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Old 08-30-2009, 02:54 PM   #41
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I paid cash up front too. But I just treated it as an overall reduction in our nest egg, not as part of the current year living expenses. Did you do otherwise?

Just curious

Audrey
I did exactly as you did. I saw it as a one-off, not as a part of our expenses. Can't do that too often though.
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Old 08-30-2009, 02:54 PM   #42
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Thanks for the great post, Audrey!

I'm curious how dividend and interest payments factor into your cash management. It sounds like you occasionally sell assets to replenish cash, and then draw down the cash over time for living expenses. But with a sub 3% withdrawal rate, I'd think that portfolio income could easily meet, or even exceed, your cash needs without ever having to sell assets.

I guess the company stock probably doesn't pay a dividend, which could mean the income from the balance of the portfolio isn't sufficient to meet your needs. But I'd still think the percentage of your annual expenses not covered by portfolio income would be fairly small.

I'm curious because I kind of think (or hope?) my portfolio income will keep my cash balances "evergreen".
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Old 08-30-2009, 03:02 PM   #43
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I paid cash up front too. But I treated it as an overall reduction in our nest egg, not as part of the current year living expenses. Did you do otherwise?

Just curious

Audrey
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Originally Posted by REWahoo View Post
I did exactly as you did. I saw it as a one-off, not as a part of our expenses. Can't do that too often though.
To the extent that the RV needs to be (or will be) replaced at some point in the future, I think the annual depreciation should be included as part of one's expenses . . . just like other durable goods. However, if the RV is truly a one-off that will be used-up and not replaced, then just taking the hit up front is the right way to go.
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Old 08-30-2009, 03:04 PM   #44
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Barring participation by my insurance company, it will not be replaced once we've had our fun with it.
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Old 08-30-2009, 03:32 PM   #45
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Thanks, Audrey. Enjoyed the post and your candor. It provided me much food for thought.
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Old 08-30-2009, 04:18 PM   #46
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You could even claim I was using a bucket system! (OMG - And I had never even heard of what-was-his-name-again? at the time!)

Bucket 1: 1-3 years expenses in a cash account
Bucket 2: The core conservative AA portfolio
Bucket 3: The "remainder" company stock/aggressive assets

Except that I was drawing from Bucket 3 to replenish Bucket 1 whenever the "going was good" and later in the decade as I divested more aggressively from company stock I started adding a little more to Bucket 2.

And yes I deliberately planned funds for having more fun in the early years. This seemed logical to me at the time - I felt like we had a whole lot of catching up to do in terms of travel, etc., and I didn't want to feel constrained by needing to keep to some strict budget from day 1. We did indeed spend more in the first 5 years of retirement versus the second.*

Audrey

* Not counting the motorhome purchase of course. That thing throws a wrench in every model but you just have to amortize a really big ticket item over the long term.
That helps. I think you kind of morphed into a bucket strategy where you use the short term bucket to avoid selling in a down market. That's an approach that I've seen a number of people mention (IMO, it's different from the Ray Lucia style of buckets).

I agree with your early spending rationale. We had the same idea but weren't able to implement it because of health issues.
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Old 08-30-2009, 04:25 PM   #47
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I had put my lump sum from selling company stock in 1999 and 2000 into CASH within the portfolio, and I was then averaging from this cash into my planned asset allocation over this time period.

Anyone who retires with a lump-sum payout could have done exactly the same thing. For folks who already have their money invested in their target allocation by the time they retire - well that is indeed a different story.
Call it cash reserves, bucket 1 or whatever - the wisdom of having lots of cash on hand seems sound to me.

I'll still have 50% in stocks but for the rest (i.e. 25% of my total) it will be half in cash or short term bonds. Just not worth it to me to try and sneak an extra 1% out of longer bonds only to find them down when you really need them. Your mentor Frank Armstrong calls for 10 years of living expenses in cash-equivalents and short term bonds, ideally.
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Old 08-30-2009, 05:28 PM   #48
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Thanks for the great post, Audrey!

I'm curious how dividend and interest payments factor into your cash management. It sounds like you occasionally sell assets to replenish cash, and then draw down the cash over time for living expenses. But with a sub 3% withdrawal rate, I'd think that portfolio income could easily meet, or even exceed, your cash needs without ever having to sell assets.

I guess the company stock probably doesn't pay a dividend, which could mean the income from the balance of the portfolio isn't sufficient to meet your needs. But I'd still think the percentage of your annual expenses not covered by portfolio income would be fairly small.

I'm curious because I kind of think (or hope?) my portfolio income will keep my cash balances "evergreen".
No, dividend and interest payments did not factor into my cash management at all. I remember looking at dividend investing in the late 1990s, and dividend payouts from stocks seemed ridiculously low at the time, and I wasn't willing to create a large bond allocation just for the income. So I went with the "total return" approach which I still like. I have no problem selling some assets to achieve the desired withdrawal rate.

It looks like last year the portfolio generated enough income after taxes to cover our the living expenses. What the portfolio generates in distributions is highly variable, so I don't count on anything in particular.

Interestingly enough, the company stock did start paying a dividend in the mid-2000's right after the tax laws were changed to give qualified dividends beneficial tax treatment. That was a nice little surprise bonus! Puny at first, the stock now yields about 1.8% - partly due to lower stock price, but it also increasing the dividend for several years.

Audrey
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Old 08-30-2009, 06:31 PM   #49
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I had put my lump sum from selling company stock in 1999 and 2000 into CASH within the portfolio, and I was then averaging from this cash into my planned asset allocation over this time period.

I retired in March of 2000 and this is exactly what I did with my 401K when I rolled it into my IRA. Having cash at that time is a big reason I'm still standing. Great story!
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Old 08-30-2009, 07:31 PM   #50
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I remember looking at dividend investing in the late 1990s, and dividend payouts from stocks seemed ridiculously low at the time . . .

Interestingly enough, the company stock did start paying a dividend in the mid-2000's right after the tax laws were changed to give qualified dividends beneficial tax treatment.
That's right. I forgot how skimpy dividend yields were 10 years ago. But things did improve after the tax law change, as you mentioned.
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Old 08-30-2009, 08:16 PM   #51
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OK - We're looking for your essay next!

Seriously!

Audrey
With a prod like that... well here it goes GULP!

My working career spanned a 26 year period from the time I finished Graduate school (MBA) in the Fall of 1976 to FIRE on December 2002. During the early part (to 1990) I worked on three overseas assignments totaling 7 years in the Middle East and South America on large engineering projects in remote locations. Those overseas assignments are what got me started on the path to ER.

I only accepted assignments that would allow my family to travel with me (married status assignments) because I had heard of and seen too many instances of compromised family life if wife and kids stayed home in the US while hubby went on these overseas assignments.

Although keeping the family together was my primary motivator, I quickly realized that extreme LBYM is a given when you are living in a construction camp (albeit a large one with all the comforts of home) far away from shops etc. Although shopping (even extreme shopping) is available in the large cities of third world countries, the difficulty of getting there means one doesn't do it very often.

During my first two overseas assignments (to 1986) my "investing" consisted exclusively of CD's as I was concerned that being so remote I would not be able to track my investments very easily and not be able to react if needed ( Don't forget this all took place long before the internet).

At this time, I had not done much reading at all on investment, asset allocation or any such and my idea of "investing" was you buy a stock, it goes up like a rocket and you quickly sell it before it crashes. (Yeah right)

When I got back to the US in 1986 I spent that year doing a lot of reading on investment and general strategies since my savings from those years overseas now amounted to a princely sum in the low 6 digits and I didn't want to do anything rash or stupid . My reading led me to Vanguard and Bogle and Mutual Funds and the concept of asset allocation. By the time 1987 came I started implementing my investment plan and started buying into a basket of Mutual Funds (Welleslley, Wellington, Mutual Shares, Selected American Shares and such). I also started buying individual stocks just to test how I would do against "professional" management (about a 10% play fund).

Of course, I started investing in the market just before the crash of October 87. During that crash, I was so paralyzed with fear (it happened so quickly !) that I did nothing and after some months, when the market started recovering I looked back and said hey- that wasn't so bad.

My goal during the working years was to have 75% in stock mutual funds but always at least one year worth of expenses in cash.

In 1992 after 5 years, I compared the returns from my individual stocks to the mutual fund basket. After all my study and buying and selling my net return, taking all commissions, dividends etc on my individual stock picks was exactly zero! The total return on the stock funds was 9.7% No Warren Buffet here. I sold all my stocks and haven't bought any since.

I maxed out on all available tax advantaged retirement vehicles during the years I worked as did my wife once she started working after my last OS assignment in 1990.

The bug for FI/RE got in my bonnet when I took a sabbatical for the year 1990 upon returning from that last OS assignment with the intention of discovering what I really wanted to do for the rest of my working career ( which I assumed at that time would run to normal retirement at 65).

What I discovered during my sabbatical year is that I really really enjoyed being on a sabbatical! I then started thinking and calculating what it would really take to live like I was then doing and based on some crude calculators available at that time ( Monte Carlo simulations and Firecalc not being available then, everyone did the simple well - the market goes up on average 10% a year so if you take out 7-8 % a year you'll be OK).

So, based on that I calculated that I could retire at about 55 if I could achieve three things: Pay off the house, have no debt at all and achieve a 10% or so rate of return on my investments.

Since I lived near San Francisco, housing prices were monumental and I quickly realized that even with good jobs ( I'm talking low six figures here not CEO salaries or anything like that - my highest position was Division controller)
retiring in the San Francisco area would be very difficult so in 1999 we started looking for a rural - semi rural area to move to which we found in SW Oregon. We moved there at the end of 99 and the megacorp I worked for was kind enough to let me telecommute for the next three years (2000-2002)
which neatly allowed me to survive the crash of 2000-2002 without having to draw from my retirements funds. The sale of the House in the Bay area in 1999 bought the house where I live now (much more modest but comfortable and on 5+ acres) free and clear.

As I approached ER, I shifted my investments to bring down the stock portion to a band of 55-65%, with rest in bonds and cash, the cash portion including 4 years of living expenses. This approach came in very handy as in early 2007 I was forced to rebalance back to a 55% stock portion since the market was shooting up so quickly then.

Unlike Audrey, I take all of my dividends as well as CG from the taxable portion of my investments and find that between that and a small hobby goat milk soap business that my wife started we live quite comfortably. I will have a very small pension ($5 k year starting in 2015) no other pensions or benefits. The soap feeds the critters and gives us a little extra so DW is very happy and I mostly get to do the sabbatical thing so...

As to numbers (all per Quicken):

Net worth 12/31/2002 = 100%
Net worth 8/27/2009 =134%
Net worth at peak Oct 2007 = 158%
Net worth near bottom 3/15/09 = 116%

All the firecalc runs as well as the montecarlo simulations on Financial engines website (thru Vanguard) indicate that we s/b OK with a 95% success rate and the NW numbers so far anyway seem to agree but who knows?

I fully realize that luck played an incredible part. For example, If I had not had megacorp income during the 2000-2002 period so that I didn't have to take distributions from my investments, I don't think I would have been able to survive the 2000-2002 debacle with sufficient funds to then recover enough to again face the 2008-early 2009 even worse debacle.
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Old 08-30-2009, 08:27 PM   #52
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This information is invaluable. Thanks for sharing...all of you.
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Old 08-30-2009, 08:49 PM   #53
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With a prod like that... well here it goes GULP!
Hey great story ejman, and thanks for sharing! Part of your "luck" also was having a big fat chunk saved up to put into the market in 1987 - in spite of the short "crash" one of the most amazing bull market runs of all time. That and still working during 2000-2002. How nice that your company let you telecommute!

I'm also very impressed that you so honestly benchmarked your own stock management performance against your fund managers and handed the proceeds over to the winners - very wise!

You recognized that if you wanted to ER, you would have to move to a less expensive area, and you were willing to do it! With such careful planning and execution too.

Your story really deserves it's own thread. Looks like these "testimonials" from folks who have been ER'd for quite a while already are pretty useful for the readers here.

Audrey
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Old 08-30-2009, 08:51 PM   #54
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Of course if you counted the company stock as well we really had a much smaller initial withdrawal rate - more like 2.67%, which is extremely conservative.
Congratulations on your 10 years retirement anniversary.

At 2.67%, I'm confident you'll never have to worry about money ever again. The same should apply to your heir, and their heir, and their heir... assuming that the withdrawal rate remain at 2.xx%. After a few generations, the asset would probably reach the Billion mark.

Sam
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Old 08-30-2009, 09:00 PM   #55
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ejman, that was fascinating! Thank you. I feel like I know both you and Audrey better after reading your stories.
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Old 08-30-2009, 10:14 PM   #56
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yes it was all very interesting... now if only i had 1.8 X of what i need instead of 80 percent... alas...
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Old 08-30-2009, 10:22 PM   #57
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yes it was all very interesting... now if only i had 1.8 X of what i need instead of 80 percent... alas...
Based on my initial estimates of our expenses, I started out thinking we were closer to 1.5X what we needed.

Don't know if that helps - well maybe just a little bit?

Audrey
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Taxes
Old 08-31-2009, 12:09 AM   #58
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Taxes

Audrey

What percentage of you portfolio is paid to the tax man every year? Approximately? ie for dividends, capital gains etc. I always read that my rate will be low but I would like to get some real data.

For ex in my case, Id like to retire (eventually) with 1.5-2M and take 4%. But I cant get a feeling for how much taxes Ill be paying every year.

Thanx in advance

B
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Old 08-31-2009, 12:42 AM   #59
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Welcome to the forum, bmcgonig! That could be the $64,000 question.
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Old 08-31-2009, 02:28 AM   #60
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Thanks a ton to audreyh1 and ejman for sharing their stories (and of course others who commented on). I was desperately looking for this. I know there are many ways you can do it but how regular folks really do it?
A very good starter for me. I am going to search if anybody has posted their 'homework' too.
Thanks again.
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