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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: of 741467  
Subject: Re: Retire on $500,000 or less? Date: 2/24/2000 10:49 AM
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xhail writes:

Hocus, why didn't you opt for the usual 80% stocks and 20% cash reserves for 5 yrs living expenses? Were you close to your retirement goal and felt by opting stocks, you would not get there if they fell drastically in the short -term?

That's it.

If so, why haven't you readjusted to the above mix or aren't you retired yet?

Not quite yet.

I do think $500,000 or less is quite possible for those with modest means.

I do too. The downside is, losing 50 percent hurts a lot more at these levels. There's not much slack.

Personally, I want to strive for more, but first plan on what I can attain and accept to live on at the lowest....Why not do it on 500g or less instead of 1mil+ if you can?

It sounds like we are thinking along the same lines. I would love to be debating whether to retire on $500,000 or $1,000,000. Those are two nice alternatives to be facing. The $1,000,000 is just not in the cards in my case, though. If I had not made a decision to retire somewhere a little above $500,000, I would have quit my current job several years ago, taken a lower paying but more fulfilling job, and given up on the retire early concept altogether.

It's only the possibility that I can retire early that has kept me hanging on, and there ain't no give on the issue of staying until I reach $1,000,000. It's great for those who can see a way to pull it off, though. This is why I can't stomach the idea of losing a high percentage of the nest egg (See Post #4560 for a discussion of who among us should be permitted to use the words "nest" and "egg" together in the same sentence, and who should not). Because of my circumstances, I know I wouldn't have the guts to ride out a major downturn in the market; given that fact, I think it is prudent to limit my participation in it (as of today, to zero, but that may change).

For the most part,I have to side w/ Intercst on the optimal mixes and safe rates of returns.

Intercst has performed an important service by offering the safe withdrawal study. It's a valuable tool that lets people know the amount they can take out of a pool of stock investments each year while depending on the pool to still be there (and most likely grow). The only point on which I differ is whether this tool can be applied in cases where the investor has doubts about his ability to remain in stocks in the aftermath of a sharp drop in portfolio values.

I have a slightly different situation, in which my business plans are important to me and I want to have a go on a couple of them first for personal goals, and secondly to see if I can actually get higher returns than I would on stocks.

You and me both! I define the phrase "retire early" broadly. For me, it does not mean retire and then not work. For me it means get out of the shackles that come with needing a high paying job to get by. The usual advice to someone frustrated in their job is to look for another. I could do that, but what happens if that falls through someday as well?

My breakthrough was when I realized that the best way for me to find fulfilling work was not to need money to live on anymore. That's where I will be shortly. At that point, I can start businesses or accept jobs, and hopefully bring in money for life's little extras. But I can also shut down those businesses or walk away from those jobs without worrying whether my family has the money it needs to live on. Bottom line: I am in control of my life. That's what the phrase "retire early" (or financial independence, if you prefer) means to me.

Like you, if I would have maxed out in stocks say 5 years ago, I would be much farther towards both, but hindsight is 20/20.

You know what? People striving toward financial independence are going to run into the jealousy problem a lot more frequently than most others. Most just don't have the amounts of capital we talk about on this board. Having a lot of capital is generally perceived as a good thing. But it can cause emotional turmoil too; it's something to watch out for.

I have some measure of jealousy for the returns enjoyed by intercst. But it's not a problem because I am happy with where I am myself (especially compared to the millions who could lose their jobs anyday and have no capital whatsoever). How would I feel, though, if three months now, I had a little less than $300,000 rather than a little more than $500,000? I'm the one who has to live with my answer to that question, so I have to think hard about it before I decide on an investment strategy.

I will need a good portion of my money soon for the businesses so I don't invest the max in stocks, but at the same time have that other goal of reaching the minimal amount for retirement asap.It is a dilemma because if I forget about the businesses, I may get to the minimal retirement amount much sooner, but maybe not if stocks fall badly.

These are the issues I struggle with. The fact that I plan to work after "retiring" means that I can probably let go of the corporate job with a bit less than those who do not want to work after hitting the target. That's a plus for me. However, the fact the I have constructed a plan that provides for bare-bones living expenses only means that I can't take on as much risk. That's unfortunate. I lose out on returns this way. But these are the cards I was dealt, so I'm playing them the best I know how.

The businesses could also possibly get me there sooner and far beyond the 500g, and I have more control there, but that takes away from investing the max in stocks.

I know what you're talking about, because my goals are similar. One question I've asked myself is, do I need a business fund to cover $50,000 or so start-up expenses (I'm looking only at low-capital enterprises)? My answer is, it would be nice. If the frustration level gets too high (and there are days), I will let go the reins without the business fund.

In that case, I will go forward on the presumption that the start-up money will be paid back to my nest egg with profits from the business. Is it possible that this won't work? Yes. If bad things happen, I'll deal with them. I don't think what I'm doing is crazy, though.

And it's possible (just as possible? more likely?) that the business will actually provide additional funds for the nest egg rather than subtract from it. From the first moment that I considered the retire early concept, I was thinking of it as a "bridge" to a new type of work. If this wasn't a possibility, I just wouldn't be in the retire early game at all (which isn't to say that full retirement is not also a valid goal). See Post #3271 if you are interested in further discussion of the "bridge" concept.

I don't want to be an old man wondering what if or bitter that I didn't at least give my dreams a try.

Bless you. I hope you make a million in your business. If you lose a million, I hope you do it having an adventure that was worth a million to you to go through. If those are the only possibilities for you, you are surely doing the right thing.

Faithful viewers will note that I've exceeded my word allotment yet again! (and after starting out so well with my first ever two-word and three-word responses in reply to xhail's initial two questions!) Re this, I've been thinking about that Steely Dan song. How did they put it?

I cried when I wrote this song.
Sue me if I play too long.


Now that's deep.

Epilogue (!)

Many thanks to the kind soul who recommended my Friday knock-knock post (#4262 for those seeking an antidote to the Big Think above). The beautiful baby boy was excited to learn that "his" knock-knocks received the recognition they deserve.
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