ER Worries My personal Dilemma. Any Thoughts?

[ShokWaveRider]

I originally posted this as a response to a Stock Market Concerns post then decided it became off topic and thought I would give it it's own post, sorry if I am repeating myself to some of you.

I for one am not confident in the stock market at all. If I could say one thing about ER that constantly causes me grief, is having to worry about money. I never had to while I was working. Unfortunately I do nothing but worry about it lately. As mentioned in previous posts, I am in fixed income CDs for all of our portfolio and have very little prospects of getting a decent pension from any government by the time myself and my wife are 65/62. We pulled out of the market in 2000 just before things went bad ( a good move for us, this helped with our ER) and never went back in. We were making 6 - 8% in MM and CDs so I thought why bother. Now of course it is different and we are getting 2-3% if we are lucky, and have CDs maturing in Jan Feb and March of 2005. Hence the worry of what to do when they come due.

To add to this difficulty we sold our home recently because of the high home values, and are travelling around for a while (Expenses are very low, but we will have to settle some place some time. My wife is not partial to Mexico, Thailand or Vietnam as a permanent home).

Well of course just as we decided to do this, Bush started spending every penny of available cash, and then some,and the Dollar has gone into a tail spin, that does not seem to ever want to end. So our money abroad is worth less and less, so costs are in an up and up spiral. Yet another worry.

We only have $1.5m in cash instruments ($1.2m after tax and $300k in Pre-Tax). It has to last us for at least 30 years, as I am 51 and my wife is 46. I am loathed to pay a financial planner to loose any of it. I already tried this during my working years and have learnt a lesson.

Am I the only one that worries about money lasting and maintaining value? I read these posts and most of you are invested in the Stock Market. I would worry myself sick. I have tried to put some money in, but never really had the gall to actually do it. I have done some significant research over a 6 month period with a hyperthetical amount of money ($500k) and if I had invested it where I thought it would be beneficial, I would be 8 - 10% down to date. So 3% does not look that bad.

We pay little to no taxes as we have some Investment losses and tax credits that will last another 4 - 5 years. ($3000 max per year investment losses, and about $2000 in tax credits per year) So we can earn $30,000 per year in interest and pay virtually no tax at all for a few years to come. That helps on the inflation front.

We will have to sink about $400k into a home and appliances etc at some point in time. Maybe next year or 2006. So that leaves $1.1m @ say 3% = $33,000 per year. $300k of it is in Pre-Tax so take $9000 off that = $24,000 to live on, to me that is very low. I am loathed to start to deplete our capital until I am at least 60.

SWR

 

[Cut-Throat]

You moved your Post ! ----

Am I the only one that worries about money lasting and maintaining value? I read these posts and most of you are invested in the Stock Market. I would worry myself sick. I have tried to put some money in but never really had the gall to actually do it. I have done research over 6 months with a hyperthetical amount of money ($500) and if I had invested it where I thought it would be good, I would be 15% down to date. So 3% does not look that bad.

I think you need some "Investment Basics" that will slow down your worrying. Understand that without risk there is no return. If you are interested in Investing in the Stock Market - You should read a couple of Books. Berstein's "4 Pillars of Investing' or Swedroe's "What Wall Street does not want you to know".

OTOH - If you are committed to the most risk free investment - Look into TIPS. You can get around 2% plus the inflation rate. If you can live on this with your 1.5 Million for 30 years - then you are as risk free as you can get.

It's funny - Not too many people worrying about dying - Probably because it's guarenteed but mostly deep down they believe it's not going to happen to them!   - But a lot of people live like they are going live forever. There are a lot more things to worry about than money  

 

[ShokWaveRider]

I did read the 4 Pillars. Still, as mentioned whenever I do a hyperthetical test, even over 1 year, I end up at an overall loss. Also, as we are completely uninvested, it makes life even more difficult. To DCA into the market would take forever.

SWr

 

[Cut-Throat]

I did read the 4 Pillars. Still, as mentioned whenever  I do a hyperthetical test, even over 1 year, I end up at an overall  loss. Also, as we are completely uninvested, it makes life even more difficult. To DCA into the market would take forever.

SWr

You may have read 4 Pillars, but you did not comprehend it. Otherwise, you would not be worried about a 1 year return.

Investing in the Stock Market is about 30 year returns, investing over a diverse spread of asset classes.

What about TIPS? - Have you run FIRECalc with a 80% TIPS Portfoilo. Maybe the Market is not for you.

 

[cute fuzzy bunny]

Lifestrategy Income, Target retirement income, or Wellesley.

A couple of these have small stock holdings that are mostly high dividend large cap value stocks, but not enough to make you lose sleep.

Wellesley in particular has made ~11% a year for 35 years. No double digit losing years, no sequential losing years. Pays a 3.5-4% dividend these days but thats low compared to the historic dividend rate.

If you cant stomach the investment risks associated with something as tame as Target Income or Wellesley...you might want to spend some time and effort analyzing the source of that discomfort and trying to allay it. When you worked, did you avoid all risk and downside to reduce the chances of losing your job or did you at least take reasonable and ordinary risks, knowing you would be able to work yourself out of any small holes? There you go...find out how to apply that rationalization to your investments.

 

[johnblake]

Balanced funds are great for people who worry about the stock portion of their portfolio. Don't worry so much about the stock portion of your portfolio, think aggregate performance, not individual asset class performance. Pick a target asset allocation, and rebalance annually.

 

[Michael]

It's funny - Not too many people worrying about dying - Probably because it's guarenteed but mostly deep down they believe it's not going to happen to them!

The bodies we are living in will die, but we won't.

 

[cute fuzzy bunny]

You mean I have to calculate SWR past death?

Crap.

 

[soupcxan]

You mean I have to calculate SWR past death?

Crap.

It's not as bad as you think. Once you get rid of all those pesky metabolic processes, it's easy to LBYM.

 

[haha]

We will have to sink about $400k into a home and appliances etc at some point in time. Maybe next year or 2006. So that leaves $1.1m @ say 3% = $33,000 per year. $300k of it is in Pre-Tax so take $9000 off that = $24,000 to live on, to me that is very low. I am loathed to start to deplete our capital until I am at least 60.

I read that you are more than a little bothered by what you percieve as too much insecurity. Whether this reflects actual insecurity in the markets, or only your personal perception of it doesn't really matter.The important thing is becoming comfortable with a plan that seems realistic and safe to you.

You mention spending $400,000 on a house. If you are worried about the future, have $1.5mm, and don't expect much in the way of pesnsion, SS, etc, I think you and your wife should sit down and question the advisability of spending that much money on housing.

With $1.5 you can retire, but some possibilities could be considered foreclosed. Look for a cheaper way to live, not necessarily third world, but not necessarily the way that you or more likely your wife would have wanted to live while you were working.

Because you aren't working! You get something, but you give up something. If this seems distasteful, consider getting back to work while you still have good skills.

Like you, I don't want to worry about money. I have worked hard to get my spending down so that I think I am very safe. If I didn't feel that way, I would set out for cheaper places, like some others here have done. If my wife didn't want to come, well there are plenty of 1 bedroom apartments in the good old USA where she could live. Everybody has to be on board with reality, and sometimes that is not easy to achieve.

The wives portrayed on this board all seem to be really down with the ER program, which always amazes me.

I have known plenty hippy chicks and back-to-the landers who could live and be happy on almost nothing, But then they didn't marry engineers or doctors and accumulate $1.5 million. Many people get used to a certain level of living (aka overhead). It can then be hard to drop down from that; it just seems like too much loss. If both spouses are excited by the new plan, then it is viewed as an adventure, not a loss. Big difference psychologically . You may be able to have some influence on the way the both of you look at the future.

I think it takes realistic optimism.

One last thing, I think you may have figured wrong on your taxes. You should easily be able to structure your take-out from your deferred taxation vehicle to avoid most or all of that tax.

Mikey

 

[ShokWaveRider]

Lifestrategy Income, Target retirement income, or Wellesley.

TH:

Are you saying simply wack $1m in these funds or one of them and go fishing?

SWR

 

[Austin_Explorer]

Are you saying simply wack $1m in these funds or one of them and go fishing?

Sounds like a plan to me!

 

[unclemick]

I don't know about TH - but yes it really is that simple. If you can  resist putzing.

Or - given your apparent aversion to stocks - ?? dabble in some form of real estate?? Only with play money of course.

BTY - I have the SO(aka girlfriend) - in Lifestrategy cons(taxable) and IRA( Lifestrategy cons.). I may weaken and putz with some cash piling up - take a flyer on Vanguard Wellesley.

 

[haha]

TH:

Are you saying simply wack $1m in these funds or one of them and go fishing?

SWR

You won't listen to a financial planner. But you will listen to an anonymous person about which you know nothing on a free internet board?

Internet boards are fun, but did I hear you say "Simply whack $1mm into one of these and go fishing?"

Clue bus-stop just ahead-nothing you do with $1mm is simple, unless you have $50mm.

Mikey

 

[ShokWaveRider]

You won't listen to a financial planner. But you will listen to an anonymous person about which you know nothing on a free internet board?

Internet boards are fun, but did I hear you say "Simply whack $1mm into one of these and go fishing?"

Clue bus-stop just ahead-nothing you do with $1mm is simple, unless you have $50mm.

Mikey

Who said I was acting? Yes I am listening? And absorbing data. I am still 100% in fixed income though.

Most financial planners are in it for themselves anyway not the client. At least the ones I had during my working life were, Even FEE ONLY turned out to be motivated by outseide forces. I have been through at least a dozen over the years, all recommended by close friends or work collegues.

It is good to get data from ALL Sources.... isn't it? Especially those in the same position as ones self with nothing to gain or loose.

Also taking input from a financial planner whose net worth (because I always ask) is 1/10 of yours, is very difficult for me to absorb. I must have done something right.

SWR

 

[brewer12345]

Also taking input from a financial planner whose net worth (because I always ask) is 1/10 of yours, is very difficult for me to absorb. I must have done something right.

SWR

This is interesting. When you ask the planners what their net worth is, do they readily give it up? Sometimes I think about a second career down the road of doing fee-only planning and I would of course have other qualifications (letters after my name and so forth), but I figured that a long investing history and high net worth would be at least as impressive.

 

[ShokWaveRider]

This is interesting. When you ask the planners what their net worth is, do they readily give it up? Sometimes I think about a second career down the road of doing fee-only planning and I would of course have other qualifications (letters after my name and so forth), but I figured that a long investing history and high net worth would be at least as impressive.

Not All, but then you do not have to hire them if they do not.


SWR

 

[haha]

Also taking input from a financial planner whose net worth (because I always ask) is 1/10 of yours, is very difficult for me to absorb. I must have done something right.

SWR

Excellent point. The way I see it, you are still doing everything right. Trying to find what will work in all senses of that word, for you and your wife.

I have never talked to a financial planner, so I don't know what they are like. I do have a broker friend who warned me years ago about the SWR concept and negative DCA in an equity portfolio that was subject to withdrawals. He used a different term, but the concept was the same.

Mikey

 

[ShokWaveRider]

Excellent point. The way I see it, you are still doing everything right. Trying to find what will work in all senses of that word, for you and your wife.

Mikey

But why am I having so much trouble getting into equities now? When I was working, I used to keep most of our NW in an expensive home and until 2000, in high risk stocks. Everything changed when I decided to ER. Like today, for example. Take a look at the Stock Market. All I see is it going down, along with the spiralling US Dollar. I am just waiting for it to break the 9800 support level. Then will I buy in? Probably not. I think the REAL problem is now I have more time to analyse everything and look at the market daily. "Paralysis of Analysis" I think you call it. :

Hence the Dilemma. But hey, at least I will not loose anything, inflation excluded.

Next month we are off to the Caribbean sailing for 6 months. No TV, no distractions. So I can evaluate the situation when I return in June.

SWR

 

[Cut-Throat]

But why am I having so much trouble getting into equities now?

I have always had a hard time with this also. That's why I plan on never getting out of stocks entirely.

Things really looked depressing to me in the 70's and the 80's and the early 90's. The only time I figured I should be in the stock market was the late 1990's - Danger Will Robinson!

My intelligence or lack there of, or emotions no longer run my portfoilo.

 

[ESRBob]

Shokwave,
Congrats on getting to log some good time in the Caribbean now that Hurricane season is (almost?) over.

Your timing reminded me of an old stock market bromide: "Sell in May and go away" or something like that, implying that there were months when it paid to be out of the market (I think you were supposed to get back in by Christmas but can't remember the whole saying, anyway, efficient market people have no doubt turned it on its ear by now).

Still, my personal experience is that if it is possible to be somewhere (sailing) where you don't worry about stocks for a long period of time, that is exactly the time to be _in_ the market, or at least automaticaly DCA'ing into equities. Its the overanalysis in my experience that causes the twitchy fingers and bad decisions.

So, if you want a contrarian view, (since everybody knows stocks are going down, right?!), I'd try to set up some sort of equity positions or DCA, a nice batch of small, international and value index or low-cost funds, and then go away sailing for six months. And don't check on your stocks while you're gone -- no fair hunting down copies of the Herald Tribune in Antigua--

Have fun; try to send us postings of your ports of call from time to time from an Internet Cafe -- I remember finding a nice one down at the water's edge in downtown Roadtown, Tortola, and have found them in most other places around the bigger ports in the Caribbean. (Maybe you're really high tech and have internet access from the boat?)

ESRBob

 

[ShokWaveRider]

Shokwave,
No fair hunting down copies of the Herald Tribune in Antigua--

Have fun; try to send us postings of your ports of call from time to time from an Internet Cafe -- I remember finding a nice one down at the water's edge in downtown Roadtown, Tortola, and have found them in most other places around the bigger ports in the Caribbean. (Maybe you're really high tech and have internet access from the boat?)

ESRBob

Awww! As far as paragraph 2 is concerned you can see our travels on my web page. Simply Click on "Cruising The Caribbean" this will be our second year doing it. There are plenty of Tortola and the Road Town Marina. Most are at Nanny Cay on Tortola.

www.impconcepts.com (Ignore my hobby portions of the site)

SWR

 

[charlie]

SWR,

You complained that to DCA "would take forever".

Actually, what you try to accomplish with DCA is
to spread your investment out over a business
cycle to avoid investing at the peak.

Gurus like Bernstein and Bogle recommend 2-3 years
is about right.

Studies have shown that "plunging" wins over DCA
about 60-70% of the time, but the advantage does
not outweigh the risk, IMHO ...... especially when you
are talking about your retirement nest egg.

Cheers,

Charlie