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Feeling Discouraged
Old 06-12-2016, 09:59 PM   #1
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Feeling Discouraged

I remember many years ago listening to Dave Ramsey on the radio and my employer's guest speaker at a company meeting preach 12% returns in the stock market and I thought I need to start investing. So I made a spreadsheet, which I still have, showing 12% returns along with my projected earnings up to an early retirement at the age of 55.

Next, I discover that 12% returns are nominal and I can expect closer to 8% real. Then, 8% becomes 4% with my discovery of asset allocation. Then, 4% is unlikely for early retirement due to sequence of risk. Now, due to the low interest rate environment my SWR should be 2% or less according to Wade Phau and others on this board.

Anyone else feel as discouraged as I do with each new bit of insight into retirement saving/investing?
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Old 06-12-2016, 10:24 PM   #2
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2% WR is too safe IMO... depending on your age and health 3% is very conservative and 3.5% is ok.... also, focus on your ultimate WR... after any pensions and SS are online. Phau is faux IMO.
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Old 06-12-2016, 11:20 PM   #3
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Not discouraged at all, returns depend on what you are invested in. Thankfully there isn't just some blanket return for all investments. You need to figure out the risk you are willing to take, the returns you need and what type of investments will get you to your goals. All of these statements you mention are merely guides based on a set allocation- not necessarily reality- make your reality what you need it.
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Old 06-12-2016, 11:22 PM   #4
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The good news is inflation is tiny.
It should be a wake up call to keep your investment expenses super low.
Yes, nobody likes these low returns, but it is better than 1929
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Old 06-13-2016, 01:02 AM   #5
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2% WR is too safe IMO... depending on your age and health 3% is very conservative and 3.5% is ok.
Sure wish I could talk myself into withdrawing 3%. I'd be living it large. I'm 52 and expect to live at least another 30 years - maybe 40. 2% feels safe, and all this is not counting SS, which will be icing on the cake.

But 3% sure would be a lot of fun
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Old 06-13-2016, 02:38 AM   #6
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Remember it's also comparative. EVERYONE else must also live with the aggregated returns. Of course in any distribution there are outlined but generally it's a shared experience.

If you get 2% so will most others and the cost of things will shift based on relative situations.

So if you're more conservative and flexible you are more likely to be well off.

There are no guarantees... we could all go down together .

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Old 06-13-2016, 03:58 AM   #7
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Sure wish I could talk myself into withdrawing 3%. I'd be living it large. I'm 52 and expect to live at least another 30 years - maybe 40. 2% feels safe, and all this is not counting SS, which will be icing on the cake.



But 3% sure would be a lot of fun

Major Tom. What's your AA and what kind of dividend yield are you getting on your equities? 2% is below the broad market dividend yield. It's more like 2.5%. Maybe u can go up a little ...
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Old 06-13-2016, 06:00 AM   #8
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I remember many years ago listening to Dave Ramsey on the radio and my employer's guest speaker at a company meeting preach 12% returns in the stock market and I thought I need to start investing. So I made a spreadsheet, which I still have, showing 12% returns along with my projected earnings up to an early retirement at the age of 55.

Next, I discover that 12% returns are nominal and I can expect closer to 8% real. Then, 8% becomes 4% with my discovery of asset allocation. Then, 4% is unlikely for early retirement due to sequence of risk. Now, due to the low interest rate environment my SWR should be 2% or less according to Wade Phau and others on this board.

Anyone else feel as discouraged as I do with each new bit of insight into retirement saving/investing?
there was a time when I did. Then I did some more reading. At the time I was 45, had just been divorced. Basically had to start all over. That was 1998. One thing about being divorced was, I had complete control over my spending, after I paid my child support and taxes. I pretty much lost everything "we" had accumulated in the agreement. House equity, most of my pension, etc etc, BUT, I did not have a wife to confer with over lifestyle expenses.
I hoped to retire by 60, so that gave me 15 years. After 15 years of LBYM, and maximizing 401k etc, and index funds, and proper allocations to survive the drops and ride the bulls, I made it. I could have retired at 60, but it took me an extra 2 years to facilitate the sale of my business.
You haven't shared with us exactly where you are on the journey to FIRE, what you have, how you invest, or how much you need, and how much you put away. But if you keep at it, plugging away, you'll get there.
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Old 06-13-2016, 06:52 AM   #9
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Yes I have felt discouraged myself at times. Timing is everything. I have a colleague who has preached saving regularly and investing in a diversified portfolio and points to his own success as proof of just how well this can work. But he is older and did his saving/investing from the late 1970's to the mid 2000's. I started in 1990. In the 27 years the SP 500 had a total return of 1209% for him while for me it has been a total return of 464%. Huge difference.

But with that being said, Ive done quite well and can't complain about how it has all worked out. We all must play the hand we are dealt.
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Old 06-13-2016, 07:42 AM   #10
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Old 06-13-2016, 08:58 AM   #11
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Ugh. The first problem was that you listened to Dave Ramsey...

Joking aside, I can relate to being discouraged. I was quite discouraged (on a daily basis!) about things my ex-wife did in relation to money mismanagement. Eventually, things started looking up and things did get better...exponentially better. I don't have any sage advice for you here except this one tidbit...don't look in the rearview mirror. Learn from the past, but don't repeat it. Look forward...always.
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Old 06-13-2016, 09:16 AM   #12
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Ignore Pfau. 3.3% is probably fail safe and 3.5% still very conservative as long as you have at least 40% in equities.

But to reach FI you want a higher allocation to equities and to save and invest as much as you can.

Sorry, 12% was a pipe dream.
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Old 06-13-2016, 09:39 AM   #13
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Ignore Pfau. 3.3% is probably fail safe and 3.5% still very conservative as long as you have at least 40% in equities.
^ What she said.

Pfau assumed you'd be paying 1% in investment fees and expenses in addition to what you'd be withdrawing. You can get far lower costs investing through Vanguard or Fidelity.

Some have also questioned Pfau's impartiality due to his close association with the insurance industry and his repeated recommendations for the purchase of annuities. Always a good idea to see who is funding the study.
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Old 06-13-2016, 09:43 AM   #14
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I know this isn't the consensus view here, but just a food for thought question. If stocks didn't exist, what would you do to become FI? There are many inspirational stories in the Thomas Stanley books, like The Millionaire Next Door and The Millionaire Mind.

And even at a a zero real return, you could withdraw 3.33% over 30 years (100 / 30) or 2.5% over 40, investing in a TIPS ladder. Most of of the TIPS maturities have positive real yields, so your SWR would be a bit higher than the zero real SWR.
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Old 06-13-2016, 09:55 AM   #15
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I remember when I first started investing and my IRA was in a bank cd with 8% interest, but as someone mentioned, inflation made that 8% a lot less appealing.
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Old 06-13-2016, 10:59 AM   #16
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Thanks for the responses. Dave Ramsey was more or less just validation for me at the time for LBYM. I sought investment advice from multiple sources including here. I am planning on 3%. I would be more comfortable at 2%, but I won't be able to swing it. There are so many moving parts it just seems like a wild guess anyway.

I am 60/40 stock bond, mostly low cost index.
Stocks are split 55% spy, 10% individual dividend stocks, 10% reit, 10% small cap, 15% international.
Bonds are FTBFX,VICSX,VBTLX,VWINX, and Ibonds.
I rebalanced when there is a substantial change from my intended AA.

I own 5 rentals too but plan to sell them once I can withdrawal SS.
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Old 06-13-2016, 11:50 AM   #17
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Five rentals! That alone should be enough to get you by until SS. Unless you aren't making any money on rents, or the note is still around.

$1000/mo rent x 5 = $5,000 x12 = 60,000 less taxes -6.000 = $54k annually.

Fill the gap with your SWR which should be much lower with the rental offsetting it.
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Old 06-13-2016, 12:06 PM   #18
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I am not in the 3% SWR or even 3.5% group... I think that the 4% has held up well... at least in most of the articles that I read that does not have an agenda...

I am also not in the 'no SS' camp... I think I will get the vast majority of my SS... maybe the worst is a 10% cut... but I doubt that will happen to anybody over 50...

As others have mentioned... 12% was a pipe dream... it sounded great for the decade back when it looked like it was going to be doing it forever, but reality has a way of coming back into focus...
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Old 06-13-2016, 07:16 PM   #19
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When I started out, I thought 12% was the norm. Wrong. By the time I wised up it was almost too late. If I get 6% nominal from here out, I will be ecstatic.

I am shooting for 4% w/d rate not corrected for inflation.

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Old 06-13-2016, 07:53 PM   #20
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$1000/mo rent x 5 = $5,000 x12 = 60,000 less taxes -6.000 = $54k annually.

Fill the gap with your SWR which should be much lower with the rental offsetting it.
I am in a low cost of living area and have a property manager, I clear 42,000 after expenses before taxes on the rentals. I have no concerns about the rentals, just my stock and bond investments. I've had the rentals for ten years and they performed as expected. I just don't wish to keep them too long, where health may become an issue. Their purpose was to get me from early retirement (age 47ish) to social security, and then sell them.
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