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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 737070  
Subject: Retire Early Home Page FAQ Date: 1/10/2000 11:34 AM
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I've put together a list as tqmbill suggested. If anyone has anything to add, reply to this post. I'll collect the changes at the end of the week and collate a new list. Once we get the final list posted, I'll get TMF to have the final post in the thread listed at the top of each page as "Retire Early Home Page FAQ."

start FAQ
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

What's the Retire Early Home Page?

See link, http://home.earthlink.net/~intercst/reindex.html

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for all the research he did as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

Common Acronyms

COLA Cost of Living Allowance
DIA Stock Index Mirroring the Dow Jones Industrial Average
IMHO In my honest (or humble) opinion
IRA Individual Retirement Arrangement
IRS Internal Revenue Service
LBYM Living Below Your Means
LTB&H Long-Term Buy & Hold
MMF Money Market Funds
PLR IRS Private Letter Ruling
QQQ Stock index mirroring NASDAQ 100
REHP Retire Early Home Page
SEPP Substantially Equal Periodic Payment
SPY Stock Index mirroring S&P500
TCM Tax Court Memorandum
YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Internal Revenue Service (IRS) Acronyms

1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Educational tax-deferred retirement plan IRS form used to calculate 10% early penalty

89-25 IRS guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list

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Author: luvmylife One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2060 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/10/2000 12:24 PM
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Excellent list! One nit-picky thing which may or may not be correct...I think of a 403-B as more for a "non-profit" institution (as opposed to corporate) than "educational". I worked at a non-profit hospital for 10 years and have a 403-B, so I don't think of 403-B's as just for educational institutions. Thanks for putting this together!

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Author: ZBar Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2061 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/10/2000 12:43 PM
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How about adding

MRD - Minimum Required Distributions at 70 1/2

Zbar

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Author: LB0507 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2065 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/10/2000 2:56 PM
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Also:

AFR (Applicable Federal Rates)

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Author: tqmbill Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2070 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/10/2000 5:32 PM
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Thanks, John.

Do you want to say anything like "Topics discussed on this board typically include....."

And/or do you want to include any links such as:

"Other related discussions boards include the--

Living below your means board <link>

Tax questions <link>

Retirement (general) <link>


I'm too lazy to actually look up the boards, but I think they exist. Anyway, these are just ideas. I can think of both pros and cons. There's a lot to be said for keeping it simple. (And the acronym list is growing beyond simple, IMHO).

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Author: malakito Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2077 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/11/2000 2:31 PM
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You might also add a link to the tax code for those who want to actually read it. There was a thread on this in the last few weeks.

--malakito.

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Author: baanista One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2111 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/12/2000 7:21 AM
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Speaking of threads, maybe you could have the post numbers for some of the more useful/interesting threads in the FAQ. Sort of a REHP Greatest Hits?

Baanista

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2118 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/12/2000 10:18 AM
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baanista wrote,

Speaking of threads, maybe you could have the post numbers for some of the more useful/interesting threads in the FAQ. Sort of a REHP Greatest Hits?

Great idea!

Everyone out there, please reply with your favorite thread and the post # of the first message in that thread.

intercst



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Author: ajgray One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2164 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/13/2000 3:41 PM
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Everyone out there, please reply with your favorite thread and the post # of the first message in that thread.

My favorite threads are the real-life stories: when someone presents how they retired early (or are working toward it), and others chime in with comments and suggestions. Good examples of these are "Feasibility of Early Retirement" (post 110) and "My Plan" (post 1538), as well as intercst's story. I find these to be both educational and inspiring.

Other very common questions/topics: safe withdrawal rates, 72(t), SEPP calculation, and rent vs. buy (i.e., post 590).

-- Andy


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2285 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/17/2000 1:30 PM
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Here's what I've compiled so far. I'll give the group another week to look at the FAQ and comment before I ask TMF to link it to the boards

start FAQ
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

What's the Retire Early Home Page?

See link, http://home.earthlink.net/~intercst/reindex.html

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

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


Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

BFWButt F**k**g Weasel -term describing "professionals" who overcharge for legal and investment services

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id



Internal Revenue Service (IRS) Acronyms

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm

1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list


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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2286 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/17/2000 1:44 PM
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One more modest suggestion:

IRC Internal Revenue Code, online versions available at

http://www.fourmilab.ch/ustax/ustax.html and

http://uscode.house.gov/usc.htm

Also, useful:

http://www.taxlinks.com/


Just my $0.02. Regards, JAFO

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Author: foolishtomtom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2287 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/17/2000 2:21 PM
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Do we really need "BFW" in the list of acronyms?

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Author: dcoleman87 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2288 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/17/2000 2:31 PM
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Do we really need "BFW" in the list of acronyms?

How about DUMKPOFS

Dubious
Unscrupulous
Manipulators
Keeping
Other
People from
Financial
Sanity

Dave


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Author: dcoleman87 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2289 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/17/2000 2:35 PM
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Meaning "DUMKOPFS" in the header. Preview.preview.

Dave

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Author: Linne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2290 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/18/2000 12:25 AM
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Another related Motley Fool message board:

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000387001


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Author: ZBar Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2295 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/18/2000 12:53 PM
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Listing "Your Money or Your Life" also got me to thinking about other books or articles that might be helpful and might want to be included on the FAQ.

"The Millionaire Next Door" should certainly be on the list.

Does anyoe else have other pertinent titles and or authors. (ie Paul Terrhorst)

Z-Bar

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Author: 2002orbust One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2300 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/18/2000 7:09 PM
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Does anyoe else have other pertinent titles and or authors. (ie Paul Terrhorst)

How about the companion book to "Your Money or your Life", which is "Getting a Life" by J Blix and D Heitmeiler (sp?) I find myself referring to it often for inspiration and encouragement. Highly recommended for all of you out there (like me) who are trying to lower expenses to make "D Day" come that much sooner.



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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2461 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 1/22/2000 9:59 PM
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FAQ Revised January 22, 2000
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questioned answered below:

What's the Retire Early Home Page?

What are some commonly used acronyms on this board?

What are some good books on early retirement?

What are some related Motley Fool message boards?

What are some of the "best threads" on this board?

Where can I find the Internal Revenue Code (IRC)?

Where can I find the Applicable Federal Rates (AFR)?

What are some commonly used IRS Forms and acronyms pertaining to early retirement.



What's the Retire Early Home Page?

See link, http://home.earthlink.net/~intercst/reindex.html

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

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


Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://www.geocities.com/WallStreet/8257/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id



Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates from the IRS Web Site (AFRs for SEPP are in Table 1)
http://ftp.fedworld.gov/pub/irs-utl/afrs.pdf

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2970 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/2/2000 10:10 PM
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FAQ Revised: February 02, 2000
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:

What's the Retire Early Home Page?
What are some commonly used acronyms on this board?
What are some good books on early retirement?
What are some related Motley Fool message boards?
What are some of the "best threads" on this board?
How will retiring early effect my Social Security benefits?
Where can I find the Internal Revenue Code (IRC)?
Where can I find the Applicable Federal Rates (AFR)?
What are some commonly used IRS Forms and acronyms pertaining to early retirement.


What's the Retire Early Home Page?

See link, http://home.earthlink.net/~intercst/reindex.html

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

Note: There is also a mirror site at http://www.RetireEarlyHomePage.com

My ISP provider is starting to charge me for excessive traffic, so I'll likely be redirecting folks to the second "RetireEarlyHomePage.com" link near the end of each month before I exceed my "free bandwith" quota. <grin>


The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

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

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://www.geocities.com/WallStreet/8257/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

Also any post by hocus is well worth reading. Just click on the "Recs" link on the list of posts for the Retire Early board. His are all at the top.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Also, it's not a good idea to retire early at age 62-70 and earn income. If you want to read more about the impact of earning income during retirement on your Social Security benefits, see link:

http://www.unitedseniors.org/usais/june/page2.htm









Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://ftp.fedworld.gov/pub/irs-utl/afrs.pdf

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list


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Author: WilliamLipp Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2976 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/2/2000 11:33 PM
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Recommendations: 1
Please consider adopting the technique from the Foolish Four FAQ. New and changed items are marked with +++ the first time they occur on the FAQ. It helps us see the differences, and increases the chance that regulars will look closely enough to see the differences.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2977 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/2/2000 11:39 PM
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WilliamLipp wrote,

Please consider adopting the technique from the Foolish Four FAQ. New and changed items are marked with +++ the first time they occur on the FAQ. It helps us see the differences, and increases the chance that regulars will look closely enough to see the differences.

Good idea.

I'll adopt that practice with the March 2000 update.

intercst

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Author: lindacarol Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3016 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/3/2000 1:49 PM
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Well, that superb FAQ effort by intercst brought me out of several months of lurker status. I've got it stuck on the wall by my monitor for reference. Well done and thanks!

Linda
P.S. I always assumed intercst meant intercoast since you're in Texas (between the coasts)...but maybe that would really be "intracoast"??? In any case it's nice to know how to pronounce your screen name.

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Author: hocus Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3018 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/3/2000 2:02 PM
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I always assumed intercst meant intercoast since you're in Texas (between the coasts)...

I always assumed it was an attempted reference to "interest" since that's what he's living on now, but he just couldn't spell so good.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3035 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/3/2000 5:04 PM
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lindacarol wrote,

P.S. I always assumed intercst meant intercoast since you're in Texas (between the coasts)...but maybe that would really be "intracoast"??? In any case it's nice to know how to pronounce your screen name.

Not "intracoast", but thankfully I'm at the point where I can pretty much "just coast" along if I want. <grin>

intercst

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3036 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/3/2000 5:11 PM
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hocus wrote,

<<<<<I always assumed intercst meant intercoast since you're in Texas (between the coasts)...>>>>>

I always assumed it was an attempted reference to "interest" since that's what he's living on now, but he just couldn't spell so good.


Actually, now that my withdrawal rate is only about 1% of assets and the average mutual fund has about a 1.30% expense ratio (I pay about 0.01% (1 basis point) in expenses on my LTB&H stock portfolio), I prefer to say that I'm living very comfortably on the money I'M NOT paying a financial advisor.

intercst

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Author: lindacarol Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3055 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/3/2000 10:17 PM
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First lindacarol wrote,
<<<<<I always assumed intercst meant intercoast since you're in Texas (between the coasts)...>>>>>

Then hocus wrote,
<<<<<I always assumed it was an attempted reference to "interest" since that's what he's living on now, but he just couldn't spell so good.>>>>>

Then intercst replied,

<<<<<Actually, now that my withdrawal rate is only about 1% of assets and the average mutual fund has about a 1.30% expense ratio (I pay about 0.01% (1
basis point) in expenses on my LTB&H stock portfolio), I prefer to say that I'm living very comfortably on the money I'M NOT paying a financial
advisor.>>>>

Ah, now I see what your screen name really means:
I ntercst's
N otably
T iny
E xpense
R atios
C reate
S ecure
T akeouts

Linda : )
(who obviously has too much time on her hands tonight!)


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Author: SUSIQ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3155 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/5/2000 5:39 PM
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Help!

A number of messages back, you referenced a message 710 as having a good explanation regarding why the SS benefits of high wage earners would not be greatly impacted by retiring early. Message 710 on this board was about something quite different. Did I take the number down incorrectly or is it on another board?

Thanks!

Susi

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3156 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 2/5/2000 5:45 PM
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It's message #740, see link:

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

intercst

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33350 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 3/6/2001 8:57 PM
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Recommendations: 32
FAQ Revised: March 06, 2001
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:

What is the 4% rule?
What's the Retire Early Home Page?
What are some commonly used acronyms on this board?
What are some good books on early retirement?
What are some related Motley Fool message boards?
What are some of the "best threads" on this board?
How will retiring early effect my Social Security benefits?
Where can I find the Internal Revenue Code (IRC)?
Where can I find the Applicable Federal Rates (AFR)?
What are some commonly used IRS Forms and acronyms pertaining to early retirement.

What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra $333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See http://www.retireearlyhomepage.com/ for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

What's the Retire Early Home Page?

See link, http://home.earthlink.net/~intercst/reindex.html

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

Note: There is also a mirror site at http://www.RetireEarlyHomePage.com

My ISP provider is starting to charge me for excessive traffic, so I'll likely be redirecting folks to the second "RetireEarlyHomePage.com" link near the end of each month before I exceed my "free bandwith" quota. <grin>


The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

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

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://www.geocities.com/WallStreet/8257/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

Also any post by hocus is well worth reading. Just click on the "Recs" link on the list of posts for the Retire Early board. His are all at the top.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Also, it's not a good idea to retire early at age 62-70 and earn income. If you want to read more about the impact of earning income during retirement on your Social Security benefits, see link:

http://www.unitedseniors.org/usais/june/page2.htm









Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://ftp.fedworld.gov/pub/irs-utl/afrs.pdf

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 52836 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 10/9/2001 6:20 PM
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Recommendations: 28
FAQ Revised: October 09, 2001
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:
What is the 4% rule?
Does the 4% rule include income taxes?
What's the Retire Early Home Page?
What are some commonly used acronyms on this board?
What are some good books on early retirement?
What are some related Motley Fool message boards?
What are some of the "best threads" on this board?
How will retiring early effect my Social Security benefits?
Where can I find the Internal Revenue Code (IRC)?
Where can I find the Applicable Federal Rates (AFR)?
What are some commonly used IRS Forms and acronyms pertaining to early retirement.

What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra $333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See http://www.retireearlyhomepage.com/ for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

Does the 4% rule include income taxes?

No. The withdrawal rates from the Retire Early study are pre-tax withdrawals, just as the salary you earn from your employment is pre-tax. If you have $40,000 per year in after tax living expenses, and you pay an average of 20% of your income in taxes, then your pre-tax withdrawal needs to be $50,000 per year.

What's the Retire Early Home Page?

See link, http://www.RetireEarlyHomePage.com

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

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

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://www.geocities.com/WallStreet/8257/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

Also any post by hocus is well worth reading. Just click on the "Recs" link on the list of posts for the Retire Early board. His are all at the top.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Also, it's not a good idea to retire early at age 62-70 and earn income. If you want to read more about the impact of earning income during retirement on your Social Security benefits, see link:

http://www.unitedseniors.org/usais/june/page2.htm









Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://ftp.fedworld.gov/pub/irs-utl/afrs.pdf

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list


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Author: amunoz1 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55007 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 11/10/2001 6:54 PM
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Recommendations: 1
The acronym of FIRE?
Thanks

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100474 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/7/2003 1:02 PM
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Recommendations: 21
FAQ Revised: April 07, 2003
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:
What is the 4% rule?
Does the 4% rule include income taxes?
What's the Retire Early Home Page?
What is FIRE?
What are some commonly used acronyms on this board?
What are some good books on early retirement?
What are some related Motley Fool message boards?
What are some of the "best threads" on this board?
How will retiring early effect my Social Security benefits?
Where can I find the Internal Revenue Code (IRC)?
Where can I find the Applicable Federal Rates (AFR)?
What are some commonly used IRS Forms and acronyms pertaining to early retirement.

What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra $333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See http://www.retireearlyhomepage.com/ for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

Does the 4% rule include income taxes?

No. The withdrawal rates from the Retire Early study are pre-tax withdrawals, just as the salary you earn from your employment is pre-tax. If you have $40,000 per year in after tax living expenses, and you pay an average of 20% of your income in taxes, then your pre-tax withdrawal needs to be $50,000 per year.

What's the Retire Early Home Page?

See link, http://www.RetireEarlyHomePage.com

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

http://rehphome.tripod.com/careeradv.html

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


What is FIRE? An acronym for Financially Independent -- Retired Early

Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

FIRE Financially Independent -- Retired Early

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://rehphome.tripod.com/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

Also most any post by hocus prior to May 2002 is well worth reading. His contibutions after that date are largely confined to long diatribes about historical safe withdrawal rates (SWRs) and criticisms of those who question some of his assumptions. Few people pay any attention to him today. Here's a few polls we did on the controversy:

http://boards.fool.com/Message.asp?mid=18771318

http://boards.fool.com/Message.asp?mid=18765972

http://boards.fool.com/Message.asp?mid=18196813

If you want to aquaint yourself with the full SWR "debate transcript", it starts at about post #67,000 and runs past post #100,000.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Also, it's not a good idea to retire early at age 62-70 and earn income. If you want to read more about the impact of earning income during retirement on your Social Security benefits, see link:

http://www.unitedseniors.org/usais/june/page2.htm









Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://ftp.fedworld.gov/pub/irs-utl/afrs.pdf

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list



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Author: galagan Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100610 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 10:44 AM
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from the new FAQ: [Hocus's] contibutions after that date [May 2002] are largely confined to long diatribes about historical safe withdrawal rates (SWRs) and criticisms of those who question some of his assumptions. Few people pay any attention to him today.

Intercst,

Your personal opinions about a poster on this board should not be part of the FAQ. Please remove these two sentences.

thanks,
dan

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Author: twocbock Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100613 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 10:51 AM
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Galagan notes to Intercst:

Your personal opinions about a poster on this board should not be part of the FAQ. Please remove these two sentences.

I agree. Whatever your (or anyone else's - including mine) opinion may be regarding another poster, it is inappropriate to place it in the FAQ. Anyone who comes to this board is more than intelligent enough to formulate their own opinion on any other poster.

twocbock



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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100624 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 11:41 AM
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galagan asks,

<<<from the new FAQ: [Hocus's] contibutions after that date [May 2002] are largely confined to long diatribes about historical safe withdrawal rates (SWRs) and criticisms of those who question some of his assumptions. Few people pay any attention to him today. >>>

Intercst,

Your personal opinions about a poster on this board should not be part of the FAQ. Please remove these two sentences.


Unfortunately, you didn't highlight the complete reference to hocus -- including the three polls I made reference to as well as the "debate transcript", see below

<snip>

Also most any post by hocus prior to May 2002 is well worth reading. His contibutions after that date are largely confined to long diatribes about historical safe withdrawal rates (SWRs) and criticisms of those who question some of his assumptions. Few people pay any attention to him today. Here's a few polls we did on the controversy:

http://boards.fool.com/Message.asp?mid=18771318

http://boards.fool.com/Message.asp?mid=18765972

http://boards.fool.com/Message.asp?mid=18196813

If you want to aquaint yourself with the full SWR "debate transcript", it starts at about post #67,000 and runs past post #100,000.

</snip>

I believe that reference to be fair and balanced in the light of the events of the past year.

Let's do a poll to get a consensus of the board

intercst


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Author: galagan Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100628 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 12:19 PM
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Unfortunately, you didn't highlight the complete reference to hocus -- including the three polls I made reference to as well as the "debate transcript".

That was quite deliberate on my part. A legitimate frequently asked question for a newcomer may concern the attention spent on safe withdrawal rates and the differences of opinion among posters about how to determine it. Therefore, omitting any mention of the safe withdrawal rate debate would, as you suggest, probably not be fair and balanced in light of the events of the past year.

If your motivation for referring to the polls was similarly based on your personal opinion and not as a helpful resource to newcomers inquiring about the SWR debate, then you should take them out as well.

dan

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100648 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 2:13 PM
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Recommendations: 17
FAQ Revised: April 08, 2003
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:
What is the 4% rule?
Does the 4% rule include income taxes?
What's the Retire Early Home Page?
What is FIRE?
What are some commonly used acronyms on this board?
What are some good books on early retirement?
What are some related Motley Fool message boards?
What are some of the "best threads" on this board?
The "Great SWR Debate"
How will retiring early effect my Social Security benefits?
Where can I find the Internal Revenue Code (IRC)?
Where can I find the Applicable Federal Rates (AFR)?
What are some commonly used IRS Forms and acronyms pertaining to early retirement.

What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra $333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See http://www.retireearlyhomepage.com/ for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

Does the 4% rule include income taxes?

No. The withdrawal rates from the Retire Early study are pre-tax withdrawals, just as the salary you earn from your employment is pre-tax. If you have $40,000 per year in after tax living expenses, and you pay an average of 20% of your income in taxes, then your pre-tax withdrawal needs to be $50,000 per year.

What's the Retire Early Home Page?

See link, http://www.RetireEarlyHomePage.com

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

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

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


What is FIRE? An acronym for Financially Independent -- Retired Early

Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

FIRE Financially Independent -- Retired Early

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

SWR Safe Withdrawal Rate

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://rehphome.tripod.com/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

The "Great SWR Debate"

Beginning in May 2002 and continuing to date the board has been engaged in a contentious debate on the subject of safe withdrawal rates (SWRs) in retirement. Here are a few polls that we've done on the subject:

http://boards.fool.com/Message.asp?mid=18177298

http://boards.fool.com/Message.asp?mid=18771318

http://boards.fool.com/Message.asp?mid=18765972

http://boards.fool.com/Message.asp?mid=18196813

If you want to acquaint yourself with the full "Great SWR Debate", it starts at about post #67,000 and runs past post #100,000.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Also, it's not a good idea to retire early at age 62-70 and earn income. If you want to read more about the impact of earning income during retirement on your Social Security benefits, see link:

http://www.unitedseniors.org/usais/june/page2.htm


Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://ftp.fedworld.gov/pub/irs-utl/afrs.pdf

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list



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Author: arrete 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: 100651 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 2:26 PM
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Much better. Leaving hocus out altogether is the best thing. There have been many excellent posts since the early days, and it would be a pain to try to decide which to give space to on the FAQs. The basics with dory36 and TheBadger are fine. I give it arrete's seal of approval.

arrete

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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100655 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 2:30 PM
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Beginning in May 2002 and continuing to date the board has been engaged in a contentious debate on the subject of safe withdrawal rates (SWRs) in retirement. Here are a few polls that we've done on the subject

Not that you care what I think, but the inclusion of these polls that "we've" done in the FAQs only serves to diminish your (intercst's) substantial role in advancing early retirement through the proper utilization of SWR.

I can't imagine any of the giants of the early retirement movement (ter Horsts, etc.) engaging in the kind of verbal bashing and name calling to support their theories that's daily fare here.

To each his own, but can you imagine the absolutely unanimous esteem in which the alleged Board General would be held if he adopted the magnanimous posting style of someone like michaelangela (and others, of course)?


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100660 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 4/8/2003 2:39 PM
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CatherineCoy writes,

<<<Beginning in May 2002 and continuing to date the board has been engaged in a contentious debate on the subject of safe withdrawal rates (SWRs) in retirement. Here are a few polls that we've done on the subject>>>

Not that you care what I think, but the inclusion of these polls that "we've" done in the FAQs only serves to diminish your (intercst's) substantial role in advancing early retirement through the proper utilization of SWR.


I'm happy to let people review the polls and the 40,000 post "debate transcript" and make their own judgements. If that serves to "diminish my substantial role", I'm fine with that.

Heck, as I've said before, it's not as though anything that happens here is going to propel me back into the workforce. <LOL>

intercst


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Author: tmeri Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 166995 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/4/2004 6:39 PM
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Recommendations: 0
You have some broken links in here:

http://home.earthlink.net/~intercst/careeradv.html
http://rehphome.tripod.com/rebooks.html
http://www.unitedseniors.org/usais/june/page2.htm



I notice that since you added FIRE to the acronyms, we're getting fewer of those questions. Perhaps you could add an answer to why there is so much off topic discussion and how to cope with it?

- tmeri

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 166997 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/4/2004 6:44 PM
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tmeri writes,

You have some broken links in here:

http://home.earthlink.net/~intercst/careeradv.html
http://rehphome.tripod.com/rebooks.html
http://www.unitedseniors.org/usais/june/page2.htm


I notice that since you added FIRE to the acronyms, we're getting fewer of those questions. Perhaps you could add an answer to why there is so much off topic discussion and how to cope with it?


Good idea.

I'm deputizing you to write the answer for the next FAQ update. <grin>

intercst

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 167006 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/4/2004 7:40 PM
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Recommendations: 3

FAQ Revised: May 04, 2004
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:


Why are there so many off-topic and political posts on the Retire Early board?


What is the 4% rule?


Does the 4% rule include income taxes?


What's the Retire Early Home Page?


What is FIRE?


What are some commonly used acronyms on this board?


What are some good books on early retirement?


What are some related Motley Fool message boards?


What are some of the best threads on this board?


The Great SWR Debate


How will retiring early effect my Social Security benefits?


Where can I find the Internal Revenue Code (IRC)?


Where can I find the Applicable Federal Rates (AFR)?


What are some commonly used IRS Forms and acronyms pertaining to early retirement.



Why are there so many off-topic and political posts on the Retire Early board?


Most of the early retirement questions have been answered many times. If all we did was discuss Safe Withdrawal Rates (SWR) from a retirement portfolio and early IRA withdrawals, there'd be about 2 posts per day on this board and most of our most knowledgable posters would have left long ago.


What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra $333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See <A HREF="http://www.retireearlyhomepage.com/">http://www.retireearlyhomepage.com/</A> for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

Does the 4% rule include income taxes?

No. The withdrawal rates from the Retire Early study are pre-tax withdrawals, just as the salary you earn from your employment is pre-tax. If you have $40,000 per year in after tax living expenses, and you pay an average of 20% of your income in taxes, then your pre-tax withdrawal needs to be $50,000 per year.

What's the Retire Early Home Page?

See link, <A HREF="http://www.RetireEarlyHomePage.com">http://www.RetireEarlyHomePage.com</A>

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

<A HREF="http://www.retireearlyhomepage.com/careeradv.html">http://www.retireearlyhomepage.com/careeradv.html</A>

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


What is FIRE? An acronym for Financially Independent -- Retired Early

Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

FIRE Financially Independent -- Retired Early

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

SWR Safe Withdrawal Rate

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
<A HREF="http://www.retireearlyhomepage.com/rebooks.html">http://www.retireearlyhomepage.com/rebooks.html</A>

Related Motley Fool message boards:

Estate Planning and the Fool
<A HREF="http://boards.fool.com/Messages.asp?id=1380039000065001">http://boards.fool.com/Messages.asp?id=1380039000065001</A>

Inheritance Strategies
<A HREF="http://boards.fool.com/Messages.asp?id=1040009000379000">http://boards.fool.com/Messages.asp?id=1040009000379000</A>

Living Below Your Means (LBYM)
<A HREF="http://boards.fool.com/Messages.asp?id=1040018003509021">http://boards.fool.com/Messages.asp?id=1040018003509021</A>

Retired Fools
<A HREF="http://boards.fool.com/Messages.asp?id=1370006000391001">http://boards.fool.com/Messages.asp?id=1370006000391001</A>

Retirement Investing
<A HREF="http://boards.fool.com/Messages.asp?id=1040013004497000">http://boards.fool.com/Messages.asp?id=1040013004497000</A>

Tax Strategies
<A HREF="http://boards.fool.com/Messages.asp?id=1040014007407004">http://boards.fool.com/Messages.asp?id=1040014007407004</A>


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
<A HREF="http://boards.fool.com/Message.asp?id=1380025000028000&sort=id">http://boards.fool.com/Message.asp?id=1380025000028000&sort=id</A>

Rent vs. Buy (your home) (post #590)
<A HREF="http://boards.fool.com/Message.asp?id=1380025000100000&sort=id">http://boards.fool.com/Message.asp?id=1380025000100000&sort=id</A>

The "Great SWR Debate"

Beginning in May 2002 and continuing to date the board has been engaged in a contentious debate on the subject of safe withdrawal rates (SWRs) in retirement. Here are a few polls that we've done on the subject:

<A HREF="http://boards.fool.com/Message.asp?mid=18177298">http://boards.fool.com/Message.asp?mid=18177298</A>

<A HREF="http://boards.fool.com/Message.asp?mid=18771318">http://boards.fool.com/Message.asp?mid=18771318</A>

<A HREF="http://boards.fool.com/Message.asp?mid=18765972">http://boards.fool.com/Message.asp?mid=18765972</A>

<A HREF="http://boards.fool.com/Message.asp?mid=18196813">http://boards.fool.com/Message.asp?mid=18196813</A>

If you want to acquaint yourself with the full "Great SWR Debate", it starts at about post #67,000 and runs past post #100,000.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

<A HREF="http://www.ssa.gov/pubs/10070.html">http://www.ssa.gov/pubs/10070.html</A>

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

<A HREF="http://www.ssa.gov/OACT/ANYPIA/">http://www.ssa.gov/OACT/ANYPIA/</A>

Post #740 explains why high income earners shouldn't worry it.

<A HREF="http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate">http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate</A>

Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
<A HREF="http://www.taxlinks.com/">http://www.taxlinks.com/</A>
<A HREF="http://uscode.house.gov/usc.htm">http://uscode.house.gov/usc.htm</A>
<A HREF="http://www.fourmilab.ch/ustax/ustax.html">http://www.fourmilab.ch/ustax/ustax.html</A>

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
<A HREF="http://www.irs.gov/taxpros/lists/0,,id=98042,00.html">http://www.irs.gov/taxpros/lists/0,,id=98042,00.html </A>

Historical AFRs (Years 1985 to 2000)
<A HREF="http://evans-legal.com/dan/afr.html">http://evans-legal.com/dan/afr.html</A>

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

<A HREF="http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate">http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate</A>

A study of PLRs pertaining to "reasonable interest rates"

<A HREF="http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate">http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate</A>


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list




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Author: tmeri Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 167010 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/4/2004 8:11 PM
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Recommendations: 0
Good idea.

I'm deputizing you to write the answer for the next FAQ update. <grin>

intercst



Very funny. <g>

- tmeri

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Author: tmeri Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 167034 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/4/2004 10:12 PM
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Recommendations: 0
Eeeewwwwwww. That's pretty ugly. Looks like the Fool had a problem when they encoded your post. Maybe you should post it again before you ask them to make this the new FAQ.

- tmeri

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 167461 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/7/2004 1:08 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
FAQ Revised: May 04, 2004
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:


Why are there so many off-topic and political posts on the Retire Early board?


What is the 4% rule?


Does the 4% rule include income taxes?


What's the Retire Early Home Page?


What is FIRE?


What are some commonly used acronyms on this board?


What are some good books on early retirement?


What are some related Motley Fool message boards?


What are some of the best threads on this board?


The Great SWR Debate


How will retiring early effect my Social Security benefits?


Where can I find the Internal Revenue Code (IRC)?


Where can I find the Applicable Federal Rates (AFR)?


What are some commonly used IRS Forms and acronyms pertaining to early retirement.



Why are there so many off-topic and political posts on the Retire Early board?


Most of the early retirement questions have been answered many times. If all we did was discuss Safe Withdrawal Rates (SWR) from a retirement portfolio and early IRA withdrawals, there'd be about 2 posts per day on this board and most of our most knowledgable posters would have left long ago.


What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra $333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See http://www.retireearlyhomepage.com/ for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

Does the 4% rule include income taxes?

No. The withdrawal rates from the Retire Early study are pre-tax withdrawals, just as the salary you earn from your employment is pre-tax. If you have $40,000 per year in after tax living expenses, and you pay an average of 20% of your income in taxes, then your pre-tax withdrawal needs to be $50,000 per year.

What's the Retire Early Home Page?

See link, http://www.RetireEarlyHomePage.com

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

http://www.retireearlyhomepage.com/careeradv.html

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


What is FIRE? An acronym for Financially Independent -- Retired Early

Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

FIRE Financially Independent -- Retired Early

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

SWR Safe Withdrawal Rate

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://www.retireearlyhomepage.com/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

The "Great SWR Debate"

Beginning in May 2002 and continuing to date the board has been engaged in a contentious debate on the subject of safe withdrawal rates (SWRs) in retirement. Here are a few polls that we've done on the subject:

http://boards.fool.com/Message.asp?mid=18177298

http://boards.fool.com/Message.asp?mid=18771318

http://boards.fool.com/Message.asp?mid=18765972

http://boards.fool.com/Message.asp?mid=18196813

If you want to acquaint yourself with the full "Great SWR Debate", it starts at about post #67,000 and runs past post #100,000.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://www.irs.gov/taxpros/lists/0,,id=98042,00.html

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

----------------------------------------------
end FAQ list




Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: tmeri Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 167555 of 737070
Subject: Re: Retire Early Home Page FAQ Date: 5/7/2004 2:40 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 17
FAQ Revised: May 04, 2004
--------------------------------------------------

RETIRE EARLY HOME PAGE FAQ

Questions answered below:
Why are there so many off-topic and political posts on the Retire Early board?
What is the 4% rule?
Does the 4% rule include income taxes?
What's the Retire Early Home Page?
What is FIRE?
What are some commonly used acronyms on this board?
What are some good books on early retirement?
What are some related Motley Fool message boards?
What are some of the best threads on this board?
The Great SWR Debate
How will retiring early effect my Social Security benefits?
Where can I find the Internal Revenue Code (IRC)?
Where can I find the Applicable Federal Rates (AFR)?
What are some commonly used IRS Forms and acronyms pertaining to early retirement.


Why are there so many off-topic and political posts on the Retire Early board?

Most of the early retirement questions have been answered many times. If all we did was discuss Safe Withdrawal Rates (SWR) from a retirement portfolio and early IRA withdrawals, there'd be about 2 posts per day on this board and most of our most knowledgable posters would have left long ago.


What is the 4% rule? (explanation by dory36)

It's simply the maximum withdrawal that one can take from a portfolio every year for 40 years, and know that even in the worst times this country has ever seen, the portfolio would not have run dry. How was this determined? The research tools mentioned later simply take a given portfolio on an assumed retirement on 12/31/1871, and adjust it for actual market conditions with the given (inflation adjusted) withdrawal each year for 40 years. Then, the research tool started over, assuming retirement was 12/31/1872. The 1873, and so forth. The withdrawal rate that would never result in a depleted portfolio is what we call a "maximum 100% safe rate", and that works out to about 4% for a 40 year retirement.

Why not 5%? Simply because historically, a 5% withdrawal would deplete the portfolio in some of the bad times we've seen. And we don't just mean the Great Depression -- in about 25% of the possible retirement years since 1871, the portfolio would have gone bust before 40 years were up.

And why not 3%? Well, if we had decided we wanted a $40,000 annual income in retirement, 3% would require a portfolio of about $1.33 million, when, at least based on all of our history, we'd have been safe retiring with only $1 million in the portfolio. Chances are, that extra 333,333 would take several years of extra work and investing, after we had achieved our financial requirements.

IMPORTANT: This is a much over-simplified description of a lot of research. See http://www.retireearlyhomepage.com/ for links to this research, and for spreadsheets and other tools which allow you to test your own plans and timeframes against the included historical market performance.

Just a few details: The 4% is adjusted for inflation annually, and there are important assumptions about how the money is invested, including the allocation between stocks and fixed income investments. The research was based on portfolio values as of 12/31 of the retirement year. And it's not exactly 4% -- that's just a rounded off figure based on some typical asset allocations.

And a few more comments...
The question frequently comes up -- can I include my house, car, and collection of Elvis LPs in the value of my portfolio? The answer is, not unless you make the assumption that these assets will behave the same way as the stock market in general. The 4% number comes from looking at stock market behavior, bond rates, and inflation -- research on other assets has not been included in these studies.

More commonly, though, when doing these calculations, people will use a paid-off house to reduce their annual expenses. Since you need $25 in the portfolio for every $1 in annual expenses, cutting any costs will have a big impact in changing the portfolio requirements. ($1 is 4% of $25...)

Does the 4% rule include income taxes?

No. The withdrawal rates from the Retire Early study are pre-tax withdrawals, just as the salary you earn from your employment is pre-tax. If you have $40,000 per year in after tax living expenses, and you pay an average of 20% of your income in taxes, then your pre-tax withdrawal needs to be $50,000 per year.

What's the Retire Early Home Page?

See link, http://www.RetireEarlyHomePage.com

“The online magazine for people who used to work for a living.”

Created by John Greaney (aka “intercst”) in April 1996, The Retire Early Home Page is a repository for the research he complied as a result of retiring in 1994 at age 38. There are also a number of Excel spreadsheets that you can download for free. New articles are posted at least monthly.

The best summary of intercst's strategy for retiring before age 40 is "Career Advice for Budding Early Retirees", see link:

http://www.retireearlyhomepage.com/careeradv.html

Several people have asked, "How do you pronounce, 'intercst?'" It's pronounced "Inter Cost." That's the name of a computer program I wrote in the early 1990's to estimate the engineering and construction cost for building oil refineries and chemical plants in foreign locations. (Get it? International Cost.) When I first got on the Web in 1994, you had to limit your user name to 8 letters, so I dropped the "o" to make it fit. Now I'm stuck with an unpronounceable screen name.


What is FIRE? An acronym for Financially Independent -- Retired Early

Commonly Used Acronyms

AFR Applicable Federal Rate (for calculating SEPP withdrawals)

COLA Cost of Living Allowance

DIA Stock Index Mirroring the Dow Jones Industrial Average

FIRE Financially Independent -- Retired Early

IMHO In my honest (or humble) opinion

IRA Individual Retirement Arrangement

IRS Internal Revenue Service

LBYM Living Below Your Means

LTB&H Long-Term Buy & Hold

MMF Money Market Funds

PLR IRS Private Letter Ruling

QQQ Stock index mirroring NASDAQ 100

REHP Retire Early Home Page

RMD Required Minimum Distribution (from IRA at age 70 1/2)

SEPP Substantially Equal Periodic Payment

SPY Stock Index mirroring S&P500

SWR Safe Withdrawal Rate

TCM Tax Court Memorandum

TTJASI Take This Job and Shove It.

YMOYL Book Title: Your Money or Your Life, by Joe Dominguez & Vicki Robin

Books on Early Retirement

The Retire Early Home Page has reviewed several books on the subject, see link:
http://www.retireearlyhomepage.com/rebooks.html

Related Motley Fool message boards:

Estate Planning and the Fool
http://boards.fool.com/Messages.asp?id=1380039000065001

Inheritance Strategies
http://boards.fool.com/Messages.asp?id=1040009000379000

Living Below Your Means (LBYM)
http://boards.fool.com/Messages.asp?id=1040018003509021

Retired Fools
http://boards.fool.com/Messages.asp?id=1370006000391001

Retirement Investing
http://boards.fool.com/Messages.asp?id=1040013004497000

Tax Strategies
http://boards.fool.com/Messages.asp?id=1040014007407004


Retire Early Home Page Greatest Hits (i.e., best threads to date)

Feasibility of Early Retirement (post #110)
http://boards.fool.com/Message.asp?id=1380025000028000&sort=id

Rent vs. Buy (your home) (post #590)
http://boards.fool.com/Message.asp?id=1380025000100000&sort=id

The "Great SWR Debate"

Beginning in May 2002 and continuing to date the board has been engaged in a contentious debate on the subject of safe withdrawal rates (SWRs) in retirement. Here are a few polls that we've done on the subject:

http://boards.fool.com/Message.asp?mid=18177298

http://boards.fool.com/Message.asp?mid=18771318

http://boards.fool.com/Message.asp?mid=18765972

http://boards.fool.com/Message.asp?mid=18196813

If you want to acquaint yourself with the full "Great SWR Debate", it starts at about post #67,000 and runs past post #100,000.

How will retiring early effect my Social Security benefits?

Explaination of how your Social Security benefit is calculated, see link:

http://www.ssa.gov/pubs/10070.html

The Social Security Administration also has a program for your PC which will calculate it for you, if you know all your yearly incomes, see link:

http://www.ssa.gov/OACT/ANYPIA/

Post #740 explains why high income earners shouldn't worry it.

http://boards.fool.com/Message.asp?id=1380025000101008&sort=postdate

Internal Revenue Code (IRC)

Internal Revenue Code, Revenue Rulings, Revenue Procedures, etc:
http://www.taxlinks.com/
http://uscode.house.gov/usc.htm
http://www.fourmilab.ch/ustax/ustax.html

Applicable Federal Rates (AFR)

Current Monthly Rates (AFRs for SEPP are in Table 1)
http://www.irs.gov/taxpros/lists/0,,id=98042,00.html

Historical AFRs (Years 1985 to 2000)
http://evans-legal.com/dan/afr.html

TheBadger has also made several informative and well documented posts on the subject:

General info on PLRs pertaining to 72(t) and "substantially equal periodic payments" SEPP

http://boards.fool.com/Message.asp?id=1380025000303000&sort=postdate

A study of PLRs pertaining to "reasonable interest rates"

http://boards.fool.com/Message.asp?id=1380025000318000&sort=postdate


Internal Revenue Service (IRS) Acronyms


1099-R IRS form showing annual retirement distributions

401(k) Corporate tax-deferred retirement plan

403(b) Non-profit organization tax-deferred retirement plan (similar to 401(k))

5329 IRS form used to calculate 10% penalty on early withdrawals

89-25 IRS Notice containing guidelines for avoiding 10% early penalty

§72(t)(1) imposes the 10% penalty.

§72(t)(2) defines the exceptions to the 10% penalty.

§72(t)(4) re-imposes the 10% penalty when you screw up.

§72(q) is the companion to §72(t) for annuities.

§401(a) umbrella code section that creates a multitude of different tax deferred retirement plans.

§401(k) is strictly an employee contributed "CODA" meaning cash or deferred arrangement.

AFR Applicable Federal Rate (of interest)

C.B. Cumulative Bulletin

GCM General Counsel Memorandum

REG. IRS regulation

Rev. Proc. IRS Revenue Procedure

RMD Required Minimum Distribution from IRA/401(k) at age 70 1/2.

TAM Technical Advice Memorandum

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