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Your Money or Your Life
Old 11-12-2008, 08:00 PM   #1
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Your Money or Your Life

I read the book Your Money or Your Life in response to this Forum’s recommendation. Found it quite interesting and appreciate the recommendation. One suggestion for early retirement strategy the author made struck a question with me and wanted to get your thoughts.

The author suggested graphing what he calls the crossover point, which contains the following two streams of data points:
1. Monthly expenses
2. Investment savings at a long-term bond yield on a monthly basis.

Once data 2 = data 1, you have reached the crossover point and reached FI.

This suggestion raises the concept of not spending down your savings, but instead utilizing it as capital and living off the interest income stream. Let me suggest an example:

1. $5,000 monthly expenses
2. $1.2 million savings invested in long-term tax-exempt muni’s with an interest rate of 5% would yield $5,000 on a monthly basis.

You might need an extra few hundred thousand or so invested in stocks to keep up with inflation, but the idea seems like a good concept. With this concept, you never “run out” of money as long as there is no default. The most prominent risk here is that your interest income doesn’t keep up with inflation, but nevertheless you are nearly guaranteed a stream of income for life much like an annuity.

So my question is, of the amount people save, do people apply their savings toward one or a combination of the following:

1. After tax savings to use as capital for early retirement
2. IRA to use after 59 ˝
3. Paying down the mortgage early to reduce expenses in retirement

For me, my total savings goes toward:

1. After tax savings: 67%
2. IRA: 27%
3. Paying down the mortgage early: 7%

If you can save capital for early retirement which can generate an income stream to cover monthly expenses, it almost begs the question why bother with an IRA and paying down the mortgage early? It almost seems as if 100% of savings should be devoted to capital, and the income stream from the capital would live on past age 59 ˝ (no need for an IRA) and would cover the mortgage (no need to pay it down early). What do other people think? Thanks!

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Old 11-14-2008, 09:25 AM   #2
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I agree with the philosophy of the book. DW and I are working towards that crossover point.

Maxing out 401k's ---$30,000/yr + company match
Saving/investing 6k/month after tax to tap prior to 59.

We figure 3k/month (todays dollars) would be needed to enjoy retirement. Our crossover $$ point will be $900K aftertax money, and our 401k will be bonus money when we are age 59 1/2. SS and wifes pension will be bonus money if they still exists when we turn 62.

Current situation:
age 43
270k (after tax) in cd's and Vanguard lifecycle funds,
210k 401k's
House paid in full
Proposed ER date DW age 55 (due to qualifying for company health care)
Saving $110k/yr

The housing question has been debated on this forum extensively. It is a personal choice. We chose to pay off the house.

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Old 11-20-2008, 11:59 AM   #3
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I like this idea also, but I think it's important to consider two issues (which I don't feel YMOYL really discusses):

1. Fluctuation in income from investments
2. Inflation

The 4% SWR is designed to help with this by giving you a benchmark that allows you to adjust your withdrawal based on fluctuations in your underlying capital. If you want to preserve capital, then simply adjust your SWR to take advantage of income only.
"You'd be surprised at how much it costs to look this cheap." -- Dolly Parton
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Old 11-20-2008, 12:20 PM   #4
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Originally Posted by DAYDREAMER View Post
...Saving $110k/yr...
Holy Buckets!
Diggin' my way to financial freedom, one buck-at-a-time
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Old 11-20-2008, 02:29 PM   #5
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Your Money or Your Life (YMOYL) is one of the most important financial books I've ever read. That said, I don't think the "invest only in long term bonds" financial advice is right for me.

I try to employ YMOYL principles to keep my spending on needless crap to a minimum, but I'm more of a standard SWR kind of guy in terms of my FIRE planning.
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Old 11-20-2008, 03:23 PM   #6
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I don't take their investing advice (it maybe made sense then), but the book was a wake up call to me.
"Knowin' no one nowhere's gonna miss us when we're gone..."
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Old 11-20-2008, 04:43 PM   #7
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One of the "Great Books' of financial thinking, at least for me. Your time has a cost, you want financial freedom. Please ignore actual financial suggestions like specific bonds and the like.

T.S. Eliot:
Old men ought to be explorers
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