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Old 04-16-2011, 12:10 PM   #21
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When DW quits her job, we will be living on interests and dividends only (no pension and no SS for another 30+ years). Currently our portfolio yields around 3.4% and I am shooting for a 3% SWR, so part of the interests and dividends will be reinvested. We will try to keep the principal untouched for now because we are still pretty young (hopefully the capital will continue to grow via equity appreciation as well). Depending how our portfolio performs in the future, we might start feeling more comfortable eating into the principal as we get older (we have no heirs).
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Old 04-16-2011, 12:27 PM   #22
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Sounds like Jacob Fisker...but I realize it's not unless he has two aliases here.
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Old 04-16-2011, 12:35 PM   #23
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Sounds like Jacob Fisker...but I realize it's not unless he has two aliases here.
Who, me? Nah, I am no Jacob. What Jacob spends in a whole year barely covers my grocery bill.
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Old 04-16-2011, 12:54 PM   #24
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Many advisers and articles are concerned with how long your retirement income and nest egg will last. They plan for spending down of principal and the "trick" is to die before your money runs out. Is anyone here going to LBYM in ER so that they continue the accumulation phase in retirement? You spend less than your income sources and invest the surplus to increase your net worth! Duh! This doesn't assume a certain SWR, just that it's always less than your investments, SS etc produce each year.
(emphasis mine)

Due to an unexpected inheritance that arrived just before my planned ER date, it turned out that I have more income than I had planned to have.

Despite my efforts I haven't yet succeeded in my attempts to spend more than I had planned to spend all along, being a creature of habit. Money goes a long way in ER with a paid off home and no desire to travel! I love my new Zojirushi rice cooker, and digital HGTV service is a blast, though. Never had it before. I have everything I want.

So yes, I am LBYM and accumulating, but I am also spending very freely.
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Old 04-16-2011, 01:16 PM   #25
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Old 04-16-2011, 01:21 PM   #26
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Every day in every way, life is getting better.

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But are you choosing to LBYM these days?
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Yep
Old 04-16-2011, 01:21 PM   #27
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Yep

My wife and I live comfortably on about 50% of my cola'd pension. The rest is saved and invested. 100% of our taxable and tax-deferred monies (accumulated during our working years) will remain untouched until RMDs are required.
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Old 04-16-2011, 01:27 PM   #28
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This is a serious concern for me.
Do you have any idea what it costs these days to have an equestrian statue of yourself made and placed in the local park?
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Old 04-16-2011, 02:10 PM   #29
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I thought pension income wasn't eligible for funding an IRA?

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I've been fully finding a Roth each year out of my pension earnings and will continue to do so until my DW retires in 5 years. I have not wanted for anything - in fact I spend more freely now than before I retired.
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Old 04-16-2011, 03:29 PM   #30
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Although pension income is not, he can contribute based on the spouse's earnings.
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Old 04-16-2011, 04:47 PM   #31
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Although pension income is not, he can contribute based on the spouse's earnings.
I agree. He can contribute to a spousal IRA as long his DW has earned income.
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Old 04-16-2011, 04:51 PM   #32
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Most folks will have to add money to their "principal" in order to have it keep up with inflation. If you are spending all your gains annually on average, then you are probably not problem-free unless you are old. Of course, "gains" is more than just dividends and interest in a portfolio with at least some equities. And "gains" could be "losses" in 1/4th to 1/3rd of the years on average.
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Old 04-16-2011, 06:31 PM   #33
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We plan to live below our means in the early stages of retirement. My wife inherited something we sold on an installment basis. We sold it 2 years ago and get quarterly payments, which we have been saving since I am still working. Assuming I retire next year when I'm 62, that cash flow, which is mostly tax free, plus some rent we get is more than we live on right now. Our plan is to add to savings as long as we have that income and the rent and postpone any decumulation as long as possible. Even assuming 3% inflation, we should never miss a beat and should be able to leave our kids a nice inheritance. Yes, we want to leave them something and not spend it all before we die.
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Old 04-16-2011, 06:38 PM   #34
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Most folks will have to add money to their "principal" in order to have it keep up with inflation. If you are spending all your gains annually on average, then you are probably not problem-free unless you are old. Of course, "gains" is more than just dividends and interest in a portfolio with at least some equities. And "gains" could be "losses" in 1/4th to 1/3rd of the years on average.
A portfolio that is mainly dependent on dividends from quality companies which are able to grow their well covered dividends will usually show an increasing income, and over time an increasing priciple value, even if you spend every dollar of dividends.

This technique does require some study and knowledge, as well as maintenance time.

This of course would not apply to nominal bonds, which is why I don't normally get involved with "buy and hold" nominal bonds. I was born in the 40s; I don't think there has been one year in all that time without inflation. The rate varies, but it never stops, and IMO it never will.

Dividends are not "gains", they are income. If you spend capital gains, unless you are a trader with demonstrated skill you are likely to eventually sink your ship.

Ha
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Old 04-16-2011, 06:39 PM   #35
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It is too early nor would it make sense for me to do any sort of withdrawals.
The first 3 years of FIRE, I continued to add to my retirement portfolio using $600 per month (and sometimes up to $1000) from my pension and annuity (P&A) income. The savings in income taxes alone funded this easily. I had a pre-set target amount to finish accumulating and achieved that last year. Mission accomplished.
Now I only use $100 per month of that P&A income and the rest is made up with 30 day dividends from a national muni fund. I have an emergency fund in place in a TE MM fund. I reset my AA to one where I could sleep easily.
I am still LBYM and saving up more cash in the 9 months when I do not have to pay property taxes in lump sums.
I have no choice but to assume that SS will not be what I expect it to be in 9.5 years when I turn 62 (not a political statement, just an equation variable). So I intend to continue DCA at the current rate and method, increasing it only when market conditions tell me to ramp it up temporarily for some bargains.
Once I can draw my own small FERS pension in 3.5 years, Plan C will kick in.
Plan C may involve selling the house and downsizing and/or a geographical relocation. I am actively thinking now about the cost/benefit of keeping the house. TBD...
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Old 04-16-2011, 06:44 PM   #36
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Most folks will have to add money to their "principal" in order to have it keep up with inflation. If you are spending all your gains annually on average, then you are probably not problem-free unless you are old. Of course, "gains" is more than just dividends and interest in a portfolio with at least some equities. And "gains" could be "losses" in 1/4th to 1/3rd of the years on average.
I agree, I asked the original question to see how people think about their principal. Right now I plan for 50% of my ER income to come from a rental property. I will have to spend down my after tax savings to get me to 59.5, but the annual amount will be around 1.5% of my total portfolio, so I hope to have gains above that to reinvest. Once SS and UK pension kick in I will have no need to draw on my personal investments. However I have locked up equity in the rental property in exchange for the rental income.
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Old 04-16-2011, 07:32 PM   #37
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As time goes by DW and I will be needing less of a nest egg. No plans to be the richest guy in the cemetery. I'm going to potters field.
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Old 04-16-2011, 08:46 PM   #38
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We plan to LBYM after ER, because we always have. I think we are also a bit paranoid about running out of money after watching my husband's mom and my dad run out due to illnesses and needing caregivers.
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Old 04-16-2011, 10:50 PM   #39
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Yes.




Seriously, been LBYM since I finished college and this old dog is slow to learn new tricks. Between global economic uncertainty, the value of the dollar and it's exchange rate with the Thai Baht I see no reason to splurge. Though now that I'm back into photography after many years I'm beginning to turn my lust for a DSLR into semi-rational reasons why it would be good for me.
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Old 04-17-2011, 03:16 AM   #40
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It makes no sense to let the principal grow for those of us without DW / DH or heirs. Unless you plan to leave some money for non profit organizations or some of your close friends...
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In fact you add to that principal each year so it grows.
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