Scott Burns and the Life of Riley index

[nfs]

Riley's life out of reach (registration required)

 

[dory36]

Well, one part demands to be quoted. Scott discussed a common problem we in the ER have:

At a party, when someone asks, "What do you do?"

You answer: "In the event of what?"

Dory36

 

[unclemick]

Reminds me of the 'watching both ends of stick' type posts to this forum - ie the $50/day and SWR.

BTY - I was a regular reader of Scott Burns when he wrote it originally - may have been in the back of my mind when Dory's 33% That's My Story - prompted me to join.

The part that hit my retro mind was long downtrend in yield from 1980 and the leverage effects on portfolio size.

I remember the myth of the Norwegian widow of Finn Hill road waiting for her dividend checks by the mailbox circa 1948 - back when stocks paid more than bonds. Still have the bulk of my 'hobby' stocks in utilities, oils, banks, telephone and one REIT(dividends baby, dividends).

 

[ordway]

Burns' comments about the increasing cost of the "life of Riley" reminded me of something I've observed about people's ideas of "normal expenses" in general. At another web forum that I participate in (Simple Living Discussion Forum) a common "newbie" post is something along the lines of "I'm in debt, help me cut my expenses and find a way to save more." Often, the poster has already "cut expenses to the bone" as far as they are concerned, and need fresh ideas. It's amazing how many purely discretionary expenses are assumed as "necessary".

It seems like *everyone* has a cell phone plan (in addition to their regular land line, of course). Now, ten years ago (heck, probably even five years ago), having a cell phone was a fancy thing, and certainly not something you'd be paying for if you had trouble making ends meet... yet now people seem to view it as a "must have".

That's one of the nastiest things about being in a consumerist society... everyone kind of eggs everyone else on. If everyone around you has a cell phone, then it becomes a necessity. If everyone else has two cars, then two cars is the norm and having only one is deprivation. (Even if the two-car person has two car loans, and the one-car person paid in cash...)

No wonder it's hard for people to save money, when there keep being more and more "necessities" to pay for. It's not that I think we should all try to live according to what was available X years ago - I enjoy my widescreen TV, thanks! But Average Joe Consumer doesn't really think about whether or not he really *needs* a cell phone (or a big TV, or a "fancy" car, or the next new whatchamacallit), or whether it will bring enough usefulness or enjoyment into his life to merit the cost - it's just one more must-have.

 

[unclemick]

Burns also wrote a column a while back about what the rest of the world (ind. countries) owned vs the American 'middle class'.

My only consisent defense in the accumulation phase was to auto deduct to the max every tax deferred option available - my 'frugal' would crack every so often and I morphed into 'Joe Consumer' until I got a grip.

 

[wabmester]

That's one of the nastiest things about being in a consumerist society... everyone kind of eggs everyone else on.

I don't think it's peer pressure. It's a cost/benefit decision everybody makes.

Could I live without a cell phone? Sure. Without any telephone? Sure. Could I raise my own cows and butcher them myself? Sure. But I don't make any of these sacrifices because these things are so convenient and so cheap!

Unfortunately, it's hard to know where to draw the line. These days whenever I'm thinking of making a discretionary purchase, I have to do a quick calculation that tells me how much capital I'd need to invest and for how long to pay me back (I used to do the same calculation in terms of hours worked). *Sometimes* that makes it a little easier for me to walk away....

 

[ordway]

I don't think it's peer pressure. It's a cost/benefit decision everybody makes.

The trouble is, I think a lot of people don't *make* that cost/benefit calculation at all.

To keep using the cell phone example, I can certainly see that it would be a worthwhile expense for some people. What boggles me is that someone might be actively trying to get out of debt, and *not consider* that their $75/month cell phone plan is *not* a necessity.

I don't think it's peer pressure, exactly. I do think that many (most?) people don't think first "What do **I** need and want?" They look around to other people (and to the media) for their baseline of "what is a normal lifestyle? what are normal possessions?" and try to live up to that. When income and expenses don't match up, they find themselves wondering what they are doing wrong when "everyone else" has all those toys. (Without considering, of course, that "everyone else" may very well be in debt, or not saving any money. Or that while Person A has a cell phone and Person B has premium cable, it doesn't mean that it's "normal" to have both a cell phone and premium cable.)

I've found that just asking "is this worth the money? would I rather spend this money on something else instead?" sets a person apart from the people who only ask "do I have the money to pay for this?" (*) even if they end up making many of the same purchases.

*) Then there are the people who don't even ask that question... it may be my Yankee thrift, but I have never understood why otherwise intelligent people would buy consumer goods on credit. If you don't have the money to pay for it now, don't buy it. Period. But then again, I often feel I'm from a different planet than most people...

Of course, this is all off-the-cuff hypothesizing, but I do keep seeing the same things over and over, and I have to wonder why.

 

[sgeeeee]

Choosing to ER requires some immediate financial sacrifice in order to achieve some long term benefit. This makes most ER's a little bit self-riteous. I find this tendancy in myself as well as many (maybe most) posters on these boards. But I am trying to get over that tendancy to judge the working masses.

For items like cable or cell phones, I do the math and make my decision. In Holly's example above, the $75/month cell phone bill translates into $900/year. Using the 4% rule, that translates into a nest egg requirement of $22,500 today. For me that's not worth it. I've decided the same thing about a lot of other items that many people consider necessary. But I also own a large 4 wheel drive pick-up and an SUV. My passion is doing archaeology work in remote areas in the southwest. Many people find my auto choices obscene and a waste of my money. I make my decisions. They are based on some analysis of the cost and some consideration of the pleasure they bring me. Depending on the item, the weighting can be very heavily weighted toward my pleasure. I guess I have to let the bankrupt family of 7 next door do their own weighting too. They have 2 cell phones.

 

[wabmester]

Ooh, I wonder if I can license this technology to amazon.com....

You have one item in your shopping cart: cell phone.
Present cost: $100 + $75/mo.
Future cost over 30 years: $111,118 [1]
Nest-egg equivalent: $22,600
Number of additional hours you need to work: priceless

[1] opportunity cost at 8%/year

 

[haha]

To keep using the cell phone example, I can certainly see that it would be a worthwhile expense for some people. What boggles me is that someone might be actively trying to get out of debt, and *not consider* that their $75/month cell phone plan is *not* a necessity.

A few years ago my kids gave me a years worth of cell phone. If I had a business need, I would definitely have kept it, but retired I felt it was a convenience, but not a necessity. It sometimes annoys people when I am going to meet them, as they have to show up more or less on time-- they can't call me and keep me posted as they inch through traffic. And I would do it just for that, to make my friends and family more comfortable, if it were cheaper than it is.

Before I get a cell phone, I am getting my Echo-Star back. Especially for the NCAA basketball tounement! But I can't afford that now, so definitely no cellphone.

Beyond food etc, my money gets spent on CDs and nightlife. I am as cheap as I can be about this, and I have found lots of "no cover" great spots. But still, you can only cut so much before you are out of the loop.

Mikey

 

[Whakamole]

Burns' comments about the increasing cost of the "life of Riley" reminded me of something I've observed about people's ideas of "normal expenses" in general. At another web forum that I participate in (Simple Living Discussion Forum) a common "newbie" post is something along the lines of "I'm in debt, help me cut my expenses and find a way to save more." Often, the poster has already "cut expenses to the bone" as far as they are concerned, and need fresh ideas. It's amazing how many purely discretionary expenses are assumed as "necessary".

I've been noticing the same thing on another discussion board, FatWallet. People lock themselves into thinking that not just the cell phone, but broadband, and three cars, and... (etc.) are necessities.

I had a cellphone once years ago... a big analog one. I had a year contract on it, used it a few times, and let the service drop when I was done. Frankly I don't want to be always reachable

 

[renferme]

cell phones = waste of money

 

[John Galt]

The discussion re. cellphones, 3 cars. etc is timely.

Most regulars know I have cut back pretty far, although
I have my limits, and my sense of style prevents some
economies. For example, we have 2 vehicles
(not counting the motorcycle). One is 13 years old with
200,000 miles and the other 7 years old with 130,000
miles. However, I keep them in good shape. I could
not drive around in a "rustbucket", nor would I allow my
wife to. I did sign on for a cellphone recently due to a
lot of traveling and purchase of a second home. Bought
the "basic" service for $19.95 a month with a free phone. I have already considered upgrading when I got
close to using up my allowed minutes. Decided I can get
along with what I have with minor inconvenience
(make most calls on weekends, don't give your number
out to everyone and use prepaid phone cards whenever
possible). Very glad I thought this through. I am glad
I got the phone and also glad I avoided the upgrade,
which, as you all know, is what the cell company is counting on happening.

John Galt

 

[frugal]

I think cell phones are a necessity if you spend a lot of time traveling. When I was working a job that required a lot of travel a cell phone was very useful when directions were unclear and good for peace of mind when traveling in undesirable sections of a city. Anyways currently have a prepaid cellphone which included a phone and 200 minutes the cost works out to $9 a month. Everything is a matter of priorities I have met people who have told me they can't afford to buy food and yet have premium cable. Also it is amazing the number of people who do not shop around for the best deal.

 

[cute fuzzy bunny]

I got rid of my cell phone last summer. Have had one almost since they were commercially available. My first one was installed back in the early to mid 80's and cost a couple of grand...was a big box in the trunk wired to the handset type.

Most recently I had it as my only phone, no land line, and a cable modem. "Very 21st century and you're my hero!" a high tech friend proclaimed. I did shop around for a deal; the big name companies kill you if you use a lot of minutes. I found a local company that offered unlimited minutes 24x7 for $33 a month, including local long distance to most of northern california. I averaged about 2000 minutes a month, so my per minute cost was pretty darn good.

I moved to a well populated area that has payphones on every block, that and a 2.9c a minute calling card for emergencies and quick questions does the trick for me now at a good cost savings!

 

[BunsGettingFirm]

Holly raised cellphone as an example, only an example. I don't think we need to fixate on cellphones, as many have indicated reasonable cellphone plans can be had from $9 to $35 a month.

As for Scott Burns, he is the sanest, most unbiased investment columnist I have ever read, but even he needs to make a living, so his articles have to be taken as a series. Sometimes, he would write something slightly unconventional just so that he can get reactions from the readers and write about their reactions two weeks later.

Take his Life of Riley Index articles. Each year he would update it, and it each year, the amount it takes to lead the Life of Riley would increase, but then, he would follow up that article with one in which he interviews real-life ERs, and they would invariably say that retirement is cheaper than they thought it would be.

 

[John Galt]

Hello Bunsofveal................Agree totally. Scott Burns
is my man also.

John Galt

 

[unclemick]

Burns,Bogle,Buffett,Bernstein? I seem to have a run going.

 

[unclemick]

In salute to Riley, Scott Burns, and possibly John Galt, a look at the 'short end of the stick' at age 62 with early SS:

24% - pension (fixed)
33% - SWR (3% of IRA)
13% - stock dividends(DRIPS)
30% - early SS
____
100% retirement income

 

[ed_teach]

If all you are going to use a cell phone for is emergancys, your old phons will always access 911, when I go on vacation and my wife keeps the cell in service and I am travling with out her, I take one of the old phones and charge it up and if needed I can call 911 for car breakdown or other needed services.

 

[unclemick]

Riley in ER - rerun the numbers another way:

52% - core budget(basic living expenses).
48%-lagniappe(travel,hobbies, entertainment, fun)

Aggressive dryer sheet recyling might get us to 50/50 - the barbell strategy of ER.

 

[cute fuzzy bunny]

Absolutely.

 

[unclemick]

Lagniappe spelled several ways means 'a little something extra' and used all over town. Mark Twain described it as - when shopkeepers in New Orleans gave regular customers something extra after they made their original purchase.

Like cell phones and dryer sheets, a lobster dinner - heh,heh - could go either way. ?Did you think about ER while eating - doing legitimate research about cost of living in a retirement spot -then bill yourself an ER management fee. Of course if were just having fun - well!!

Being none travel 'nester' types of late - when the parade of friends and relatives comes thru and we 'put on the dog' separation into basic and fun gets fuzzy. Being an ex engineer, Theorizing basic/entertainment columns is fun too. I remember unloading the old econobox and buying a new truck - she said quit #^* thinking and go buy what you want.

Separating core budget/fun is tough but somebody has to do it.

 

[cute fuzzy bunny]

When I worked in downtown boston you could buy them at Hooks for two bucks a pound when the prices were really low.

We actually get them here in podunk california. Several of the supermarkets carry a small tank of 1.25 to 2.5 pounders. Those 2.5's are just starting to get into my size range.

The first day of my sabbatical (the REAL one the company gave me a year before I ER'ed) I almost finished a four pounder before I was about ready to pop. They made a mistake sending me on that sabbatical...I was *certain* I wouldn't be able to "do nothing" until they did that. I had no trouble whatsoever and never really got my head back into the job until I left.

Lobsters, and in fact anything else I want are in the "basic necessity" bucket. Everything else that I dont want or need I put in the Langiappe bucket. My budget works out very simply when applied in this manner. And I feel really good that I never spend a dollar on anything that isnt a basic necessity...

 

[charlie]

I ate a lobster once and decided it was too much
work. I was hungrier when I finished than when I started. Give me a medium rare sirloin please.

In Texas some people are partial to crawdads. Have
you ever sucked on a mess of crawdad heads?

Cheers,

Charlie