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Old 09-12-2008, 03:23 PM   #81
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I think you missed my overall point. I don't think the survival predictions people use for a 50+ year time horizon is accurate. There is a great chance that over that length of time a portfolio will fail.

You will then have two options: Live in poverty or go back to work.

You may not be able to go back to work because of disability, so you are left with the option of poverty.

For persons aged 65 and older 43% of women and 40% of men have disabilities so the chances of working in later years diminish if the ER makes the wrong choice on an ER date and is forced back to work as a senior. Losing in this scenario is something I personally will not chance.

Disability - American FactFinder


Delaying ER until 50 or later will increase the survivability rate of a portfolio and bring the ER closer to actual results from a financial model.
But this is the same issue that all those who didn't ER will have to face too. They will be planning on working until death because they didn't save, and they aren't considering the possibility of physically not being able to work.

For myself, if I can (and did) ER for however many years until disability and poverty overtake me vs. working for those additional years only to face the same fate, I'll enjoy my ER now. And hope my plans work out OK.
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Old 09-12-2008, 03:42 PM   #82
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[quote=FUEGO;713213]
So ERing at 50 instead of 40 is your suggestion?


Not at all, I am suggesting that the values used to base predictions over a 50+ year timeframe are probably flawed and have a good chance of causing portfolio failure. The key word is chance. And probably higher than 5% like most projections.

Would you still retire if the chance of portfolio failure was 20%? Me I am adverse to that type of back end risk so I would have to say I would not. Note, I say back end risk because the total risk will not be apparent for some time, maybe 20 years or more.

There are many options,

Part time ER
A leave of absence
New job
Etc...


As you say, each individual needs to make their own decisions. But the consequence for a portfolio failure is severe when dealing with a 50+ year time horizon. Only those persons with a COLA pension would be guaranteed success over a 50+ year timeframe.
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Old 09-12-2008, 04:03 PM   #83
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Not at all, I am suggesting that the values used to base predictions over a 50+ year timeframe are probably flawed and have a good chance of causing portfolio failure. The key word is chance. And probably higher than 5% like most projections.

Would you still retire if the chance of portfolio failure was 20%? Me I am adverse to that type of back end risk so I would have to say I would not. Note, I say back end risk because the total risk will not be apparent for some time, maybe 20 years or more.

There are many options,

Part time ER
A leave of absence
New job
Etc...

As you say, each individual needs to make their own decisions. But the consequence for a portfolio failure is severe when dealing with a 50+ year time horizon. Only those persons with a COLA pension would be guaranteed success over a 50+ year timeframe.
No, I would not be comfortable retiring with a 20% chance of portfolio failure. I would take steps to reduce the chance of failure (and severity of failure). If working a few more years were required I would do so. Maybe I ER at 40 instead of 35? Maybe the plan has me working here and there for health insurance and a bit of an income. Like you say, plenty of options, and no decision is irreversible.

Maybe I'll end up a walmart greeter at age 65... NTTAWWT.

We all make decisions incrementally and dynamically. If, after 10 years my portfolio isn't seeing the growth that I expected, I would probably take steps to either supplement my income or reduce my expenses (or both!).

Personally, I plan on tying withdrawals more closely to portfolio value instead of initial value. Maybe throw in some buckets or pssssst wellesley. Maybe some cash reserves that are only touched in emergencies. Maybe live off a dividend-focused portfolio.

Maybe make DW go back to work. Maybe move to Thailand or Mexico. Maybe reverse mortgage the house. Maybe take a boarder.
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Old 09-13-2008, 02:22 PM   #84
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I think that you are over-estimating the risk of a terrible problem.

Say that I retire with a million dollars at 30, planning to live on 40k for the rest of my life.

Plenty can and probably will go wrong with that plan. Extended bad investment returns along with escalating costs for medical insurance are probably the biggest risks. However, they aren't likely to lead to cat food.

If the portfolio starts getting a little light, spending less or trying to earn a little more money are pretty solid options.

Honestly, if the 30 year old ends up being 45 with "only" $200k in the bank, he's obviously going to have to go back to work, but he's not any worse off than most people at 45 already are. He may have more trouble re-entering the job market, but that risk is there for the working 45 year old after a layoff as well.

People are not required to mindlessly spend down to the bitter end in a retirement plan.

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My point is, people retiring in their late 30's or early 40's without significant stable funds take a great risk of depleting their investments before death or suffering below the poverty line as a senior.

There are many factors that could contribute to a significant decline in funds such as a prolonged sideways market or a significant injury or disease that causes higher expenses in the future. Granted, these factors could occur if a person retired at 55 but they are closer to Medicare, should have increased funds at their disposal, and don't have the longer timeframe to cover with the investments they do have.
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Old 09-13-2008, 03:30 PM   #85
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I think you missed my overall point. I don't think the survival predictions people use for a 50+ year time horizon is accurate. There is a great chance that over that length of time a portfolio will fail.
I hear a lot of kvetching but I don't hear much solutioning.

I disagree that a COLA pension is the best solution, although it certainly removes a lot of critical thinking from the process-- anyone can buy one of those in the form of an inflation-indexed annuity. Holding withdrawals to 2.5%-3% may also raise the success rate, but raising the success rate of a crapful of data is still crap.

It sounds as if your only other solution is working longer or living shorter. But it doesn't sound as if you've found any better analysis or budgeting tools. After reaching that conclusion, what's next?
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Old 09-15-2008, 10:59 AM   #86
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I hear a lot of kvetching but I don't hear much solutioning.

I disagree that a COLA pension is the best solution, although it certainly removes a lot of critical thinking from the process-- anyone can buy one of those in the form of an inflation-indexed annuity. Holding withdrawals to 2.5%-3% may also raise the success rate, but raising the success rate of a crapful of data is still crap.

It sounds as if your only other solution is working longer or living shorter. But it doesn't sound as if you've found any better analysis or budgeting tools. After reaching that conclusion, what's next?
Nords, I didn't say a COLA pension is the only solution just the guaranteed solution to retiring in ones 30's or early 40's. I honestly think that retiring in ones 30's without the guarantee of a COLA pension is a good bet for working longer than necessary even though that extra work will probably occur at the back end.

Sucking it up and working an extra 5 years or so will increase the survival rate. That's my opinion.

By using data and simulations to project a 50 + year timeframe and retiring on a 95% probability (too high in my opinion) that the portfolio will survive all known historical events based on past market returns the investor will get a false (in my opinion) boost in confidence.

By the time they realise the projection was flawed they would have already gone through a critical failure of the portfolio (remember the projection includes major downturns so the investor will stay the course until it becomes clearly evident the model was flawed). A prolonged sideways market coupled with a few recessions could destroy the portfolio leading to the investor having to return to work. Depending on their age and length of time in retirement this work might be dismal.

I suggested 50 or 55 years of age as an exit to mitigate the length of time in retirement and the effect on a portfolio if the investor does not have a COLA pension or is not rich. This is still early retirement.

For arguments sake, during the depression the big investment banks didnít go under like they are today and would have earlier if the Fed didnít step in. So history is not repeating itself. Past history is not a determinant of future events in a non regimented environment. In finance there are no universal laws.

My only point is that 50+ years is too long to predict and it would be prudent to factor into ones analysis that the case models are probably wrong.
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Old 09-15-2008, 11:13 AM   #87
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I think that you are over-estimating the risk of a terrible problem.

Say that I retire with a million dollars at 30, planning to live on 40k for the rest of my life.

Plenty can and probably will go wrong with that plan. Extended bad investment returns along with escalating costs for medical insurance are probably the biggest risks. However, they aren't likely to lead to cat food.

If the portfolio starts getting a little light, spending less or trying to earn a little more money are pretty solid options.

Honestly, if the 30 year old ends up being 45 with "only" $200k in the bank, he's obviously going to have to go back to work, but he's not any worse off than most people at 45 already are. He may have more trouble re-entering the job market, but that risk is there for the working 45 year old after a layoff as well.

People are not required to mindlessly spend down to the bitter end in a retirement plan.
I would consider 1 million a significant portfolio depending on what the retiree was willing to live on. I did cover that a significant portfolio would be acceptable. Buy it seems to me that plenty on this board are factoring in portfolio growth. For a retiree in their 30's early 40's factoring portfolio growth (to cover inflation) over 50+ years could be fatal. There could be none, thus forcing the retiree to use capital.

There is a big difference between looking for a job after a layoff than after 10-20 years out of the workforce. The longer one goes after a layoff the harder it gets to gain employment at the same pay grade.

I think there is too much expectation that people who have retired can just carry on in the same line of work or at a decent wage if their plans donít work out. That might not be so after 10-20 years out of the work force. Employers will go with the younger crowd.

I am just saying it might be prudent to delay retirement into ones 50's rather than bail in ones 30's or early 40's without significant funds or COLA pension.

By the way, more than one prominent financial expert has noted the same. I am not alone here on this. I think the drive to leave work at all costs will be a catalyst for disaster without a prudent exit strategy.
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Old 09-15-2008, 01:47 PM   #88
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One solution to the problem of retiring early and potentially falling short later on is to create some sort of succesful side buisness, preferably while someone is still in the accumulation stage and has the motivation to develop such a side-buisness.

The key thing I see being relied on when stating people will have a huge amount of trouble "returning to the workforce" is that it assumes the person will be working for someone else. There are certainly more ways for someone to develop income on their own than just investments.

As for me, this is an integral part of my plan. In addition to developing a good predictable income and investing, I also intend to create some sort of side buisness. It would probably be best to focus effort on one particular idea, but there are many possible avenues, more than I can put in a single post, but here are some examples: tax preperation, insurance agent/credit card processing agent, lawn care, home remodling, investment advice, elderly care, marketing, web-based buisness, community college teaching, real estate development, auto repair...etc.

Some of these will pay better than others, which one fits a person best will depend on their individual skill set (whatever they are good at).

Personally, I don't think this is necessary though if a person can live on somewhere between 3.3% to 3.6% of their portfolio over a 40-50 year span. The only situation I forsee where someone would likely have to pick-up some part time work, if they retire near or a bit under the 4% rule, is if there is a very protracted recession right after they pull the FIRE trigger. Regardless I think this would be a useful backup, since the only employer you have to ask for work, is yourself.
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Old 09-15-2008, 02:01 PM   #89
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I am just saying it might be prudent to delay retirement into ones 50's rather than bail in ones 30's or early 40's without significant funds or COLA pension.
Clearly those contemplating ER in their 30's or early 40's would need "significant funds" as you state here. You seem to suggest in your other posts that even "significant funds" would not provide for a substantial degree of certainty of a successful very early ER. So what is your contention?

Let's discuss a typical hypothetical very early retiree. Let's take someone who is 38, has $1.5 million (in today's dollars) saved up and invested well. Their portfolio yields a 3.25% dividend yield today on a fairly well diversified portfolio. The yield, in dollar terms, would be $48,750. They have developed a budget and have tracked their expenses, and they know they can live nicely on $30,000 a year income and plan on reinvesting the other $18,750 that the portfolio yields (plus pay what little income taxes they have out of that $18,750).

If they hit tough times, they are comfortable with plan B being to relocate to a low cost of living country abroad and they can comfortably live on $15,000 (or 1/2 of their initially required income). Plan C is to pick up part time work to supplement income as necessary or to return to a full time job if things get really bad. Their former occupation is such that they would need a bit of retraining to learn the latest methods and systems and information, but nothing that the clever ER fellow couldn't pick up in 6 months to a year at relatively modest expense.

To summarize and clarify - are you saying this hypothetical early retiree with an initial 2% withdrawal rate and the ability to easily cut the withdrawal rate to 1% without a significant hardship is taking undue risks? Would changing the hypo to a 1.5% initial withdrawal rate on a $2 million portfolio at age 43 satisfy your risk aversion? There just seems to be a point somewhere along the continuum that the risks of retiring very early become so small that they are trumped in size by other life altering experiences (illness, disease, pandemics, death,war, revolution, insanity, etc). If neither of these hypothetical situations would satisfy your risk aversion, then what amount of money or level of withdrawal would satisfy you for someone ER-ing late 30's or early 40's?
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Old 09-15-2008, 02:07 PM   #90
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I would consider 1 million a significant portfolio depending on what the retiree was willing to live on. I did cover that a significant portfolio would be acceptable. Buy it seems to me that plenty on this board are factoring in portfolio growth. For a retiree in their 30's early 40's factoring portfolio growth (to cover inflation) over 50+ years could be fatal. There could be none, thus forcing the retiree to use capital.
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I am just saying it might be prudent to delay retirement into ones 50's rather than bail in ones 30's or early 40's without significant funds or COLA pension.

By the way, more than one prominent financial expert has noted the same. I am not alone here on this. I think the drive to leave work at all costs will be a catalyst for disaster without a prudent exit strategy.
I don't think there are many here that are driven to leave work in their 30s without a significantly significant portfolio. At least that's not the impression I've received. There may be a few who are cutting it right on the edge, but most I've seen here are, if anything, overly conservative. As far as Firecalc and the other calculators go, even by retiring at age 50 I want to calculate out 50 more years. So I'll use the best tool I've found so far, understanding that it's just another tool.

So I'm not sure what point you are making. If someone is in their 30s and retires with a multimillion dollar portfolio (I consider $1M way to small at that age), I suspect they will be able to manage that money in a way that would allow them to not have to work. And I would bet most would work some over the course of their life, out of curiosity over a new field if nothing else. Or to get a discount on some things you want to buy.

Most people, no matter what they say here, will discover that they aren't able to pull together enough assets to retire by that age anyway, therefore they will continue until they feel comfortable. I guess I don't really see your point. Are you warning people here not to be foolish? I don't think they are. Are you saying the caculators are no good? I think we all pretty much recognise their limitations. If you are saying don't retire until you are too old to enjoy life anymore? Don't call me, I'll call you.

And I'm not trying to give you a hard time, I'm just not sure I understand who you are aiming this at?
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Old 09-15-2008, 02:14 PM   #91
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My only point is that 50+ years is too long to predict and it would be prudent to factor into ones analysis that the case models are probably wrong.
At some point you have to decide that life is too important to keep slaving away for a belt and two pairs of suspenders. While Joe Dominguez may have blazed a cautionary trail for most of us, I think that Jarhead, UncleMick, the Terhorsts, the Kaderlis, John Greaney, & Bob Clyatt have done much more for the comfort level of the analysis. At some point the aggregated success of these "isolated anomalies" has to show that it's possible to ER before reaching one's 50s, let alone 60s.

Financial advisors don't know crap about ER until they've actually lived the life. Everything until that point is mathematical masturbation. Bernstein won't retire. Swedroe, Ferri, Malkiel, Fama, French, Sharpe, Burns, Guyton, Bengen... they'll all be cashing paychecks during probate.

The only financial advisor with any actual early-retirement credibility that I'm aware of would be Bud Hebeler of "Analyze Now!", and even he's not sure that he's willing to fly without that second set of suspenders. He'd be among the first to point out that all of his former employer's analysis tools verify that bumblebees can't fly.

So... your solution is that there is no solution? Well, OK, then I agree with you that all of the data and all of the analysis tools can't warranty a successful ER. Working longer is the only guaranteed solution to ER solvency. End of debate.

But why do you feel that it's age 50s rather than 40s or 30s? In other words, what makes the age cutoff of your analysis any more credible than the ones you've already discredited? Why not 60s or even 70s, when "everyone" gets their Social Security annuities & healthcare insurance?

I think you're falling into the same logic trap of the mortgage vs invest or stocks vs bonds or rent vs own debates. ER is both a financial and an emotional decision. Attempting to assess that decision exclusively on the basis of one or the other will practically guarantee working until you die.

Even Rich has managed to stick one of his toes over the line (assuming he has 10 toes), and next year he'll undoubtedly fling caution to the winds and stick out another toe. Before he realizes it, he'll have overbalanced and fallen flat on his assets...
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Old 09-15-2008, 08:24 PM   #92
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I would rather be a bit poorer, younger, and retired than wealthier, older , & working. I would think the chances of dying and not spending all this cash would be greater the longer you delay.
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Old 09-15-2008, 10:09 PM   #93
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Buy it seems to me that plenty on this board are factoring in portfolio growth.


Well yes. Portfolio growth is part of the basic assumptions when figuring a SWR. That applies to retirement in your 60s as well as in your 40s. Over long periods of time history shows that you can rely on inflation beating (i.e. "real") growth from a significant equity position.

If you don't assume real portfolio growth (much less any portfolio growth as you've stated) then I'd think you'd never be able to retire with an inflation protected income, much less RE.

Quote:
For a retiree in their 30's early 40's factoring portfolio growth (to cover inflation) over 50+ years could be fatal. There could be none, thus forcing the retiree to use capital.
You really think that it's realistic to say that there may be no growth in a stock portfolio over 50+ years

Once again, the future could always bring near cataclysmic conditions that would make all these assumptions (i.e. 4% SWR) turn out to be faulty. But nothing's certain and if you wait for certainty you'll never get there in a ER timeframe; barring extremely high earnings (top .1% maybe?) or inheritance, etc.
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Old 09-16-2008, 06:01 AM   #94
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On the point of the taxpayer-paid pensions, I didn't realize how common that is until I joined this forum. Maybe I was naive. Still, I can't help but think that these programs are yet another form of welfare and forced wealth redistribution. No wonder our government operates at such a deficit, and no wonder anyone in the private sector has to work so many extra years just to pay in taxes that go to support government pensions.
As a couple of others have pointed out, there is a potentially high "cost" to those COLA'd pensions, one of which I receive. Consider the viewpoint that it's just that the risks to get one are different.

In law enforcement I worked weekly rotating shift work for 18 years, which does bad things to one's circadian rhythms, and statistically it means I'll die seven years sooner than those who didn't enjoy that experience. I got beat up, shot at, and cut with a knife (although not seriously, but I didn't know that at the time). It was certainly a factor in my divorce, although not the primary cause, but it's hard to hold a coherent conversation with a wife when physically exhausted.

And I'm grateful that I can walk across the room and get myself a glass of water because I know several who can't or do so with difficulty. About 25% go out with permanent disabilities, and eight were killed. And lots more....

Is that a price you'd be willing to pay for a COLA'd pension?

BTW, if it makes you feel any better, I'm working again because I want to, not because I have to.
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Old 09-16-2008, 09:03 AM   #95
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Walt, there are other jobs out there that are more dangerous and with worse hours.
Many of these jobs have no pension and don't even pay as well as law enforcement.

When people are hurt on most jobs the best they can expect is SS disability.

Most of the retired cops I know are not only collecting SS but also 3/4 tax free pensions.

So yeah, I'd love to have the cola pension.

When I came to the fork in the road I ended up in the car biz.. Not dangerous (most of the time). But I can guarantee I put in 20 hours a week more than you did and did it for 35 years not 20 or 25. When I left I didn't even get a hand shake.
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Old 09-16-2008, 01:51 PM   #96
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Perhaps I am confusing the issue. I believe the Kaderlies bailed with about 500,000.

This is about the amount I am talking about. I am not saying ER
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Old 09-16-2008, 02:10 PM   #97
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Perhaps I am confusing the issue. I believe the Kaderlies bailed with about 500,000. They hit the run up and also became perpetual travellers which limits expenditures (great lifestyle by the way). 500,000 when they retired was a goodly sum. I would be cautious about a 50+ year retirement on this amount today is my point.

500,000 seems to be a common denominator with the lead element of ER in the past. I am not saying ER is not desirable or possible. I guess it depends on the desired standard of living.

I have been on this board for over a year and there are people who retire with a bare minimum because they are dissatisfied with work (life). You hear about people retiring to early in the news or on bare bones budgets so I would suppose that there are some on this board who are contemplating a bare bones retirement on this board. I can assure you not everyone is as rich as they state on this board.

We can debate all we want but I expect there are people retiring with substantially less than 500,000 but who don't fess up. My exact point is ďthe bare bones retirement could very well turn into poverty at the back endĒ.

Turn the numbers any way you want. I plan to ER but I wonít sacrifice my future or my standard of life because work is an evil word. I think I have a valid point so I donít see why the push back. I am not challenging the ER lifestyle.

Hey, I am just bringing up the detractors of retiring too early and ending up poor at the back end.
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Old 09-16-2008, 02:43 PM   #98
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So yeah, I'd love to have the cola pension.
So go buy one.

It's probably a better deal than a COLA pension from a "company" where every thousandth employee or so is shot to death or accidentally killed during training/operations. DoD studies show that only about 15% of the "employees" stick around for the 20 years required to vest the pension.

This year my 24 years in the Navy is paying me an O-4's $3201/month. That's before federal taxes (no state tax) and I do not carry survivor benefits. An E-6 retiring next month with 20 years of service would earn $1555/month. I don't have a study to back up my opinion that most military pensions are between these two numbers, say around $2000/month.

Plug that into a Vanguard COLA annuity calculator and see if the price is worth the risk-- even if it's being underwritten by AIG!
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Old 09-16-2008, 02:44 PM   #99
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ER is pretty subjective too. Some may consider ER is at age 40, others 50, or before SS kicks in. I'm eligible to retire with reduced pension at 56. I guess I consider that ER. But, to someone who retires from active duty military at age 38-40, age 56 probably isn't considered "Early."
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Old 09-16-2008, 02:58 PM   #100
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The biggest problem with all the doomsday talk is that if enough people believe it, it becomes a self-fulfilling prophecy as people decide to pull all their money from banks and brokerages, ratchet discretionary spending down to near zero and sell all their stocks.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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