100% success in your portfolio. It helps cover some of the last few % points that can't be risk reduced by other means (currency collapse, government confiscation, widespread cyber meltdown from virus, solar storm, EMP)

For almost everyone I would say get everything else in order first, but once you have that 1% SWR or whatever makes you sleep well at night, consider a bit of gold and silver.
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Old 12-18-2014, 08:27 AM   #19
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IMO owning a little physical gold and silver is the final key to near 100% success in your portfolio. It helps cover some of the last few % points that can't be risk reduced by other means (currency collapse, government confiscation, widespread cyber meltdown from virus, solar storm, EMP)

For almost everyone I would say get everything else in order first, but once you have that 1% SWR or whatever makes you sleep well at night, consider a bit of gold and silver.
Hmmm, maybe a bit of tin (as in spam in tin cans) and lead ( in projectiles) .... I know I am working on my zombie defense system as well...... It really is impossible to remove all risk.
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Old 12-18-2014, 08:51 AM   #20
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Hmmm, maybe a bit of tin (as in spam in tin cans) and lead ( in projectiles) .... I know I am working on my zombie defense system as well...... It really is impossible to remove all risk.
In Russia right now they are not having problems with zombies but the people who own gold have watched it gain 80% this year against the ruble.
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