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FIRE without the Stock Market?
11-03-2009, 01:08 PM
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#1
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Recycles dryer sheets
Join Date: Feb 2007
Posts: 71
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FIRE without the Stock Market?
Seems like a simple question - How many of you have made it to early retirement by saving in fixed income vehicles; without the aid of the Stock Market?
I ask because I wonder if it is possible to save enough money to retire early by only saving in fixed instruments. In these uncertain times I feel the urge to go "all fixed" and leave the Stock Market uncertainty once and for all. The market bounced back a bit up until last month and now it seems to be headed for another roller coaster ride. I am currently 60/40 (market/bonds) with hopefully nine years to retirement. Will this ever end or are we in for what Japan has been experiencing for the past ten or so years?
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11-03-2009, 01:16 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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For most of us, FIRE without the stock market probably requires one of two things: a large inheritance or a large pension.
I suppose it can be done, but I think most of us would have to be unbelievably prodigious savers in order to safely FIRE without investing in stocks. Because of the lack of growth, you'd have to save a lot more instead of rely on growth, and your SWR would probably be a lot lower, too.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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11-03-2009, 01:49 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by ziggy29
For most of us, FIRE without the stock market probably requires one of two things: a large inheritance or a large pension.
I suppose it can be done, but I think most of us would have to be unbelievably prodigious savers in order to safely FIRE without investing in stocks. Because of the lack of growth, you'd have to save a lot more instead of rely on growth, and your SWR would probably be a lot lower, too.
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i can think of a couple of other ways (i posted them on another thread) income real estate and hard money lending. and calculating an SWR would be done differently but i dont think it would necessarily lower.
hmmm, a thought just popped into my head, what about owning your own, successful business that you sell for millions of dollars enabling you to retire?
another thought, how bout the combination of 2 or more of these like someone with a small pension and a small to medium inheritance?
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11-03-2009, 01:53 PM
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#4
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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The problem with fixed income investments is that they tend to barely keep up with inflation and that's when you reinvest the income. So if you need the income to pay the bills, your purchasing power erodes year after year. Is this a problem? Maybe, maybe not. If you retire with a large nest egg far exceeding your needs, probably not. If you are willing to lower your standard of living as you age (the way people used to retire), maybe not. Otherwise, it will be like dying of a thousand paper cuts. But, some people claim they can in fact retire without the stock market so they must know something I don't.
P.S. My parents and grandparents retired with virtually all their savings in cash. My grandparents and mom opted to reduce their spending with age while my dad has a nest egg far exceeding his needs. If they knew we had half of our money in the stock market they would slap us in the back of the head.
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11-03-2009, 02:03 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by FIREdreamer
The problem with fixed income investments is that they tend to barely keep up with inflation and that's when you reinvest the income. So if you need the income to pay the bills, your purchasing power erodes year after year. Is this a problem? Maybe, maybe not. If you retire with a large nest egg far exceeding your needs, probably not. If you are willing to lower your standard of living as you age (the way people used to retire), maybe not. Otherwise, it will be like dying of a thousand paper cuts. But, some people claim they can in fact retire without the stock market so they must know something I don't.
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actually if, once you are retired and living off your FI portfolio, you are invested in inflation protected bonds (like TIPS) you could maintain your standard of living but then the SWR would be around 2-3% (for TIPS) which is why i think ziggy made the comment about a lower SWR.
and as an aside i have gotten the impression that brewer does very well investing in bonds, hopefully he will comment.
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11-03-2009, 02:16 PM
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#6
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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Quote:
Originally Posted by jdw_fire
actually if, once you are retired and living off your FI portfolio, you are invested in inflation protected bonds (like TIPS) you could maintain your standard of living but then the SWR would be around 2-3% (for TIPS) which is why i think ziggy made the comment about a lower SWR.
and as an aside i have gotten the impression that brewer does very well investing in bonds, hopefully he will comment.
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The problem is taxes. With TIPS, chances are taxes will eat a good chunk of the real return so you SWR will probably have to be much lower than 2-3% to make it work. So, as I said earlier, you will need to have a nest egg far exceeding your needs.
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11-03-2009, 02:17 PM
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#7
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Recycles dryer sheets
Join Date: Jun 2004
Location: Bedford, NS
Posts: 155
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I think you could RE without the stock market. You just have to earn lots in your prime earning years and LBYM. Then you really don't have to worry about market fluxuations.
Lets just say that my stock market gains havn't been the thing that put me on easy street ER.
I really question how much inflation would really impact a ER person who is adapt at LBYM. Provided your major house, kids costs, etc. are out of the way, you really don't have that much exposure to inflation. Just my opinion.
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11-03-2009, 02:19 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2007
Location: Independence
Posts: 7,298
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Quote:
Originally Posted by jdw_fire
... income real estate and hard money lending....
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Lots of #1, recently some of #2. #2 was funded from #1. Right now, #2 is having vague odors of #2 - be interesting to see if we do well enough to cover the bad loans.
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11-03-2009, 02:21 PM
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#9
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Recycles dryer sheets
Join Date: Aug 2009
Location: Frederick
Posts: 333
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__________________
I FIREd myself at start of 2010!
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11-03-2009, 02:21 PM
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#10
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Thinks s/he gets paid by the post
Join Date: May 2006
Location: Where the stars at night are big and bright
Posts: 2,847
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Quote:
Originally Posted by ziggy29
For most of us, FIRE without the stock market probably requires one of two things: a large inheritance or a large pension.
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For most of us I agree.
Quote:
Originally Posted by ziggy29
I suppose it can be done, but I think most of us would have to be unbelievably prodigious savers in order to safely FIRE without investing in stocks.
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I've seen that in action. Former co-w*rker, he had a pension but was almost a scary miser. He took his 7 year old daughter fishing but only if his brother (the rich dentist) took them out on his boat and if the daughter paid for the worms. He worked plainclothes and got a clothing allowance, but refused to buy clothes. His wife was a high school PE teacher and everybody in the family wore old PE clothing she brought home from the gym lost & found box at school. Which looked hilarious on him because he was 6'4" or so, and most of the stuff he wore was way too small. His wife was allocated 160 miles a week on her 20 year old car so it would have a higher resale value due to low mileage. And so on, etc.
Every dime he saved went into savings account until there was enough to buy a CD and that's where all of his money was. He had $1.2 Million by the time he was in his early 40's. Somebody mentioned to me that he hit $2 Million a couple of years ago, and I think he's about 50-52 years-old.
His brother was able to talk him into buying a stock once and he was unable to keep his eyes off the ticker all day. He sold it the next morning because he had lost a couple of bucks. It went up tremendously over the next few months but he refused to see the logic because he had "lost" money.
I don't know what his attitude was toward drier sheets, but if I had to hazard a guess, I would say that he wouldn't waste money on such foolishness.
__________________
There is no pleasure in having nothing to do; the fun is having lots to do and not doing it. - Andrew Jackson
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11-03-2009, 02:50 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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In ancient times I met a few who:
cola pension plus some cd/mm/bonds
raw land parcels bought in bits and pieces including some in - yikes! Texas.
an engineer(aerospace) who never sold his houses(5 I think) in California - rented or had relatives stay in them and then sold in retirement. Later he bought a Bed and Breakfast in New Orleans - thus coming out of retirement.
straight forward rental real estate cats including one lady who got hubby to by and rehab moble homes for their trailer park - a combo of lots and rentals.
my favorite was the English guy who taught sailing in Portugal plus a small ?pension/Brit version of SS?
heh heh heh - More than one way to skin a cat.
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11-03-2009, 02:57 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 1,183
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Free and clear housing with low property taxes, a do it yourself fixit mindset, a good size garden, hunting and fishing for protein. Toss in a modest pension and healthcare and you've got it made. Simple wants, needs and finances. That is what my parents were able to do.
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11-03-2009, 02:59 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by crazy connie
Free and clear housing with low property taxes, a do it yourself fixit mindset, a good size garden, hunting and fishing for protein. Toss in a modest pension and healthcare and you've got it made. Simple wants, needs and finances. That is what my parents were able to do.
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True. But to tie this to another thread, in this day and age young folks can't count on getting the deal many of their parents and grandparents got, particularly where retiree health care and pensions are concerned.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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11-03-2009, 03:02 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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Those with 'true grit' probably don't post here.
Who here is old enough to remember Mother Earth News?
Or:
'The Good Life' by Scott Nearing. A book on back to the land in Maine.
Things go in cycles.
heh heh heh -
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11-03-2009, 03:25 PM
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#15
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Recycles dryer sheets
Join Date: Oct 2009
Posts: 150
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Military retirement pay for last 7+ yrs has been more than sufficient for our needs and allowed us to continue to save for the future. I keep our stock market exposure limited (less than a third of our $$). Including annuitized value of my cola'd pension and our home value, our stock market exposure would be less than 5% of total net worth. So we are currently doing it w/o aid of stock market and I doubt we'll ever really 'need' the stock market to stay retired. (Our home and car are paid for and our only debt is zero % CC balances which could be easily paid for with available cash)... We're comfortable and still frugal - yrs of practice. Perhaps some future small inheritances and/or SS will challenge us to find ways to spend more and break some life-long habits.
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11-03-2009, 03:30 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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Sure you can do it if you have $10 million and only need 100K to live on. Then you can do as the rich do and invest in tax free muni's. On the other hand if you have $1 million and need $40,000 a year @3% inflation you'll need a 7% return. Hard to do with fixed income over the long haul.
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“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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11-03-2009, 03:46 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by FIREdreamer
The problem is taxes. With TIPS, chances are taxes will eat a good chunk of the real return so you SWR will probably have to be much lower than 2-3% to make it work. So, as I said earlier, you will need to have a nest egg far exceeding your needs.
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i thought most people on this forum held to the belief that you pay your taxes out of your SWR (besides you pretty much have to if you own bonds and you dont want to sell them). if you do that then you can pull that size of an SWR. besides you should keep bonds in your tax advantaged accounts, right?
i dont agree with your "you will need to have a nest egg far exceeding your needs" statement because if you need that size of a bond portfolio to safely retire then, by definition, it doesnt exceed your needs, it is exactly what you need.
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11-03-2009, 03:55 PM
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#18
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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Well I was answering your post and I know how much you love to pay taxes so...
Quote:
Originally Posted by jdw_fire
i dont agree...
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I am shocked, shocked I tell you...
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11-03-2009, 04:05 PM
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#19
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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so then i guess maybe you "need" a portfolio of $2-2.5 million to pull it off then. or maybe you need to invest in riskier bonds. or do some hard money lending...
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11-03-2009, 04:07 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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oooo i dont like paying taxes but i do like high yields and unfortunately paying taxes comes along with it.
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