Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-12-2013, 09:45 AM   #21
Recycles dryer sheets
Larro Darro's Avatar
 
Join Date: Jul 2013
Location: Altha
Posts: 161
When DW has to do her public disclosure, the house is part of NW. But for retirement planning, we don't count it. It is like my gun collection. You could pay the electric bill by selling one a month for seven or eight years, but it is something I don't want to start anytime soon. In fact, I don't see myself not adding to it every birthday for the next ten or fifteen years.
__________________

__________________
Make good money, five dollars a day.
Made anymore, I might move away.
Larro Darro is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-13-2013, 11:32 AM   #22
Dryer sheet aficionado
 
Join Date: Sep 2004
Posts: 32
I track two AAs, one for total investments (this is the one useful for retirement) and then total net worth which includes the home & material goods. Cash flow in/out is also very important when it comes to thinking about retirement so I track that too.

Mostly I was just wondering if there are any "rules of thumb" ratios between the two different classes. You hear about % of mortgage compared to salary, or the UAW/PAW ratios from Stanley's Millionaire Mind...and I'm sure there are others. I guess another way of saying it would, how much "stuff" (including home), which generally goes down in value rather than up, vs how much "nvestments. On this board and the MMM people are of course all about maximizing growing assets over consumption. But I hadn't seen any kind of analysis of what is a typical ratio.
__________________

__________________
eryx is offline   Reply With Quote
Old 09-21-2013, 12:18 PM   #23
Recycles dryer sheets
bamsphd's Avatar
 
Join Date: Nov 2005
Posts: 337
Quote:
Originally Posted by eryx View Post
Mostly I was just wondering if there are any "rules of thumb" ratios between the two different classes. You hear about % of mortgage compared to salary, or the UAW/PAW ratios from Stanley's Millionaire Mind...and I'm sure there are others. I guess another way of saying it would, how much "stuff" (including home), which generally goes down in value rather than up, vs how much "nvestments. On this board and the MMM people are of course all about maximizing growing assets over consumption. But I hadn't seen any kind of analysis of what is a typical ratio.
The LBYM answer is spend as little on "stuff" including your home as you can comfortably stand. That means the answer is very personal indeed.

Before I was married, my salary went basically a third to various taxes, a third for the future, and a third for now. Your preferences may be different, but getting to FI status was a high priority for me. Thus my ratio of investment portfolio to stuff grew every year until the volatility of my portfolio exceeded a third of my salary.

I kind of like the classic advice rarely followed these days that your home should cost at most 2 to 3 years of salary. Approximating with the 4% rule, that would imply your home's value should be roughly 8% to 12% of your portfolio's value, assuming you are retired with no other income streams.

If you put your investments in buckets to satisfy different spending categories, allocating basically the same amount to your home costs bucket as your home would sell for is another very rough rule of thumb.

Though it can be broken, a classic rule is that a luxury once sampled becomes a necessity. You can think about all purchases as not just the up front single purchase cost, but as what would it cost to use/maintain/replace this new luxury for the rest of my life in dollars/year? For example that new iPhone needs a wireless plan, and the phone itself will need to be replaced periodically. Using a 4% withdrawal rate as a rough approximation, how much portfolio would I need to produce that many dollars/year?

Until retirement, then calculate that using my current salary, how much of my time is needed to save that much money? Is this new luxury worth that much of my life? If yes, buy it now. If no, then reject or defer the purchase for later reconsideration. Basically, is this luxury worth deferring my retirement?

Once retired, you look at your current withdrawal rate, decide if it is below your personal maximum safe withdrawal rate guess, if so you can buy the new luxury because you have the spare cash. Basically, you are on a "fixed" income buddy, you can buy it if you can afford it forever.

The other alternative before and after retirement is to convince yourself you can eliminate some existing luxury with the same or greater cost as the new luxury, allowing you to swap luxuries.

In the end your investment portfolio to "stuff" ratio is a lifestyle choice, heavily dependent on what kind of "stuff" you like, how optimistic you are, what if any other income streams you have, how LBYM you want to be, how close you are to FIRE, and how much you like to w@rk.
__________________
bamsphd is offline   Reply With Quote
Old 09-21-2013, 10:20 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by eryx View Post
I guess another way of saying it would, how much "stuff" (including home), which generally goes down in value rather than up, vs how much "nvestments.
Except for the RE crash years, a reasonably well located home plus lot would have had to suffer very bad luck to lose money.

It isn't very hard to figure out how your city is going to do, and it isn't very hard to pick the better districts of your city.

You don't want more home than your retirement assets can easily support, but more than one family or couple have been priced out of an area where they wanted to be. Since I would experience serious quality of life losses if I had to move somewhere cheaper, I elected to buy and my anxiety level dropped meaningfully. I did not want to move to the burbs or worse yet to another part of the country, if we got a hot real estate market. OTOH, I figured that at the cost level at which I was entering, losses would have little risk for me. My condo would rent at a good cash profit, so the only thing that might negatively impact me would be an important regional business recession.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 09-22-2013, 02:12 PM   #25
Thinks s/he gets paid by the post
 
Join Date: Feb 2011
Posts: 1,629
Quote:
Originally Posted by haha View Post
Except for the RE crash years, a reasonably well located home plus lot would have had to suffer very bad luck to lose money.

Ha
There have been many exceptions to that over past 10-15yrs particularly after including the ongoing costs of mortgage, taxes, insurance, upkeep, periodic renovations, etc. While most markets have stabilized recently, there are lots of nice properties in major markets which are still badly underwater vs 5-10yrs ago.
I've come to view a home as a stable place to live in the area of my choosing. Any investment gain would be a bonus.
__________________
ERhoosier is offline   Reply With Quote
Old 09-22-2013, 03:19 PM   #26
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,242
Quote:
Originally Posted by haha View Post
Except for the RE crash years, a reasonably well located home plus lot would have had to suffer very bad luck to lose money.

It isn't very hard to figure out how your city is going to do, and it isn't very hard to pick the better districts of your city.
Agree completely. Our area never lost more than 20% in value even during the crash. Much of this stability was due to the "enlightened" (okay, maybe lucky) lending practices locally. "No doc" and other high-risk loans were rarely offered, so the cascade effects seen in other areas never materialized when the market got a little soft. Also, by being a very desirable area where "they aren't making any more land", prices have a natural "stability" built in. This has played out over many cycles in the past.

We were able to play the system to an extent and trade "up", locally. Our old area lost about 10% during the crash while our current area lost about 20%. Now, prices have rebounded to near pre-crash levels, so we "made" money (if we were to sell).

Having said all that, I still don't think of the home as an investment. Neither do I look at it as just an expense. It's sort of a "neutral" item that has characteristics of both. I don't look at it as part of the AA, but I certainly look at it as an asset which adds stability to the FIRE plan.

To the OP's question about a "rule of thumb", respectfully, I don't see that as being very useful - assuming that investable assets and other sources of income allow one to live in one's chosen abode without fear of running out of money. So, if half one's assets are in a house and the other half generate more than enough money to keep one IN that house, who cares about the percentages of total assets? Just my opinion, so YMMV.
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 09-22-2013, 06:06 PM   #27
Dryer sheet aficionado
 
Join Date: Sep 2004
Posts: 32
Thanks for the great discussion everyone. From reading the links it seems like my home value is within a typical range. And since the home is generally the largest priced "stuff", that's a good one to look at.

I agree that it doesn't really matter-- but having too large a home (and other "stuff") would delay early retirement (the focus of this forum) since one would then need to work longer to have the cash flow to support it (or to purchase it).

Another interesting data point would be the spending patterns of those who successfully retire early vs. those who don't and perhaps even how it relates to work/retirement timing. That is, total spent on stuff vs investments, as compared to # of working years.
__________________
eryx is offline   Reply With Quote
Old 10-01-2013, 04:38 PM   #28
Dryer sheet aficionado
 
Join Date: May 2013
Posts: 34
Quote:
Originally Posted by GoodWishes View Post
For our net worth, we include our primary home and investable portfolio. For our investable portfolio, we include our rental houses, stocks, bonds and cash. We don't include cars, furniture, etc.

We have a spreadsheet that tells us the percentages of everything within our net worth and within our investable portfolio.
We do this too.

My assets are investments that make me money. My principal place of residence is a liabilty as it costs me money.

(I know, technically it saves me rent money, but I still do not include it.)
__________________
butterfly is offline   Reply With Quote
Old 10-01-2013, 07:25 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,569
Quote:
Originally Posted by Larro Darro View Post
When DW has to do her public disclosure, the house is part of NW. But for retirement planning, we don't count it. You could pay the electric bill by selling one a month for seven or eight years, but it is something I don't want to start anytime soon. In fact, I don't see myself not adding to it every birthday for the next ten or fifteen years.
L.D. if your selling let me know. Say for a nice W.C. Supergrade maybe 2 months of electricity. :-)

MRG
__________________
MRG is online now   Reply With Quote
Old 10-02-2013, 01:42 PM   #30
Recycles dryer sheets
 
Join Date: Nov 2011
Location: Oak Ridge
Posts: 52
I think you should take the equity in the house and in other real estate (vacation house, farm, etc) into account in retirement planning.
I recently decided to withdraw 10% of my retirement assets to pay off a mortgage. It made sense to me because it reduces my expenses, and also because interest rates on retirement funds invested for safety are very low. Now some would say that my farm and house are not very liquid, so why consider them to be retirement assets if you won't sell. Well, we will sell the farm at some point, and as far as the house goes, it's value will become available to pay for assisted living/nursing home care should that become necessary.
The objective of my retirement planning is to maintain my spending with minimal risk of running out before I die. Firecalc says no problem, unless I live to 95, or the future is worse than the past. But before I hit 95 I would expect to either sell the house or (should I be healthy enough to stay there) I could take out a reverse mortgage if returns on my portfolio have been disappointing. If I were renting these options would not be available to me and I would have to count on spending less from my retirement assets each year.
__________________

__________________
MikeTN is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 06:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.