Fear to spend

[73ss454]

Sounds to me like you could be living under an overpass any time now. I'd cut down on food and other luxuries. 3.4M should only last a year or 2 more with inflation right around the corner.

 

[dex]

O.K.
My wife and I just bought a used Airstream trailer and a new Ford F250 to tow it. I could have spent an extra 5K for a totally tricked out top of the line truck for an extra 3-4K (spent 44K on the one we got).

So, it seems I could easily have afforded the extra luxury. But, my frugality kept me from doing so.

W

Very true - it is the ongoing costs that add up.

 

[dex]

O.K.
My wife and I just bought a used Airstream trailer and a new Ford F250 to tow it. I could have spent an extra 5K for a totally tricked out top of the line truck for an extra 3-4K (spent 44K on the one we got).

So, it seems I could easily have afforded the extra luxury. But, my frugality kept me from doing so.

W

If your frugality is stealing your enjoyment of life then you are overdoing it.

http://www.early-retirement.org/forums/f28/frugal-and-cheap-living-are-not-good-ideas-51081.html


That is correct, I am saying that frugal, cheap living, cheapskate, tightwad, penny pinching are not good ideas. ...

Why is frugal and cheap living not a good idea? Because of how they influence your life, color your view of the world and the potential they have to steal from you.

 

[73ss454]

Dex, your last 2 posts confuse me, did you have a change of heart after the one before last.

 

[Animorph]

Your current spending is about right for the total assets, though conservative. Your income from the rental is distorting the picture. If you up your spending and then sell the rental and add the proceeds to your portfolio, your spending would look more aggressive.

If you are flexible enough to cut back again if you have to, and you feel good about the rental long term, go for it anyway. If you really want to leave an estate and that makes you feel good, then don't spend the extra. It's the future, who knows?

 

[Skye]

Listen.....Don't worry so much! Nobody gets out of here alive, and if everything goes wrong, you will probably have enough to park the airstream at a nice campground in South or North Carolina for about $150 a month! A friend of mine owns a campground down there and that is what he charges.....and there is a stocked lake on the grounds and a pool. And you would have plenty of money left over to travel and fly out west or to New England to ski each winter!

 

[LARS]

While I may have misunderstood your situation, I am assuming you are talking about p.a. spending increasing from approx. $120,000 to $200,000.

If so, I would NOT be comfortable spending at that level at age 58 with a net worth of $3.5 million. Not even close IMHO.

 

[NW-Bound]

The OP's trump card, as explained, is a commercial RE worth $750K but generating $120K/year. I know nothing about commercial RE, but boy, oh boy, what have I been missing out on!

 

[wrochdvm]

in reply to NW-Bound

The lease for the real estate does not reflect true market rates. It is a medical practice with a long history.
W

 

[wrochdvm]

O.K.
I may be mistaken. But, I thought that this forum could provide objective financial advice. While my initial question had ambiguity about my financial decisions, those questions should not involve matters of personal values.

I simply want to know whether or not, given the current economic environment, if there is an agreement about how much of my principle I can draw down and still be solvent in my old age.

My wife and I live very comfortably in the house that we own. We travel and, until recently, have had a modest yacht. We are now embarking on an extended cross country excursion. We bought a used Airstream trailer and a new F250 truck. For a few thousand more I could have bought a fully tricked out Lariat or Ranch King.

So, am I being too frugal? The luxury of the higher end vehicles would be enjoyable. But, my frugal side says, don't do it.

 

[haha]

O.K.
I may be mistaken. But, I thought that this forum could provide objective financial advice. While my initial question had ambiguity about my financial decisions, those questions should not involve matters of personal values.

I simply want to know whether or not, given the current economic environment, if there is an agreement about how much of my principle I can draw down and still be solvent in my old age.

My wife and I live very comfortably in the house that we own. We travel and, until recently, have had a modest yacht. We are now embarking on an extended cross country excursion. We bought a used Airstream trailer and a new F250 truck. For a few thousand more I could have bought a fully tricked out Lariat or Ranch King.

So, am I being too frugal? The luxury of the higher end vehicles would be enjoyable. But, my frugal side says, don't do it.

You are being too frugal. Buy the Brooklyn Bridge and charge tolls.

 

[73ss454]

Yup, you sound very frugal to me. After all you could have gotten the fancier truck or even a bigger Yacht. I'll bet the Airstream doesn't even have AC.

 

[Nords]

O.K.
I may be mistaken. But, I thought that this forum could provide objective financial advice. While my initial question had ambiguity about my financial decisions, those questions should not involve matters of personal values.
I simply want to know whether or not, given the current economic environment, if there is an agreement about how much of my principle I can draw down and still be solvent in my old age.
So, am I being too frugal? The luxury of the higher end vehicles would be enjoyable. But, my frugal side says, don't do it.

Actually your financial questions do involve matters of personal values.

We have ERs here who have managed to spend only $13K in a year (admittedly not every year). We have many who spend around $30K/year, a number who spend around $50K, and a few who moan piteously that they couldn't possibly survive on less than $100K.

What you see as "frugal" is viewed by a few as "more than enough" and perhaps by a few more as "deprivation". It's a personal value.

You will never get consensus here, let alone agreement. In fact if you get 20 replies to your post then they'll contain at least 25 different ways to achieve your goal, all of them better than the others.

We also have the Internet's usual assortment of survivalists, paranoids, and skeptics. Another poster would prefer that Texas forbid all further immigration to the state. Several posters (me included) have noticed that this board attracts a high volume of spammers and trolls, so it may take a few posts to gain the acceptance of the membership.

The 4% thumbrule says that you should be able to withdraw 4% of your ER portfolio at the beginning of your first year of ER, raise that amount by inflation at the beginning of each subsequent year, and keep up that routine for at least 30 years. If you reduce that initial draw to 3.5% then you'll probably be fine for 40-50 years, although some of the results depend on whether or not you encounter a nasty bear market during the first few years of ER. If you spend less than 4% per year (not adjusting for inflation) then of course you'll never run out. If you vary your withdrawals each year to roughly 3-4%, depending on how you feel about the economy and your portfolio's performance, then you'll never run out.

If your frugal side says "don't do it", then don't do it. It's a personal choice. But don't be surprised if you get some teasing, and perhaps a few admonishments from those who can't stand to see anyone else endure at less than their own personal standard of living.

 

[NW-Bound]

We also have the Internet's usual assortment of survivalists, paranoids, and skeptics.

Some of us are all 3 of the above.

Another poster would prefer that Texas forbid all further immigration to the state...

No, make that a possibility of being all 4.

 

[obgyn65]

I agree with Nords on this point.

Actually your financial questions do involve matters of personal values.

 

[Sam]

The FIRECalc says I won't be broke before I die if I spend another 70K/yr. If you were in my situation, how much confidence would you have in that?

What did you tell Firecalc for it to generate 70k/yr? At your age and 3.4M, the answer should be around 130K/yr.

70K is 2.06% withdrawal rate. You should have plenty of confidence in that number. At 2.06% rate, your net worth should at least double its size 30 years from now (in today's dollar).

Did you really accumulate the 3.4M yourself?

 

[Gone4Good]

The lease for the real estate does not reflect true market rates.

That seems obvious, and is a potential problem. I wouldn't count on a 16% cap rate for the rest of my life. It looks like either the $750k market value is too low, or the income is too high. If it's the latter, then you're going to have problems trying to spend that for the next 40 or so years. Before I spent any more money, I'd have to be real comfortable that the CR income is sustainable (i.e. at or below market). Even then, relying on one tenant for 60% of your income while withdrawing the balance from a portfolio at a 4% rate seems like skating pretty close to the edge.

 

[wrochdvm]

Thanks, Nords, for the thoughtful post. I fully understand that forums like this attracts all sorts of people with all sorts of agendas. Sadly, the internet doesn't allow the full dimension of a personality to be revealed in short, topic specific forums such as this. Certainly, no-one here can even come close to knowing anything about my character or integrity. Nor can they know what good I have done in my life so far. Rest assured, I do not worry about people's speculations or assumptions.

I am glad, though, that I found this forum to ask a question that I do not feel comfortable asking friends or acquaintances.

Sam, I didn't include the value of my real estate in the FireCalc. I also discounted the value of equities in my portfolio. So, I think I used a liquid assets value of about 2.1M (another sign of my caution?)

Dex, I read the thread about 'frugal, cheap, etc'. I think I come down on the side that believes frugal has a positive connotation. Here are a few examples of my behavior that make me say that I believe I am frugal. If something breaks and I can repair it myself, I will repair rather than replace it. I enjoy DIY projects so I do my own landscaping remodeling and home maintenance (just finished replacing three windows). I take pride in pointing out that I did it myself and that I saved money doing it.
My income would allow me to own a much larger home in a more affluent neighborhood, instead I chose a smaller home in an upper middle class neighborhood. Although it is by no means a small house. I buy used cars rather than new, but they are luxury cars.

On the other hand, I don't worry about spending money on things that I enjoy such as works of art, new skis, the expensive wrist watch my wife insisted I buy, or the Airstream and truck.

Thanks everyone for all your posts.

 

[wrochdvm]

Nords, sorry I forgot to answer your final question. Yes I earned it myself. I saved regularly while I was working. I sold my business for cash to a large corporation.

Gone4Good, You were posting at the same time I was. The company that bought me out never buys the real estate of the businesses they acquire and they have an excellent track record for keeping them going. (They have annual revenue of about 1.5B and profit of about 17%)

Thanks again

 

[chinaco]

A net 16% yearly return on the commercial real estate (after all expenses) seems a little hard to believe.... especially to rely on it as a long-term stream of income (20 or 30 years). Since it sounds like all the income hinges on one property... it is an all or nothing type investment (no diversification). Of course, you might be able to cash it out and use the proceeds for income if the venture fails in the future.

I was a little confused about some of your assets and the money they generate, level of risk, income wants/needs, etc.

But about the 2M in stocks and bonds and the 4% rule.

No... you are not too paranoid.

But if managing the portfolio or using the WR% on a constant mix to generate a stable and reliable income is outside of your comfort zone.... there are other legitimate ways to manage the assets and income generation.

My goal is to maximize income (using a certain amount of assets) with high level of confidence and lower risk coupled with the ability to sleep during hard times. If some adverse situation happens to one of us (DW or me) as we age... we have a rock solid (guaranteed) base income and a low risk way of achieving our planned income (approach that is somewhat forgiving for DW if I die before her).

This forum seems to heavily loaded with SWR% people constant mix people... so there may be some bias in responses.

I look to the trinity study and the follow-on research more to understand boundaries given history of growth and volatility rather than a hard and fast endowment rule.


I am undergoing the analysis for managing our income. After much study and thought, I am going to split the difference (more or less). A certain % of our portfolio will be dedicated to income generation (low risk). The other part will be invested for some growth (more risk) and represent money for spending over and above our planned lifestyle and as a reserve for unplanned events... whatever they may be.

The reason is that I do not want to jeopardize our lifestyle. What most people overlook is that the risks are not just managing assets in the securities markets and volatility (even with diversification and non correlated assets)... there are so many other situations (coupled with those risks) that together can be compounded into other circumstances that could severely impair one's lifestyle.

 

[Gone4Good]

The company that bought me out never buys the real estate of the businesses they acquire and they have an excellent track record for keeping them going. (They have annual revenue of about 1.5B and profit of about 17%)

How good are your forecasting skills at predicting this company's ability, willingness, and need to pay 10 years forward? 20 years? How about 40? What happens to the cash flow if the property burns to the ground? Sure, property insurance may replace the structure after significant delay, but can you generate the same level of rental income going forward? And in the interim, what's the damage to your $2MM in liquid assets while you draw 10% annually from that portfolio?

I'd categorize the CR cash flow as fairly high risk, even more so if the rental payments are significantly above market, as they appear to be. (Ask yourself, even if the company can pay, why will they continue to pay more than the property is worth? Not only are you banking on the company's continued financial success, but also their financial stupidity. Those seem like mutually exclusive assumptions). To offset the higher risk CR investment, I'd recommend a more conservative withdrawal from the balance of the portfolio. Or, I'd make sure that I could easily cut my increased expenditures if/when, my rental income declines. Spending on a larger primary residence and a second home don't really fit that categorization.

 

[haha]

Really, the OP is self-contradicting. A triple net commercial property with long term lease and escalations currently earning $120K is worth a lot more than $750k, punto.

Unless of course it is condemned, or next to a flood prone river.

Given weird information, expect weird conclusions.

 

[NW-Bound]

Thanks, Nords, for the thoughtful post. I fully understand that forums like this attracts all sorts of people with all sorts of agendas...

Many of the long-time posters here have no agendas other than to hang around, and to poke fun at each other. Sometimes the humor here may be a bit esoteric for a newcomer to get. For example, my own earlier post on this thread might be misunderstood. What do you expect from a bunch of weirdos? The frugal type who wants to ER is of course different than the average Joe or Jane.

 

[Gone4Good]

Really, the OP is self-contradicting. A triple net commercial property with long term lease and escalations currently earning $120K is worth a lot more than $750k, punto.

Yup.

 

[dex]

O.K.
I may be mistaken. But, I thought that this forum could provide objective financial advice. While my initial question had ambiguity about my financial decisions, those questions should not involve matters of personal values.

I simply want to know whether or not, given the current economic environment, if there is an agreement about how much of my principle I can draw down and still be solvent in my old age.

My wife and I live very comfortably in the house that we own. We travel and, until recently, have had a modest yacht. We are now embarking on an extended cross country excursion. We bought a used Airstream trailer and a new F250 truck. For a few thousand more I could have bought a fully tricked out Lariat or Ranch King.

So, am I being too frugal? The luxury of the higher end vehicles would be enjoyable. But, my frugal side says, don't do it.

Nords has given good advise.

I'd suggest when posting to a forum you keep your assumptions and questions as simple as possible.

Frugality is a subjective. Look how many times you use it to describe yourself. When a person uses a word several times it is important to that person. So addressing it is appropriate.

From your original post you mention inflation; hence my original post. Future economic outcomes are debatable. The current economic environment is not inflationary. There might be 80s style inflation later in the decade. Should we address that?


"how much of my principle I can draw down and still be solvent in my old age." Most would say use Firecalc and other strategies.


My view of your question is not Frugality or inflation, but fear (not paranoid). To address that you need to analysis your risk tolerance and invest appropriately.

If your fears are preventing you from enjoying life, then you are being too fearful.

Finally, you might not always get what you want but you get what you need.

I have several times less money than you. I've been retired for 4 years at 51 and am currently in 100% cash. I need to preserve my principle until 62 when I start SS.

I have been very frugal and fairly successful. I have a net worth of about 3.4M. About 2.0M is in stocks, bonds and cd's ( 40%, 40% and 20% respectively). The rest is in commercial real estate (750K value generating 120K/yr) the rest is in my home and personal property.

I have been retired for the last 3 years and have limited my spending to the income available from my real estate and a small amount from consulting (less than 8K/year).

I have run the FIRECalc and at age 58 (wife is 59) it seems I should be able to spend about 70-80K more per year.

But, I seem to have a great fear of doing that. I'm worried that inflation such as we saw in the early 80's is almost guaranteed (at least in my mind). So that, even though I have a good amount in equities, it may not be enough to guard against inflation.

Am I being too paranoid?

W