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Please Poke Holes Through This
Old 05-23-2018, 09:22 AM   #1
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Please Poke Holes Through This

I find myself in-between jobs for the second time in my 20-year career, and I'm wondering if that's it for me. If I do find employment again, it's not a certainty that it'll be doing what I've been doing for the past 20 years.

I've been quite consumed with the thought of early retirement for a while now - mostly because I don't trust my numbers. My calculations are a mish-mosh of current and future numbers that I don't entirely trust. I keep going over things again and again looking for holes, finding new angles. Here are my numbers. I would greatly appreciate feedback on our current (and future) situation.

Ages:
Me: 51
DW: 53

Income From Employment:
Me: 0
DW: very low six figures

Age Would Like To Retire:
Me: Now
DW: 57 (four more years, in 2022)

Pensions:
Me: 0
DW: approx. $17k/yr COLA in 2022

Asset Allocation:
Stock (both domestic and int'l): 70%
Bonds (both domestic and int'l): 30%
(we also hold about 1 year of expenses in cash)

Debt: None; home is paid-off

Medical Insurance: Currently getting insurance through DW's employer. It's not the greatest insurance as not many doctors accept it, but it covers hospitals and my maintenance medications (hypertension, cholesterol). After DW retires in 2022, we can keep the medical insurance at no cost to us. Although it's not a very good insurance plan, I wonder if it'll be good enough to tide us over until Medicare. I do have a pre-existing condition that requires occasional attention from a specialist. We'll see - we only started with the plan the beginning of 2018.

Figuring out our expenses is the thing that makes me go over things again and again. What I'm figuring sounds much too good to be true.

I estimate that our gross expenses in 2018 will be approx. $74k. This figure was calculated by taking our 2017 expenses in Quicken ($100k, which includes two overseas vacations), and subtracting out taxes ($21k) and my job-related expenses ($7k-8k), then throwing a little bit of inflation in.

Our taxable accounts yield approx. $25k/yr after taxes, which brings the expenses to be covered by other means to approx. $49k. When DW gets her pension in 2022, our expenses (taking into account the taxes on the pension) go down to approx. $34k/yr. Of course, applying a future pension to current expenses doesn't sound kosher to me, which is why I keep going over our numbers so much.

And I don't have confidence that I'm figuring taxes in retirement correctly. I took $34k and subtracted the standard deduction of $24k (married, filing jointly) from it, applied the long-term capital gains tax rate of 15% to it, and then added our real estate taxes to it like so:

(((34000-24000)/(1-0.15))-(34000-24000))+7000

Using my actual numbers gives me taxes, if we were both retired, of approx. $9k. So total net expenses will be approx. $43k. It might be that the standard deduction is only to be applied to earned income. I don't know and that's one of the things I'm hoping someone can tell me.

IF (and I consider this a BIG if) the estimation of our expenses is close to reality, then this would mean that our NW is more than 75 times annual expenses. Even if we need to buy our own health insurance, it looks like we're in good shape. But this sounds much too good to be true.

I guess what I'm looking for from you folks is:
1) to poke holes in my numbers - tell me where I'm going wrong
2) to tell me if you think it's safe (from a numbers perspective only) for me to remain unemployed. (Please don't get into potential/hypothetical marital issues of one spouse working while the other doesn't).
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Old 05-23-2018, 09:31 AM   #2
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A couple of suggestions:

- Have you looked at your expenses in detail to help estimate what you would really spend in retirement? Have you included an allowance for major/infrequent expenses (car replacement, roof replacement, etc.).

- Have you run your numbers through calculators such as FIREcalc (link on each page here)?

- Are you willing/interested in taking part-time employment for a few years to shore things up/give you more cash for travel, etc.? Even a Home Depot gig can be helpful in that regard.
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Old 05-23-2018, 09:37 AM   #3
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Quote:
Originally Posted by Vincenzo Corleone View Post
I find myself in-between jobs for the second time in my 20-year career, and I'm wondering if that's it for me. If I do find employment again, it's not a certainly that it'll be doing what I've been doing for the past 20 years.

I've been quite consumed with the thought of early retirement for a while now - mostly because I don't trust my numbers. My calculations are a mish-mosh of current and future numbers that I don't entirely trust. I keep going over things again and again looking for holes, finding new angles. Here are my numbers. I would greatly appreciate feedback on our current (and future) situation.

Ages:
Me: 51
DW: 53

Income From Employment:
Me: 0
DW: very low six figures

Age Would Like To Retire:
Me: Now
DW: 57 (four more years, in 2022)

Pensions:
Me: 0
DW: approx. $17k/yr COLA in 2022

Asset Allocation:
Stock (both domestic and int'l): 70%
Bonds (both domestic and int'l): 30%
(we also hold about 1 year of expenses in cash)

Debt: None; home is paid-off

Medical Insurance: Currently getting insurance through DW's employer. It's not the greatest insurance as not many doctors accept it, but it covers hospitals and my maintenance medications (hypertension, cholesterol). After DW retires in 2022, we can keep the medical insurance at no cost to us. Although it's not a very good insurance plan, I wonder if it'll be good enough to tide us over until Medicare. I do have a pre-existing condition that requires occasional attention from a specialist. We'll see - we only started with the plan the beginning of 2018.

Figuring out our expenses is the thing that makes me go over things again and again. What I'm figuring sounds much too good to be true.

I estimate that our gross expenses in 2018 will be approx. $74k. This figure was calculated by taking our 2017 expenses in Quicken ($100k, which includes two overseas vacations), and subtracting out taxes ($21k) and my job-related expenses ($7k-8k), then throwing a little bit of inflation in.

Our taxable accounts yield approx. $25k/yr after taxes, which brings the expenses to be covered by other means to approx. $49k. When DW gets her pension in 2022, our expenses (taking into account the taxes on the pension) go down to approx. $34k/yr. Of course, applying a future pension to current expenses doesn't sound kosher to me, which is why I keep going over our numbers so much.

And I don't have confidence that I'm figuring taxes in retirement correctly. I took $34k and subtracted the standard deduction of $24k (married, filing jointly) from it, applied the long-term capital gains tax rate of 15% to it, and then added our real estate taxes to it like so:

(((34000-24000)/(1-0.15))-(34000-24000))+7000

Using my actual numbers gives me taxes, if we were both retired, of approx. $9k. So total net expenses will be approx. $43k. It might be that the standard deduction is only to be applied to earned income. I don't know and that's one of the things I'm hoping someone can tell me.

IF (and I consider this a BIG if) the estimation of our expenses is close to reality, then this would mean that our NW is more than 75 times annual expenses. Even if we need to buy our own health insurance, it looks like we're in good shape. But this sounds much too good to be true.

I guess what I'm looking for from you folks is:
1) to poke holes in my numbers - tell me where I'm going wrong
2) to tell me if you think it's safe (from a numbers perspective only) for me to remain unemployed. (Please don't get into potential/hypothetical marital issues of one spouse working while the other doesn't).
I am not the expert, but you would have a WR of less than 2%. Theoretically that type of WR should last in perpetuity.
Have you considered the non financial aspect of retirement, especially for another 4 years? i.e. do you have hobbies, stuff to fill your time and are psychologically okay with not going to work everyday?
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Old 05-23-2018, 09:46 AM   #4
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I would run your numbers through both Firecalc and FRP (Flexible Retirement Planner). This will provide some level of historical/sanity check to your numbers and will likely cause you to think of things you have not yet considered.


FireCalc link: https://firecalc.com/



Flexible Retirement Planner link: Download | The Flexible Retirement Planner


I found these two tools invaluable when I was planning my ER.


Regards and best of luck.
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Old 05-23-2018, 09:51 AM   #5
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Do a pro forma tax return as if you were both retired. I think that you will find that your taxes will be closer to $0 than $9k. Taxable account withdrawals are not taxed for principal/basis... only gains and then at 0% if you manage your income to stay in the 12% tax bracket. I think your taxable income will be taxable account income + pension + capital gains on any taxable account withdrawals - $24k standard deduction.

If a good portion of your taxable account income is qualified dividends then your tax should be $0 ($24k standard deduction offsets pension and some ordinary income).

Also, what about social security?

But in short.... ignoring SS, once you are both fully retired your gap will be $57k ($74k expenses - $17k COLAed pension).... at a conservative 3% WR you would need $1.9 million... you have much more than that... so you should be golden.

You can validate your expense number in two ways... do a bottoms up budget based on the last couple years of expenses.... and look at what your take home was less taxable account savings... presumably the rest was spent.
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Old 05-23-2018, 11:38 AM   #6
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Quote:
Originally Posted by Vincenzo Corleone View Post
I find myself in-between jobs for the second time in my 20-year career, and I'm wondering if that's it for me.

I've been quite consumed with the thought of early retirement for a while now - mostly because I don't trust my numbers.

tell me if you think it's safe (from a numbers perspective only) for me to remain unemployed.
You haven't indicated what you would do if you choose not to work again. It's always best to have something to retire to, rather than just from. And sometimes the allure of early retirement distracts us from focusing on the next job opportunity.

That said, your numbers seem to indicate that you are safe.

If you truly don't trust your numbers, a few hours with a good fee-only fiduciary financial planner could give you confidence and you could walk out with a solid plan.
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Old 05-24-2018, 07:13 AM   #7
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75 times estimated expenses.
You're good.
Here's the big hole: what does DW say? My wife used to say "Its good to have a man at home. It's Great to have a man that leaves the house every day."
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Old 05-24-2018, 07:38 AM   #8
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Thanks for the replies.

Quote:
Originally Posted by MBAustin View Post
A couple of suggestions:

- Have you looked at your expenses in detail to help estimate what you would really spend in retirement? Have you included an allowance for major/infrequent expenses (car replacement, roof replacement, etc.). [1]

- Have you run your numbers through calculators such as FIREcalc (link on each page here)? [2]

- Are you willing/interested in taking part-time employment for a few years to shore things up/give you more cash for travel, etc.? Even a Home Depot gig can be helpful in that regard. [3]
[1] Only to the extent of weeding out j*b-related expenses and taxes. The expense number mentioned in my original post included a car replacement. As far as major home improvements, we live in a highrise condo so we don't have to worry about roofs, boilers and such. I'm just figuring our maintenance fee will rise with inflation.

[2] I have run my numbers through FIREcalc and other retirement calculators (numerous times). It doesn't help though if you don't have a clear picture of what your expenses (including taxes) will be. This is the thing I'm not confident in.

[3] Absolutely, if our withdrawal rate calls for it.


Quote:
Originally Posted by Dtail View Post
I am not the expert, but you would have a WR of less than 2%. Theoretically that type of WR should last in perpetuity.
Yeah. But I'm concerned I'm being too optimistic with expenses and I'm not confident I'm figuring out taxes correctly. Before I calculate my withdrawal rate, I need to be confident in what my expenses will be.

Quote:
Originally Posted by wdberry62 View Post
I would run your numbers through both Firecalc and FRP (Flexible Retirement Planner). This will provide some level of historical/sanity check to your numbers and will likely cause you to think of things you have not yet considered.

<snip>

I found these two tools invaluable when I was planning my ER.
Yeah, FIRECalc has gotten some good usage from me. I installed FRP. Interesting tool. Thanks.

Quote:
Originally Posted by pb4uski View Post
Do a pro forma tax return as if you were both retired. I think that you will find that your taxes will be closer to $0 than $9k. Taxable account withdrawals are not taxed for principal/basis... only gains and then at 0% if you manage your income to stay in the 12% tax bracket. I think your taxable income will be taxable account income + pension + capital gains on any taxable account withdrawals - $24k standard deduction.

If a good portion of your taxable account income is qualified dividends then your tax should be $0 ($24k standard deduction offsets pension and some ordinary income).

Also, what about social security?

But in short.... ignoring SS, once you are both fully retired your gap will be $57k ($74k expenses - $17k COLAed pension).... at a conservative 3% WR you would need $1.9 million... you have much more than that... so you should be golden.

You can validate your expense number in two ways... do a bottoms up budget based on the last couple years of expenses.... and look at what your take home was less taxable account savings... presumably the rest was spent.
Some really helpful information here, thanks. I'll do a pro forma return. Regarding SS, DW and I are planning on starting it when we turn 70. That's pretty far-off for us, so I'm not bothering. Good ideas regarding expenses. Thanks.

Quote:
Originally Posted by joeea View Post
You haven't indicated what you would do if you choose not to work again. It's always best to have something to retire to, rather than just from. And sometimes the allure of early retirement distracts us from focusing on the next job opportunity.

That said, your numbers seem to indicate that you are safe.

If you truly don't trust your numbers, a few hours with a good fee-only fiduciary financial planner could give you confidence and you could walk out with a solid plan.
I've been contemplating paying for a financial planner. I might do that.

Quote:
Originally Posted by GravitySucks View Post
75 times estimated expenses.
You're good.
Yeah - but as I stated earlier in this comment, I worry that I'm being too optimistic in my estimation of expenses. Yet, I can't see a flaw in how I came to the estimate. That's what I was hoping I'd get some feedback on. But I appreciate your response nonetheless.
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Old 05-24-2018, 05:49 PM   #9
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Quote:
Originally Posted by Vincenzo Corleone View Post
.... I'll do a pro forma return. ...
Let us know how that works out.

On the expenses, at least for us, the vast majority of our expenses are paid via credit card or auto-pay... it would be pretty easy for me to get a real good idea of our expenses by just looking through our checkbook register for the year.
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Please Poke Holes Through This
Old 05-25-2018, 02:24 AM   #10
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Please Poke Holes Through This

Congratulations on having possibly already retired! It sounds like you’re in the clear, but I have a few items to consider.

- Since you already have your data in Quicken, you could export an income/expense report to Excel covering the last few years. Add a column to estimate those categorized expenses in retirement. This will give you a better feel for total expenses. I would expect spending in several areas to change, such as insurance, travel, hobbies, retirement account contributions, and taxes.

- If you do your own taxes with software, you can try zeroing out earned income to see the effect on last year’s taxes. Of course, 2018 will be different because of tax code changes.

- This may be just semantics, but when calculating withdrawal rate, I consider spent portfolio income (the $25k) as a withdrawal. In your case, in 2022,
Non-portfolio income: $17k
Expenses: $74k+$9k est. taxes = $85k
Need from portfolio: $85k-$17k = $68k
WR = $68k/Portfolio value.

- Consider whether you have enough in taxable accounts until you can access retirement accounts.
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Old 05-25-2018, 05:31 AM   #11
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Quote:
Originally Posted by Done View Post
This may be just semantics, but when calculating withdrawal rate, I consider spent portfolio income (the $25k) as a withdrawal. In your case, in 2022,
Non-portfolio income: $17k
Expenses: $74k+$9k est. taxes = $85k
Need from portfolio: $85k-$17k = $68k
WR = $68k/Portfolio value.

Consider whether you have enough in taxable accounts until you can access retirement accounts.
Thanks for the tips on expenses and taxes.

You raise some good points. I don't think it's just semantics. I'm proposing partially counting on dividends from funds I'll need to withdraw however-much % from. That would decrease the dividend income and increase the withdrawal rate over time.

Moreover, the withdrawal rate needs to be considered not only on the entire NW but also on just the taxable portion. Roughly half our NW is in taxable accounts. So I may have a nice, conservative 2% withdrawal rate on the entire NW but a not-so-conservative 4% withdrawal rate on just the taxable portion. Considering my DW will work until she's 57, that will leave us a couple of years we'll need to rely solely on taxable accounts - so I don't think it'll be that much of a stretch.
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Old 05-25-2018, 05:40 AM   #12
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The numerator includes taxes so there is no need to considered deferred taxes in the denomonator. Also, the denominator should not be NW, but retirement savings... exclude homes unless you plan to downsize and add the proceeds to retirement accounts. exclude cars, etc.
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Old 05-25-2018, 05:45 AM   #13
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The numerator includes taxes so there is no need to considered deferred taxes in the denomonator. Also, the denominator should not be NW, but retirement savings... exclude homes unless you plan to downsize and add the proceeds to retirement accounts. exclude cars, etc.
Yeah - DW and I never count the value of our home as part of our NW. Good point, though.
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Old 05-25-2018, 01:43 PM   #14
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My understanding is that your invested assets = $43K x 75 = $3.225M (edited after looking at comments below). If your wife's job is solid, her health is solid, and your expenses are accounted for, it looks like you're golden. If there's any uncertainty in the above, then you may need to continue evaluating. I have FIVE budgets set up: 1) Working; 2) Retired if we buy a condo; 3) Retired if we buy a house; 4) Retired if we move overseas (renting); 5) Retired with only one of us remaining. I have another tab of the spreadsheet that shows all sources of income, and plans distributions from taxable accounts, ROTH IRA, IRA, inherited IRA, SS, cash accounts, etc., and minimizes the taxes on the distributions. Assuming that growth = inflation, I'm projecting that the assets would last 27 years using the current desired maximum budget as the withdrawal rate; then we'd be left spending SS and a reverse mortgage, if sequence of returns risk have hit us hard. I'd suggest you take some time to figure out your spending between now and your wife's retirement, then after you're retired, including hobbies, travel, new pursuits, and possibly, increased health care costs. This calculator includes assumed levels of activity, which will affect your spend rate: https://www.marketwatch.com/retireme...ing-calculator

Also, you don't mention SS. You should look at your and your wife's anticipated SS benefits, assuming 75% of what SS is telling you that you'll be paid will actually be paid, and include that in future income.
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Old 05-25-2018, 01:49 PM   #15
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I had him at $43k * 75.... or $3.225 million.

Quote:
Originally Posted by Vincenzo Corleone View Post
..... Using my actual numbers gives me taxes, if we were both retired, of approx. $9k. So total net expenses will be approx. $43k. It might be that the standard deduction is only to be applied to earned income. I don't know and that's one of the things I'm hoping someone can tell me.

IF (and I consider this a BIG if) the estimation of our expenses is close to reality, then this would mean that our NW is more than 75 times annual expenses. ....
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Old 05-25-2018, 02:18 PM   #16
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I had him at $43k * 75.... or $3.225 million.
+1
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Old 05-27-2018, 03:26 PM   #17
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Have you considered the non financial aspect of retirement, especially for another 4 years? i.e. do you have hobbies, stuff to fill your time and are psychologically okay with not going to work everyday?
Yeah, you may want to direct some of the conversation to those who fully retired in their early/mid 50's. The rest of your life could be a long time at that age. Did they wish they had stayed employed at something, at any time down the line?

Anything you would enjoy working at that pays something, even if less than you are used to earning? PT work? Hobby Job? Any monies earned, even a little, take stress off your retirement stash. And a job with flex time might also be a nice fit.

I am a big believer in the hobby job-interesting, gets me out of the house, and pays a few bills. When it is no longer "fun", I can quit. Best of both worlds, IMO.
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Old 05-27-2018, 03:59 PM   #18
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Yeah, you may want to direct some of the conversation to those who fully retired in their early/mid 50's. The rest of your life could be a long time at that age. Did they wish they had stayed employed at something, at any time down the line?

Anything you would enjoy working at that pays something, even if less than you are used to earning? PT work? Hobby Job? Any monies earned, even a little, take stress off your retirement stash. And a job with flex time might also be a nice fit.

I am a big believer in the hobby job-interesting, gets me out of the house, and pays a few bills. When it is no longer "fun", I can quit. Best of both worlds, IMO.
I develop software for a living. My hope is to find a lower-stress job - maybe doing simple production support / bug fixing - that will allow me to work remotely from a rented little home in Costa Rica, or wherever else in the world we may decide to go. During the times of the year when we're not traveling, I'd be open to doing something different - just not sure what.

Thanks for your comment.
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Old 07-07-2018, 08:45 AM   #19
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Well, I've reached the six month mark of being out of work. I came close to getting an offer, but it looks like I'm their backup candidate should their first choice not work out for them. So, I still might get an offer, but I'm not holding my breath.

I exported our Quicken expenses for last year to Excel and went over it line by line. Some things we're not willing to cut. My wife enjoys cooking and occasionally we'll get a nice cut of something from the butcher - lamb, steaks, etc. We also enjoy a glass or two of wine with dinner ($10/bottle Yellow Tail is perfectly fine for us). I also didn't cut out entertainment or recreation/hobbies. Why retire if it'll be joyless.

But I found a bunch of other discretionary things that can be cut (e.g., buying Swarovski binoculars was completely unnecessary, an inexpensive appliance could have sufficed instead of a Miele, etc.). I subtracted out our overseas vacations. I subtracted out the taxes we're currently paying.

Total "bare bones" annual expenses before taxes - $38k.

Yeah - I'm much more at ease about whether or not I'll find work.
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Old 07-07-2018, 09:19 AM   #20
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How iron-clad is your wife's retiree health insurance? If it's union she may be OK. My brother, who was in management, ERd in his late 50s with retiree health insurance and a decent pension. The company dropped the retiree health insurance as of 1/1/18- just dropped it. No compensation, no option of paying some part of it. Brother and SIL are paying $22K/year (combined) for an ACA plan with a high deductible. Fortunately they live very frugally and have saved a lot, but it was a huge shock. Something you need to consider if you think it's possible.
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Shoot holes in my plan or give me a sanity check frayne FIRE and Money 4 04-04-2004 03:48 PM

 

 
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