Blogger Joe Udo says 25x expenses not enough for early-retirees

[Helena]

Quote:

Originally Posted by daylatedollarshort Interest rates have been declining globally for decades. There is an interesting chart on the link below called "10 Year Treasury Rates vs. Historical Economic Forecasts" that kind of shows how most economists seem to miss the big picture on where interest rates have been headed and have for some time: https://www.whitehouse.gov/blog/2015...interest-rates I wish I'd viewed this chart a few years back. I would have bought more 2% real yield 30 year TIPS and 4% Treasury bonds.

It could get a lot worse...

Some European banks have negative interest rates. Depositors pay the bank to hold their money.

" Royal Bank of Scotland (RBS), an entity in which the British Government controls a 72.6% stake, will begin charging its institutional customers for their deposits in the bank in order to cope with the last rate reduction interest held by the Bank of England (BoE) on August 4. In addition, two other German companies will do the same to cushion the negative rates implemented by the ECB. "

more at link

https://mishtalk.com/2016/08/20/rbs-...erest-roundup/


Some are suggusting negative interest rates might be necessary in the USA too.

" The U.S. Federal Reserve might need to cut interest rates to as low as negative 2 percent, far lower than levels other global central banks have tested, a former Fed economist said. "

more at link

Why the Fed might need to cut rates to minus 2 percent: Former Fed economist

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[HFWR]

The FRB decided early on that pumping up the economy was better than the "austerity" others tried, so I think the EU is behind the curve. Short of external events, I think we (the USA) will/are gradually normalizing rates. Of course, rates too high, relatively speaking, leads to lower rates/higher prices as money flows to safety/yield, so the FRB is handcuffed somewhat from raising too fast, not to mention that the economy is still tepid at best. But I don't see negative rates here, except maybe in "real" terms, unless the shtf overseas somewhere.

I have 40% short- and intermediate-term bonds for my ballast, to protect against interest rate risk, but that means my yield is pretty low...

As for WR, I'm sticking with 4% of current balance, rather than automatically adjusting upward for inflation. I'm hoping that my equities keep up with inflation, thus no need to bump the swr for inflation-tracking purposes. Of course, I could live, if necessary, on my SS and pension, shtf-wise, but I'm hoping not to have to do that...

[RobbieB]

I don't follow any blogs.
I don't give any advice.
I don't want any advice.
I just report what I do and have done.
I'll figure it out for myself -

[OverThinkMuch]

Quote:

Originally Posted by Major Tom From the above article, in which he talks about his definition of retirement - "Why does Mr. Money Mustache get to define it? Because I have the biggest Early Retirement blog. If the Internet Retirement Police would like to supersede my definition, they will have to start their own blog, calling it something like www. mrmoneymustacheisnotreallyretired.com, build it up to be more widely read than this one, and then propose their own definition. Only at this point would the torch be passed and the definition of Retired be up for discussion." Wow. He's cocky isn't he? He may well have the biggest Early Retirement Blog but I still think he's a cocky son of a gun. It's actually the main reason I don't like his site - the attitude.

He's talking back to the "Internet Retirement Police", but you seem to feel targeted by his comment. You skipped over an earlier quote from the same article which seems to apply to retirees:

"Retired means different things to different people. But one of the rules of Mustachianism is that if someone tells you they are retired, you do not question them. You congratulate them."

[daylatedollarshort]

Quote:

Originally Posted by OverThinkMuch He's talking back to the "Internet Retirement Police", but you seem to feel targeted by his comment. You skipped over an earlier quote from the same article which seems to apply to retirees: "Retired means different things to different people. But one of the rules of Mustachianism is that if someone tells you they are retired, you do not question them. You congratulate them."

As with name calling, that is just another way of trying to deflect legitimate criticism. None of it really changes the many thoughtful issues brought up in this thread and in the article in the original post. I could say a nickel means different things to different people, but that doesn't make it a true statement. Questioning is a basic component of critical thinking.

[Bestwifeever]

He should put out a "mustachian" dictionary so everyone knows what page he is on. Maybe some people would call what he did "changing careers" but he can call it whatever he wants in his world to his followers. There's no particular virtue in either term.

[thefinancebuff]

Quote:

Originally Posted by OverThinkMuch You skipped over an earlier quote from the same article which seems to apply to retirees: "Retired means different things to different people. But one of the rules of Mustachianism is that if someone tells you they are retired, you do not question them. You congratulate them."

Isn't that like the emperor with no clothes? "One of the rules of the kingdom is that if someone tells you the emperor is wearing clothes, you do not question them. You praise the beautiful clothes."

[dd564]

What I learned today is that I have already retired.

Instead of blogging, I work as a project manager though. The income I make from that I use to buy additional real estate (pay mortgages).

Also, my wife still enjoys working part-time as a nurse to buy food and clothing for the kids and to pay for our extra vacations we take. So we're also retired but don't have the daily commitments of having to maintain a blog.

[ESRwannabe]

I've only read a few posts so far. So someone might have brought this up already. Anyway, IMHO for someone in there 30s-40s full retirement may not be possible, but I think semi-retirement is very achievable.

If you simply work a minimum wage job, let's say $8 part-time, i.e. 1,000 hours, you will make $8k. For a single person, you can enjoy a very nice lifestyle in the cheaper parts of the US on $30k or less. I live off around $28k a year easily and I could cut that back a lot (ex: I rent an overpriced apt and eat out almost every meal). So, just a part-time low stress minimum wage job will cover a third or more of living expenses. Then when you get to 60+ you replace that with SS and you can fully retire.

One benefit of the fact that I have a pension is that I don't need to worry about 60+, I just need to get there. I already have enough vested that pension plus SS will support my current life style. So my early retirement money is really only needed to get me from current age to 60. I'm 40 right now, and I'm thinking 45 will be when I switch to part-time work. I'd only need to ESR for 15 years that way. If I assume I need $20k from investments for 15 years (and $8k from working), I could just use $300k in cash and assume a 0% return...

[Forced to Retire]

If anything the four percent figure is way too conservative.

If the next forty years is the same as the last forty years, someone who invested in a 50/50 total stock and bond fund portfolio and took out four percent of their money each year and updated that amount to match inflation, would have 21 times their orginal investment. (If they reinvested the dividends)

You can verify it on this website:

https://www.portfoliovisualizer.com/...ass-allocation

[Major Tom]

Quote:

Originally Posted by Forced to Retire If anything the four percent figure is way too conservative. If the next forty years is the same as the last forty years, someone who invested in a 50/50 total stock and bond fund portfolio and took out four percent of their money each year and updated that amount to match inflation, would have 21 times their orginal investment. (If they reinvested the dividends) You can verify it on this website: https://www.portfoliovisualizer.com/...ass-allocation

Forced to Retire - I will let others give their opinions and reasoning as to why it would not be a good idea to withdraw more than 4% from a 50/50 (or some other similar AA) portfolio and expect it to last 40 years.

I will say that you would be well served to do plenty of reading and research for yourself. The multiple threads in this forum have much relevant reading. It never hurts to sit yourself down with a good book, or in front of a computer, and read, read, read.

[samclem]

Quote:

Originally Posted by Forced to Retire If the next forty years is the same as the last forty years . . .

It won't be "the same." That's just one run of the very many runs even a straight use of historical data can provide. Play around with FIRECalc a bit, it covers some time periods that were not so kind to investors. There's not much to be learned from a single series, there are scores/hundreds of series in the historical record (depending on the length of the time period chosen). Regardless, it is important to remember that, of the 200+ nations in the world, the US economy has done uniquely well over much of this period. So, it may be useful to take US historical returns with a grain of salt (and humility) as we look ahead, unless we think that this will continue.
4% has historically done quite well, but the present circumstances are well outside the "averages"--CDs/bonds are providing very low real interest rates, stocks are priced quite high in relation to the earnings of the underlying companies.

A dollar spent on stocks today is backed by 50% less earnings than in 1972. Are stocks expensive now? Yes. Does that mean they are more likely to go up (long term) or down (long term) from their present valuations?

[Forced to Retire]

I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise.

I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

[razztazz]

Quote:

Originally Posted by Forced to Retire I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise. I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

The reality is as follows:

We talk all the time here about what we'd do, or what anybody would do if hard times hit and the 4% rule started showing signs of stress. We'd spend less, thus insuring we'd have more money later.

The reverse is true. After some years of retirement it is was apparent the investments were doing like the loaves and fishes in the Bible, We'd spend more. Or perhaps just allot more to the nursing home fund down the pike. Same thing.

I doubt anybody will be angry at having too much money in the short term, OR the long term.

[Teacher Terry]

Better to have too much $ then to be broke, old and still alive.

[samclem]

Quote:

Originally Posted by Forced to Retire I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise. I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

A lot of people here make sure they can cut their expenses if need be. Then they take a certain percentage (maybe 4%, maybe a little less or more) of the >year end balance< of their portfolio every year. Three giant advantages to this approach compared to a "4% starting amount adjusted for inflation every year" approach:
1) You can never totally run out of money. You may lose ground to inflation over time, but you won't spend the last cent because you aren't heedlessly withdrawing money every year without respect for the value of the portfolio. If your portfolio declines you take the pain right then, but you can never get down to zero.
2) When your portfolio has a bad year, you sell less of it. This leaves more shares in the account to recover as share prices rebound (and they always have). So, by being flexible in withdrawal amounts you avoid eating your "seed corn" and give your portfolio a chance to recover. And, doesn't it match what most of us would do anyway? Would most people keep spending at the same rate even though their portfolio is down 50% over the last few years? Probably not.
3) It helps avoid the huge accumulations of money you referred to above. You spend while you are alive. And, s a bonus, you'll see (when you model it in FIRECalc, which you should do), that the historically safe withdrawal percentage can be quite a bit higher if you use this "end of year balance %age" approach.

It doesn't work for everyone, because some people are unwilling or unable to flex their spending by the needed amount every year. But it is something to consider. There's lots written about this and many other issues already on this site.

[Major Tom]

Quote:

Originally Posted by Forced to Retire I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise. I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

Put yourself in the shoes of such a person who was lucky enough to have experienced this positive sequence of returns. Let's say you put $300K into a 50/50 portfolio and 40 years later, you have the inflation-adjusted equivalent of $6.3M. Don't you think that somewhere along the way, when you realized you had a lot more money than when you started - say, at the $1M, or $2M mark, you'd have allowed yourself to increase your withdrawals accordingly? Very, very few people would doggedly stick to the same WR year after year, in such a scenario.

You may, as you have said, done lots of reading on this, but you are either not taking it in, are performing a very simplistic analysis of the information you are receiving, or have not done enough reading. Whichever it is, your posts are good for forum traffic

[haha]

Quote:

Originally Posted by Forced to Retire I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise. I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

Where have you been all my life?

I have needed your wise counsel many times.

Ha

[Mulligan]

Quote:

Originally Posted by Forced to Retire I have done lots of reading on the 4% RULE, everyone has a different opinion. It's all noise. I was just thinking about someone who retired early 40 years ago and believed the noise about only taking four percent a year. Now that they have 21 times their initial investment, don't they feel angry about being so tight with their money and wonder what they could have seen, experienced and traveled to if they would have taken more out of their retirement savings as their retirement account went up, up and up.

It just depends on the person. My 87 year old neighbor friend says he has considerbly more money now than he ever had and every year the stash climbs. I will tease him about going and spending some of it and having some fun. And he always says " I havent wasted money my entire life and sure as hell aint starting now".

[RobbieB]

Hehe, yeah, that's pretty good! 87 and still stacking cash.

I don't want to be that guy -