Hi everyone, I'm Mike; Working toward a retirement at 50

[mef623]

Hi everyone,

I've been lurking for a while but, for some reason, never did much with my profile.

In any case, I'm 36, married with 6-month old twins (and finally able to understand why new parents want to talk about their kids so much). I'm working toward a retirement at 50 (My wife is four years older than I am.), which would put my kids at 14.

My wife and I both work in financial services, so while we are paid decently, our jobs and compensation have a fair amount of volatility. We save like crazy, hate debt to the point where we may not allocate capital at 100% efficiency but we like the downside protection. We try to life off of one salary so that if something happens, we don't have to change our lifestyle much. We succeed 75% of the time, although you never realize how expensive kids are until you have to buy formula. Coupons and the internet play an integral part of our shopping.

Our savings philosophy is pretty simple: We don't try to time the market, invest mainly in stocks (while maintaining a cash cushion) and invest a portion of our portfolio in stocks that both pay and grow a dividend; in other words, I'd rather own a 2% payer that consistently grows its dividend in-line with earnings than a 4% payer that never grows the dividend and barely covers that payout each year.

On a personal note, we love to travel (Both of us are frequent-flier mile whores.) and look forward to taking our kids to see the world. I can match anyone on Harry Potter, 80's music or Simpsons trivia (Yes, I'm that generation.) and have an appreciation for the history that comes with living in Boston.

Looking forward to spending more time on the boards and getting to know people here.

Mike

 

[Coach]

Hi Mike, and welcome to the forum! I'm glad you've decided to come out of the shadows.

I like the attitude you and your wife have -- a devotion to saving, to LBYM, and to being as prepared as you can for the unexpected. Based on that, if there was a window in Las Vegas where I could place a bet on early retirement success, my money would be on you.

I'm impressed you even have time to say hello with a pair of 6-month-olds at home.

I'll be looking foward to your posts.

Coach

 

[ProspectiveBum]

Welcome, Mike! Your situation seems similar to mine: you and I, and your DW and mine are all the same ages. I have 2 kids, too, though at 2 & 5, they're a little older than yours. DW and I also live in a high-cost of living area. It sounds like you're doing a much better job of saving than we are. We'd be pinched pretty tight trying to live on one of our salaries, at the moment. Mortgage and daycare are our 2 biggest expenses (by far). I assume it's the same for you?

 

[bbbamI]

Welcome to forum Mike....

 

[Moemg]

Welcome Mike ,
I also love to travel and I love Boston .Both of my children went to school in Boston and my daughter worked at BU for several years .

 

[mef623]

Thanks for the warm welcome everyone!

Hi Mike, and welcome to the forum! I'm glad you've decided to come out of the shadows.

I like the attitude you and your wife have -- a devotion to saving, to LBYM, and to being as prepared as you can for the unexpected. Based on that, if there was a window in Las Vegas where I could place a bet on early retirement success, my money would be on you.

I'm impressed you even have time to say hello with a pair of 6-month-olds at home.

I'll be looking foward to your posts.

Coach

Thanks Coach! I do my posting in my free time at work, which is where I go to recover!

Vegas is actually a favorite destination for me, although most people wouldn't want to do it the way my wife and I do: We stay at whatever hotels send us coupons for free and discounted weekend nights, do lots of "coupon runs" (meaning we play the free coupons that casinos give us) and I play positive-expectation video poker almost exclusively. Yup, we're a pretty exciting couple!

Welcome, Mike! Your situation seems similar to mine: you and I, and your DW and mine are all the same ages. I have 2 kids, too, though at 2 & 5, they're a little older than yours. DW and I also live in a high-cost of living area. It sounds like you're doing a much better job of saving than we are. We'd be pinched pretty tight trying to live on one of our salaries, at the moment. Mortgage and daycare are our 2 biggest expenses (by far). I assume it's the same for you?

Hi PB! We had the good fortune of six years as DINKs (double-income no kids), with three of those years in low-cost Minneapolis, to start saving. But mortgage and the nanny are definitely are two biggest expenses. We're moving shortly, so the mortgage will be at the forefront.

Mike

 

[DangerMouse]

Welcome Mike. Have to ask what is positive-expectation video poker?

 

[mef623]

Welcome Mike. Have to ask what is positive-expectation video poker?

Oh, man, are you gonna be sorry you asked...

Video poker is one of the few (well, actually the only, excluding counting cards) beatable games on the floor. The reason is that video poker machines are required to "deal" from an actual virtual 52-card deck, as opposed to slot machines, which have a fixed payout and generate your "payout" based on what a random number generator (RNG) tells it to display when you hit the spin button. By confining the number of outcomes and the fact that the deals are required to come from a limited number of possibilities, it is impossible to set a long-term percentage payout based on what is displayed.

Instead, what casinos do is they fix the paytable. For instance, a Royal Flush should come up once every 40-50,000 hands (give or take). A "fair" payout, or one that would give you exactly a 100% return on what you put in, may be "X," so the casino might set the paytable for a RF at .995*X, giving it a 1/2% advantage. Simply assume that it uses the same calculation for all possible winning hands.

The plus side to this scenario is that someone who is good at math, has a computer or knows someone who is good at math can determine exactly what the total expected return (ER) is. If you know that you have an A chance of getting a particular hand and that hand pays B, you can simply multiply the two. Add up all the possibilities (all losing hands pay zero, thus counting equally, meaning you don't have to determine the individual ER for each potential losing hand) and you get the total ER. A "standard" video poker machine, in which a winning hand is a pair of Jacks or better, pays 9 coins for a full house and 6 for a flush and has a total payout of 99.54%, meaning that for every $100 you put in, the casino can expect you to lose $.46.

There are certain machines, almost always found in locals casinos (in other words, off the strip) that pay in excess of 100%. Certain Deuces Wild machines, for instance, actually give the player a 0.75% advantage with perfect mathematical play (more on that later). So why would a casino do that?

1) Locals, particularly in Las Vegas, are big video poker players. If you live around the casinos, you know that those volcanoes and pyramids weren't built because people won money (Forgetting what people on the plane ride home say; Seriously, I've never met anyone on a trip out of Las Vegas who didn't claim to have made money, or at least broken even.). Thus, they want to play the games with the best possible odds. Positive expectation VP gets people into the casinos. Once the [strike]suckers[/strike] customers are inside, the casino can seduce them to eat, shop and hopefully play other games with lower expectations.

2) In order to have a positive expectation, you must play mathematically perfectly. In other words, no playing hunches, no getting emotional, no guessing as to what you should do. You must do exactly what the math tells you is optimal strategy, regardless of whether it "feels" right or not. You can buy software or cheat sheet cards online. I got mine at :: Bob Dancer Video Poker Expert Play ::. Bottom line: Most people can't play perfectly (or, like card counters, think they play perfectly but don't) or avoid getting sucked into making a "hunch" bet.

3) It doesn't cost the casino much. It is rare to see a positive expectation game in a high denomination. So if you are playing a game that gives you a 0.5% advantage in quarters, making the max bet (five coins per hand) and playing 600 hands per hour, the casino anticipates that it will lose 0.5%*$1.25*600, or $3.75 per hour. And that's only if you play perfectly!

For a good list of games, check out VP Free and click on the "pay tables" tab, which shows the various types of video poker that are out there and the associated pay tables.

4) But you can probably forget all of the above, because positive expectation play works in theory. I believe it was the famous philosopher H. J. Simpson who once said, "Marge, I agree with you -- in theory. In theory, communism works. In theory." Why is that? Well, while the math will tell you that you have a possibility of winning up to 0.75% on each hand on certain games, in effect, the long-term percentage payback smooths out the lumpiness of the game. You don't win 0.75% on each hand; in fact, you lose more hands that you win. The reason you win in the long run is that when you play max coins, the royal flush gives you a kicker. But a royal flush only occurs once every 80 hours of play, give or take so, unless you have an unlimited bankroll and unlimited time, odds are that the volatility in the game will knock you out before you hit the royal flush to put you ahead.

See, I told you that you'd be sorry you asked!

Mike

 

[DangerMouse]

Mike, thanks for that explanation. It does make sense to me, as being an accountant married to an engineer, I know it is all about the odds. I don't think I would ever play a regular slot machine, as it's really just luck of the draw if you are sitting in the seat when it is due to hit.

I love Vegas, went in May and I really truly did win $1400 playing Let It Ride. One thing I noted was every table I played at, they actively encouraged us to put money down on the bonus button. I did for the first day until I worked out that unless you were constantly winning you would never get a return on it. I had one session of 30 hands, which at $5 a game would have cost me $150, and my return would have been about $30.

So how often do you go to Vegas?

 

[mef623]

Mike, thanks for that explanation. It does make sense to me, as being an accountant married to an engineer, I know it is all about the odds. I don't think I would ever play a regular slot machine, as it's really just luck of the draw if you are sitting in the seat when it is due to hit.

I love Vegas, went in May and I really truly did win $1400 playing Let It Ride. One thing I noted was every table I played at, they actively encouraged us to put money down on the bonus button. I did for the first day until I worked out that unless you were constantly winning you would never get a return on it. I had one session of 30 hands, which at $5 a game would have cost me $150, and my return would have been about $30.

So how often do you go to Vegas?

Those bonus bets have enormous house odds: 30%ish range, at a typical LIR table. I have to admit, I love that game. I can usually get a fix by playing it on the computer. Usually. The math behind the games is so much fun, though.

We used to go to LV 4-6X per year, but I have less travel for work now and two infants, so it will definitely come back. My wife is just coming back from a conference there, though.

Mike

 

[Salaryman]

Welcome Mike. So do you have the NUMBER that you want to reach for your retirement @50?

 

[mef623]

I do, but I'm still a little shy about revealing certain details.

Mike

 

[Salaryman]

Perfectly understandable. Have you started the kids' 529 plans yet? I have three kids of my own, so I'm in the same boat as you are.

Minnesota in winter must have been pretty brutal.

Salaryman

 

[Dawg52]

I do, but I'm still a little shy about revealing certain details.

Mike

Awww come on. These people didn't mind revealing their number.

YouTube - ING - "Your Number"

 

[mef623]

Perfectly understandable. Have you started the kids' 529 plans yet? I have three kids of my own, so I'm in the same boat as you are.

Minnesota in winter must have been pretty brutal.

Salaryman

Just started them a few months ago (To be fair, they were born in January. ). Our two long-term goals are getting the kids' college fund done and making sure we are secure for retirement, and we want to do it at a point where they aren't mutually exclusive.

Believe it or not, MN in the winter isn't too bad. The winters last a little longer, but aren't that much colder. Unless you walk around the lakes. Do that too often and you might face a different kind of early retirement.

Mike

 

[Salaryman]

We started saving in the 529 plans before our kids came. We established 529 plan by Daddy for the benefit of Daddy and Mommy for the benefit of Mommy. That way we could start early, use funds for our grad schools (highly unlikely unless we don't sleep for the next 3 years) and transfer funds to the kids that need it when they need it. As I understand it, beneficiaries can be changed anytime if they are 'family members'.
Our plan is for our kids to benefit from the 529 plan for their higher education cost & for them to 'repay the loan' at zero interest by replacing what they spent back into a 529 plan...sort of like a perpetual multigenerational education trust fund.

We met a family from St. Paul during our recent vacation, they couldn't stop raving about how family oriented MN is. I guess being 'cold' is relative.

From your postings, you guys are well on your way.

All the best.

Salaryman

 

[freebird5825]

Welcome to the forum Mike.
I am happy to see I have another person to commiserate with about winter. I'm in the lake effect snow belt in upstate NY.

 

[mef623]

Awww come on. These people didn't mind revealing their number.

Okay, I'm less shy now. We're shooting for an income of $120,000 per year in today's dollars. I'm a 3% kinda guy, so that would mean $4 million in today's bucks to maintain the principal. Since we plan on retiring early, I don't want to be in the position that we have to eat into that amount, even if we could.

As I mentioned above, we have a "growth" portion of our portfolio, which is mainly in stocks, and an "income" portion which is also in stocks, but focuses on stocks with growing dividends, so we can give ourselves a raise each year just from the dividend growth. In an ideal world, the "dividend portfolio" would generate the income we need and would give us a boost each year in excess of inflation.

Mike

 

[Salaryman]

Okay, I'm less shy now. We're shooting for an income of $120,000 per year in today's dollars. I'm a 3% kinda guy, so that would mean $4 million in today's bucks to maintain the principal. Since we plan on retiring early, I don't want to be in the position that we have to eat into that amount, even if we could.

As I mentioned above, we have a "growth" portion of our portfolio, which is mainly in stocks, and an "income" portion which is also in stocks, but focuses on stocks with growing dividends, so we can give ourselves a raise each year just from the dividend growth. In an ideal world, the "dividend portfolio" would generate the income we need and would give us a boost each year in excess of inflation.

Mike

Your number sounds like my number. I was shooting for 5mm target and 4% withdrawal to get to 120k after tax, since most of our NW is in retirement accounts. I would really get a kick out of being early retired as a Mr Mom, driving the kids around to their rounds in a hot convertible.

I'm curious about the make up of your portfolios. Have you invested in individual issues, used funds or a combination of the two? Also, did you do it yourself or used an advisor?

Salaryman

 

[mef623]

Your number sounds like my number. I was shooting for 5mm target and 4% withdrawal to get to 120k after tax, since most of our NW is in retirement accounts. I would really get a kick out of being early retired as a Mr Mom, driving the kids around to their rounds in a hot convertible.

I'm curious about the make up of your portfolios. Have you invested in individual issues, used funds or a combination of the two? Also, did you do it yourself or used an advisor?

Salaryman

Sorry I didn't get to this earlier, but I only have the site bookmarked at work.

We use both mutual funds and individual stocks in our portfolio. In our "dividend" account, it is only stocks and ETFs. That portfolio is only about 10% of our total, but growing. In our "main" portfolio, it's about half and half.

We have done everything ourselves, but only because we both work in financial services. It's not too hard to do, but we enjoy it. My wife works for a large discount broker, so I'm reluctant to make recommendations due to an apparent conflict of interest, but if you enjoy investing, a discount broker is probably all that you need. Truthfully, even if you don't enjoy it, a discount broker can do most of what you need.

Mike