No. of Recommendations: 94
Several posters requested a description of "the hocus plan, and I agreed that it makes sense at this point to put the major principles of my approach together in one place for review. This post is my attempt to do that. I'm going to use in-the-neighborhood numbers rather than the exact numbers that apply to my personal circumstances.

Amount of annual spending: $30,000.

The $30,000 figure is made possible by having paid off the mortage on our old home some years ago. Also, our tax liability is a tiny fraction of what we were paying in our two-income days, as most of our earnings are "protected" from tax by the standard deduction, four personal exemptions, and two child credits.

This is a number that changes for me at least once, and generally twice, a year. My wife and I schedule a re-do of the budget for January 1. Often, special circumstances require a touch up at least one other time during the course of the year.

There have been lots of changes since my "retirement" date In August 2000. We had less than one year of spending experience on the first child at the date I turned in my resignation, so we are still getting a handle on what all the added costs will be. The second child just came along in March. My wife had some extra hospital time in connection with the second pregnancy, so there were added costs there. I've had some added costs with the start of my writing business, such as paying for internet access, getting lots of books on writing and publishing, attending conferences, and such. There also were some new costs associated with a move to a new home (the new home itself was a little less expensive than the old one).

All of these costs are integrated into the budget as they occur. The integration does not always happen in the same way. If there is a new recurring cost, such as the need to pay for food for growing children, that needs to be added to the monthly budget figure for groceries. If there are one-time costs that are not addressed in the monthly numbers (the cost of a moving van), it needs to be covered in some other way.

There are several ways of covering the unexpected costs. One is that the new home was less expensive than the old. Since my wife and I owned the old home without a mortgage, the move left us with free cash. Some of that money went to cover unexpected one-time costs incurred over the past six months or anticipated for the next six months (but not anticipated at the time the budget for the year was prepared).

Retirement Stash: $400,000

Annual Earnings Assumption: 4 percent.

I spent a lot of time researching the question of what number to use as the annual earnings on my investments. (The Retire Early board was not at this site in those days, and I had not yet discovered RetireEarlyHomePage.com.) My conclusion was that a 3 percent rate was clearly attainable and that a 5 percent rate was within the realm of the possible in some circumstances (not without stocks, however) For my plan, I went with 4 percent.

My view is that this number should vary with your personal circumstances. If I had left the work world altogether, I would have used 3 percent. I stocks had been at better price levels, I might have gone with 5 percent.

I had three retirement dates in my plan: the one I would take if I really got to a point where I couldn't stand the job another day; the farthest-out one if I felt at the time that I would rather continue putting assets away and thereby allow for a greater measure of freedom from financial worry in my retirement; and the middle one. I ended up electing the middle one.

The reason for the three dates was that, it undermined my daily motivation to see my date for realization of my goal as being too far out in the future. I needed one date that could be achieved in just a few years to keep me focused on doing everything possible to make progress. However, I didn't want to lock myself in to the quick date. Once I got to the first date, I felt that if now I could bear the thought of collecting a regular paycheck for a few more years, it would make more financial sense to do that.

At the time I hit the second date, we had just had our first child and my wife had given up her own paycheck. So, while she had been supportive of the plan throughout the process, she was not at all opposed to me staying at the job until the third target date. What decided things was the Motley Fool's creation of the Soapbox site. That offered a means of making a small amount of money outside the corporate context, so I wanted to devote my full energies to that.

This is another example of the flexibility of my approach. Just as there is no fixed annual spending amount, there is also no fixed retirement target date. There is planning. I see it as essential to have specific targets because the process of picking those numbers or dates forces you to come to terms with all the issues you should be dealing with. But the benefits come from the process, not any particular dollar or date target. Once you engage in the right process to put realistic goals in place, I see it as OK to modify them regularly, always being sure to maintain the realism of the initial choice, of course.

Spouse Earnings: $4,000

My Earnings:$10,000

My wife earns $4,000 a year doing occasional work for her former employer. I have no regular income, but need to earn $10,000 a year from freelance writing (my goal was to make this career shift, not to "retire" in the traditional sense) to make the plan work.

This earnings component of the plan has its flexible side too. In the first six months of retirement, I didn't earn $5,000 (half of the annual $10,000 target), but $15,000 (from sales of my Soapbox.com report). That "paid" for 18 months of writing freedom. When Soapbox went under in February 2001, I began writing a book and set a target completion date of January 2002, so that I could use the income from a publisher's advance to "finance" the next year of writing freedom.

The book has taken longer than expected to complete. My new target completion date is January 2003. By then, I will be one-year "behind" on my freelance writing income just as I had at an earlier time been one year "ahead." None of this concerns me. The money will come in. If there is no publishing company in the world willing to pay me a penny, I will flip hamburgers or deliver newspapers. I highly doubt that it will ever come to that. I set the $10,000 figure low enough so that I could be certain to meet that target on an annnual basis without too much trouble (so long as I was willing to work at least 40 hours a week, as I expect to continue doing even past age 65).

I considered working at the old corporate job longer so that I could eliminate this need to produce an annual income from freelance writing. There's some appeal to that, but I rejected the idea for several reasons. First, it delays your retirement a lot to come up with the added retirement stash ($250,000) to replace the easy annual earnings of $10,000. Second, I knew I would be doing this work whether I needed the income or not, so I viewed it as virtually "free money." Third, knowing that I have to generate income from my writing forces me to approach the writing career in a more professional manner (while still having the freedom to turn down any unappealing assignments). It's work I do primarily for love, but also partly for money. That's the mix I like best.

Investments:

1) TIPS at 3.5 percent in tax-protected accounts

2) ibonds at 3.4 percent in non-protected accounts (not taxed until cashed in)

3) Certificates of Deposit still held from pre-retirement days (and, thus, held at higher rates than those available today.). The CDs are being phased out as they come due into other investment classes. I expect to move a portion of the CD money into stocks. If stock prices came down, I would move it all into stocks.

Stock Allocation Goal: My goal is to get to a 50 percent stock allocation. I initially made the zero percent allocation to stocks for two reasons:

(1) I accumulated all of my retirement stash in a short amount of time. It was nine years from having zero in the bank to retirement date. So any stock purchases made in anticipation of retirement would not have been "for the long term." My worst nightmare was that, one year short of my retirement date, stocks would go into a downturn. I was not counting the months until retirement, I was counting the weeks. There was no way I wanted to take the risk of losses that could put off the retirement date for years.

(2) Stocks were at extreme levels of overvaluation at the time I began accumulating large sums for investment. I preferred to put money ultimately to be allocated for stocks into safe investment classes until stocks could be purchased at prices closer to average valuations. That way, I can purchase many more shares for the same portion of my retirement stash. Once I find reasonable purchase points, I intend to hold the stocks for the long term (no "timing" in and out of the market).

I have maintained a binder of stock ideas. The purpose is to learn during the time that I do not participate in the market, and to not lose the sense of "being part" of the market. Participting without a financial stake is not the same, but I think it is healthier to do this than to adopt an "out of the market" mentality.

Returns: While I use a 4 percent annual return assumption, you'll note that most of my investments do not earn a full 4 percent. The CDs do because they were purchsed at high yields (many between 6 and 7 percent) that result in a real return over 4 percent in today's low-inflation environment.) But the ibonds are at 3.4 percent and the TIPS at 3.5 percent.

I make up this difference with a technique I think of as "the personal inflation rate." The inflation adjustment for the TIPS and ibonds are done according to government estimates of inflation. For purposes of my own records, I use a personal inflation measure instead.

My personal inflation rate is the amount that my spending goes up from one year to the next. If government estimates say that inflation is 2 percent, and my spending goes up 1.5 percent, I count inflation as 1.5 percent. Using this approach allows me to get by with earings on TIPS or ibonds of only 3.5 percent.

I am considering a similar adjustment for when I begin purchasing stocks. I don't want to count the gains that come from bull market extremes as permanent gains or the losses that come from bear market extremes as permanent losses. Thus, I may set up a separate set of books where I add to the stock's purchase price some reasonable estimate of the corporate earnings for the year (but not "unreal" moves up or down). The goal is to have a better fix on the real value of my portfolio than what is provided through use of newspaper-listing prices (which are valid only if you intend to sell that day).

Bottom Line: My stash has to increase by at least the rate of my personal increase in spending for me to maintain the same level of financial independence i possessed on retirement day. If my spending were to be exactly the same after 10 years, and my stash were to be exactly the same size, that would show that I was generating enough income each year to cover all expeses and lose nothing in the way of stash. If my spending goes up 3 percent per year, my stash must go up 3 percent a year.

If I see things I would like to add to my life that would require increases in spending, I need to increase my stash at a faster pace. The personal inflation rate is not necessarily a number that goes up slower than the government number. I can push it up faster than the government number if i care to. I just can't push it up any faster than the pace at which the stash is increasing.

Where do I get money to push the stash up faster than inflation? From earnings beyond the $10,000 minimum figure I've set from freelance writing. I view the book that I am writing as a capital asset. I cannot predict what income it will produce, but I believe it will produce something. If it does not, the second one will.

From a financial perspective, I view my Retire Early plan as a sort of oil drilling expedition. I know that every drilling venture is not going to pay off, but feel confident that one down the line will. This is another reason why I did not want to wait too long to get started with the second career. The earlier in life I got started with it, the greater long-term gains I can expect from my "personal capital." A freelance writing career begun at age 43 is more likely to produce profits than one started at age 63.

Any year in which I earn one dollar above $10,000, that's "free money" that can be used for a variety of purposes:

1) :Luxury Spending: There were certain luxuries that I cut from my budget to get to financial independence sooner, but which I did not want to cut on a permanent basis. An example is vacations. Cutting this category allowed me to retire much sooner, but I would have viewed it as a bit of a deprivation to give up vacations altogether. So I arranged things so that, any year in which I earn more than $10,000 (most of them, I hope), there will be money for vacations. Any $15,000 year (not at all an outlandish scenario) allows for very nice vacations indeed.

2) Increases to Stash: My level of financial independence will continue to grow gradually post-retirement just as it did in the pre-retirement years. In any year in which I earn more than $10,000, I have the option of directing all of those dollars to stash. Since my living expenses have been covered from prior savings amounts, If I earn $20,000, I can save at a 50 percent rate. If I earn $50,000, I can save 80 percent. Savings grows quickly at those sorts of rates.

3) Taxes My tax rate will go up dramatically in years in which I earn amounts far above $10,000 (because it is so small in
the years in which I do not). I sort of like this arrangement. In years in which I don't do that well, the pain is eased with the joy of a small tax burden. In years in which I do, there is a tax burden, but I'm adding enough to my savings that it does't seem like such a bad thing.

4) High-Return Investments Since my basic living costs are covered by assets invested in super-safe investment classes, I can invest additions to stash in high-return, high-risk investment classes without incurring any significant personal risk at all. I want to see gains in the assets making up this portion of the stash, because it provides me with slack and with the funding for luxury spending, but I don't need any set level of gains on this part of stash (or even return of the stash itself, for that matter) to pay the bills. In theory, I could put all of this on one hot stock. I won't, but I could.

5) Charitable Contributions: At certain levels of income, I could afford to make generous charitable contributions. This is where the money will go if the stash gets high enough to cover not only all basic living costs, but all compelling luxuries as well.

Goals: Over time, I hope to acquire a 50 percent stock allocation at levels of overvaluation (not undervaluation) lower than those prevailing today. I do not expect to go above 50 percent unless my stash increases a lot, because I don't want more than 50 percent of the "basic stash" amount at risk. My theory is that I can take a 20 percent loss of my assets without too much personal anxiety. If you purchase stocks at reasonable prices, the risk of a loss greater than 40 percent is minimized. A 40 percent loss in an investment class comprising 50 percent of your portflio leaves you with a personal loss of only 20 percent.

As the years go on, I expect more of the "action" in my plan to be at the "stash plus" level. The original stash amount was intended only to finance the transition from depedence on a corporate paycheck to self-directed career. If you are careful at that stage, you increase the prospects of having the real fun in Stage Two.

Risk: I don't measure risk the way that some others do. For me, the risk is not in having my investments not earn a certain return. It is that I will not get to enjoy some of the opportuntiies that life would otherwise have to offer. To this way of thinking, there was more "risk" in staying in the corporate workforce another year than in making the break when I did. There's also more risk in a Basic Stash portfolio heavy in stocks because that approach might force me back into paycheck dependence. All aspects of the plan (including those callig for career gorwth and the income that produces down the line) are lost if I give up the assets I worked to accumulate financial independence.

I did not assign a percentage-of-certainty-of-success percentage to my plan. I don't say that it has a 100 percent plan or working, or 80 percent, or 50 percent or any other percent. For me, the goal was to make the shift to a different form of employment without causing my family any negative financial consequences. I don't want my wife to have to live in a house she doesn't like, or my kids to not be able to afford college.

To meet that test, I needed to be sure that the odds of doing two things were better than they were when I had a corporate paycheck: (1) pay all the basic costs of living; and (2) allow for luxuries and spending to open up life opportuities (such as college spending).

On the first goal, I am clearly better off than most peers, since most have not saved the amount of stash that I have at this age. None of this would have been done but for the motivation supplied by the desire for the career change. So I think of my entire stash as essentially "found" money. I had zero savings before I started saving for early retirement. So there is no doubt for me that the adoption of the Retire Early plan did not increase financial risk for my family, but greatly diminished it.

On the second goal, I also believe that the Retire Early plan reduces risk. The risk of staying with the old job was that I would not fully develop my human capital over time. Only by becoming free to challenge myself in use of my talents can I hope to acquire real long-term wealth. The steady paycheck seems safe, but carries hidden risks if holding onto it requires you to allow yourself to stagnate.

So I am living a life of less financial risk after retirement than I lived before. That's the key question for me. If Plan A carries less risk than Plan B, and also provides a more exciting than Plan B, you choose Plan A. There's no real need to assess risk beyond that.

The only really big risk for me is the possibility of allowing the plan to unravel. Without the basic stash in place, everything falls apart. In my mind, growth is an important, but secondary concern. I focus on growth only after the fundamental stuff is assured.

Variations: I would not expect anyone else to follow the same plan. I believe that each Retire Early plan needs to be custom-tailored. So:

1) Someone who enjoyed the corporate job they were in when accumulating assets would probably want to remain longer and accumulate more assets before making the break;

2) Someone who began working toward early retirement at an earlier age would be able to go about achieving it at a slower pace. I had to act quickly because the chances of making my second career a successful one dropped with each passing year that I remained in corporate employment.

3) Someone not married or without kids could go with higher risk assets because, in a pinch, they could make do with less income. Thus, the ultimate risk of having to return to the workforce is less of a concern to someone in these circumstances.

4) Someone seeking to leave the world of work behind altogether would probably want to have a plan calling for a 3 percent or 3.5 percent return rather than the 4 percent plan I use. I haven't yet had a problem producing the 4 percent annual return needed. But if I ever do, I have the means available to make income needed to cover any gaps (after all, there are a lot of people doing freelance writing for a living that have no stash at all). My plan cuts things close. I wouldn't want to do that with a plan that called for the early retiree to leave the workforce altogether.

5) In times of average stock valuation, I would have at least a portion (up to 50 percent) of my basic stash in this asset class. I get that number by using 20 percent as an estimate of the highest loss with which I would feel comfortable. In today's market, it's hard to have significant stock participation without putting 20 percent of your portfolio at risk. In other circumstances it would be possible to hold up to a 50 percent stock allocation without much risk of a loss to the overall portfolio of more than 20 percent.

6) Stock allocations would go up if there were more assets in the Super Stash category (desired but not really needed). At $10 million of stash, even an 80 percent allocation provides perfect safety. Volatility is less of a concern as you reach total stash levels where the basic stash is not at real risk.

Those are some of the basic considerations. I'm sure there's stuff I'm leaving out. But perhaps that gives an idea of the things I worked through in putting the plan together.
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No. of Recommendations: 4
hocus:

When your CDS are renewed at current rates, is it safe to assume that your average return will be around 3.5%. Are we assuming your personal inflation is 1.5% which leaves an annual withdrawal rate of 2%?

i.e. a lower withdrawal rate due to using "safer" investments?

What happens to the writing income if it doesn't come in?

Do you need that to survive or are they luxuries outside of a vacation which is in excess of the $10k writing income estimated?


I find it interesting how people label changing careers as retirement. Perhaps the meaning is changing these days.

P.S. What is reall good is that you've found someone who is supportive in your financial plans. That is not always too easy to find!

Petey
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What is the topic of the book you're writing?

FWIW, your plan sounds very reasonable...hope things turn out OK for you!
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No. of Recommendations: 21
peteyperson:

Thanks for posting. I've combined my comments on your posts 67036 and 67038 so that they will be in on place.

My feeling overall with what you have posted in the last week is that you take it all far too seriously.

That's the most precise explanation of the cause of the current unpleasantness yet. I take this stuff so serious that you would laugh if you knew. I believe this stuff can change the world. It's OK with me if you don't agree with me. But that is where I am coming from. It is the biggest reason why I have a different perspective from some others.

I can see why it's hard for anyone coming from that different perspective to see why I can't let certain issues drop and take the good with the bad. I'd like to, and I've tried to, and I've even pulled it off from time to time. Perhaps there will come a time in the future when I'll be able to do that again. If so, I'll be back. There are no hard feelings on my end and I hope that there are not irreparable hard feelings on the board's end (I don't believe there are). But the things that I want to talk about cannot be voiced here in the current environment, that's clear.

I needed to find out if that was true as a fact or just in my perception because I love so much of what the board is about that taking another hiatus is not an easy thing for me to sign onto. I hope that you'll find it possible to cast aside your own perception of things for just a moment and try to imagine what it might be like coming to the board with a feeling that what it accomplishes is a deadly serious (while still fun) business. If you could do that, I think you could understand my actions a bit better, even if not agree with them.

You become emotionally involved with the board as if it is a living breathing thing, complaining that you are not being heard and suggesting you will go off to consider your own unheard ideas (read: sulk).

That's a precisely accurate statement, except for the sulk part. I do indeed become emotionally involved with the board. Always have. Always will. On the days when I'm not here, I'm going to be emotionally involved with the board. First comes God, then my wife and kids, then the board. My wife has complained more than once that I sometimes allow the board to move into second place. I see this board someday accomplishing things that I get the sense no one else here has ever imagined. I'm sorry we can't figure out some way to allow the two visions to co-exist.

Now, perhaps I really am nuts. That always is a live possibility. Time will tell. The only thing I really have control over in this life is how I spend my time. I will spend just about all of the portion not consumed by things I need to do for God, my wife, or my kids struggling to come to a better understanding of how middle-class workers can accomplish financial independence early in life. That's the project I've taken on, and it looks to me to be a many-decade piece of work. I'll continue to pursue that dream whether it takes me to the Retire Early Home Page, somene else's board, or some board I put together myself.

I'm like Solchenizen (a name I can't come close to spelling right, but I'm talking about the great Russian writer who wrote the "gulag" books) in that, if they put me in a prison cell for 20 years, I'll survive by writing thoughts about financial independence down on scraps of paper before the one candle in found in the dirt earlier in the day burns to my fingers. I'm not seeking any praise for it. My passion for the subject is a fact of life I have to deal with, like my blood type or my height. It's not good or bad, it just is.

So yes, I take it seriously, and yes, I get emotionally involved. You won't catch me sulking, though. I have too much work to do. Doing the work is what makes me happy. The appeal of the board is that it provides all this great infrastructure (allowing for instant communication with others interested in the subject) that makes it possible to get the work done more quickly than I can get it done myself. But the work won't stop by me not being on the board. And the work is the source of the happiness, not really the board itself (it just facilitates). I'm changing the nature of my involvement in this movement (I think ot it that way), but I'm not diminishing the extent of my involvement even a little bit.

Most people are looking at everything they read and seeing what viewpoints they most agree with and taking their best judgement. At the end of the day it's all you CAN do.

I agree with the thought that all you can do is all you can do. But if there is anyone who thinks that the tools discussed on the board to this point in time are the only tools possible, all I can say is that I believe with all my mind, heart and soul that that is not the case. You have to use the tools you possess and take your best shot. I'm proposing that the board consider developing some new tools. That's what all the commotion is about.

I won't go on at great length again about why I find it impossible to make whatever little contribution I might be able to make toward that endeavor in the current environment. I tried to explain in earlier posts, and I believe that there were a few who heard the message, if not as many as I might have hoped. It's all summed up in the post by Galeno, who says the intercst plan would beat the hocus plan in a boxing match. The question of which plan "wins" is so boring to me that I can't work up the energy to think about it even for 30 seconds of time.

So the intercst plan wins. What does it win exactly? While we celebrate the win, other plans on the edge of our collective consciousness, that could be teased out of the existing data and the little clues we have picked up here in the past, are remaining undiscovered. I don't really care to discuss the hocus plan any more than I care to discuss the intercst plan (I put up the post kicking off this thread because I was asked to do so). I know the hocus plan, inside and out. I gain nothing from a discussion of the hocus plan. What I am looking for is discussion of other plans, plans that don't have names because we haven't allowed ourselves to talk about them yet.

You see what's there and say "it's good." I see what's not there and say "let's find out what it is." You all are entitled to have a message board to discuss the already discovered good plan. It's not my desire to take it away. It just happens that further discussion of the already discovered good plan doesn't serve my particular personal selfish desires for a different sort of discussion at this particular point in time. That's all. I'm not mad at anyone and I hope that not too many are too mad at me. I hope we can go our separate ways and still feel kindly towards each other. It would not surprise me if our paths crossed again at some future date.

I remember being surprised when you posted a while back that you had pulled out of the market when it was tanking and were waiting for it to rise before investing again.

There's been some sort of miscommunication. I took my assets out of the market in the mid-90s. It wasn't tanking. It was skyrocketing.

You are seemingly going around in circles that know no end.

My wife worries about this too from time to time, Petey. Have you been talking to her? ;-) I'm not going around in circles, Petey. I think I know why you worry about that (Petey and I have exchanged some e-mails from time to time about the non-board work I am doing). I'm moving ahead. It's not been a straight line from Point A to Point B, that's fair to say. But while the path has been winding, it has been leading at a slow and steady pace in the direction in which I want to go. I'll get there soon enough.

There's no map showing you how to get to the place I want to go. So I have to figure out the directions by taking chances on paths that look promising at the moment I first see them but which sometimes cause me to end up getting stuck in ditches. When I get to the other side, all those trips into ditches are going to amount to nothing more than amusing road stories. Who cares how long it takes to drive somewhere you've always dreamed of going to? This part of the effort is just a process, nothing to get alarmed about (but I do appreciate the thought behind the concern, which I know to be sincere).

When your CDs are renewed at current rates, is it safe to assume that your average return will be around 3.5%?

No. Because if it is, I won't be in that investment class. I've done enough research to assure myself that a 4 percent annual return is possible (3 percent provides absolute safety, but 4 percent is OK for someone remaining in the workforce in some capacity).

You know, there's no one that's going to come to my house with a gun if I switch out of CDs and into stocks when the real return on CDs is lower and the likely real return on stocks is higher (because prices are lower). I don't want you to take my word for it. Take a look at the historical data. Find out for yourself what sort of annual return is available to an investor not willing to make a 30-year committment to stocks at the time of their highest valuation in history. The data tells the story better than I can.

I have a suggestion, though, as to the attitude you take to that enterprise. Go into it determined to find that stocks are the best investment class in every circumstance (as I believe intercst did) and you will find that alternatives don't measure up. Go into it determined to avoid risk no matter what the sacrifice in terms of growth (as I believe Dominguez did), and you will find that stocks have no place whatsoever in a Retire Early investment portfolio.

Data is just data. It's willing to tell a message if you are willing to hear it. But unless you employ scientific methodologies, you can't trust the message. Your biases will pull you in the direction you wanted to go before you looked, so there's not much point looking at all. I looked at the same data intercst and Dominguez did, and came to some very different conclusions.

Do I have biases too? No doubt. My problem is that I cannot see my own biases. The value of posting on a message board, for me, is that others can point out my biases and thereby allow me to correct my mistakes before they do too much damage.

It doesn't help me, though, for people to ask questions aimed at finding out which plan "beats" the other. And it doesn't help to run my theories through an analysis that was designed from the start to support someone else's theories. The answers produced from following that process make no sense because each of my decisions was made for reasons that "do not compute" under the alternative theory.

In those circumstances, posting is a waste of time. It produces either aborted threads or sarcastic back-and-forth exchanges. Boy, those prospects get me excited about jumping out of bed in the morning and firing up the laptop! The reason I put so much effort into learning what I could about this stuff was to escape having to spend my little bit of time on earth involved in that sort of junk.

It doesn't feel any better to have the source of my daily frustrations have "Retire Early Home Page" as its name rather than "Your Friendly Neighborhood Big Five Accounting Firm."
When no one (or a small, non-vocal number) is willing to engage you in constructive debate about what you want to explore, posting becomes just another job. I love work. I hate jobs.

What happens if the writing income doesn't come in?

My wife divorces me, takes the kids, I turn to alcohol, and then a life of crime, I get arrested, sent to jail, lose my faith, and shoot myself to end the pain. That's the plan, anyway.

I guess if there is not one thing I can think of to do with my time (out of a binder I keep of hundreds of income-generation possibilities) to bring in $10,000 a year, I'll just have to resign myself to being one of those poor unfortunates with a paid-off mortgage and $400,000 in the bank at age 45. I'll curse the day I ever got interested in this financial independence stuff, of course, but I'll struggle bitterly to hold onto my deprived existence however I can for as long as I can nevertheless. The chances you take when the thought enters your mind of escaping the corporate paycheck!

Do you need that to survive or are they luxuries outside of a vacation which is in excess of the $10k writing income estimated?

This question is not entirely clear to me. I need the $10,000 to pay the bills. I don't need it each and every year since there is plenty of money available to meet any short-term obligations. But I need to bring in an average of $10,000 annually from the work I do to avoid a diminishment of my current level of financial independence.

I don't want to see my level of financial independence diminish. I want to see it increase. So I won't be happy if two or three years go by without the $10,000 coming in. I have noticed that when I become unhappy about something, I have a tendency to develop a desire to do something about it. Generally, that sequence of events "works."

If you are asking whether there are things other than vacations that I can buy with any income from work above the $10,000 mark, the answer is yes. For example, my wife and I have discussed the possibility of an addition to the house, or of purchasing some of the land adjoining ours. I'm not going to invade my stash to pay for that sort of thing because it would diminish the level of financial independence I've acquired. But if I make a big bunch of money on some work project in the coming years, adding an additon to the house or buying land are good possibilities.

I expect to continue looking for and discovering new things to spend money on until the day I die. The old view of retirement was that it was sort of a prelude to death. You were supposed to "freeze" your budget the day after the party where they give you the watch. It's not for me. Not the watch. Not the budget freeze. Not at age 65, and certainly not at age 43, when I "retired."

I find it interesting how people label changing careers as retirement. Perhaps the meaning is changing these days.

My sense in that you are being sarcastic here (with no hostile intent). But I agree with the statement exactly as you put it. Yes, it's interesting how people label changing careers as retirement, and yes, the meaning is changing these days. Good thing too. The old definiton happens to make no sense anymore.

There's a thread from January 2001 on which this topic flickered briefly before being stomped out. Check out the thread and you'll gain a sense of how discussions with fruitful possibilities can be sidetracked and killed by the well-placed insistence that posters stick with the current "program." It was not entirely coincidental that one of my earlier hiatuses began shortly thereafter.

What is really good is that you've found someone who is supportive in your financial plans. That is not always too easy to find!

I will pass that message along to my wife. She has been great. To be sure, we have very diffferent personalities and see the world through different lenses. The trick has been dividing up responsibilities so that we are both doing the things we do most.

I've seen comments on the board from time to time that it's easier to achieve financial independence if you are not married or if you do not have kids. For me, marriage and kids were big pluses. If I were on my own, I would not have achieved half of what I have, by my estimation.

As with all the other "rules" in my "plan," it won't work to blindly apply this idea in circumstances not similar to my own. Other circumstances require different applications of basic principles, and I am still in the process of exploring the various implications of that thought. Wish me luck!
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I've been silent through this entire series of threads, but thought it time to express my thoughts with a post. I don't post often, although lately I've stopped worrying that my posts wouldn't be good enough to contribute, or wouldn't get any recs. I'm trying to not abuse this new-found 'freedom', however.

This is one of my favorite three boards on Motley Fool. I'm 33 and am many years away from FIRE, for a variety of reasons that may be worth posting about sometime in the future. I, like some others that have posted, have been thrilled with the quality and topics discussed here over the prior ten days. I am drawn to the off-topic posts here and on other boards like a moth to headlights, but this has been an extremely refreshing series of threads. If I thought about it I could come up with at least five new ideas to consider as a direct result of reading these posts.

hocus, there are a smallish number of posters who contribute the majority of posts. A few of them have different opinions than yourself about the 'ideal' way or the 'safest' way of retiring early. I don't believe that anyone who can think for him or herself should take any particular person's ideas as gospel, but rather as a starting point for their individual plan. I love hearing alternate viewpoints, differing from both those that predominate on this board and from my own.

I disagree with petey who believes that you're taking this all too seriously. I believe that, if anything, you are taking it a bit too personally, because I don't notice posts attacking you personally but instead attacking ideas you have. I know from firsthand experience that it is difficult to separate the two when it feels like everyone's piling on against my ideas. There are other boards that devolve into personal attacks but I don't think this is one of them. Going back to the first sentence of this paragraph, I believe you are taking this all with the right amount of seriousness for yourself.

Maybe I'm in the distinct minority, but I don't want to see you leave the board for another extended hiatus. You're clearly on-topic, you present alternative ways to think about retirement and planning for it, your posts are generally a great read (lengthy without being wordy), and you spur serious discussion and disagreement about these topics. As a lurker most of the time, that's where I see the value of this board; not as a place where we all can get together and extol the virtues of each other and one particular plan, confident and unwavering in our unshaken belief that there is 'The Way' and no other. Where's the fun in that?

Chris
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hocus: Several posters requested a description of "the hocus plan...

Amount of annual spending: $30,000.

The $30,000 figure is made possible by having paid off the mortage on our old home some years ago. Also, our tax liability is a tiny fraction of what we were paying in our two-income days, as most of our earnings are "protected" from tax by the standard deduction, four personal exemptions, and two child credits.


Is this before or after tax income requirements??? While it looks like you won't pay much 'income tax', you will be paying 13% of your writing income for SS, a little bit more for medicare, and perhaps just a little in income tax.

In years you either take money out of tax deferred accounts, or cash in appreciated assets, or take I-bonds, you will pay some tax on those. Is that in your plan.

I'm curious....just how much per year is in your budget for medical insurance and medical expenses for a family of 4???? and what inflation rate are you assuming this insurance/cost is going up per year?

What percentage of your budget is real estate taxes, and what rate are they going up at?

Do you plan for car depreciation and expense on a yearly basis???

How about house repair/upkeep maintenence per year?



Retirement Stash: $400,000

Annual Earnings Assumption: 4 percent.


Spouse Earnings: $4,000

My Earnings:$10,000


Your planned after tax income?


Investments:

1) TIPS at 3.5 percent in tax-protected accounts

2) ibonds at 3.4 percent in non-protected accounts (not taxed until cashed in)

3) Certificates of Deposit still held from pre-retirement days (and, thus, held at higher rates than those available today.). The CDs are being phased out as they come due into other investment classes. I expect to move a portion of the CD money into stocks. If stock prices came down, I would move it all into stocks.



What would you do in a scenario like 1983 when inflation hit 15%???? the TIPS and IBOnds are protected , but those CDs will take up to 5 years, if you have 5 year ones, to reach the yield level. Meanwhile your stash is going down.

What will you be cashing in each year to get your 4% withdrawal???? or are you taking the 'interest' on the CDs yearly and spending that as part of your $16,000 before tax that you take from your nest egg?


I make up this difference with a technique I think of as "the personal inflation rate." The inflation adjustment for the TIPS and ibonds are done according to government estimates of inflation. For purposes of my own records, I use a personal inflation measure instead.


Does this include medical 'inflation' which seems at least for me to be hitting 20%/yr....and real estate taxes, which climb 5% a year relentlessly......????

Bottom Line: My stash has to increase by at least the rate of my personal increase in spending for me to maintain the same level of financial independence i possessed on retirement day.


Very unlikely to not have 'ups' and 'downs' over the years.....some years up, some down.....



If my spending were to be exactly the same after 10 years, and my stash were to be exactly the same size, that would show that I was generating enough income each year to cover all expeses and lose nothing in the way of stash. If my spending goes up 3 percent per year, my stash must go up 3 percent a year.


I assume that means that if you go up one year, you will go down in a down year? without fail?

For most, the 4% withdrawal rate , worst case, assumes zero dollars after the withdrawl period.

Will you have any SS, if there is such, when you retire? Are you contributing enough to get the minimum benefit??? (ie, claiming at least quarterly income to qualify for the required number of quarters of earnings? )....


If I see things I would like to add to my life that would require increases in spending, I need to increase my stash at a faster pace. The personal inflation rate is not necessarily a number that goes up slower than the government number. I can push it up faster than the government number if i care to. I just can't push it up any faster than the pace at which the stash is increasing.


Do you have a 'reserve fund' that can handle big catastrophes? like the flood hitting your house/hurricane, medical meltdown, teenager in car wreck, whatever?????? is one $20,000 disaster going to reduce your yearly spending forever?



3) Taxes My tax rate will go up dramatically in years in which I earn amounts far above $10,000 (because it is so small in
the years in which I do not). I sort of like this arrangement. In years in which I don't do that well, the pain is eased with the joy of a small tax burden. In years in which I do, there is a tax burden, but I'm adding enough to my savings that it does't seem like such a bad thing.

You will still have some tax every year on assets cashed in to get your 4%...... you have to look at the after tax income...and even if you don't touch your assets, those taxable accounts will give you income, be they cap gains distributions, stock dividends, taking things out of tax deferred accounts - paying the tax rate on that, on the full amount, etc.

Of course, it is always better to 'have' to pay additional taxes on earned income since that means to have some.....the killer is the 13% SS which you pay, unless you have lots of 'business expenses'......

4) High-Return Investments Since my basic living costs are covered by assets invested in super-safe investment classes, I can invest additions to stash in high-return, high-risk investment classes without incurring any significant personal risk at all.


Huh? After a super conservative portofolio analysis, you then say, well, what the heck, play with 'high risk' stuff? Money is still money. I didn't see any 'emergency fund' in there. Or college fund for the two kiddies.

I want to see gains in the assets making up this portion of the stash, because it provides me with slack and with the funding for luxury spending, but I don't need any set level of gains on this part of stash (or even return of the stash itself, for that matter) to pay the bills. In theory, I could put all of this on one hot stock. I won't, but I could.


Yep, but you still could have invested in 'tech' and be down 70% this year....... high risk means high downside possibilities as well!....


Goals: Over time, I hope to acquire a 50 percent stock allocation at levels of overvaluation (not undervaluation) lower than those prevailing today. I do not expect to go above 50 percent unless my stash increases a lot, because I don't want more than 50 percent of the "basic stash" amount at risk.


There is always 'risk'. One of the risks is inflation.....and having fixed income assets, which you must cash in, and live on, has significant risk - especially if inflation really kicks up. You didn't mention of you have laddered your CDs....Those stuck in 30 year treasures at 3-5% weren't so happy in 1983......the value of your TIPS and IBONDS essentially never changes......so, with 5 years of 20% inflation, you get killed on your CDs.....and your TIPS generate lots if income..... but will it keep your stash at the level you need? not if there are more than 10% of CDs...that alone will drop the value of your stash each year.....and your spending must trend down.


As the years go on, I expect more of the "action" in my plan to be at the "stash plus" level. The original stash amount was intended only to finance the transition from depedence on a corporate paycheck to self-directed career. If you are careful at that stage, you increase the prospects of having the real fun in Stage Two.


With all your assets in fixed income stuff, there isn't going to be anything other than inflation based growth in your portfolio....by not being in equities, you give up that 'action'....unless you make significantly more than $10,000, there won't be fun money.

And if you never find the time when stocks are not 'overvalued', you may never invest in equities,no? even though they might go up 10%/yr?

I'm still convinced the safe withrdrawal for 100% fixed income is well under 3% (see Bernstein).

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Great post and lots to think about. Could we get a condensed version of your budget? I can't imagine surviving on $30,000 per year with two kids.
Thanks
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Hocus,

I've remained pretty silent lately, but I think I need to take the time to say that I greatly appreciate you sharing your plan and rational with us. You have gotten me to start exploring my own biases and how they have impacted us.

Data is just data. It's willing to tell a message if you are willing to hear it. But unless you employ scientific methodologies, you can't trust the message. Your biases will pull you in the direction you wanted to go before you looked, so there's not much point looking at all. I looked at the same data intercst and Dominguez did, and came to some very different conclusions.

LOVE this quote! It will get printed off and taped to the wall above my monitor.

RE: the I-bonds portion of your portfolio: We have bought some I-bonds for part of our emergency fund, with the intent to use them when our boys go to school if no emergency occurs before then. If you have them in your name and not your child's, you can cash them in without it being a taxable event for a college education for your child. Something to keep in mind when the little ones get bigger.

InParadise,

Who thinks it is a great gift when someone presents a fresh idea for her perusal.
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Hocus--your plan seems underfunded to me. With heavy weighting in bond like instruments I would think a substantial cushion is required. Can you buy cars on your plan or does this cost come from the freelance writing income?? And what about future education expenses for your 2 children??

Is there a pile of money coming from a rich relative in the future??

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No. of Recommendations: 11
I think you should make allowances for the fact that the hocus family sounds like a pretty resourceful group. I have a lot of respect for anyone who can muster the courage to walk away from a sure income and maintain the budget discipline needed to support a family of 4 on $30,000.

Cheers,

espresso

>>> nnn12345 wrote
Hocus--your plan seems underfunded to me
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I can't imagine surviving on $30,000 per year with two kids.

Apparently hocus can more than imagine it. Two different people, two different imaginations.

Imagine that?

Could we get a condensed version of your budget?

Can we also see yours?
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Fair enough- here's the short of it:
Utilities: 300
Taxes: 250
Food: 600
Clothing: 100
Entertainment: 200
Medical: 50
Auto: 453
Charities: 175
Tuition: 300
Saving for vacation: 500
Saving for gifts: 150

Adjusted for after tax this amounts to around $50,000/yr with some big assumptions- no house payments, little college expense, little medical
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Hocus--your plan is very well thought out and seems to include all variables. However it seems to rely heavily on your earnings for the extras as well as inflation increases. This seems risky, but in your case apparently worth the risk. I wonder how you have managed to live on a budget of 30K pre tax annually with 2 babies-toddlers for a family of 4. This would appear to leave you with about 25K or so to actually spend per year. In this neck of the woods, that would not be enough. Even at bare bones. Figure 8K for family health insurance,.5K for family dental costs, 5k for taxes on modest home and 2 cars, 1.5 K for car-home insurances, 7 to 8K for depreciation and maintenence for 2 cars, 1.2K for gas for the cars, 1k for diapers and formula for 1 baby, ( and if special formula is needed add another 2K annually ) and there isn't anything left over for all the other expenses still to be accounted for. There is some savings to be found by living in a less high tax area to save on the car and house taxes, but unless one wants to cut back to only one auto, or drive one auto which is newer and one older, not much else to cut back on.
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No. of Recommendations: 26
A. I hereby grant hocus an honorary title of system engineer because his plan includes the following features:
1. It places an emphasis on establishing and elaborating requirements.
2. It breaks down complex technical issues into smaller, workable chunks.
3. It identifies and makes a variety of trade offs.
4. It allows for contingencies.
5. It focuses on the customer.
6. It identifies reasonable measures of progress.
7. It provides for continual updates and refinements.

A system engineer usually coordinates the efforts of experts from a variety of technical disciplines. He does not need expertise in any one of them. But he must be able to produce a well-balanced product.

B. Specific comments:
1. I offer my compliments to hocus for establishing a personal inflation rate and for addressing both accrued expenses and cash flow management issues. Both involve highly sophisticated concepts.
2. I offer my compliments to hocus for identifying multiple performance criteria along with their relative importance. (All of these are called “risk.” Intentions are always clear. But the word “risk” is ambiguous these days. Many types of financial risk have been identified over the years and each type has several definitions.)
3. Hocus, make sure that both you and your wife meet the minimum quarterly requirements for social security. If necessary, a few hours of part time work are sufficient. By working at the end of one quarter and the beginning of the next, you can reduce such work to one period. Even if a person is not concerned about drawing retirement income from social security, it is worth qualifying for the disability and survivors' insurance.
4. Consider taking a mini vacation within a day's drive if the free money in any particular year is low.
5. Look at the 52 week highs and lows of stock prices. You will generally find that the ratio is 1.5 to 2 on the NYSE. The ratios on the NASDAQ National Market System (NMS) are even higher. Stocks tend to correlate with each other. There is much volatility even when one owns several stocks.
6. I commend you for identifying potential stock purchases. I suggest that you always make sure to purchase any individual stock in the lower third of its 52 week range. If a stock gets away because of this, have no regrets. There will always be another stock to buy. I have found that very few actually do get away.
7. Use the 52 week low for your second set of books. Do not project it. Just wait for it to increase over time. If you have purchased at a reasonable price...that is, close enough to its 52 week low...it is unlikely that you will have to decrease the number by much, if at all.
8. I recommend that you establish a modified dollar cost averaging approach. After some maximum length of time (I suggest 1.5 to 2 years), if you cannot find a good stock market opportunity, either invest in one of your stocks or in a low cost index fund. Allow yourself a little bit of valuation based timing...mainly by buying a stock closer to its 52 week low than its 52 week high. It is important not to be out of the market forever. (Several newsletter writers have been totally out of the stock market for over a decade because stocks never met their valuation criteria and they never adjusted their criteria.)

C. The True Safety of Safe Withdrawal Rates:
1. Hocus is right in questioning the true meanings of terms such as “100% safety thresholds” and “100% confidence levels.”
2. For purposes of discussion, let us assume that someone has flipped a coin twenty times and that the coin has come up heads each time. You might wish to test a hypothesis that the coin has heads on both sides. Statistics never allows you to draw that conclusion. It will show that an alternative hypothesis (called the null hypothesis) is highly unlikely. Even if the coin comes up heads a 100 times in a row, statistics never really proves that the coin is unfair. It does show that it is highly unlikely that the coin is fair (i.e., the chances are 50% for heads and 50% for tails and they are independent of previous tosses). There are also adjustments (such as Yates's correction) when a formula includes a fractional part in the number of tosses. If a theoretical formula sets a statistical threshold at 5.2 tosses, the actual threshold levels are 5 tosses (one interpretation of the data) and 6 tosses (an alternative interpretation).
3. When we look at historical stock market data, we can identify three bad periods to begin a retirement. For the first period, I do not know the key events. But the second involved the Great Depression and the third included unusually high inflation and stagflation. From a logical standpoint, we really have three data points for estimating a true 100% safe withdrawal rate threshold. What happens from one year to the next does influence the estimate of the absolute worst case number.
4. OTOH, if we have just one data point and no other information at all, the logic of statistics tells us to use it as the best guess for the next data point. Regardless of any underlying probability distribution, we do know that the first number is possible. We cannot estimate the spread in the data. But we have identified one possible future number. (Actually, there are qualifying assumptions even to this.) When we get a second and then a third data point, we begin to get an estimate of the spread of the data. Of course, they are crude estimates.
5. Now we turn to intercst's safe withdrawal rate study. I have previously stated that his study's quality is exceptionally high and now I will show that it really is. He did, in fact, address the effects that the Great Depression would have had. Comparing retirements starting in early January 1929 and in early September 1929, for a duration of 60 years and using the CPI to adjust for inflation, the safe withdrawal rate (100% threshold) dropped from 3.70% to 3.10%. Just as you cannot ever establish certainty (i.e., a 100% confidence level) based on coin tosses, it is obvious that the 100% safe withdrawal threshold does not represent certainty. Then, of course, September 1929 was not quite at the market peak. If you look at intercst's analysis of the Japanese disaster (you have to pay the $5.00 for his full analysis), things could be even worse for an early retiree than the Great Depression. In any event, intercst himself has provided proof that you cannot just start with a magic safe withdrawal number and totally ignore what happens later. His study accurately provides a basis for drawing a very fine line between two alternative interpretations.
6. To put things into perspective, many of the arguments for buying stocks were generated to get people to invest up to 20% into the market. I remember listening to rationale along these lines...if you were just starting out, maybe go up as high as 50%, but always remember that stock holdings could evaporate overnight. Never put any money into the stock market that you can't do without. These arguments were for people who had lived through the Great Depression.
7. When I took economics in college, I expected to learn exactly what caused the Great Depression. Newspapers and magazines all suggested that it was the crash of 1929. But I found out that professional economists did not know. Only recently have I read what seems to be a coherent explanation of what happened. The biggest factor was that the Federal Reserve constantly choked off any recovery. They raised rates when corporations were in trouble...after all, those corporations were less credit-worthy and the Federal Reserve was supposed to make money. At the same time, new laws prevented those evil big city bankers from using depositors' money to buy stocks and bonds to prop up businesses (i.e., depositors' money could no longer be used for investment banking). There were lots of other problems. But the most important were caused by the Federal Reserve.
8. Another thing that happened in the Great Depression is that there were many bank failures. Only after a whole lot of people lost their life savings were there any Federal guarantees. I have read that problems caused by bank failures were orders of magnitude worse than problems caused by the stock market crash. You need to understand that money in a bank was not safe. Cash evaporated.
9. The most important thing to remember is that investors of all types got blind-sided. Before the late sixties and the seventies, memories of the Great Depression and the stock market crash caused many people to overvalue treasuries and corporate bonds. Stocks began to look attractive only after long term treasuries became “certificates of confiscation.” Three or four decades from now we may be able to determine whether stocks are greatly overvalued at today's prices or that they are reasonably priced. In the meantime, our outlooks may be distorted as much by our memories of high inflation and stagflation as our parents and grandparents were influenced by their memories of the Great Depression.
10. Since the Great Depression, many things are new. Stagflation is new. The crash of residential real estate prices is also new. Owning a private residence has always been highly prized by American citizens. Over most of the twentieth century people paid a greater and greater percentage of income to buy a dream house. Prices continually increased. A family home really was a good investment. It almost always increased in value. After one income could no longer buy a family home, women went to work. People continued to buy even more homes and prices continued to rise. Eventually, everyone was at his limit and there were no new buyers. Many were willing to buy, but few could afford to pay. Add an economic hiccup (locally) and down went housing prices. Another thing that is new is that we have gotten through a massive bank failure. It was called the Savings and Loan crisis. Technically, they were not the banks. But cash deposits survived when they would have disappeared before.
11. Savagegrace's Gracefully Savage 97% rule is right. (See post 66731, Re: Price-Adjusted Safe Withdrawal Rates.) It might even be optimistic.
12. It is vital to observe and reevaluate all financial investments from time to time. You can not make one decision and never reexamine it. In at least one instance in the last century every single safe investment has proved to be unsafe. Stocks are not ever 100% safe...even though I personally act as if they were.
13. Disclaimer: although I believe that my description of history is accurate, it is quite possible that I have made errors in this summary. These may include errors that are material...the kind that would lead to major distortions.
14. Great advances in science are made by studying the anomalies...the things that are not fully understood. By focusing on the gaps in knowledge and finding the holes in arguments, hocus has added much to these discussions.

John R.
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JWR1945 is already one of your Favorite Fools.

Dammit! I hate when that happens.

....;-)

Out freakin standing post!

GS
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Hocus,
Here is some data from Scott Burns that may be of interest.

http://www.scottburns.com/020528TU.htm
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Hocus: I'm sure there's stuff I'm leaving out.

Wow. Thanks, John R, for referring this post. The only thing I see missing, hocus--but maybe you just declined to mention it in detail--is the spiritual dimension of your quest. I sensed some anxiety in your post, but little confirmation of your innate ability, because of who you be, to weather the vicissitudes of life ... to call upon your yet untapped resources ... to continue to think outside the box ... to harness the serendipity available to all of us ... the role that a sense of certainty plays in our outcomes ... how our minds are our most important asset ... how our faith in ourselves is strengthened by our successes, no matter how small ... how daring and dreaming big is what life is all about ... how playing small serves no one ...

Since you have ventured into publishing, may I recommend Jonathan Livingston Seagull, a classic story of how belief is the ultimate asset, far more powerful than spreadsheets, studies of SWF, etc. Written, by the way, in a matter of days, after years of mediocre returns from writing, by Richard Bach.

Or maybe such talk is beyond the scope of this discussion board. Anyway, you really put yourself out there in your post. I don't know the nature of your writing, but such courage can't help but shine through no matter what the topic.
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I make up this difference with a technique I think of as "the personal inflation rate." The inflation adjustment for the TIPS and ibonds are done according to government estimates of inflation. For purposes of my own records, I use a personal inflation measure instead.

My personal inflation rate is the amount that my spending goes up from one year to the next. If government estimates say that inflation is 2 percent, and my spending goes up 1.5 percent, I count inflation as 1.5 percent.


Gillette Edmunds suggests in How to Retire Early and Live Well With Less Than a Million Dollars that since homeowners don't face rising housing costs they could anticipate their costs rising less rapidly than inflation. I haven't heard of anyone counting on this sort of effect to compensate for planned withdrawals that are larger than anticipated investment returns.

I wonder if the mid 40s retiree has considered health care inflation

If there is no publishing company in the world willing to pay me a penny, I will flip hamburgers or deliver newspapers. I highly doubt that it will ever come to that. I set the $10,000 figure low enough so that I could be certain to meet that target on an annnual basis without too much trouble (so long as I was willing to work at least 40 hours a week, as I expect to continue doing even past age 65)

whatever, personally I don't want to "retire" to become a newspaper delivery boy so I am still planning on having investment returns sufficient to cover my expenses in retirement.
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ataloss asks,

Gillette Edmunds suggests in How to Retire Early and Live Well With Less Than a Million Dollars that since homeowners don't face rising housing costs they could anticipate their costs rising less rapidly than inflation. I haven't heard of anyone counting on this sort of effect to compensate for planned withdrawals that are larger than anticipated investment returns.

I wonder if the mid 40s retiree has considered health care inflation.


My health insurance as a 38-year-old male when I retired in 1994 was $1,750/year. The equivalent policy is $6,300/year for 2004. (I raised my annual deductible from $100 to $500 and reduced that to $4,900/year for 2004.)

($6300/$1750)^(1/10) - 1 = 0.13666 = 13.7% annualized inflation rate from 1994-2004 for health insurance premiums.

On the other hand, I paid $535/month for an apartment in 1994 and I'm paying $546/month today. I wonder how many homeowners have limited the rise in their property taxes and homeowner's insurance to just $11 over the past 10 years. <LOL>

intercst
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On the other hand, I paid $535/month for an apartment in 1994 and I'm paying $546/month today. I wonder how many homeowners have limited the rise in their property taxes and homeowner's insurance to just $11 over the past 10 years. <LOL>

intercst


I can think of one homeowner who, in the past 10 years, turned a $38K down payment + $10K in repairs into a $400K tax-free equity payout when he sold, a nice reward for having a much nicer place to live than a little apartment. About halfway through that ownership period rents went soaring past the cost of mortgage + property tax, so I, er he, broke about even on that, too.

--fleg
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fleg9bo writes,

<<On the other hand, I paid $535/month for an apartment in 1994 and I'm paying $546/month today. I wonder how many homeowners have limited the rise in their property taxes and homeowner's insurance to just $11 over the past 10 years. <LOL>

intercst>>

I can think of one homeowner who, in the past 10 years, turned a $38K down payment + $10K in repairs into a $400K tax-free equity payout when he sold, a nice reward for having a much nicer place to live than a little apartment. About halfway through that ownership period rents went soaring past the cost of mortgage + property tax, so I, er he, broke about even on that, too.


That's a good story, but I doubt it's the rule. Kind of like the renter who turned a $38,000 portfolio into a multi-million dollar portfolio in less than 10 years.

intercst

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That's a good story, but I doubt it's the rule. Kind of like the renter who turned a $38,000 portfolio into a multi-million dollar portfolio in less than 10 years.

It's more common than you might think. Half the cedar homes in OR are occupied by people from LA or the Bay Area (nobody from IL) who retired on what their houses made for them.<g>

--fleg
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That's a good story, but I doubt it's the rule. Kind of like the renter who turned a $38,000 portfolio into a multi-million dollar portfolio in less than 10 years.

OK but the really rare story would be about the investor who made multi-million dollar gains in a 100% fixed income portfolio yielding 3.5% while taking a 4% withdrawal <grin>
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ataloss writes,

<<That's a good story, but I doubt it's the rule. Kind of like the renter who turned a $38,000 portfolio into a multi-million dollar portfolio in less than 10 years.>>

OK but the really rare story would be about the investor who made multi-million dollar gains in a 100% fixed income portfolio yielding 3.5% while taking a 4% withdrawal <grin>


Mel Gibson's movie opens on Ash Wednesday. We'll learn all about the seven loaves and fishes then.

intercst

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I'm 33 and have a BSBA with a Minor in Finance. Despite all the reading I've done in school and my personal time, I'd never heard of the "Passion Saving" book or "Hocus" before today. However, after reading the posts, it is clear to me that Hocus was a delusional person in need of therapy. I feel sorry for his family, because they will be broke before long if he doesn't change his ways (if they aren't already). His "plan" doesn't properly account for inflation, nor does it offer any way for him to increase his so-called "stash" unless he's still working. If he was able to build up 400k in only nine years, then he should have invested that 400k and kept working at his six-figure job until he built up a proper retirement portfolio.
If you're going to "retire," then you shouldn't have to work at anything. That's the whole point of being "retired." Now, being financially independent is a whole different story. You can achieve financial independence at any age, and it doesn't matter whether you're still working or not. Ideally, you will not retire until you are financially independent. Unless your passive income (income you receive but do not have to work for - dividends, interest, rental income, royalties, etc) exceeds your total expenses, you are not financially independent. Your money will eventually run out and you will have to work to maintain your lifestyle. Hocus gives no indication that his passive income exceeded his expenses, in fact he stated that he needed to continue bringing in additional money for him to avoid tapping his principal. That being the case, Hocus is neither "retired," nor is he financially independent.
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>> However, after reading the posts, it is clear to me that Hocus was a delusional person in need of therapy. <<

Welcome aboard.

#29
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If he was able to build up 400k in only nine years, then he should have invested that 400k and kept working at his six-figure job until he built up a proper retirement portfolio. - Jim
_____________________________________________________________________


Sometimes departure from one's job isn't voluntary. We don't know the whole story. It's like talking to a couple who is divorcing. The story you hear is entirely dependent on which person you are talking to.

I freely admit that I was laid off in 1998, went back to school to get a master's in education and then found out I was a horrible teacher. I stayed at it as long as I could but only lasted a year and half in the classroom. I place half the blame on myself.

- Art
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<<I'm 33 and have a BSBA with a Minor in Finance. Despite all the reading I've done in school and my personal time, I'd never heard of the "Passion Saving" book or "Hocus" before today. However, after reading the posts, it is clear to me that Hocus was a delusional person in need of therapy. >>


Perhaps you could do me a favor and check the list of people who've made you a "Favorite Fool." I'm interested in how many minutes and seconds elapse between the time this was posted and the time "intercst" (The Sage of Early Retirement) makes you a Favorite Fool of his.


Your post will really push his buttons, such Hocomania (as he likens it) is one of his favorite rants.


Welcome to the Board. You have earned the status of being a Seattle Pioneer Favorite Fool, and I can see I've beaten intercst out with this recognition.




Seattle Pioneer
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