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Old 01-11-2011, 04:19 AM   #41
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You are right I am not extremely invested currently. I am 1/3 in stocks and 2/3 in cash. Although, the stocks I am in are highly volatile.

As I mentioned earlier, I am not actively managing my portfolio as I am busy working. I mentioned I only expect to gain 2-3% while I am working. 9% when I could actively manage.
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Old 01-11-2011, 04:55 AM   #42
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I would say some of the primary issues I am struggling with are:

1) I think older people get paid more. When I apply for jobs now I am still seen as "young" so they don't have to pay me as much. I think if I go back to the workforce when I'm 40 I would get a higher salary. I understand that generally people get paid more when they are older because they have more experience. But I also think there is some age bias.

...
Unless you are an absolute Superstar... this is common.

Don't get too upset about it.... you could continue working and have the last laugh and your life back permanently.

LBYM, save dilligently, stay out of debt (as much as possible), invest prudently, and create a plan to FIRE in your 40's... Some people do it and succeed. Look up the Kaderlis... they did it in their late 30's
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Old 01-11-2011, 05:38 AM   #43
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There are several books and on-line resources that might be useful for you:

1) The book Your Money or YOur Life. It is dated in some ways, but the basic premise of LBYM and figure out what is really valuable to you/how you want to spend your "Life Energy" is one that many on these boards appreciate and have applied with great results.

2) Several bloggers who provide advice and resources for those wanting to step outside the 9-5 and create a lifestyle and career that works better for them. Including:

Ramit Sethi at iwillteachyoutoberich.com -- yeah, the name is kind of sleazy and some people get put off by his pitches, but the man is action/results oriented and has some really good ideas and approaches. Check out his Earn 1 K program and the current "hustle" series. You may find it helps you think outside the box about how to fund your future.

Chris Gillebeau's The Art of Non-Conformity (http://chrisguillebeau.com/3x5/). Another great resource for not just imagining a different life, but making it happen. The man walks his talk, and the talk is not as "in your face" as Ramit's.

Sean Ogle's Location 180 (Location 180 | Location Independent Living for the Masses). He walked away from a corporate life last year, spent several months in Southeast Asia, and now is back in the US but working freelance. Shows how it is possible to combine work you enjoy with a location-independent lifestyle. Kind of a work hard play hard kind of guy.

Pam Slim's Escape from Cubicle Nation (Escape From Cubicle Nation). She's got a blog and a book of the same name. The book is a really good, step by step guide for leaving corporate life for a self-directed career. Her blog is essentially free coaching.

Hope some of these resources prove useful, if you didn't know about them already.

lhamo
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Old 01-11-2011, 07:45 AM   #44
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There are several books and on-line resources that might be useful for you:

1) The book Your Money or YOur Life. It is dated in some ways, but the basic premise of LBYM and figure out what is really valuable to you/how you want to spend your "Life Energy" is one that many on these boards appreciate and have applied with great results.

2) Several bloggers who provide advice and resources for those wanting to step outside the 9-5 and create a lifestyle and career that works better for them. Including:

Ramit Sethi at iwillteachyoutoberich.com -- yeah, the name is kind of sleazy and some people get put off by his pitches, but the man is action/results oriented and has some really good ideas and approaches. Check out his Earn 1 K program and the current "hustle" series. You may find it helps you think outside the box about how to fund your future.

Chris Gillebeau's The Art of Non-Conformity (http://chrisguillebeau.com/3x5/). Another great resource for not just imagining a different life, but making it happen. The man walks his talk, and the talk is not as "in your face" as Ramit's.

Sean Ogle's Location 180 (Location 180 | Location Independent Living for the Masses). He walked away from a corporate life last year, spent several months in Southeast Asia, and now is back in the US but working freelance. Shows how it is possible to combine work you enjoy with a location-independent lifestyle. Kind of a work hard play hard kind of guy.

Pam Slim's Escape from Cubicle Nation (Escape From Cubicle Nation). She's got a blog and a book of the same name. The book is a really good, step by step guide for leaving corporate life for a self-directed career. Her blog is essentially free coaching.

Hope some of these resources prove useful, if you didn't know about them already.

lhamo
Thanks, already own/subscribe/read most of them. But will check out Cubicle Nation.

I think I'm on track to FIRE, but apparently the consensus is that I need more money still.
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Old 01-11-2011, 08:00 AM   #45
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One thing I built into my ER budget when I was nearing the day I could ER 2 years ago was a cushion or surplus. This way, if the surplus did not fully materialize, then I would still be reaching my budget target. The surplus could result from greater revenues from my investments or from lower expenses or any combination therein.

I also did this because I expect my expenses to rise more quickly in the next 15 years than my revenues, so today's surpluses will cover tomorrow's deficits and not cause a big meltdown in my portfolio.
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Old 01-11-2011, 08:04 AM   #46
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One thing I built into my ER budget when I was nearing the day I could ER 2 years ago was a cushion or surplus. This way, if the surplus did not fully materialize, then I would still be reaching my budget target. The surplus could result from greater revenues from my investments or from lower expenses or any combination therein.

I also did this because I expect my expenses to rise more quickly in the next 15 years than my revenues, so today's surpluses will cover tomorrow's deficits and not cause a big meltdown in my portfolio.
I think the only risk of building in a cushion is that you may spend more time working then necessary. But yeah, I understand the need for more security.
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Old 01-11-2011, 09:04 AM   #47
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You are right I am not extremely invested currently. I am 1/3 in stocks and 2/3 in cash. Although, the stocks I am in are highly volatile.

As I mentioned earlier, I am not actively managing my portfolio as I am busy working. I mentioned I only expect to gain 2-3% while I am working. 9% when I could actively manage.
But this doesn't have to be the case, IMO. You can easily invest in mutual funds or ETFs across a broad spectrum of markets and earn more than 2-3% (let's assume, ahem, that the stock market is increasing...). Especially at your age, it is worth being in stocks in some form, and set it on autopilot to invest a set $ amount each month. Go to Vanguard and pick a total stock market fund, an international fund, etc. and start from there...

You may not have time to research individual stocks right now, but investing consistently in a portfolio of funds takes no time at all once you are set up.

As for FIRE, I think you should change your mindset to "sabbatical" or "a few years off" rather than FIRE. You don't have enough money, plus if you ever do get married and have to go back to work, it will just be that your sabbatical has ended and not that you had to un-FIRE. Thinking about it as a less permanent state of being makes it not only easier to do, but also easier to plan and to actually do it, I think.
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Old 01-11-2011, 09:28 AM   #48
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... (pick very stable large caps with cash on the balance sheet...dividend paying is good too). Spend 200K on this and put the other 140K in 5 year CDs. I have calculated you should be able to earn 10% to 20% a year in a flat or rising market with the covered calls, and if you get a downturn you can live off more of the CD money until your stock recovers to a point where you are comfortable writing the calls again.
When I look at the option pricing difference between volatile stocks and very stable large caps (especially very stable dividend-paying large caps), the biggest components of the option premium are volatility and time. Calls on those stocks wouldn't seem to yield over 5% in a flat market, and even in a rising market the option prices drop off pretty sharply when they're out of the money-- quite a risk of getting called away through chasing a higher premium for a strike price closer to the share price.

Even trying for a 10% total return sounds tough-- 3% from share price growth, 4% "yield" from covered calls, and a 3% dividend. The biggest problem with the portfolio is that gains are capped by the calls. If one of those stocks has a big upside for some reason (like a merger or acquisition) then it's called away.

The covered-call premiums are also short-term cap gains, making it challenging to keep his income in that low tax bracket.

But, hey, if you can come up with 20 stocks meeting your criteria at low commissions (which would include 20-30 call options per year) and show me the share prices and call options prices that you used to calculate they'd generate 10-20% total return over a decent portion of a retirement, say 5-10 years including a recession and a recovery... then I'm interested.
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Lowering Expenses
Old 01-11-2011, 09:54 AM   #49
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Lowering Expenses

So far in the thread there hasn't been too much focus on the possibility of lowering your expenses.

It looks to me that if you could get your expenses down to around $15k/year you could FIRE with a withdrawal rate hovering around 4%. It's easy for a clever person to get their expenses that low, just depends on how much you hate work and how attached you are to your home, diet and current transportation methods.

A rehabbed foreclosed home in a midwest college town, a bicycle, a green thumb, a humble wardrobe and some inexpensive or profit-producing hobbies and you're there, ready to FIRE today. Or if that sounds crazy you could, as everyone else in the thread is saying, work until your 40.
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Old 01-11-2011, 10:10 AM   #50
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So far in the thread there hasn't been too much focus on the possibility of lowering your expenses.
Did you miss this?

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... and you simply do not have enough to retire now unless you want to live in a tent.
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Old 01-11-2011, 10:31 AM   #51
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I did miss that. Though, I think my comment still holds, 3 pages of responses and only two or three mentions about controlling expenses still qualifies as not very "much focus on the possibility of lowering expenses".

While we're at it though, it's not too bad a suggestion. Rather than a permanent lowering of expenses, he could drastically lower expenses temporarily by living in a tent for a few years while his investments compound on themselves. I did it for a year and had a great adventure; -hunting my food, hiking all day, getting as much sleep as I could ever want.

Then he could come back to a more typical lifestyle after a few years of that and have an extra $100k+ in his nest egg from the savings. Could be a nice alternative to working his miserable job for 3 more years.
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Old 01-11-2011, 10:32 AM   #52
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As I mentioned earlier, I am not actively managing my portfolio as I am busy working. I mentioned I only expect to gain 2-3% while I am working. 9% when I could actively manage.
Getting a 9% average return is not the same as getting a return that supports a 7% withdrawal rate and 2% inflation. The former is much easier than the latter.
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Old 01-11-2011, 10:53 AM   #53
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I did miss that. Though, I think my comment still holds,
Actually, I wasn't voicing an opinion on your (very helpful) comment. It was merely another of my futile attempts at humor. However, since it prompted you to add this excellent follow-up, I am not at all disappointed.
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Old 01-11-2011, 11:03 AM   #54
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I did miss that. Though, I think my comment still holds, 3 pages of responses and only two or three mentions about controlling expenses still qualifies as not very "much focus on the possibility of lowering expenses".

While we're at it though, it's not too bad a suggestion. Rather than a permanent lowering of expenses, he could drastically lower expenses temporarily by living in a tent for a few years while his investments compound on themselves. I did it for a year and had a great adventure; -hunting my food, hiking all day, getting as much sleep as I could ever want.

Then he could come back to a more typical lifestyle after a few years of that and have an extra $100k+ in his nest egg from the savings. Could be a nice alternative to working his miserable job for 3 more years.
Thanks Glippy. This is actually the thought process I was thinking when I started this thread.

I do think there is a way to do it today. The only trade off is future living conditions. Meaning I could live on $10k-$15k a year for the rest of my life if I live like a bohemian. But I think most people on the thread (and i'm starting to be won over) that it makes sense to tough it out a few more years in order to live like a normal person in the long run.
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Old 01-11-2011, 11:06 AM   #55
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I did miss that. Though, I think my comment still holds, 3 pages of responses and only two or three mentions about controlling expenses still qualifies as not very "much focus on the possibility of lowering expenses".
Well, then, what about this?

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Finally, you might want to run your numbers by Jacob Lund Fisker at EarlyRetirementExtreme.com. I say this because you might actually be able to pull it off with the right kind of dividend income. But if you want Jacob and the others on that forum to take you seriously then you're going to have to address the debt.
Frankly I think most posters regard "$25K/year" as having already reduced expenses to the bone.
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Old 01-11-2011, 07:48 PM   #56
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But, hey, if you can come up with 20 stocks meeting your criteria at low commissions (which would include 20-30 call options per year) and show me the share prices and call options prices that you used to calculate they'd generate 10-20% total return over a decent portion of a retirement, say 5-10 years including a recession and a recovery... then I'm interested.

They are out there. Here, I will pick one out of the blue to give you an example:

Stock ticker: MRK (Merck)

Divy: 4.1%
Stock price: $36.95
April 11 $38 call: $0.92
Buy 300 shares at $36.95 = $11,085 + $2.95 commission
Sell 3 calls: $276 - $5 commission

If not called away, profit = 2.44% over 3 months after commissions
Not compounded = 9.7% annually + 4.1% dividend = 13.8% return

If called away, profit for that 3 month period = 5.2% If called away every 3 months, yearly profit = 20.8% without dividends (hard to say if you would get dividends).

So in flat or rising market, profit somewhere between 10% and 20%
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Old 01-11-2011, 08:28 PM   #57
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While we're at it though, it's not too bad a suggestion. Rather than a permanent lowering of expenses, he could drastically lower expenses temporarily by living in a tent for a few years while his investments compound on themselves. I did it for a year and had a great adventure; -hunting my food, hiking all day, getting as much sleep as I could ever want.
Really interesting blog post glippy, sounds like quite the adventure.
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Old 01-11-2011, 08:42 PM   #58
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I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.
If you are really a banker you soon will have figured out the flaw in this. Members of this forum are extremely patient with young people who aspire to quit work and play for 50+ years.

I say do what you want, it will either work or it won't.

Unfortunately "it won't" is the short odds pick.

Ha
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Old 01-12-2011, 11:07 AM   #59
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They are out there. Here, I will pick one out of the blue to give you an example:
Thanks. All that's left is for me to fill out Schedule D...
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Old 01-15-2011, 01:16 PM   #60
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I hate to be the resident dream-shatterer... but I feel obliged to point out bluntly what others seem to be casting aside.

The notion that you can reliably earn 9% annualized (7.5% real) by picking your own stocks is ludicrous and you are going to get wiped out.

Why do you think that the oft-quoted safe withdrawal rate is no more than 4%? If people could acheive better returns then that reliably they would.

Read Otar before you hurt yourself.

If the best active fund managers in the world cannot improve on this cold truth what makes you think you can outdo them?
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