Join Early Retirement Today
Reply
 
Thread Tools Display Modes
What I can and can't control (investment income vs spending range)
Old 03-11-2015, 07:26 AM   #1
Recycles dryer sheets
 
Join Date: Jun 2014
Posts: 440
What I can and can't control (investment income vs spending range)

I have to admit. As I get close to FIREing I am obsessed with this idea of waiting until the "any minute now" market correction... Saving almost all my salary between now and then... Then investing it all at that time and get this huge relief that I entered at a good time. It's like a wet dream for me.

This is dumb and won't work.

First... I could spend 10 years waiting or it could happen tomorrow. Second... It could go down... Then down more or up for a second and then down even more. I can construct endless outcomes that are either positive or negative. Time will either be good or bad depending on how I feel.

That's what I can't control.

But what about this?

My spending is about 8500$/mo on about 3.4M which after taxes is pretty safe even at 40 years old. But not paranoid crazy man safe... And I'm a bit of a paranoid crazy man when I think about FIRE and money.

4250 of that is a mortgage that eats no matter what. market cuts in half? Still 4250... High inflation? 4250. Deflation? 4250.

But check this out.

I could rent my unused master suite for about 500$/mo. I could convert my huge garage to a legal rental for about 50k and rent that for about 900. Bam... 1400$ drop... A cut of almost 20% off my annual draw. Think a change in asset allocation or market timing can produce that result with greater success? I don't.

There's more.

Stop eating out completely. 300$/mo. Live with (horror) ONLY 1 phone. 100$/mo. Be careful with grocery shopping. 200$/mo.

That's another 600$.

Suddenly my "bare minimum" is 6250 and I'm not really doing anything extreme (some people might find renting extreme but in parts of socal lots of people do this ).

So now I'm closer to 85k.

That market drop seems much less scary now. And these are changes I can make and control and are largely market independent.

I bet if I spent as much time and energy looking for ways to cut costs or possibly generate income in a happy for me way as I did worrying about the market I might drop my "bare minimum" more... Maybe much more.

What do you guys think? Do you find yourself worried about things you can't control and ignoring the things you can?

Sent from my HTC One_M8 using Early Retirement Forum mobile app
petershk 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 03-11-2015, 07:33 AM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
Peter, you need to chill out.

Take a deep breath and consider how great it is to just be alive. All this angst over uncontrollable unknowns isn't conducive to a happy life. Find yourself a hobby to help you think of something other than markets and spending.
__________________
Numbers is hard
REWahoo is offline   Reply With Quote
Old 03-11-2015, 07:45 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sarah in SC's Avatar
 
Join Date: Sep 2005
Location: Charleston, SC
Posts: 13,566
Quote:
Originally Posted by REWahoo View Post
Peter, you need to chill out.

Take a deep breath and consider how great it is to just be alive. All this angst over uncontrollable unknowns isn't conducive to a happy life. Find yourself a hobby to help you think of something other than markets and spending.
Word.
__________________
“One day your life will flash before your eyes. Make sure it's worth watching.”
Gerard Arthur Way

Sarah in SC is offline   Reply With Quote
Old 03-11-2015, 07:52 AM   #4
Thinks s/he gets paid by the post
Marita40's Avatar
 
Join Date: May 2011
Location: St. Paul
Posts: 1,847
I think if I worried that much I would not retire until "normal" retirement age. In fact, I am a worrier by nature (although not as extreme, I hope, as you) so that is exactly what I am doing. The fact that I like my work and it is mostly stress free helps, of course. I will most likely retire at 66 and at that point should have a very ample nest egg and a good allotment of SS--that is, the resources to ensure that I do NOT have to worry about money in an obsessive manner. I guess we all know ourselves and type A worriers like me need to plan to minimize worry or it can seriously cramp one's life.
Marita40 is offline   Reply With Quote
Old 03-11-2015, 07:53 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
samclem's Avatar
 
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
A good post, thanks.

Quote:
Originally Posted by petershk View Post
I bet if I spent as much time and energy looking for ways to cut costs or possibly generate income in a happy for me way as I did worrying about the market I might drop my "bare minimum" more... Maybe much more.

What do you guys think? Do you find yourself worried about things you can't control and ignoring the things you can?
The allowable variability in the annual spending is, I think, almost as important as its magnitude. DW and I have a fairly low baseline "essential" budget : cheap house, cheap cars, low utility bills, etc. That helps a lot, and will allow us to use the "X% of year end portfolio value" withdrawal method rather than the "starting withdrawal adjusted for inflation each year" method. The former method does a good job of preserving a portfolio's ability to recover after bear markets. We can't control market volatility, but by having a low "baseline budget" we can accommodate it and help our goose continue to crank out golden eggs for a few decades.
So--I guess operationalizing this would entail reducing fixed expenses, cultivating hobbies that can accommodate variable spending (e.g. not being locked into big ongoing subscriptions/memberships/fees, having a way to buy supplies/equipment in "fat" years to carry you through "lean" years, etc)
And--a single dollar saved in monthly spending reduces the portfolio needed to support it by about $300-600. Cut $100 out of monthly spending = $30K to $60K less portfolio needed.
samclem is offline   Reply With Quote
Old 03-11-2015, 08:07 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,288
I would downsize to a much smaller house (even if I had to move to a lower cost area) before I would rent out my master suite.
utrecht is offline   Reply With Quote
Old 03-11-2015, 08:12 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 21,204
Quote:
Originally Posted by REWahoo View Post
Peter, you need to chill out.

Take a deep breath and consider how great it is to just be alive. All this angst over uncontrollable unknowns isn't conducive to a happy life. Find yourself a hobby to help you think of something other than markets and spending.
+2. If you're worried about your plan before you pull the trigger, you're probably cutting it too close for your emotional/mental well-being. There will be market corrections and uncertainties -guaranteed, you have to plan on that.

Our plans are based on a 0-2% real return. have been since well before I retired. Our Withdrawal Rate is 2.5%, yielding a historical prob of success of almost 200%. And our current spending/budget identifies "essential" (about 65% FWIW) and "non-essential" for each category - so we've identified where we could easily cut back if necessary. And we're mindful of not adding long term essential expenses - avoid it at all costs frankly.

So we don't worry much. If our plan fails, FI won't be the only thing to worry about, might not even be the worst challenge if the time comes.

If others choose to plan based on optimistic or best case assumptions and a lower prob of success, I could understand why they'd often be nervous...but they're bringing in on themselves?
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 03-11-2015, 08:16 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Jun 2013
Posts: 1,019
Why don't you pay off the mortgage? That would leave you with a portfolio worth somewhere between 2.5M and 3M, and would cut your monthly spending to a little over 4k.
Which Roger is offline   Reply With Quote
Old 03-11-2015, 10:23 AM   #9
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 3,024
Quote:
Originally Posted by Which Roger View Post
Why don't you pay off the mortgage? That would leave you with a portfolio worth somewhere between 2.5M and 3M, and would cut your monthly spending to a little over 4k.
I'd go even further...

I went back and read your intro thread and also the mortgage thread. Honestly, I would sell the $1.2M house, pay off the $686K mortgage, and buy something for cash with the remainder. Or at least something in between with a significantly smaller mortgage. Just something to think about before you start renting out the garage to a guy with tattoos and a drum set. Also cuts your withdrawal rate dramatically.

The rest of your spending ($51.6K/yr) seems quite reasonable to me for a young family with two kids, in a high COL area. Even so, I'm sure there are ways to cut. When my paycheck stopped, I made it a hobby of sorts to find creative ways to reduce spending without sacrificing anything. For example, don't give up a phone, just get off whatever service charges you $100/phone and find an MVNO.

But that's all small potatoes. Right now, I'd be addressing the elephant in the room, which is your house. No way I'd allocate half the ER budget to service a mortgage. Maybe that makes sense while you're working and your income is 2.5X expenses. But for a 39 year-old retiree, with a $3.4M nestegg, and kids still in diapers... no way. But that's just me.
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
Cobra9777 is offline   Reply With Quote
Old 03-11-2015, 10:40 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 9,358
Quote:
Originally Posted by petershk View Post
I bet if I spent as much time and energy looking for ways to cut costs or possibly generate income in a happy for me way as I did worrying about the market I might drop my "bare minimum" more... Maybe much more.

What do you guys think? Do you find yourself worried about things you can't control and ignoring the things you can?
I find it a fun hobby for me to try to figure out ways to live well or better and spend less. I get a lot of books on topics like simple living and urban homesteading. I can control that and that is something we enjoy doing. We also have some hobbies that earn an income. I can't control the stock market or interest rates. We've been doing this whole increase passive income / decrease recurring costs thing for several years now and I am still blown away by how much we can cut costs and yet go out to eat more, eat healthier at home, take more day trips, join more clubs, live in the same house and drive nicer cars than we used to. We just weren't good at optimizing our expenses before and we didn't have time to look for deals and price shop.

We kept our house because that has been an appreciating asset over the years, cut back on the depreciating consumer goods and found a lot of free or cheap stuff to do all week (meet ups, museum and garden memberships, happy hours, parks, beaches, civic groups, bike trails, urban homesteading, lunch specials, planetarium membership via a Groupon and a discount coupon, finding all the best Taco Tuesdays, etc.)

Houses cost what they cost if you want to live in Coastal California and have a nice house to live in. I think the median price in the Bay Area is now $742K, so I don't see your house as necessarily being a show stopper for you for ER. The key thing to look at is your house likely to be a good long term investment. Many here spend $10K to $20K a year on travel a year and travel has no resale value, appreciation potential and it is not something you can use every day for the rest of your life. I am not against travel - just pointing out your house may also be a good investment and not just a pure expense like other uses of your money might be. Your house may also be a good way to diversify your investments beyond stocks and bonds.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 03-11-2015, 12:08 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,879
Quote:
Originally Posted by Cobra9777 View Post
I'd go even further...

I went back and read your intro thread and also the mortgage thread. Honestly, I would sell the $1.2M house, pay off the $686K mortgage, and buy something for cash with the remainder. Or at least something in between with a significantly smaller mortgage.
+1

Even with a large portfolio balance, I would not want to enter retirement owing $4200/month for my house.
mrfeh is offline   Reply With Quote
Old 03-11-2015, 12:35 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 9,952
This is probably the 3rd thread where the subject of your house has come up.

Why do you have an unused master suite? You mention in your very first intro that you could downsize your home. I guess it really isn't an acceptable option in your mind. I think the trade-off for continuing to live in your current house is more years at work. Those smaller savings you mentioned will be a drop in the bucket compared to changing your housing situation.
ivinsfan is offline   Reply With Quote
Old 03-11-2015, 12:50 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Quote:
Originally Posted by petershk View Post
But what about this? <>


But check this out.

I could rent my unused master suite for about 500$/mo. I could convert my huge garage to a legal rental for about 50k and rent that for about 900. Bam... 1400$ drop... A cut of almost 20% off my annual draw.
What will your wife say when some other woman is sleeping in her bed and bathing in her master bath when she is down the hall in the kid's room? You had better hope that the renter will be quiet in her intimate life, and that she is not very good looking.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 03-11-2015, 01:32 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,401
Quote:
Originally Posted by ivinsfan View Post
This is probably the 3rd thread where the subject of your house has come up.

Why do you have an unused master suite? You mention in your very first intro that you could downsize your home. I guess it really isn't an acceptable option in your mind. I think the trade-off for continuing to live in your current house is more years at work. Those smaller savings you mentioned will be a drop in the bucket compared to changing your housing situation.
+1
Or start a bed and breakfast. Of course, that's w*rk!
Meadbh is offline   Reply With Quote
Old 03-11-2015, 01:58 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 9,358
petershk, if you look at your house expenses, consider how much of your mortgage payment is principal and how much is interest. The principal payments really are not changing your net worth.

Personally I would not want to rent out a room to a stranger. I would downsize before I would do that. But can you cut costs in other ways, like price shop insurance and use conservation methods to reduce your utility bills?
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 03-11-2015, 02:11 PM   #16
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 47,473
Quote:
Originally Posted by ivinsfan View Post
This is probably the 3rd thread where the subject of your house has come up.

Why do you have an unused master suite? You mention in your very first intro that you could downsize your home. I guess it really isn't an acceptable option in your mind. I think the trade-off for continuing to live in your current house is more years at work. Those smaller savings you mentioned will be a drop in the bucket compared to changing your housing situation.
+1

Quote:
Originally Posted by petershk View Post
My spending is about 8500$/mo on about 3.4M which after taxes is pretty safe even at 40 years old. But not paranoid crazy man safe... And I'm a bit of a paranoid crazy man when I think about FIRE and money.

4250 of that is a mortgage [...] Stop eating out completely. 300$/mo. Live with (horror) ONLY 1 phone. 100$/mo. Be careful with grocery shopping. 200$/mo.

That's another 600$.
So, if you sold your house, moved into a less expensive house and paid it off, and cut back on groceries, eating out, and phone, your expenses would be no more than
$8,500 - $4,250 - $600 = $3,750/month, which is $45,000/year. Maybe less, since house maintenance and utilities are usually less if one moves to a smaller, less expensive home.

During some years perhaps you could spend more if your investment yield would support it. Maybe you could travel during those years if that is appealing to you. When the market is down, then you could stay home and economize.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.

Happily retired since 2009, at age 61. Best years of my life by far!
W2R is online now   Reply With Quote
Old 03-11-2015, 02:28 PM   #17
Moderator Emeritus
 
Join Date: May 2007
Posts: 12,894
I recently read "The Old money Book", and the author states that "Financial independence is easier to maintain when you live simply". I agree. I also like to remain "agile, mobile, and hostile".

I live in San Francisco. It is very expensive to live here. But I refuse to buy a home in this area. I rent a small apartment instead. I have trimmed down my worldly possessions to a minimum to remain mobile. I have done away with rental properties and moved to liquid and low-maintenance investments. I have sold my second car. In other words, I have simplified my life so that maintaining financial independence is easier. I don't worry so much about a market crash because if my means become inadequate to stay in San Francisco, I can be out of here by the end of the month. I have not felt this free since I was a graduate student.
FIREd is offline   Reply With Quote
Old 03-11-2015, 03:11 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 4,366
Regardless of all the house stuff, I think one big point of the OP is that if you can find that flexibility in your spending you can feel more comfortable with a higher withdrawal rate.


FIRECalc tells us that the average outcome with a 4% withdrawal is a significantly larger portfolio at the end. Far from "spending down" your portfolio, you will most likely have a much larger portfolio. The problem is that there are a few historical retirement years where 4% does drain your portfolio. With flexibility, you can reduce your spending if your portfolio is decreasing, hopefully avoiding an empty portfolio.


I'm not trying to be super conservative early in retirement. I'm willing to spend a bit extra (all part of the budget, not seat of the pants) as long as things are going well. Including letting the 3.25% mortgage ride. If it looks like we're on a bad retirement scenario, we'll cut back then. Seeing that flexibility in our spending was an important factor in being able to calmly retire.
Animorph is offline   Reply With Quote
Old 03-11-2015, 03:48 PM   #19
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Quote:
Originally Posted by petershk View Post
That's what I can't control.

But what about this?

My spending is about 8500$/mo on about 3.4M which after taxes is pretty safe even at 40 years old.

4250 of that is a mortgage that eats no matter what. market cuts in half? Still 4250... High inflation? 4250. Deflation? 4250.
That 3.4 Million is invested assets or it includes the house?

That make a lot of difference because you may be talking about big 1 Million dollar house which cuts income producing assets to 2.4 million and which will suck lot of money on maintenance and taxes.

Personally I would downsize unless you are talking about small place ( which makes it at least cheap to maintain) in expensive and nice location and that is not included in 3.4 million you mentioned.

And yea I would be worried to retire with 4200 USD mortgage. Add to this property taxes and maintenance costs.......
eta2020 is offline   Reply With Quote
Old 03-11-2015, 04:09 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 9,952
I think the point several of us are making is you have a hard time being "flexible" when your house payment is 4200 bucks a month....
ivinsfan is offline   Reply With Quote
Reply


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


Similar Threads
Thread Thread Starter Forum Replies Last Post
Am I Looking at the Range in My Investment Portfolio Income the Right Way? nico08 FIRE and Money 6 07-21-2013 08:15 PM
2008 Actual Spending and 2009 Budgeted Spending dex FIRE and Money 122 03-17-2009 02:49 PM
Best Friend is Getting Spending Under Control..... FinanceDude FIRE and Money 13 01-07-2009 07:32 AM

» Quick Links

 
All times are GMT -6. The time now is 02:28 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.