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Help the Upcoming ERs - What Would You Do Different
Old 11-26-2008, 05:54 AM   #1
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Help the Upcoming ERs - What Would You Do Different

You ER vets can help us up-and-coming ER hopefuls out. I am sure you have some sage advice that you can share in a few areas that would help us hopefuls...

If you were 3 to 5 years from ER, what would you do differently in the following areas?

  1. Your Portfolio:
    1. Setting it up for ER (The type of securities and allocations)
    2. Mutual funds slice/dice, all-in-one funds, individual securities.
  2. Managing your income Stream (e.g., volatility, inflation, etc)
    1. Pensions, annuities, harvest funds, etc.
  3. Health Care Costs
  4. Unexpected things that went wrong that made you adjust or impacted you (e.g., health problems, money short-fall, etc.)
This is not about what went right... but what went wrong. This will help some of us do contingency planning. Or at least think of situations we need to consider.

Thanx.
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Old 11-26-2008, 07:56 AM   #2
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i deleted the bulleting - it was acting up and making me nutz. pure operator error.
Your Portfolio:
Setting it up for ER (The type of securities and allocations)
- seriously consider a full evaluation with a fee based planner with a CFP certificate, not a salesperson. it is money well spent, especially for the estate planning portion. i speak from real experience here.
- 3-5 yrs pre-FIRE: assume the worst. use 60/40 to control max losses. use current bear market as a lesson.
- What IF? : model several FIRE portfolios right now in the ferocious bear and track them carefully.
- at FIRE, set AA to age=bonds, use index funds to the max, a la Bogle. my post FIRE 50/50 AA took a 25% loss YTD max, so far. i repeat...so far...:confused:
- decide which portion is your Sandbox - the high risk holdings you can play with and still sleep at night. set your guidelines. write down your plan. revisit every 6 mos. still sleeping well?
Mutual funds slice/dice, all-in-one funds, individual securities.
- a nice stable of govt bonds and MM and CDs, and...TE munis
- remove all high exp ratio funds from portfolio, slowly and at the right time tax-wise.
- use 2 or 3 fund families, just in case.
- individual securities belong in the Sandbox. have fun!
Managing your income Stream (e.g., volatility, inflation, etc)
Pensions, annuities, harvest funds, etc.
- no advice here - i have a Cadillac situation.
Health Care Costs
- look at group dental insurance - a big cost as we "mature". this has been a real budget saver for me.
Unexpected things that went wrong that made you adjust or impacted you (e.g., health problems, money short-fall, etc.)
- pre-FIRE - fix/replace the roof, redo the driveway, paint the house, repair or relace the furnace, water heater, refrig, stove, winter rat car while still w*rking.
- post-FIRE - inflation has been my Waterloo. i did all my budget numbers preFIRE, added an inflation factor of 5%, and still danced on the edge of the sword a few times when property taxes emptied my immediate liquid savings. i recovered quickly by cutting "mad money" costs.
- um...consider what would happen financially if 2 became 1.
it happens and you must be ready.
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Old 11-26-2008, 10:11 AM   #3
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If you hit the rewind button and I had to start over, I'm not sure that I'd do things much differently. I'd still want to explore different methods, approach other concepts with a degree of "yeah but" skepticism, and feel obligated to make my own path. I still would've been too busy with career & family to spend as much time learning about investing as I have since ER. However some of today's tools have proven to be much more useful than others.

If you'd come to me in college and told me that in 30 years I'd be ER'd and living in Hawaii with two hot chicks, not only I but all my relatives & acquaintances would have laughed heartily and then ignored you.

Quote:
Originally Posted by chinaco View Post
Your Portfolio: Setting it up for ER (The type of securities and allocations)
Bernstein's "Four Pillars", FinancialEngines.com, and M*'s portfolio X-ray have really helped with asset allocation & diversification. These tools just didn't exist in the 1980s, and the existing calculators generally started at age 65. I remember deriving formulae from tables just to extrapolate them back to age 40.

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Originally Posted by chinaco View Post
Your Portfolio: Mutual funds slice/dice, all-in-one funds, individual securities.
I'd pick low expense ratios over just about every other feature of a fund. Back in the early 1980s there was quite a penalty for changing your strategy-- 2-3% fees, $75 commissions, and much higher taxes. Even Schwab's "discount" brokerage was still catching on, so picking stocks really forced a buy&hold commitment and encouraged DRIPs. Otherwise all three of the above choices meet the needs of investors' different temperaments & analytical interests.

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Originally Posted by chinaco View Post
Managing your income Stream (e.g., volatility, inflation, etc): Pensions, annuities, harvest funds, etc.
I didn't choose my career because of its pension. I wouldn't pay someone else to hand me my allowance, although annuities are useful in some niche situations. "New" ideas like harvest funds tend to be overoptimistic and subject to retrenchment, so I'd tend to avoid anything that hadn't been in practice for at least a decade.

If choices hadn't been dictated for me, I'd teach myself to manage a lump sum and probably live mainly off its dividends (with some principal consumption). No complaints with the current system, though.

Quote:
Originally Posted by chinaco View Post
Health Care Costs
Again not my choice. But I tend to favor incentives for healthier lifestyles, cheap preventive care, and perhaps a higher co-pay for excessive use of the system.

I think one reason that the automakers are in such dire fiscal straits today is the price they're paying for their failure to deal with union/retiree healthcare issues in the 1970s & 1980s. Now that state & municipal govts are required to assess those costs, as well as industry, I think everyone's realizing that it's better to shift the burden off the corporate books and onto some other entity. It'll be interesting to see how unions manage their own healthcare plans.

I'd be very skeptical of any company that said "Stick with us, kid, and we'll take care of your healthcare until Medicare!!"

Quote:
Originally Posted by chinaco View Post
Unexpected things that went wrong that made you adjust or impacted you (e.g., health problems, money short-fall, etc.)
There are two huge lifestyle issues that age/experience have given me a better perspective on:
1. Starting a family will realign your priorities and create a conflict with your career. Any boss who tells you otherwise has 24/7 live-in childcare, is childless, is divorced without custody, or is delusional. Unless you plan to choose one of their options, you will probably need to choose a new career plan.

2. It's a mistake to stick with a sucky career for a great pension. Rationalize that choice as much as you want, as long as you realize that you're merely estimating the severity of the mistake. It's far better to seek a great career even if it has a sucky pension.

Quote:
Originally Posted by freebird5825 View Post
pre-FIRE - fix/replace the roof, redo the driveway, paint the house, repair or relace the furnace, water heater, refrig, stove, winter rat car while still w*rking.
Did you really juggle all those tasks while you were working? Or, like many of us, did you retire and take a deep breath before you started working on all the deferred maintenance?

Even today I have trouble finding contractors who will come out to the house, estimate the job, show up to do what they promised, and do it well. In many cases it's easier & cheaper to teach ourselves to DIY.
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Old 11-26-2008, 05:42 PM   #4
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Quote:
Originally Posted by Nords View Post
Did you really juggle all those tasks while you were working? Or, like many of us, did you retire and take a deep breath before you started working on all the deferred maintenance?

Even today I have trouble finding contractors who will come out to the house, estimate the job, show up to do what they promised, and do it well. In many cases it's easier & cheaper to teach ourselves to DIY.
- pre-FIRE - fix/replace the roof, redo the driveway, paint the house, repair or replace the furnace, water heater, refrig, stove, winter rat car while still w*rking.

i didn't do the work myself. these things were done over a period of 15 years, some by LH and I, some by contractors. recall i live in a small town and labor is much cheaper here. i am also a female and not well versed in all of these jobs. i can rebuild your lawnmower or chainsaw carburetor in my sleep, and i can design an outdoor deck, but i can't replace a roof or troubleshoot power systems or rewire a house.

i did hire a contractor to replace the roof approx 1 year before FIRE. it was time to do it.

what i meant was to take care of the big ticket items BEFORE you retire. the cost of these things can really put a damper on FIRE. they are easier to absorb while drawing a salary. if not done, and something like a ferocious bear market happens soon after retirement , your inner space will still be dry with a sound roof over your head. i am acquainted with several retired folks who neglected their roof/house repairs because of money being tight and regretted it.
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Old 11-26-2008, 06:10 PM   #5
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Hmmm - hindsight being 20/20 - pick the worst idea you can think of right now - somewhere between your age in the appropriate Target Retirement Series and if you have 20 yrs and true faith aka 'God Looks After Drunkards, Fools, and The United States of America.' - 100% equities.

Then concentrate on your day job until it becomes time to ER.

Or you can have 'fun' like me - spend forty yrs making every investment mistake in the book - slice and dice, too much fixed, gold, PM, timberland, rental real estate, etc, etc. - except perhaps commodities ala PCRIX (yet). Read a lot of books.

BTW - this isn't advice - I don't expect anyone to listen to me.

Save as much as you can (saving trumps heavy thinking investment wise), keep it simple, do your day job and per Warren Buffett's recommendation - don't save sex for old age - do young things while you are young.

heh heh heh - deep huh? .
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Old 11-26-2008, 06:18 PM   #6
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Downsize your house while the market's hot & high.
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Old 11-28-2008, 04:00 PM   #7
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The key thing I did was to build up 3 years of expenses in cash before I retired, with the plan to spend it all before touching equities in the portfolio. It costs very little in missed opportunity costs, but helps with those bear markets just after you retire.
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What would I do differently?
Old 11-28-2008, 05:45 PM   #8
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What would I do differently?

Well, Instead of spending so much time reading about investments, asset allocation, kissing up to the boss etc etc I wish:

1) I had set up a really simple AA plan 45% pssst.... Wellesley/45% Wellington/10% money market

2) had smelled the flowers more often along the way

3) had spent more time with my kids when they were young instead of thinking my career was more important

4) had ER'd earlier (did at 52 but could have done it earlier)

5) had learned to play an instrument (working on the recorder but...)

6) had learned earlier to trust my own judgement/feelings
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Old 11-30-2008, 01:22 PM   #9
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As a worrier, I'm glad I worked until I was eligible for retiree health care from my employer. I almost bailed out 18 months early. Retiring with no debt suits my temperment. YMMV

For 15 years prior to retirement, we saved our pay raises while maxing our tax-sheltered savings until we were saving half our income. In retirement, we continued to live at that level. Market gyrations seem inconsequential since our pension/annuity will just cover our current expenses then our fixed income holdings will last a long time while we wait for the equities to recover.

In travelling since retirement, we found an area overseas that I would have worked a couple of years longer to pay for a second home there. Dear Wife is not interested in moving so we can't afford a second home there post-retirement.
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Old 12-23-2008, 02:05 PM   #10
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Just read this now. I was not the original poster, but thanks all for the responses! Very interesting
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Old 12-23-2008, 03:28 PM   #11
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I'll try not to repeat what other's have said.
  1. Your Portfolio:
    Read some good books like those mentioned above and create a diversified portfolio using low cost funds. I was lucky to have picked some low cost actively managed funds years ago that have stood me in good stead. That was before I learned about indexing.

    Choose a portfolio more conservative than you THINK you can handle. I think capital preservation is key in retirement. You should have enough that you can sustain your retirement with a VERY conservative return. Otherwise, you should keep working and save some more.

    I learned, in the latest downturn, that I should have been more conservative. I've also learned that its not easy to rebalance in a downturn. I've chosen to re-balance in monthly increments. I also realized how lucky I was that the market downturn did not happen a couple of years ago when my portfolio was a LOT more agressive. I may not have been able to ER at the time I did.
  2. Managing your income Stream (e.g., volatility, inflation, etc)
    I use the 4%/95% method to determine SWR.
    I planned to keep a year's cash on hand. I chose this because the bulk of my bond money is in short term bonds, so volatility is low.
    I learned this year, that while volatility HAS BEEN low, you can lose 10% in a ST Bond fund. I now have funds for rebalancing + a year's expense in cash.
  3. Health Care Costs
    Invest in staying healthy. Eat well, exercise, find a way to reduce your stress - meditation or other techniques. Celebrate & maintain friendships and relationships. Get a mate. Get laid regularly Keep learning.

    Imho, health care insurance should be purchased to prevent you from going broke if you get seriously ill. So, go for a polity with unlimited upper limit on expense even if it means a higher premium, high co-pay, high deductibles. Make sure that you will be able to pay the maximum annual total out of pocket costs + premiums without breaking your plan. We have just such a plan.

    So far, we've been healthy. Touch wood! We've also been very active and fit - something that we've been doing for year, but have kept it up in ER too. Most of our travels this year have been to rekindle friendships/relationships or to keep them growing.
  4. Unexpected things that went wrong that made you adjust or impacted you (e.g., health problems, money short-fall, etc.)
    The market!

    Be Flexible - that's the biggest advice I can give.

    We entered ER with many fall back plans, one of which was to treat it as a one year sabattical. Its the best thing we did, since in the back of our minds, we knew that there was a chance we'd go back to work. So, now, when our first year of ER has been so horrendous on the portfolio, we're not depressed about the possiblity. We also kept our network going through the year and have been keeping our minds open on other lines of work that we may choose to follow. We're still staying with the short term plan - ie. 1 year off, but have changed the plan beyond that to include going back to work. For how long? we don't know. We may choose part time work to ease the stress on our capital.
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Old 12-25-2008, 04:18 PM   #12
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I’m only four months into retirement, still enjoying the afterglow of sheer good fortune in multiple areas.

Despite not working for megacorp or the govment, I acquired adequate deferred income from two small companies along with a micro-sized pension annuity. The good luck there is that ERISA rules forced my employers to include me in their retirement plans. I saw many of my co-workers cut out of deferred income because that first employer repeatedly cancelled plans just before the bulk of their employees vested.

Health insurance: had a COBRA about 20 years ago so I learned how bad that is, and was fortunate not to have to go that way again. My former employer paid for an individual plan, and I just picked up the payments at retirements. Premiums are a big chunk of my expenses but I am otherwise uninsurable.

I learned about and started setting up buckets at near a market high point. My original plan was just to play stock and bond funds against each other, and withdraw according to which fund was up, but now I have it weighted toward many years of withdrawals in CDs and fixed income accounts. Thank you ER forums!

I might have retired a few months to as much as a year and a half earlier. Didn’t do that because I didn’t realize I was FI, also didn’t realize my health would go south just before my planned retirement date. Health has improved a lot in the four retirement months.

Yes, as they say here, life is good.
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Old 12-25-2008, 05:38 PM   #13
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Save as much as you can (saving trumps heavy thinking investment wise), keep it simple, do your day job and per Warren Buffett's recommendation - don't save sex for old age - do young things while you are young.
.
I agree with unclemick -- save save save. You can make mistakes along the way (and most of us do) but saving trumps all.
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Old 12-26-2008, 09:05 AM   #14
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Well, it would be painful to make the adjustment now, but what I'd do when I was within five years of retirement is make sure I have at least 10 years of income in less volatile investments. That way when I did retire, I'd know I could weather a pretty bad market for 8-10 years without selling stocks low.

And the reason I'd do this five years early is that it would be much less likely that a bear market in the last few years I w*rk would prevent me from retiring because I already have ten secure years tucked away where I don't need to sell low.
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