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Five Year Plan
Old 01-25-2012, 12:08 AM   #1
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Five Year Plan

I wanted to share this idea for feedback.

I have been struggling with the reality that my expenses are still too high and my severance runs out in five months, at which point the drawdowns must begin. I really need to do a drastic downsizing -- specifically in housing expense -- to fund any 20-30 year retirement with my pension, SS, and portfolio.

My current idea is that this downsizing can be done in stages over time, and that what I should focus on is a long range plan that involves stepped reductions in expenses, say every five years. The idea is to plan for this in stages but progress toward lower expenses rather than try to cut to the optimal level all at once.

The danger of course is that planning the steps so that everything works out is riskier than a completely front-loaded plan, where you cut expenses to a certain level all at once. The stepped plan is by definition more expensive.

But it seems to me the added expense, assuming you still wind up at the end having had a reasonable standard of living, may be worth the lessened trauma.

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Old 01-25-2012, 03:33 AM   #2
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My way to deal with problems (aka trauma) is more like doing the brutal adjustments asap.
Any delay my weaker self would interpret as leeway.
If it comes to moving I would trust that I could adapt to a new neighborhood better the younger I am. So why going through adaptations again and again? It will not be getting easier.
But you may feel different.

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Old 01-25-2012, 03:51 AM   #3
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I tend to take the same approach when dealing with problems.
Originally Posted by chris2008 View Post
My way to deal with problems (aka trauma) is more like doing the brutal adjustments asap.
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 01-25-2012, 04:58 AM   #4
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Originally Posted by chris2008 View Post
My way to deal with problems (aka trauma) is more like doing the brutal adjustments asap.
I'd be in this camp too. In delaying the inevitable the long-term step will be less than facing the gritty reality now.
I heard the call to do nothing. So I answered it.
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Old 01-25-2012, 05:00 AM   #5
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A very important rule I learned managing projects.....

"The longer you put something off, the worse the problem becomes."
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Old 01-25-2012, 06:37 AM   #6
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If the plan is that tight, you need a Plan B in case it fails.
Every man is, or hopes to be, an Idler. -- Samuel Johnson
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Funny thing about plans....
Old 01-25-2012, 08:22 AM   #7
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Funny thing about plans....

They change.

My experience with downsizing is that it takes longer than you expect.

Getting rid of stuff, if you have a fair sized household, may take over 6 months of near full time work. (ask me how I know)

Selling homes, RVs, changing health care plans, changing insurance, re-structuring assets all take time.

My approach, rather than all at once, or stepwise over 5 years or 5 year periods would be to:
1) Put the list together of the changes you want to make.
2) Order them appropriately (importance, impact etc.)
3) With your available time, knock the first (next) one off the list
4) Enjoy the success of the change
5) Use the positive emotional energy associated with the new found freedoms to accelerate more changes
6) Go to step 3.

You may find that the emotional rewards and the freedoms associated with the changes actually helps the process. In fact, you may find yourself getting where you want to go faster.

This also doesn't impose unrealistic timelines when many times you are dependent on other factors to get there (people to buy your stuff, getting quotes to reduce costs etc...)

Hope the suggestion helps!
FIREd at 46, 8/31/11
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Old 01-25-2012, 08:48 AM   #8
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This doesn't sound like a plan I would be comfortable with. If you are finding it hard to reduce expenses now, what makes you think that in the future (after some additional inflation) that you will be any better at reducing expenses then.

By overspending in the present, you are dooming your future self to an even more underfunded situation. This isn't consumption smoothing, this is deficit spending now, putting your future in even greater peril.
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Old 01-25-2012, 09:42 AM   #9
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Personally, I'd immediately reduce MORE than you think the total reduction needs to be, and then put that extra money into my portfolio to give it a little boost.

I think you may even discover that you are happier when spending less.
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

- - Charles Dickens, Mr. Micawber in David Copperfield
"You can never cross the ocean until you have the courage to lose sight of the shore." - - - C. Columbus
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Old 01-25-2012, 10:01 AM   #10
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I know this is not a funny issue, but I can't help imagining the gradual process to saving money by downsizing and lbyming. This year I'll sell off the guest bedroom, next year the screened porch.

I'm also of the pull-the-bandage-off quickly camp; it's like quitting smoking, though--some people do best with the cold turkey method, some like to draw it out with cutting down, using the nicotine patch, chewing nicotine gum. I think the cold turkey method has proven to be most effective.
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Old 01-25-2012, 10:26 AM   #11
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When I think about FI, I like to think of things in terms of a balance of input vs output (my simple explanation here neglects investing income & taxes, but you'll get the idea). What you take in over your working life equates to a total value you'll have to spend over your whole life, working or not. You have a capacity which can be increased by either making more when you work or working longer. Similarly, you can decrease the total amount you need by reducing average spending. If your capacity is already set, then spending more now just means more reduction later. I prefer to average my spending over the long term to create a sustainable situation.

Think about the articles you read where someone lives beyond their means and is now struggling. They've used up much (maybe all) of their capacity, requiring painful cutbacks.

OTOH, those who achieve FIRE by LBYM (reduced the average being spent), reduces the capacity needed, which can then be realized in a shorter time than the "typical" retirement.

Next, add in saving and building assets, which allows you to generate income by means other than working, and you can reduce the amount of time needed to earn money. OTOH, someone who owes money on credit cards pays interest, which means some of their capacity is not going towards anything tangible. In the long run, the LBYM person is more efficient getting more bang for the buck, so to speak.
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Old 01-25-2012, 10:42 AM   #12
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I'm also in the "do it asap" camp.

When we downsized in readiness for ER a few years back it took us 6 months, and yes, it is difficult to do.

We had lived in our 5 bed, 3 bath, 3,500' house with good size garden and pool for over 11 years so had plenty of accumulated stuff to get rid of to downsize to a 3-bed 1,400' place with no yard. The new place still had a big double garage.

It did feel good once we'd completed the move, and we've never regretted it for a moment.
Retired in Jan, 2010 at 55
Now it's adventure before dementia
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Old 01-25-2012, 10:48 AM   #13
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I recently sold a house that was a money pit and emotional pit. Hugely freeing to take the big step. I'm still working on some stuff that was in it.
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Old 01-25-2012, 10:54 AM   #14
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In "Predicting Irrationality," the author found that the slow pain was better than the fast pain. People tend to remember the extreme pain points rather than mild pain over a longer time period. That of course was related to physical pain (he was getting burns scrapped) but it may also relate to emotional pain.

In any case, if you decide to do it the slow way, you might consider a roommate at some point if/when the house takes longer to sell than expected.
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Old 01-25-2012, 11:34 AM   #15
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The more you spend now, the less you can spend when you finally reach a sustainable level. Do your future self a favor and lower your spending now. Or find a way to make some extra income to pay for your current higher expenses. Sort of a penance.
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Old 01-25-2012, 01:21 PM   #16
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Have you looked at this, from the FireCalc Spending Models?

Ty Bernicke's Reality Retirement Planning: A New Paradigm for an Old Science describes extensive research showing that most people see significant reductions in spending with age (not related to reduced assets or income). If selected, this option will reduce your inflation-adjusted yearly spending by 2-3% per year starting at age 56, and then stabilizing at age 76 to keep up with inflation. You should read his article for details if you plan to use this option.
Note: the link from FireCalc seems to be broken, but you can Google Bernicke.

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