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Author: Rhodnius Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5076  
Subject: FIRE entirely on salary Date: 1/4/2007 11:50 AM
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Something that I'm pondering...

The various financial media report every now and then on self-made millionaires. Always present, of course, are disciplined saving, LBYM by driving old cars, that sort of thing. But dig deeper, and there always seems to be some elephants in the room. Usually there's real estate involved, maybe a half-million gain in a hot housing market, or the family owns "a couple rental properties on the side" that actually bring in as much income as their salary. Or the couple owns a business that's grown to a dozen franchised locations. Or there was a blowout stock investment like $1000 in Microsoft that grew to millions.

Now, I see none of that in my own future. I'm single, and my housing needs are small enough that it doesn't even make sense to own a house. Based on both lifestyle and finance, I'm perfectly happy renting, so I won't see huge real estate capital gains. Landlording doesn't interest me, and I don't have the entreprenurial drive to start my own business. I'm a salaryman, and looking to reach FIRE based on that alone, without any sudden windfalls or explosive investment growth.

So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings? Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

Interested to hear any thoughts...

- Erik
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Author: fleg9bo 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: 3935 of 5076
Subject: Re: FIRE entirely on salary Date: 1/4/2007 12:04 PM
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Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

There are a number of regulars on the following board who have done that or are in the process of doing it:

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

The majority of posts there are not FIRE-related anymore, as we discussed those topics to death years ago. But if you ask this question you will get answers.

--fleg

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Author: 4inthefamily Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3936 of 5076
Subject: Re: FIRE entirely on salary Date: 1/4/2007 12:13 PM
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So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings? Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

I believe it can be. Not only do we hope to FIRE, but we are doing it with three kids and on one salary. We do own a house, but our current home is in Kentucky and the home before that was in Ohio and trust me, we have not seen much in the way of appreciation. This is the first year that we have managed to max out DH's 401(k) and both of our Roth IRAs - but hopefully not the last. DH does make a good salary for our area, but it is nothing special and would be unlivable in many big cities. I am 31 years old - turning 32 this year and we are well above six figures in our retirement savings alone (not counting six months savings in our MM fund and home equity) - though we have never had a return that was significantly better than the market and didn't even start saving until DH was 26.

According to my conservative spreadsheets, we should be FIRE between 55 and 60. These spreadsheets never have more than one income considered and only count on an 8% long term return. They only consider money put away in Roth IRAs and 401(k).

So, I think it can be done, if you start early and invest consistently.

-4

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Author: decath Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3937 of 5076
Subject: Re: FIRE entirely on salary Date: 1/4/2007 12:52 PM
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Rhodnius

So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings? Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

Great question!

I do have a home, but I don't include that in my FIRE calcs as income producing. What my home will provide me when I FIRE in 7-9 years, is a rent free place to live where I will be able to produce most of my own food and fire wood as I plan on living on 5 to 10 acres in a very rural location.

I expect to FIRE at the age of 53. That is after raising 3 kids with a SAHW most of my marriage. I've made a decent middle-class income over the past 25 years as a software developer. My FIRE investments accumulated via LBYM and socking away anywhere from 20-40% of income per year.

My wife just started working full-time last fall. With her additional income as she makes more and more money as she moves up the ladder will hopefully allow us to invest 50% or more of our income in stocks and stock funds.

decath

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Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3938 of 5076
Subject: Re: FIRE entirely on salary Date: 1/4/2007 1:37 PM
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I agree that when you read the "summaries of success" presented on CNNFN they often include a little aside. One funny one I read recently talked about how he had scrimped and saved over his lifetime and managed to pull together a half a million dollars. Oh yeah, he inherited a million more on top of that. Now he was retiring.

But I suspect most of us here are trying to retire on our own dime. I am hoping to be financially independent in 6-7 years without any windfalls.. that doesn't mean I'll quit, but that I could seriously think about it. My wife doesn't really have any interest in this (she works part time at a job she loves). This is a bit frustrating, because I put together spreadsheets, talk about investments, and she shrugs. But also, I may be unemployable in that time since I am in tech. so it is a double goal- financial independence because I am no longer income solvent (although would switch to teaching probably)

To reach this goal I need some decent returns (8% returns) and the reality is I am having difficulty "letting go of cash" and investing it. (more money is in cash than is rational) Why I don't know. We are ahead of schedule according to my spreadsheets by about a year so I tell myself its okay to be slightly conservative.

I count my house as an asset in some calculations, and not as one in others. It will be a rent free place to live, as another wrote, so once paid off it will no longer be a cash drain. Also, it can be tapped in an emergency to gain money (such as in old age with a reverse mortgage)

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3941 of 5076
Subject: Re: FIRE entirely on salary Date: 1/4/2007 3:29 PM
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I'm planning on doing it on salary and savings only (13 year timeframe from now to FIRE and have house paid off). I am self-employed at the moment though, and that is helping boost my income.

I think the biggest danger is assuming you can't do it. If you start now, even if you can't fully realize it - you can (at a minimum) severely scale back your work plans/schedule in later years. You could work PT at something fun, instead of having to work at your current job. If you assume it's not possible there could be a huge problem for you down the road.

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Author: decath Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3947 of 5076
Subject: Re: FIRE entirely on salary Date: 1/5/2007 8:48 AM
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Gingko100:
I think the biggest danger is assuming you can't do it. If you start now, even if you can't fully realize it - you can (at a minimum) severely scale back your work plans/schedule in later years. You could work PT at something fun, instead of having to work at your current job. If you assume it's not possible there could be a huge problem for you down the road.

I agree! I've had to make several adjustments to my FIRE date since the late 1990's when I 1st started putting my plans together. I had originally planned for a FIRE age of 48. Then we had the tech wreck that severely effected my investments and my income potential. Then DW decided to be a SAHW and home school 5 years longer than we originally planned.

But even though I had to move my FIRE age up 5 years, I still plugged along with large FIRE contributions. Even if I don't make my current projected age of 53, I can at least slow way down, work part time, consult etc.. if I chose to do so.

decath



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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3948 of 5076
Subject: Re: FIRE entirely on salary Date: 1/5/2007 9:16 AM
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Hey, decath - we are on the same schedule. I want to retire at 54, maybe sooner if I am more aggressive, but definitely before 60. 60 is the far range of my target.

The biggest challenge is paying off the house by 54.

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Author: decath Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3949 of 5076
Subject: Re: FIRE entirely on salary Date: 1/5/2007 11:42 AM
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The biggest challenge is paying off the house by 54.
Gingko100

That is a challenge. We will not have ours paid off but we will be relatively close.

We plan on downsizing anyway at FIRE time so we will probably have equity to spare when we sell our current home.

decath

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Author: Rhodnius Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3950 of 5076
Subject: Re: FIRE entirely on salary Date: 1/5/2007 4:04 PM
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I think the biggest danger is assuming you can't do it.

Thanks to everyone for the thoughts. I'm certainly assuming I can do it -- the numbers work out and I'm saving over a third of my gross income. It's encouraging to hear the other success stores, especially decath's.

Maybe I should also say that I'm hoping the E in FIRE can mean age 40 rather than 48 or 60. Sure would be nice to have a windfall or blowout investment to jump that date up by a few. But I guess that would be just a matter of degree, not in whether or not FIRE actually happens.

- Erik

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Author: SuaSponteMark Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3951 of 5076
Subject: Re: FIRE entirely on salary Date: 1/5/2007 4:13 PM
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Absolutely. My wife and I are relatively high earners but live in a house with a three figure mortgage, and live inexpensively, and have done IRAs, TSP (government 401k equivalent), SEP, and taxable accounts for about 7 years. I think I'll unplug in another 9 with my military pension.

I too don't expect to hit a Dell like Intercst or a big real estate deal. Just living lean and saving a lot.

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Author: mazske Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3952 of 5076
Subject: Re: FIRE entirely on salary Date: 1/5/2007 10:29 PM
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I plan to FIRE at age 50. The most money I have ever made in one year so far is about $39,000. The most my wife has ever made is around $14,000 in a year.

I have two kids.

I am buying my home.

I spent about 10 years in the Navy as an enlisted person and am currently in the Reserves. I can retire soon, but won't receive any pension until age 60.

I am a police officer. I have done this for about 9 years. I plan to retire early from this job when I have 20 years in.

I have saved something since my 20's. Never a lot, but through the years, it's gone up, sometimes down, but slowly, ever so slowly, it grows.

My house will be paid off the year I plan to retire.

Since health insurance is the curveball that I don't want to knock me out, there probably is a good chance I'll work after age 50 in some capacity.

I've written my first book, due to come out this year. It's a novel. I may not make much off of this, but then again, maybe I will. It's the first book of hopefully many more. Maybe I'll write FT when I'm age 50. We'll see.

I'm also the president of a Foundation that I'm the co-founder of. I'm trying to promote literacy to reduce crime and to improve society. Along with the Foundation, The Book 'Em Foundation, I have started several literacy programs that I'm working on spreading globally. I'm working on spreading my Book 'Em event globally as well.

Who knows, but maybe this Foundation will grow that by the time I'm planning to FIRE, I can start drawing a salary.

See www.bookemfoundation.org for a bit more on Book 'Em. I'm the webmaster, thus my "patience" message on the homepage. I'm just too busy and not a webmaster by trade, so I'm slow at updating the site.

Here's an example of how I'm promoting literacy.

On Thursday, I worked. During the day, I read in 3 classes. I read to two kindergarten classes and one 5th grade class. I read to them in uniform. In January, I'll probably read to about 40 classes, ranging from Pre-K to 5th grade.

Today, Friday, I went into 13 8th grade English classes and gave a talk in each one on making positive choices. I gave every student a copy of the book by Paul Langan, published by Townsend Press, called "The Bully".

Monday, I will go into every 9th grade English class at the local high school. I'll give a talk to the kids on abuse and give every student a free copy of the Townsend Press book "Surviving Abuse: Four True Stories".

By the end of this school year, the number of classes I've read to or have had other police officers read to will probably be around 500.

By the end of this school year, I will have handed out over 10,000 books.

I plan to grow both of these programs every year.

Good luck in everyone's quest to FIRE. As the FIRE Wannabee who started this board a few years back, I guess I can say that it's more important to positively impact others than it is to FIRE. So, keep plugging away, but along the road to FIRE, don't forget to stop and smell the roses and do offer a helping hand when you can.

mazske the FIRE Wannabee who hopes he can positively impact the world.



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Author: Primm69 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3954 of 5076
Subject: Re: FIRE entirely on salary Date: 1/6/2007 2:09 AM
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mazske the FIRE Wannabee who hopes he can positively impact the world.

I think you already have.

Primm

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Author: mazske Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3956 of 5076
Subject: Re: FIRE entirely on salary Date: 1/6/2007 9:14 AM
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I said,

mazske the FIRE Wannabee who hopes he can positively impact the world.

Primm so kindly replied saying,

I think you already have.

Primm


Thank you, Primm. However, what I did yesterday is already in the past, so I'm looking forward to going into the 9th grade classes come Monday morning.

When I look around me, I see children way back in Pre-K who may benefit from what I'm doing. As well, I see the kids I'm currently working with he may still benefit from my visits as time ticks on.

At this early stage of the game, I feel that if I quit my work, it would stop. The Book 'Em event would did out and my literacy programs would fade away.

However, the longer I do all of what I'm doing, and the more places that pick up on any facet of my work, the more the chances increase that the event and programs will survive.

That is my goal. I want to make the world a better place for my children.

Also, one last rambling thought. Look at it this way.

Currently, we have about 2 million prisoners in US prisons.

What if, over time, we could cut those numbers to 1 million due to 1 million more people getting their high school diplomas?

Out of those million who got their HS diplomas and who didn't go to prison, some would probably go on to do something great.

That greatness may be as simple as they will be around to be a parent to their children.

Or, maybe one of them will become a scientist who will invent something we all need. Or, maybe one will take over my work from me. The possibilities are endless.



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Author: nuyawkr Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3963 of 5076
Subject: Re: FIRE entirely on salary Date: 1/7/2007 11:24 AM
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I am 30 years old. My personal savings rate for 2006 was around 26%. Because of schooling I didn't start working until I was 24. This year, for various reasons, it will probably be close to 43%. (20% in my 401(k), the remainder split between Roth IRA and taxable investments.)

I live in NYC (one of the boroughs), so my income is probably greater than average, although that is partly offset by high living costs. For NYC, my income is certainly not high, and my employer is known in the industry for having lower salaries.

Last year I bought a 1 bedroom apartment in Queens, which if I don't move before then (I've decided I *really* want an apartment with a dining room for entertaining) will be paid off in 14 years.

I'm single, and that doesn't look to be changing any time soon. I would need to not be single to be able to afford an apartment with a dining room though.

My current projections show that I will be FI in about 10 years, but the plan was always to achieve FI after 20 years of working.

I don't have the resources to participate in NYC real estate investing, although I'm contemplating other markets once I've achieved FI. (I'm very familiar with Austin and Houston, for instance.)

Nuyawkr

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Author: chooey98 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3964 of 5076
Subject: Re: FIRE entirely on salary Date: 1/7/2007 12:58 PM
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I agree! I've had to make several adjustments to my FIRE date since the late 1990's when I 1st started putting my plans together.

Heck, I make adjustments every year. My Net Worth doesn't seem to grow as fast as I want it to. :-) Ah, well, according to FireCalc,(http://fireseeker.com/) if I retire this year, I can have a very barebones retirement with no wiggle room for error. I don't want that. The house will be paid off in two years. (YAY!) If I work two years after that, I'll have enough to retire more comfortably. So, right now, my target is 4 years at age 59. Perfect for withdrawing from IRAs with no early withdrawal hassles.

Now, if my job becomes unbearable in the next two years, or if they show me the door (for some reason), I could possibly work part-time and not have to withdraw from my retirement accounts until I'm ready.

At any rate, it's nice to have some options.

--Chooey

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Author: fleg9bo 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: 3965 of 5076
Subject: Re: FIRE entirely on salary Date: 1/7/2007 4:23 PM
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So, right now, my target is 4 years at age 59. Perfect for withdrawing from IRAs with no early withdrawal hassles.

Be sure to wait for 59 1/2.;)

DW hung it up in June at 57, almost 58. Good luck with your plans.

--fleg

P.S. I waved at you as we drove through Tacoma on Wednesday and Friday. Did you see me?

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Author: kaudrey Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3966 of 5076
Subject: Re: FIRE entirely on salary Date: 1/7/2007 8:05 PM
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Hi Erik,

I'm also single, and plan to FIRE at 52. I'm 37 now. At 52 I'll have 30 years in the feds, so I'll get full pension at 57. I use very conservative projections and probably could do it at 47 or so if I wanted to.

I own a townhouse in the DC area, and in my projections it is either paid off or I have sold it to move to a lower cost area.

I save about 30% of my income right now.

Karen

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Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3967 of 5076
Subject: Re: FIRE entirely on salary Date: 1/7/2007 11:53 PM
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I am 38 years old, and my net worth went up about 20% over the past year. We save around 30% of our income.. or more if you count aggressive payment on the house mortgage as savings.

I am thinking of financial independence as really trying out some other careers just for fun, possibly one of them being a financial advisor for a few years. At some point trying out teaching Kindergarten I think is in my plan too.

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Author: chooey98 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3969 of 5076
Subject: Re: FIRE entirely on salary Date: 1/8/2007 8:46 AM
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Be sure to wait for 59 1/2.;)


No worries. I got it covered.

P.S. I waved at you as we drove through Tacoma on Wednesday and Friday. Did you see me?


Sure. Did you see me wave back?

--Chooey

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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3970 of 5076
Subject: Re: FIRE entirely on salary Date: 1/9/2007 1:30 AM
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So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings?

I have made some money in real estate, but not enough to retire on, just a boost... And alot of the equity is due to buying a completely run down house and fixing it up and also paying down the loan. So alot of "sweat equity".

But the majority is on salary and savings. Just slogging away for almost 10 years now, socking away money. First 3-4 years were brutal with the crash of the markets, but for some reason I was able to brush off the losses and just keep putting money into the markets. Overall stock returns are possibly above average at 12-14% CAGR, but nothing outstanding. But who knows what will happen in the next 10 years...

--
whyohwhyoh



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Author: TourDeFarce Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3972 of 5076
Subject: Re: FIRE entirely on salary Date: 1/9/2007 7:13 PM
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We're headed in that direction with the caveat that aabout 15% of our total wealth comes from home equity.

TDeF

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3973 of 5076
Subject: Re: FIRE entirely on salary Date: 1/9/2007 8:24 PM
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We're headed in that direction with the caveat that aabout 15% of our total wealth comes from home equity.

TDeF

I don't really consider my equity when I think of retiring. I should, as I live in CA and have 40% equity in my house now. But I view it more as a potential liability. I want to stay here when I retire, and I don't want house payments when I retire. So I'm trying to pay it off...

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Author: ziggy29 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: 3974 of 5076
Subject: Re: FIRE entirely on salary Date: 1/10/2007 8:39 AM
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>> I want to stay here when I retire <<

See, that's the thing. For those who plan to stay in the ridiculously high-cost areas, it probably makes no sense to include equity in the calculations of "retirement savings." But if someone were moving from, say, Silicon Valley to Kansas, it probably would make sense to include at least some of their equity as potential "retirement assets."

#29

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3975 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 11:19 AM
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(I've decided I *really* want an apartment with a dining room for entertaining)

Why do you need a dining room to entertain?

I do a lot of entertaining (dinner for 10-12), and I noticed that we tend to just sit around the tables after the meal and talk. I could just set up the living room as a dining room and that would work.

My friend feeds people on TV trays when it's her turn.

Just some ideas. I can't see getting married to get a dining room. (My crowd gets married to raise kids.)
Vickifool

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Author: reallyalldone 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: 3976 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 2:19 PM
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So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings? Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

Sure. My husband can stop working whenever he wants and I basically stopped a couple of years ago. It was LBOM and starting the retirement savings young. No rental properties. I started working as a consultant when I stopped working as an employee but I only do the projects I want to do. We will have some gains on the sale of our house when we downsize this year. Most of the assets are now in the 401K and IRAs.

rad
P.S. I was 49 when I stopped employment and we're currently 55 & 52 with 3 kids - one in college for 2.5 more years.




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Author: nuyawkr Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3977 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 3:40 PM
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Why do you need a dining room to entertain?

I was going to write a long paean to the joys of a dining room, but it comes down to how I was raised, and there's just no rationalizing the irrational. Suffice it to say, I want one, and presenting me with very good alternatives will do nothing to persuade me. :)

My living room is not large enough to comfortably contain a table and to function as a living room. (It's 11'-10" x 16'-8"). I have two drop-leaf tables which when combined can seat eight. Because of windows, radiators, doorways, etc., actually opening those tables up is very awkward. If my living room were a foot or two wider and longer, I could make it work.

I can't see getting married to get a dining room. (My crowd gets married to raise kids.)

Wasn't implying that I would either--but since dates appear to be things other people go on, it's unlikely to be an issue.

All I was trying to say is that the only way I could afford one I would want in the next five to ten years would be to have another source of income. Apartments in my area with a dining room are usually two or three bedrooms, and cost double what my one bedroom apartment did.

FI is more important to me than a dining room. It's just one of those things I'd like to have, "if I had the money".

Nuyawkr

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Author: joycets Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3978 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 4:03 PM
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Hmmmmmmmmmm.
Haven't popped in on this list much, but I am expecting we will retire on a state pension (TX teachers & state combined).
You are probably wondering whether this applies to FIRE (I don't remember all the acronym, and my E isn't that E since I started my newer career at 50ish & am not yet 53... but our land is paid off).

But anyway, thought I'd drop in & share this.

joycets (formerly of cc board)

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Author: StockGoddess Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3979 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 4:39 PM
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So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings? Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

Not to rain on anyone's parade, but....

One thing nobody here has mentioned yet is that yes - you can stuff buccu money into your IRAs and 401K's fast enough to retire early BUT...it's the EARLY part that's a problem. If you are under 59 1/2, (55 in some cases) you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties. Whoops!

So if you're saying "I wanna retire at 40" you need money OUTSIDE of that 401K/IRA to live on between 40 and your late 50's, or you're going to lose half of what you've got in there.

And, of course there's health insurance to worry about, too, since Medicare doesn't kick in until 62 or so. If Arnold passes that law in California, we can all move there and at least be guaranteed that SOMEONE has to provide us with health insurance, pre-existing conditions or no. Sure would be nice to be assured of at least that!

I'm not scared about having enough to eat in retirement, or a roof over my head. What worries me is health care and insurance. Half of all bankrupcy stories start "I was doing fine until I started having this health problem...."


SG

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Author: 4inthefamily Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3980 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 4:45 PM
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One thing nobody here has mentioned yet is that yes - you can stuff buccu money into your IRAs and 401K's fast enough to retire early BUT...it's the EARLY part that's a problem. If you are under 59 1/2, (55 in some cases) you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties. Whoops!

As I understand it, you can transfer the money to a rollover IRA, then take the money out incrementally in roughly equivalent amount based on your acturially-decided life expectancy and avoid the early withdrawal penalty, regardless of your age. Is this true?

-4

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Author: reallyalldone 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: 3981 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 4:58 PM
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As I understand it, you can transfer the money to a rollover IRA, then take the money out incrementally in roughly equivalent amount based on your acturially-decided life expectancy and avoid the early withdrawal penalty, regardless of your age. Is this true?

Yes. Put 72t into google for more details.

Then again, there's no law to say the money needs to be in retirement vehicles to be able to retire early either.

rad



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Author: ziggy29 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: 3982 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 5:03 PM
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>> One thing nobody here has mentioned yet is that yes - you can stuff buccu money into your IRAs and 401K's fast enough to retire early BUT...it's the EARLY part that's a problem. If you are under 59 1/2, (55 in some cases) you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties. Whoops! <<

72(t), anyone? No penalties there.

#29

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Author: JOR2 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3983 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 6:09 PM
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I am now 60 with a 2.5ML portfolio(Bonds,Gov. mtg,no stocks)By far the best move I made while young was to help an older skilled carpenter and his wife physically build their home. I learned so much that my husband and I built our house over a period of two years mortgage free in our mid twenties. It is a fond memory because my husband died young of cancer. Several times through the recovery period and other life events equity in the house helped save my nest egg. I had a sense of security and place to fall back on. I still love the home. Cheapest space is an unfinished basement you can grow into with kids. Thanks for the question. It made me smile.

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3984 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 6:21 PM
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One thing nobody here has mentioned yet is that yes - you can stuff buccu money into your IRAs and 401K's fast enough to retire early BUT...it's the EARLY part that's a problem. If you are under 59 1/2, (55 in some cases) you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties. Whoops!

Anything you save OUTSIDE a tax-advantaged account has already been taxed. The dividends and capital gains rates are currently much lower than taxes on earnings.

And there are the 72t Substantially Equal Periodic Payments to get money out of an IRA early.

Health care, OTOH, is a worry.

Vickifool

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Author: warrl 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: 3985 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 7:32 PM
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One thing nobody here has mentioned yet is that yes - you can stuff buccu money into your IRAs and 401K's fast enough to retire early BUT...it's the EARLY part that's a problem. If you are under 59 1/2, (55 in some cases) you will lose 35 percent to 45 percent of the withdrawal in taxes and penalties. Whoops!


Not if you are careful about it.

A Roth IRA, early withdrawals (beyond principal deposited) are taxed. No dodging it, even though you already paid tax on the principal. You MAY also have to pay penalties, more on that in a bit.

A 401(k) (and kin, except a 457) I believe you'll have to roll over into a conventional IRA in order to do early withdrawals.

A 457, the rule for withdrawals is that you can't still be employed by the employer that provides the plan. Meet that standard and you must pay taxes but no penalties.

A conventional IRA, withdrawals will be taxed, but the deposits (with certain limited exceptions that you probably don't want to qualify for) were not taxed and you can't dodge this tax by waiting. Early withdrawals MAY draw penalties as well.

Early IRA (conventional or Roth) are penalized unless they meet certain qualifications. One set of qualifications they can meet to avoid penalties is that they are part of a plan for "Substantially Equal Periodic Payments", aka a 72(t) plan. This plan MUST extend to at least age 59.5 and MUST last for a minimum of five years.

Now, what does that mean?

If you're going to invest in very-lightly-managed funds such as index funds, and hold them for a long time, dodge the tax shelters: they are probably worse for you than the taxes. Ditto if you'll buy individual stocks expecting to hold them for years.

If you're going to retire early, a Roth IRA is inferior to other sorts of tax-sheltered accounts.

A 457 (if your employer offers one) is preferable to other 401(k)-like accounts, but the others are acceptable. That is, if you have reasonably good investment choices. If all you are offered is badly managed high-load funds, pass.

If you need a wad of cash upon early retirement, taxable accounts and 457s are good. (If you need the wad of cash BEFORE early retirement, skip the 457.) Other tax-sheltered accounts are not so good. However you could take a loan and move some money into a separate IRA, then set up a 72(t) plan on that separate IRA to make the loan payments.

(You don't want to have one IRA involved in more than one 72(t) plan; however you can have more than one IRA and more than one plan. There are advantages to having multiple plans, and having just enough money in the IRA behind each plan to fund that plan.)

Half of all bankrupcy stories start "I was doing fine until I started having this health problem...."

Yes, a lot of bankruptcy stories start that way, but if you dig a little deeper you often find that "doing fine" included a couple thousand dollars a month in non-mortgage debt payments and a house that was at the upper limit of what the bank thought the family could afford. And no savings to speak of.

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Author: sailrmac Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3986 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 9:07 PM
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So among our FIRE wannabees here, are there any that are doing it entirely on salary and savings? Can FIRE be done simply with a 401k and an IRA, by disciplined saving and investing?

Yes.

Someone I know very well made his first investment in the stock market at the age of 19 and lost 50% of his net worth one day in October of 1987. However, he learned.

With his first job out of college, age 24, salary $26,000 per year, he immediately put 6% of that salary in a 401k (gaining the 25% company match). With each raise he put the entire raise into the 401k until a couple years later it was maxed out.

8 years later he moved to another company that had a stock purchase plan which you could contribute up to 10% of salary to. Now at $65,000 per year annual salary, he also maxed that out (in addition to continuing to max the 401k for which he recieved a 50% match on the first 10%). He usually sold the entire amount of the stock purchase plan at the end of each quarter and invested much of it in a diversified portfolio of mutual funds. However occasionally he spent it on a one time cash purchase i.e. a boat. He never made a killing on the stock purchase plan but always made at least the 15% discount and more importantly it was very benefitial because it was another form of forced savings. The 401k was always maxed out and never touched.

He is now 40, has a modest middle class lifestyle, a loving wife and a daughter doing well in college.

He is worth over $1 million but didn't make it from real estate (though he made some there), any one stock, company options, his own business, inherit it, anything like that. He always lived beneath his means (never a hardship) didn't carry credit card balances, etc.. The only consumer loan he ever carried was for his 1st car and he paid that off in 2 years. He did carry a mortgage, student loan and very occasionally an investment (margin) loan.

He believes debt for appreciating assets has it's place. Debt for depreciating assets is both stupid and shows lack of will.

Mainly he just maxed out the 401k and any other forced savings available, investing it in a well chosen, diversified portfolio of: Foriegn, Domestic Large Cap Value, Dometic Small Cap Growth, REIT and Bond funds, rebalanced semi-annually. This diversified portfolio significantly outperform the S&P500 for the last couple decades and he is convinced it will continue to do so.






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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3987 of 5076
Subject: Re: FIRE entirely on salary Date: 1/11/2007 9:17 PM
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A 401(k) (and kin, except a 457) I believe you'll have to roll over into a conventional IRA in order to do early withdrawals.

Actually, if you leave your job during or after the year you turn 55, you can make withdrawals from your 401(k) plan without any penalties. Additionally, you can make 72(t) withdrawals from a 401(k) without rolling it over to an IRA, if you are happy with your 401(k) plan choices.

A 457 (if your employer offers one) is preferable to other 401(k)-like accounts, but the others are acceptable. That is, if you have reasonably good investment choices. If all you are offered is badly managed high-load funds, pass.

This may be true if you don't mind leaving your assets in your employer's plan. However, some 457 plans are not 'qualified' plans and do not allow rollovers to a rollover IRA. Therefore, if you want to move this money in a lump sum, you will have to pay taxes on the entire amount. Also, keep in mind that your (former) employer may change plan administrators, costs, and fees at any time, based upon their whims.

AJ

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Author: Jotacube Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3997 of 5076
Subject: Re: FIRE entirely on salary Date: 1/12/2007 8:58 PM
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Take heart the first 100K is the most difficult. The old adage, “pay yourself first” really does work. Pay the maximum into your 401K, open a brokerage account at a discount brokerage such as Scottrade, find a little money to buy stocks you like, invest in DRIPS, (I have invested about $25 every quarter in a DRIP, after a couple decades it is over 14K), think about buying a house, (that rent money may as well be going into a rat hole)... It is amazing what compounded interest will do over a decade. The person with an average income can do it with patience and discipline.

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Author: OnwardBound Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4011 of 5076
Subject: Re: FIRE entirely on salary Date: 1/15/2007 3:13 PM
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that rent money may as well be going into a rat hole

****************

I didn't see anyone reply to this so I want to.... renting can be great! I can bank so much more money every month and invest/pay off loans that would otherwise go to the bank in the form of mortgage interest. Buying a home isn't always a panacea. There are few absolutes! Everyone needs to consider their own situation. Many angles in the home vs rent debate.

OB

loving my rat hole, and laughing all the way to the bank.

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Author: tlswms One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4012 of 5076
Subject: Re: FIRE entirely on salary Date: 1/16/2007 12:01 PM
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We're going to FIRE in 4 years when I hit 50 and can take an immediate annuity from my fed job. The annuity is from 25 years service and is our backstop. We've only been savings seriously for about 14 years now but that savings is what will enable us to FIRE -- the TSP and IRAs total over 350k now - all IRAs are Roths as we don't expect to need the funds till 60+.

Two points to add:

1)having health care coverage from the fed job that can be carried into retirement is huge. It's something to consider when considering employment options. Even doing 5 years in a fed job after completing a first career will qualify you for this benefit. The feds are facing a serious staffing shortage in the coming years as baby boomers start retiring so the myth that one still hears about the difficulty of getting federal jobs is getting to be more and more that - a myth.

2) the way the savings hit 350k over those 15 years is through a 100% equity portfolio and carrying substantial low-interest credit card balances throughout. If I didn't have enough available from net pay to max the tax advantaged savings opportunities I borrowed it. I wouldn't pay over 6% and rolled over the debt using those special offers.

A lot of folks say one should keep 20% minimum in fixed. For a young person I just don't buy it. Granted I have the pension that insulates me a bit -- but I started the savings before ever considering that offset -- since I'm so close to FIREing I took the advice of a financial planner this past summer and now have 15% in fixed...it was hard moving the money because it made me feel as though age had caught up with me -- I'm working on a paradigm shift to convince myself that it's all good and I just need to dampen my potential downside since I'll be off the payroll that coudl allow me to make it up...but it feels strange.

Tom

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Author: OnwardBound Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4013 of 5076
Subject: Re: FIRE entirely on salary Date: 1/16/2007 12:13 PM
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I have never understood how the Health Insurance works with FERS. I want to retire before I would be eligble for retirement.....so I could still qualify for the insurance as long as I have 5 years in? This would be at the full rate correct? If I wait until I have enough years in, is there any extra benefit with the health insurance? I really don't want to work until 59!


OB (only in my 4th year and 33 years of age)





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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4017 of 5076
Subject: Re: FIRE entirely on salary Date: 1/16/2007 5:27 PM
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I didn't see anyone reply to this so I want to.... renting can be great! I can bank so much more money every month and invest/pay off loans that would otherwise go to the bank in the form of mortgage interest. Buying a home isn't always a panacea. There are few absolutes! Everyone needs to consider their own situation. Many angles in the home vs rent debate.


OB is right! Our rental tenants are getting a house for about half what the interest payments on a mortgage would be.

That's the market.

Vickifool

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Author: TheBreeze Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4048 of 5076
Subject: Re: FIRE entirely on salary Date: 2/2/2007 5:19 AM
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A lot of folks say one should keep 20% minimum in fixed. For a young person I just don't buy it. Granted I have the pension that insulates me a bit

Your pension, along with any social security payments, are like the interest on a bond portfolio. If fact, if your home is paid off, it's like earning interest from a fixed-income source that "pays your rent." So, your need for bonds and cash is less than someone who rents and has no pension.

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4049 of 5076
Subject: Re: FIRE entirely on salary Date: 2/2/2007 11:13 AM
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lot of folks say one should keep 20% minimum in fixed. For a young person I just don't buy it. Granted I have the pension that insulates me a bit -- but I started the savings before ever considering that offset -- since I'm so close to FIREing I took the advice of a financial planner this past summer and now have 15% in fixed...it was hard moving the money because it made me feel as though age had caught up with me -- I'm working on a paradigm shift to convince myself that it's all good and I just need to dampen my potential downside since I'll be off the payroll that coudl allow me to make it up...but it feels strange.

I agree with this. I held nearly 100% equities, not counting our emergency fund, up until last year.

IMHO, a well diversified fund portfolio isn't "risky", it's simply "volatile"; if you don't plan on accessing the money for 5 or more years, the odds of actually losing money is very slim.

-murray

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Author: warrl 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: 4050 of 5076
Subject: Re: FIRE entirely on salary Date: 2/2/2007 12:32 PM
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IMHO, a well diversified fund portfolio isn't "risky", it's simply "volatile"; if you don't plan on accessing the money for 5 or more years, the odds of actually losing money is very slim.

And if you have an ordinary life expectancy, even at age 65 you still should have assets that you don't expect to cash in for another 20 years or more.

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