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Author: BirthdaySuit Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19380  
Subject: Early Retirement Date: 10/23/2000 11:43 AM
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I'm 43, and I'm tired of work. I have $1M+ in stocks, totally debt free. I want to quit work and coach soccer someplace. Should I go for it?
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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5375 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 11:47 AM
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Should I go for it?

Can you live on $40,000 (before taxes) a year, with a yearly increase for inflation? If the answer is yes, then you probably can retire. You might want to check out the Retire Early Home Page, which is one of the other Boards available via the Fool. Good luck.

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Author: jtmitch Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5376 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 11:51 AM
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I'm 43, and I'm tired of work. I have $1M+ in stocks, totally debt free. I want to quit work and coach soccer someplace.
Should I go for it?


Only you can decide. The real question is how much income do you need? According to the conventional wisdom of retire early types, your nest egg should generate a safe $40K per year. If you can live on that you're home free. If you can't, how much can you make as a soccer coach? Add that to $40K and figure out if you can live on that.

The Retire Early message board at TMF has thousands of posts dealing with different aspects of ER:

http://boards.fool.com/Messages.asp?mid=13542439&bid=112992

The Retire Early Home Page has lots of great info including very detailed calculators to help you "run the numbers":

http://home.earthlink.net/~intercst/reindex.html

Good luck/jtmitch

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Author: ingers One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5380 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 2:45 PM
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Be carefull with your $1 Mil. in stocks! You don't have it until you sell the equities. You could lose a lot if and when the market goes south.

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Author: jtmitch Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5381 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 3:58 PM
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Be carefull with your $1 Mil. in stocks! You don't have it until you sell the equities. You could lose a lot if and when the market goes south.

This is true. However, some of the Wisdom found on the previously referenced retire early links would include keeping 5 years of living expenses in cash/CDs/Bonds. Although a drop in the market could last longer than 5 years, it is prudent to expect that within 5 years the market would have returned to positive territory and one could return to the 4% withdrwal rate without devastating consequences.

jtmitch

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Author: Geneinca Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5382 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 7:19 PM
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You wrote:
Be carefull with your $1 Mil. in stocks! You don't have it until you sell the equities. You could lose a lot if and when the market goes south.

...
Trust me, that's true. I retired with 1M++ on Friday. On Monday, my particular equites went South and I lost 500K in less than a week (on paper). Now I have to be frugal until it recovers (it is, but slowly). Don't count those chickens...

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5383 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 8:28 PM
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Geneinca wrote,

<<<<<You wrote:
Be carefull with your $1 Mil. in stocks! You don't have it until you sell the equities. You could lose a lot if and when the market goes south. >>>>>

...
Trust me, that's true. I retired with 1M++ on Friday. On Monday, my particular equites went South and I lost 500K in less than a week (on paper). Now I have to be frugal until it recovers (it is, but slowly). Don't count those chickens...


It sounds like you have no where near the diversification of an S&P500 index fund.

The 4% withdrawal rate often mentioned on the Retire Early board is based on a portfolio of 76% stock (S&P500 index fund) and 24% fixed income securities. Replace the S&P500 index fund with the Foolish Four and the safe withdrawal rate drops to about 3%. Holding something like the Rule Breaker portfolio instead out the S&P500 drops the "safe" withdrawal rate down to about 1.2% of assets. See link:

http://www.geocities.com/WallStreet/8257/concport.html

It's OK to hold a concentrated portfolio in retirement, just make sure your withdrawal rate is low enough so that it's "survivable".

intercst

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Author: rjm1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5387 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 9:29 PM
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Trust me, that's true. I retired with 1M++ on Friday. On Monday, my particular equites went South and I lost 500K in
less than a week (on paper). Now I have to be frugal until it recovers (it is, but slowly). Don't count those chickens...


A down market does wake one up. I notice that I do not see the 20%+ a year projections any more.

This is a good time for those approaching retirement to reevaluate the fixed income ladder for 3 to 5 years living expenses.

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Author: galeno Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5390 of 19380
Subject: Re: Early Retirement Date: 10/23/2000 9:57 PM
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ingers wrote:
Be carefull with your $1 Mil. in stocks! You don't have it until you sell the equities. You could lose a lot if and when the market goes south.

A very foolish reply indeed (small "f" here). Should you go for it? Should I say YES or F**K YES?!?!

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5393 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 7:19 AM
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Intercst writes:

<<Replace the S&P500 index fund with the Foolish Four and the safe withdrawal rate drops to about 3%. Holding something like the Rule Breaker portfolio instead out the S&P500 drops the "safe" withdrawal rate down to about 1.2% of assets. See link:

http://www.geocities.com/WallStreet/8257/concport.html>>


Sorry, but your study is flawed as it pertains to the Foolish Four. By your own admission, you failed to take into account the annual trades. Using the same methodology taking into account those trades, it's actually a 6% inflation-adjusted withdrawal using a 75% FF holding. The correct figures are in my analysis "Foolish Payouts" at http://www.fool.com/retirement/manageretirement/manageretirement8.htm .

That said, I'll also say that there is absolutely no guarantee such a payout will persist into the future. That, of course, depends on a number of factors, not the least of which is the year one starts. Pick a bad year as I did last year, and it could prove disasterous. As an example, see the Racy and Reasonable Ports. The former will make an excellent teaching point, while the latter may be iffy. Only time will tell.

Regards..Pixy

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Author: Geneinca Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5395 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 10:35 AM
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You wrote:
It sounds like you have no where near the diversification of an S&P500 index fund.

...

Absolutely true. I was in the process of rolling my 401K into my IRA, with a plan of diversifying into Bonds and more conservative investments. That wasn't completed yet (it takes a few weeks) when the market went south. Oh well, the best laid plans..
Gene

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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5396 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 11:48 AM
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<Trust me, that's true. I retired with 1M++ on Friday. On Monday, my particular equites went South and I lost 500K in less than a week (on paper). Now I have to be frugal until it recovers.>

<This is a good time for those approaching retirement to reevaluate the fixed income ladder for 3 to 5 years living expenses.>



I don't think enough emphasis is put on this point. One should have the diversified position done BEFORE the retirement date. If your 401k represents a large percentage of your worth, you should move some of the funds to a "stable value" fund prior to rolling it over. You can avoid this if you already have your cash/income position set up outside of your retirement accounts. My main point is that everything should be part of a well thought out plan. Waiting until you have retired to start this process is way too late and is very risky (as the poster found out the hard way).

Some people may choose to have a concentrated portfolio. That can juice up your returns or take you down quickly during a downturn. As intercst always points out your choices should correlate to your rate of withdrawal.

BRG

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5398 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 12:07 PM
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TMFPixy writes,

<<<<<<<Intercst writes:

<<Replace the S&P500 index fund with the Foolish Four and the safe withdrawal rate drops to about 3%. Holding something like the Rule Breaker portfolio instead out the S&P500 drops the "safe" withdrawal rate down to about 1.2% of assets. See link:

http://www.geocities.com/WallStreet/8257/concport.html>>

Sorry, but your study is flawed as it pertains to the Foolish Four. By your own admission, you failed to take into account the annual trades. Using the same methodology taking into account those trades, it's actually a 6% inflation-adjusted withdrawal using a 75% FF holding. The correct figures are in my analysis "Foolish Payouts" at http://www.fool.com/retirement/manageretirement/manageretirement8.htm .


Pixy,

I think we had this discussion over a year ago on the subject of a 6% withdrawal rate with the FF (or any other mix of investments.) I quote this from the first paragraph of your article "Foolish Payouts" at the link above:

"A Foolish portfolio may be constructed in all kinds of ways, but for the purposes of this article we'll be using data assembled on the Foolish Four stocks covering the period 1961 through 1998.

My study (The Retire Early Study on Safe Withdrawal Rates) covered the years 1871-2000 (130 years of data) and determined that the worst 30-year pay out period for a 74% stock (S&P500 index fund)/26% fixed income portfolio was 1929-1959. Until someone collects the data on the Foolish Four over that same 30-year period encompassing the "Crash of 1929" and the Great Depression, it's hard to make a claim as to what the "safe" withdrawal rate is on the Foolish Four.

Certainly the experience in Japan over the past 10 years shows the folly of ignoring "worst case" scenarios in making your retirement plans. While the Japanese experience didn't quite reach "Crash of 1929" proportions, it came close. And it's not over yet. The Nikki 225 is still trading some 60% below it's peak over 10 years later.

Perhaps the only thing we can agree on is that "lower is safer" when it comes to retirement withdrawals.

intercst

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5399 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 12:30 PM
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Intercst writes:

<<Perhaps the only thing we can agree on is that "lower is safer" when it comes to retirement withdrawals.>>

On that we definitely agree. I just disagree when you say, "Replace the S&P500 index fund with the Foolish Four and the safe withdrawal rate drops to about 3%."


Your study in no way proves that. In fact, it proves absolutely nothing about the Foolish Four. It only reflects what holding four Dow stocks that qualified as the Foolish Four in one particular year will do over time. Why you say in your writings it reflects a Foolish Four methodology when you fail to make annual trades escapes me. Unless you trade annually, it is NOT the Foolish Four, only four stocks, so presenting your data as representing the Foolish Four is simply not factual. You might just as well use a randomly selected four stocks from the S&P 500 and hold those for 5, 10, 15, 30, 40 year periods and call that a Foolish Four method. It makes as much sense.

It's true my data only covers the years back to 1961. That's as far back as it goes, and I point out that fact quite clearly in the study. Also note that it trounced the S&P over the same period, which rather nullifies your argument for those years.

But who knows what the future holds? Neither you nor I do. Therefore, I'll agree that a lower withdrawal rate is always safer. I'll also agree in advance that for many the Foolish Four may be particularly risky. I view it as a value strategy, and am comfortable with it. I understand fully what I am doing, and am satisfied with the risk I am taking. Others have to decide that for themselves.

Regards..Pixy


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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5400 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 12:42 PM
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Your study in no way proves that. In fact, it proves absolutely nothing about the Foolish Four. It only reflects what holding four Dow stocks that qualified as the Foolish Four in one particular year will do over time. Why you say in your writings it reflects a Foolish Four methodology when you fail to make annual trades escapes me.


Gee, it sure is nice to watch the big dogs go at it.:-) But more to the point, I wish we had more of this kind of debate between the folks who have different investment strategies, since open debate usually leads to greater knowledge and understanding.

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Author: PVCliff Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5403 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 3:48 PM
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ResNullis:

Your study in no way proves that. In fact, it proves absolutely nothing about the Foolish Four. It only reflects what holding four Dow stocks that qualified as the Foolish Four in one particular year will do over time. Why you say in your writings it reflects a Foolish Four methodology when you fail to make annual trades escapes me.

Gee, it sure is nice to watch the big dogs go at it.:-) But more to the point, I wish we had more of this kind of debate between the folks who have different investment strategies, since open debate usually leads to greater knowledge and understanding.


You might enjoy the Foolish Four board if you like "debate between the folks who have different investment strategies." The Foolish Four has been all but slaughtered. The post-mortum goes on.

Pixy and Elan seem to be fighting a rear-guard action. One suspects that pride of authouship clouds their judgement.

NO ONE SHOULD INVEST $1 IN THE FOOLISH FOUR WITHOUT REVIEWING THE FAQ ON THE FOOLISH FOUR DISCUSSION BOARD.
Failure to do so may result in the sorts of questions which get asked almost every week to the effect of "What happened? Where is my 20% return?"

just my 2¢
PVcliff

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5404 of 19380
Subject: Re: Early Retirement Date: 10/24/2000 4:40 PM
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PVcliff writes:

<<Pixy and Elan seem to be fighting a rear-guard action. One suspects that pride of authouship clouds their judgement



NO ONE SHOULD INVEST $1 IN THE FOOLISH FOUR WITHOUT REVIEWING THE FAQ ON THE FOOLISH FOUR DISCUSSION BOARD. Failure to do so may result in the sorts of questions which get asked almost every week to the effect of "What happened? Where is my 20% return?".>>


I thoroughly agree.

I fight no rear guard action. Instead, I invest for me -- not you or anyone else. I said at the outset nearly one year ago that until I had given the ports a fair test (not one month as the argument was then, but at least until the first anniversary which has yet to occur), it was too early to change the methodology for MY (note -- that doesn't mean YOUR) money. I also said anyone who elected to emulate any of the three ports did so at their own risk and should not so invest until they understood what they were doing. My stance hasn't changed any in that regard.

As I told another critic a few days ago, the anniversary of the ports is coming up in another month and a half. I will decide then what to do with my money, and not before. When I do, I will have no qualms about announcing my decision(s) to the world.

Regards..Pixy

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Author: mschorer One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5411 of 19380
Subject: Re: Early Retirement Date: 10/25/2000 6:19 PM
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Intercst, if you are the author of "Withdrawal rates..." off the Retire Early Home Page, I have a couple of foolish questions for you:

1. A link off your page discusses the 25% equity as being better off in individual stocks over mutual funds because of the management fees in funds and because one can control cap gains when holding individual stocks. Is this your opinion? Or was someone else the author of that link? In this thread, you seem to be talking about the S&P500 (presumably an index fund) instead of individual stocks.
2. Can you address the new EFTs? Could the 25% be in EFTs? How can we fools assess the $ gone to "managing" these baskets of stocks? It would seem they offer the same control over cap gains as individual stocks.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5412 of 19380
Subject: Re: Early Retirement Date: 10/25/2000 6:44 PM
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mschorer asks,

Intercst, if you are the author of "Withdrawal rates..." off the Retire Early Home Page, I have a couple of foolish questions for you:

1. A link off your page discusses the 25% equity as being better off in individual stocks over mutual funds because of the management fees in funds and because one can control cap gains when holding individual stocks. Is this your opinion? Or was someone else the author of that link? In this thread, you seem to be talking about the S&P500 (presumably an index fund) instead of individual stocks.



It's my opinion that if you have a minimum of a $100,000 portfolio, selecting 20 or so stocks bought through a discount broker can save you some money in fees and commissions vs. an S&P500 index fund with little additional risk. The savings are even more with a $1 million portfolio. Of course this strategy assumes that your stock selections meet or beat the performance of the S&P500 index. If you are not confident in your ability to do that, there is no shame in just buying an index fund. You'll likely do better than 80% to 90% of professional investors, and I suspect you'll do better than an equal number of amateurs.

The Retire Early Study on Safe Withdrawal Rates is based on holding an S&P500 index fund as your stock portfolio. The Soapbox report linked at the bottom of this page explains how to adjust your withdrawal rate downward if you are holding a more concentrated portfolio than an S&P500 index fund.

2. Can you address the new EFTs? Could the 25% be in EFTs? How can we fools assess the $ gone to "managing" these baskets of stocks? It would seem they offer the same control over cap gains as individual stocks.

ETFs don't offer the same ability of "matching the sale of your winners and losers" to reduce capital gains taxes. There may be a small reduction in the annual expense ratio vs. the Vanguard S&P500 index fund, but you incur a brokerage fee and the "bid-asked" spread in buying shares of an ETF. Small accounts will probably find a "plain vanilla" Vanguard S&P500 index fund to be cheaper and less hassle.

intercst



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Author: vwccjws Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5414 of 19380
Subject: Re: Early Retirement Date: 10/25/2000 9:02 PM
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I have been thinking and planning for retirement since I was 27. I am now 55. We have close to the magic 1MM but need a couple of more years. What you really need to look at is what you have after capital gains. I am slowly liquidating stock, paying the capital gains out of income I am generating now. Investing in bonds with a target goal average of 7.5%.

My goal is 60% bonds producing 40K in income, 10% cash (enough to last 3 years in a bear market) and 30% in stock. Social Security will be whatever it is.

I would also recommend playing the max 2K in a Roth every year. Invest it in a growth instrument, don't touch it. Time is your friend on that one. Tax free income. A true gift from the feds. Use it later in life when you may not have the option of going back to work.

If your marginal tax rate when you retire is 33% or greater then you should consider muni bonds - double tax emempt.

The above in not based on experience but 28 years of thinking and reading about it.

my 0.02 worth

Good Luck



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