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01-21-2011, 11:28 AM
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#21
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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My situation was quite different from most on this forum.. Most of my compensation wre option and deferred stock grants. So for me LBYM meant not cashing anything out. Was able to live nicely on the cash portion of comp. When I retired I started cashing things out (still a ways to go). In the end things turned out very well. Obviously different paths to the same place.
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01-21-2011, 11:41 AM
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#22
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Full time employment: Posting here.
Join Date: Dec 2010
Posts: 746
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Quote:
Originally Posted by MasterBlaster
Metrics aside - don't let the numbers keep you from accelerating your savings. Paralysis by analysis as they say.
Based on a number of threads, you'll find that quite a number of us here are super-savers. For a number of us blow-hards die-hards, saving in the range of 50% or somewhat more of our gross income is common. In my opinion, the actual method of how a savings rate gets counted is less important than the will and the implementation of a serious savings plan.
Perhaps when saving up to buy a house, or just after that the oppressive mortgage limits savings. But as the mortgage becomes manageable savings can accelerate.
Once you decide that you don't really need the newest car, the designer clothes, and all the other useless crap things, your savings can accelerate.
really, what you need to decide for yourself is that the cost of all that stuff is your lost freedom, lost peace of mind, and lost life satisfaction. And that cost just may be way too high.
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Wise words, Obi-Wan. I suspect there is a large group of people who don't realize the "easy button" is only in commercials.
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01-21-2011, 11:47 AM
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#23
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,391
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Quote:
Originally Posted by East Texas
Wise words, Obi-Wan. I suspect there is a large group of people who don't realize the "easy button" is only in commercials.
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well as Elvis says - Than you vera much.
- Check out my new Avatar !
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01-21-2011, 12:00 PM
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#24
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 1,250
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Not a stat person...so, as long as I save $XX,000 per year (both TSP and regular savings/investments, I do as I please. I consider that LBYM - plus I do a number of "frugal" things to ensure I get the biggest bang out of my travel and fun fund. Meeting personal retirement goals and enjoying the ride along the way are very important to me. Comparing savings notes to see who saves the most each year to "one-up" each other is of no interest to me. As others have stated, it's too personal to "metricize."
__________________
Make no mistake, my friend, it takes more than money to make men rich. - A. P. Gouthey
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01-21-2011, 12:19 PM
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#25
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Thinks s/he gets paid by the post
Join Date: Oct 2009
Posts: 1,190
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This question is all about context and so reminds me of Potter Stewart's quote on pornography applied to the OP's question:
"I shall not today attempt to define... LBYM...and perhaps I could never succeed in intelligibly doing so. But I know it when I see it..."
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01-21-2011, 12:35 PM
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#26
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2009
Posts: 5,307
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It has been interesting to me that on financial related boards I see people talking about LBYM - living below your means and about someone (hopefully someone else) living beyond their means.
It is like those are the only two categories. Yet, don't some people simply live within their means?
Let say you earned $X a year, saved $Y for retirement (say 10%), saved $Z for your emergency fund (if not fully funded) and then spent every penny that you had. I would suggest this is living within one's means. It is neither living below your means (since I think some amount of retirement savings is a necessary expense) but isn't beyond one's means either. Let's say you earn $1,000,000 and have a fully funded emergency fund and you save $100,000 for your eventual retirement and spend the other $900,000 that seems to be living within one's means.
Now, let's say you earn that same $1,000,000, save $100,000 for retirement and then spend $400,000 that year and save/invest the rest. That person is living below their means.
To me living below your means fundamentally means living as if you earned less than what you actually earn.
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01-21-2011, 12:35 PM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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OK, I just read 24 posts in the thread and I cannot fathom why you would care to define any of this. Who the hell cares? Save your pennies and get out of the rat race. There is no immutable law lurking here.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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01-21-2011, 01:53 PM
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#28
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Recycles dryer sheets
Join Date: May 2010
Posts: 131
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I think the only indicator you need is your savings rate. If it's positive you're LBYM. Then the question becomes how far LBYM. It's moderately easy to show mathematically how to convert this savings rate into the number of years you need to work in order to become FI for the rest of your life.
Here's a link to one of my book reviews. It's a pretty good review, but just scroll down to the first graph.
Early Retirement Extreme Permaculture Research Institute of Australia
Here you can see how long you'd have to work given a real interest rate (nominal + inflation). A real interest rate of 3% is realistic, and somewhere between the red line and the green line in the graph.
So you can see the typical "early retiree" of this forum defined as someone who retires between the ages 40 and 55 and thus works 20-30 years would need a savings rate of 40-50%. The normal retiree would work 40-45 years and thus needs a savings rate of 10-20%. Lower savings rates under 10% would mean working all your life. You can also see how extremely high savings rates, i.e. above 75% would allow you to FIRE within a decade(!) This either means putting your efforts into making a lot of money or putting your efforts into spending very little money or perhaps a combination of the two.
__________________
FI@30, ERE@33.
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01-21-2011, 01:55 PM
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#29
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Full time employment: Posting here.
Join Date: Dec 2010
Posts: 746
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01-21-2011, 02:38 PM
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#30
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,037
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I use a simple rule of thumb for LBYM...while w*rking, I made sure that
Net Income - (COL Expenses + TSP + Monthly DCA) = Money Saved
"Money Saved" made it possible to purchase large ticket items without financing any (pay cash), or worst case, no more than 25-50% of the cost of the item. Large ticket items (past) were a car, tag-along vacations, cruises, a new furnace, a new roof, remodeling the kitchen, etc.
Now that I am FIREd, I am in a completely different economy of scale as far as Net Income goes.
I still pay federal tax, of course. BUT...no more TSP, state income tax or the usual federal payroll deductions .
COL Expenses are what they are, a variable I cannot control completely.
I continue to save for my long term retirement, but this time I am using dividends from my muni bond fund to cover the monthly DCA.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
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01-21-2011, 03:05 PM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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Quote:
Originally Posted by jacob
Early Retirement Extreme Permaculture Research Institute of Australia
Here you can see how long you'd have to work given a real interest rate (nominal + inflation). A real interest rate of 3% is realistic, and somewhere between the red line and the green line in the graph.
So you can see the typical "early retiree" of this forum defined as someone who retires between the ages 40 and 55 and thus works 20-30 years would need a savings rate of 40-50%. The normal retiree would work 40-45 years and thus needs a savings rate of 10-20%. Lower savings rates under 10% would mean working all your life. You can also see how extremely high savings rates, i.e. above 75% would allow you to FIRE within a decade(!) This either means putting your efforts into making a lot of money or putting your efforts into spending very little money or perhaps a combination of the two.
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Your chart is similar to my rule of thumb when I was looking at state and local pensions. I said that a typical pension fund that allowed a person to retire at 55 with salary that 2-3% times the number of years worked needs a combined contribution (employee and employeer) in the neighborhood of 25-35% per year.
I think this rule of thumb also applies for folks in the private sector. You need to max out your 401K (12.5%) find an employer that contributes and additional 3-6%. Plus save at least 10% and preferably 20% in IRA and taxable accounts in a very tax efficient (e.g. index funds) manner. The other hidden benefit of LYBM in the accumulation phase if you are socking away 25%+ of your salary than collecting a retirement income in the 65-75% range of your base salary doesn't require a cut back in lifestyle.
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01-21-2011, 03:27 PM
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#32
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,983
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Establish your priorities and go from there. At the bare minimum max out the 401K/403b and Roth's while building the other accts you desire. Meanwhile live your life
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01-21-2011, 03:32 PM
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#33
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Full time employment: Posting here.
Join Date: Feb 2008
Posts: 748
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Quote:
Originally Posted by 52andout
Some of them still didn't get it and someone actually said "I can't believe you still drive that old thing."
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"That is why I am retired and not you "
Would have been my response.....
__________________
I don't want to spend my entire life at work. I deserve more. - Want2retire aka W2R
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01-21-2011, 03:47 PM
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#34
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Recycles dryer sheets
Join Date: Jul 2010
Posts: 255
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Here is the secret LBYM formula:
Or you can just do what works for you.
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01-21-2011, 04:00 PM
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#35
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Recycles dryer sheets
Join Date: May 2010
Posts: 131
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LOL! I actually used to work with the general relativistic version of this momentum equation. The continuity equation is more what you're looking for when considering LBYM: money in - money out = money saved.
__________________
FI@30, ERE@33.
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Quite a range of responses - let me clarify
01-21-2011, 04:12 PM
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#36
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Dryer sheet wannabe
Join Date: Dec 2010
Location: Boulder
Posts: 12
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Quite a range of responses - let me clarify
People seem to have taken my original post in a number of distinctly different ways.
First, there are those who interpreted my post as a need for an estimate of how much I need--such as the posts suggesting that I try ES Planner or other calculations. While this is interesting, this is not what I am looking for in bring this up. These tools (including FIREcalc, FinancialEngines, and a range of others) are great--I developed one of the commercially available tools--but not my purpose.
Second, there are those who interpreted this as a request for advice. Clearly I did not provide enough information for that.
Many of you have read The Millionaire Next Door and will understand that one of the powerful things about the book is that it creates metrics that can help people figure out where they are and how other people achieve a specific goal. I am, by nature, analytical (I AM a member of Bogleheads forum--good call). I am interested in this stuff. I have previously written a book that focuses on the use of quantitative tools for long-term planning (I will not mention the name because I don't want to appear to be promoting a product here).
There are many ways to get to a state of financial security and I am interested in the common themes. We can surely just declare that we all need to live below our means and we can use estimates from some of the better calculators to figure out how to get there, but it is valuable and interesting to see how people *really* do this. Obviously more saving is better, but I don't think that most of the people here are the kind of folks who budget their toothpaste consumption. A lot of people here apparently own second homes.
I see the age-related issue. The younger you are, the less you probably save as a % of income. There is also the income level issue. Several of you have suggested that it is much harder to save 20% of your income if you are making $40K vs. $150K. Probably true--makes sense. Its hierarchy of needs. First you need to cover food, shelter, healthcare--then you can save.
If there are no generalities, so be it. If there are generalities (think Millionaire Next Door), this would be inspirational and potentially very helpful to a lot of people. We get our ideas from what we observe. That book helped many people to reconsider their choices.
Regards,
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01-21-2011, 04:17 PM
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#37
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,391
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Quote:
Originally Posted by SunsetSail
Here is the secret LBYM formula:
Or you can just do what works for you.
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That would be the simplified version that applies only due to the assumption of spherical chickens.
The actual full-field LBYM equation(s) are listed below:
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01-21-2011, 04:24 PM
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#38
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Dryer sheet wannabe
Join Date: Dec 2010
Location: Boulder
Posts: 12
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Specifically to Jacob...
I just checked out your blog. My guess is that you are are the far fringes of the FIRE socioeconomic choices. All well and good--someone has to be the extreme and its interesting to see how you do it. Most people who want to be FIRE do not want to live on $5000-$7000 per year (I think) and limit themseves to $300/month on housing. Perhaps I am wrong
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01-21-2011, 04:25 PM
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#39
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Recycles dryer sheets
Join Date: Jul 2010
Posts: 255
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Quote:
Originally Posted by MasterBlaster
...the assumption of spherical chickens.
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I find your lack of faith in spherical chickens disturbing.
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01-21-2011, 04:26 PM
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#40
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,037
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__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
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