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was reading an article this morn where the owner of a trailer park was increasing the rent substantially on renters. The article focused on how this would affect the residents who are living on a more or less fixed income. The effect is obvious.

But what it did was highlight for me the realization that we are probably arguing the wrong aspect of planning for early retirement. There is a lot of discussion taking place on whether or not we should use 4% or 2% SWR. I have stated I am not putting my retirement on the line by following the 4% SWR, but I am doing that because I am focusing on HOW TO CALCULATE MY ANNUAL BUDGETS. Which if I can calculate accurately, tells me how much I need in sum to retire which in effect makes the 4% or 2% or whichever w/d rate I choose to use work (at least for a little while barring a total failure on my budget estimating and degradation in market returns, etc)

so wondering, is it more important to focus on HOW TO ACCURATELY ESTIMATE your annual budgetary needs? To wonder how much to pad your annual budget up front in determining if one has enough to retire at the intended w/d rate?

because bottom line, if you underestimate your annual needs or they are exceeded because of unanticipated (say it this way because we all expect costs to rise, but don't think too many would plan for 200+% jumps in home insurance rates which as most know would put a heck of a dent in the later years even if they keep rising at a more reasonable rate) jumps in costs, whatever SWR you planned to use won't work because your needs exceed what you can w/d.

or maybe better said, if you are able to w/d at your planned SWR, the SWR plan will give you a long and happy retirement. But if you annual needs are underestimated, you don't fail because of the SWR.

so in closing, think we are arguing the wrong aspect when we argue which SWR to use, if the SWR plan works at all, etc. Think its more important to discuss how to estimate an annual budget, pad it, for say what your needs will be and how much it will cost say 30 years from now.

just look at whats going on today. Gas prices, heating costs, taxes (if some states do what they are saying), medical care costs, insurance costs are all rising at what I would say are "alarming rates". Say alarming because a lot of folks on fixed income/SS are finding it difficult to meet their ends meet. That will be us as soon as we "retire".

Now a lot of them don't have any choice in the matter because they didn't plan for their retirements beyond saying the "government will take care of me, I trust them". Some of us are fortunate to be planning much earlier than the norm. Now all we have to do is figure out how to guess what it will cost us to live 30 years from now. Its easy to guess how much we can w/d 30 years from now, but how will we ever know its enough?

been saying this all along, just wasn't focused in my prior arguements enough to highlight it this way... THe thought of having to cut my spending year over year to stay within a pre-planned SWR is not my idea of early retirement. Kind of defeats the whole reason to quit working early.

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Look, retiring early requires a certain amount of courage. It is not for the faint of heart. The 4% SWR rule is an excellent rule of thumb. Period.

Everyone who has at least a few years of FIRE under their belts knows that it is a dynamic adventure. When you retire young, you can still go back to work to make up for mistakes in planning or if something unexpected happens. FIRE is not an irreversible step. You can go in or out of it at will.
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Everyone who has at least a few years of FIRE under their belts knows that it is a dynamic adventure. When you retire young, you can still go back to work to make up for mistakes in planning or if something unexpected happens. FIRE is not an irreversible step. You can go in or out of it at will.

Think you are missing the big picture at least in my case.

my goal in quiting early is to quit when I can guarantee that I DON"T HAVE TO GO BACK TO WORK UNLESS I WANT TO. Not because I have to.

if that means working a few more years now, then so be it. Think its better to work a few more years now before one quits than it is to quit early and because of inadequate planning, or too small a stash to draw off of, being FORCED back into the work force. If thats not the attitude, why bother with any planning at all?

guess my risk assessment attitude from my nuclear power background is showing thru. The old "pay a little more up front to reduce your risk of problems" and reap the benefits long term. The more critical the damage from failure is, the more you do to minimize the risk of failure.
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orv - I think you are where I was a couple of years before retirement. The scariest thing is cutting the cord.

is it more important to focus on HOW TO ACCURATELY ESTIMATE your annual budgetary needs?

Not everyone approaches this problem in the same way, but I kept a budget a la "Your Money or Your Life" for years before retiring (Excel spreadsheet). By doing so, I immediately saw places to reduce costs with little or no diminuation in my lifestyle. The first thing I stopped was the daily Starbucks on the way to work. That doesn't mean I never indulge, but when I do I really enjoy it. And you can make the same thing much cheaper without standing in line! Through this gradual reduction of spending before I retired, I ended up with a budget that was easier to cover with a reasonable SWR. You never get everything, and I have since added things (like presents for grandchildren) but because I padded, every year (so far) the total comes within shouting distance of how I set it up for the year. This year, it's going to be close to what I spent (before taxes) in 1999, which I don't quite understand (I'll have to compare), but I'm pleased.

I track my budget by keeping all my receipts. This way I really know what I spent. Some people can't do this (they aren't sufficiently anal :), but can certainly keep some sort of running total in Quicken or something. Won't pick up the little stuff, but should give you some idea.

if you are able to w/d at your planned SWR, the SWR plan will give you a long and happy retirement. But if you annual needs are underestimated, you don't fail because of the SWR.

I like this. I think, in many cases, people do underestimate their needs, mainly because they haven't thought about them. We know property taxes are going up by double digit percentages. We factor that in. I know old cats cost more than young ones (usually). Most import - there ought to be a big pad in the budget for just in case. Disability or tripling food prices. Whatever can't be predicted. Starting with a completely pared-down budget that matches you withdrawal rate leaves with no wiggle room. But you are absolutely right - the fault is often a budget growing out of bounds rather than the initial SWR.

THe thought of having to cut my spending year over year to stay within a pre-planned SWR is not my idea of early retirement. Kind of defeats the whole reason to quit working early.

If you plan carefully to have adequately funded your retirement, and are comfortable with your lifestyle, you've done all you can. You will worry at first, because it's a new experience. But I bet that goes away. And I bet your costs go down without your noticing - just like mine did.

Be happy - don't worry.

arrete

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Be happy - don't worry.

arrete


when we pull the plug, it will be because all of the worrying and planning, estimating, calculating, analyzing of the data six ways to Sunday will be done.

after that, you are correct, it will be the time to enjoy the fruits of thy labor.

just doing all of the mental exercising now because it will be too late later.

Otter

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guess my risk assessment attitude from my nuclear power background is showing thru. The old "pay a little more up front to reduce your risk of problems" and reap the benefits long term. The more critical the damage from failure is, the more you do to minimize the risk of failure.

Correct! You can MINIMIZE the risk of failure. You cannot ELIMINATE the risk.

Only you can decide if 10 years more of work is needed to reduce a 1% risk of failure by 50%. Me? I'd rather be taking bong hits and chasing those delicious young women in those dental floss bikinis up and down the beach vs. work for 10 more years.

If I'm a little short of retirement cash, I'll sell generic viagra on the beach to the old guys who can't put the lead in the pencil the way they could before the stress of working those extra 10 years clogged up their lead-fillers <grin>.
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and working 10 more years doesn't eliminate the risk either. It just gives me more cash to spend on what I like to do.

By the way, think being able to offer them a nice dinner/drive them around in a Porsche' versus a hamburger or VW bug would make it easier for me to catch those youngsters in what you call "floss" like bikinis. Also, I could afford to pay for Viagra IF I needed it.

(but then again, prefer to "chase" my wife instead who does like a nice dinner every now and then)
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otterrivervalley poses:

is it more important to focus on HOW TO ACCURATELY ESTIMATE your annual budgetary needs?

This is such an excellent point. We spend far too much time trying to accurately gauge the return of various asset classes, when really, there are three different areas that will affect your ability to stay retired. 1HappyFool has talked about this before. You need to know with some certainty:

1) the return on your assets;
2) your personal inflation rate;
3) how much money you will need and want to spend.

We spend waaay too much time on 1). I personally am most worried not about 1), but about 2), largely because of health care. I can control 3) to some extent, but it is impacted a lot by 2).

I really wish we had more discussion over whether the future rate of inflation is accurately predicted by the historical evidence. That seems to be a much bigger potential deal-breaker than whether stocks will be returning 6% or 3.5%. Just evidence, I supposed, that I did not live through the Great Depression but did live through the 1970's. Experience certainly biases one's views.

-
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Please...what does SWR mean?

MzL
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Please...what does SWR mean?

Safe Withdrawal Rate. The rate at which you can safely draw from your savings without causing portfolio failure.

1HF -- who's pretty sure it's explained in the FAQ
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Thanks, 1HF.
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Couple of thought here Otter:

First thing, regarding the inflation rate. PPI and CPI are *not* good measures of inflation in general, nevermind a personal rate of inflation. Any Economics book worth its salt can point to major shortcomings. For example, they fail to properly take into account the power of substitution. If you the consumer experiece a 50% rise in the price of OJ, you are going to reach for apple juice instead. The PPI and the CPI can not properly accomodate and measure for this.

Second, the maket basket is a hypothetical one. Theirs will include such bizaar things such as Palm Pilots (I won't need new ones once I retire). They also fail to account for the fact that I can milk a PC for 5 - 7 years before I need to replace it. Your market basket is truly unique. By understanding your expenses using a "Money or Your Life" approach, as Arette so aptly recommends, you'll be well on your way to understanding what you are really spending and what its value is to you, I think you will find *declining* expenses once you start to give it this kind of scrutiny, and quantify the "Life Value" of your money..

Finally you write:

>>>>>
By the way, think being able to offer them a nice dinner/drive them around in a Porsche' versus a hamburger or VW bug would make it easier for me to catch those youngsters in what you call "floss" like bikinis.
>>>>>

I think this is *in general* true in the US. I dated a lot of college aged people while in my late 30s in Boston who were as much attracted to money and what it buys, as anything else.

However: here in Europe I have found high positions and financial trappings to be *liabilities* amoungst the student population. Owning a Porche means you are part of the "envionment destroying global capitalist imperalists."

By living cool but cheap, you can save a ton of dough, and I've found, still have your pick of the college crowd. Try buying a used Burton board and a 10 year old "mini." Spend your free time staying in shape as opposed to working. Then .... swipe the Porche driver's co-ed right out from under him, while he's spending 16 hour days at the office.

Hope this helps ...

-reb
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reb writes:
Then swipe the Porche driver's co-ed right out from under him, while he's spending 16 hour days at the office.

I'm proud of reb. He's definately "getting" the concept of FIRE <grin>. Kudos my boy!!
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<my goal in quiting early is to quit when I can guarantee that I DON"T HAVE TO GO BACK TO WORK UNLESS I WANT TO. Not because I have to...if that means working a few more years now, then so be it...The old "pay a little more up front to reduce your risk of problems" and reap the benefits long term.>


It is my belief that the concept of RE is composed of two equal elements. For simplicity sake I call them the math part and the non-math part. Often, depending on one's particular background, one is given more weight than the other. This probably explains why there is a divergence of opinion on RE issues.

While the math issues are certainly a cornerstone of any RE strategy, one ignores the non-math issues at considerable risk. I could really relate to the stories Art has shared about trying to get his father to leave the rat race and enjoy the rest of his life. In my own experience, I remember my mom talking about some of the things she wanted to do when she retired. She lost her battle with cancer at 56 and never saw her retirement. There is an almost comical element about how many of us humans become obscessed with certainty or guarantees.

I like the SWR study. I also believe that it is possible that a 4% SWR could be too high for the next 30 years. However, before anyone jumps to the wrong conclusion, it is with the standard caveat that if that happens, we will have had a situation worse than any we have experienced over the last 100+ years. Like Prometheus, I think that such a situation will not end with the US being the dominant world economic power that it has been. I also agree with him that fixed income securities will not be providing anything near a 4% SWR either in such a scenario.

As to taking the RE plunge or waiting for a greater level of certainty, I think that it comes down to a personal choice. As Art has also said, if he had to wait until he was certain that he had enough to start a 2% SWR, he might never take that step. I am sure that the non-math issue regarding his father was never too far out of his mind.

If you decide to spend an extra five years to reach your "guarantee" level, what will you be giving up? If it is significant time with your family, delaying an exercise program due to lack of time or enduring too much added stress, it could be a very steep price to pay. I think it is possible that your heavy technical experience with overdesigning systems can blur your vision regarding the non-math issues. I do not expect to change anyones mind on a subject like this. I just want to point out that the "big picture" can easily differ from person to person.


BRG
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Gurdison (and others who make this arguement) It is my belief that the concept of RE is composed of two equal elements. For simplicity sake I call them the math part and the non-math part. Often, depending on one's particular background, one is given more weight than the other. This probably explains why there is a divergence of opinion on RE issues.

you are so correct that if we can, we should pack it in as early as practical. I also know folks who worked until they reached the age of retirement only to pass on shortly afterwards, or were too physically disabled to enjoy their new found freedom. Or worse yet, had their health and freedom, but no capital to do what they had put off doing until they retired.

But think about it. We are talking of getting out of the rat race years before many will be able to and many can't even dream of doing. We are in enviable situations. But at the same time, my idea of early retirement is not to sit around and "be happy". I fully expect my fun activity costs to rise not because of my wife and I, but because of the adventures my wife and I want to share with our kids.

in economics, they call the decision process "opportunity cost". One has to weigh the cost of doing this at the cost that comes to something else. Thats what we are discussing. Is the cost of working a few extra years of your life for the additional margin worth the lost opportunity to "fill in the blank, attend your kids ball games, take them to the zoo, fly remote controlled airplanes with them, etc".

Course, there is the flip side of this question: if I quit early to get out of the rat race sooner, what will it cost me in lost opportunities later on? Will we not be able to take the kids on a 3 month long trip to see the west? Will we not be able to take the kids to the city to see the Nutcracker ballet or to the museums? Will we not be able to take the kids to Wash DC a few times in their life to help them understand our form of government and see it in action (as sorry as it is sometimes)?

And of course later on, will we still have the margin to pay taxes on our retirement property so that we don't have to sell off a piece at a time? Our retirement won't be spent driving around in Porsches' or BMWs, it will be a pickup and something or other. Our kids will learn to grow their own garden, to fish, hunt, fix their own cars, be plumbers, carpenters, electricians, you name it. They will learn what America is all about. They will learn that if you want something in life, you have to SACRIFICE something in return.

now maybe the disagreement on when to retire is simply a matter of each of our own situations. I would agree that if I was say in my mid 50's getting out as soon as possible would be more important than someone retiring in their mid 40's. Think each circumstance, each individuals needs, each individuals dreams of what they want to accomplish in their own retirement have to be considered and like everything else, used in compiling their own individual retirement scenario.

and yes, it may cost some an extra year or two of work to feel more "secure". It may cost some an extra year or two of work to enable their retirement portfolio to cover the costs and have a little left over for unexpected events.

and yes, some may choose to get out as soon as possible and say I have enough, my decision is that if something happens along the way, I will have to choose what I give up in return. Or I will choose to do less than I wanted to with my new found free time.

thats what it all boils down to, opportunity cost. Which side of the equation do you choose to lean towards. And one plan does not work for all as we are all individuals with our own governing circumstances.

we however are looking at it as a godsend that we will be able to retire early, but at the same time, placing a higher priority on the long term security over the short term "happiness" of being free sooner.
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I really wish we had more discussion over whether the future rate of inflation is accurately predicted by the historical evidence.

Read in the paper yesterday that the Fed is starting to worry seriously about deflation, saying that it is a far more serious problem to the economy than inflation, and that they're pretty much running out of tools to combat it -- interest rates can't go much lower no matter what.

Comments?

Regards,
holzgrafe
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Read in the paper yesterday that the Fed is starting to worry seriously about deflation, saying that it is a far more serious problem to the economy than inflation, and that they're pretty much running out of tools to combat it -- interest rates can't go much lower no matter what.

Comments?

Regards,
holzgrafe


is this the case where overcapacity/oversupply occurs during the good times is followed by a reversal in fortunes, major consolidation/bankruptcies and loss of jobs. If nothing else, would bet on more consolidation taking place to take capacity off the table. Too many companies carrying debt and not making much on their sales right now for some not to fail. Question is which ones and how many lose their jobs in the process....

been reading about this for a while now. And if one looks at whats going on in the retail/auto sector, seeing a lot of selling taking place at pay nothing for X months, 0% interest during that time, etc. If that isn't a ploy to move products, haven't seen much better. And on top of it, it appears profit margins on the products being sold are being cut hard, especially the big ticket items.

for those that can afford to buy and take advantage of the discounts, all I can say is don't hesitate. I know we picked up a Mazda MPV for what will work out after 4 years to approx what it cost the dealer to buy it. Think his profit will work out to be the end of year kickback from the manufacturer. Why did we buy now? Knew we had to replace our older van in a few years anyways. Playing the odds that the deal we got now is going to be about as good as its gonna get once the recovery starts.

just wish we were building our log home this year instead of a couple of years from now (would build now but don't want to let it stand empty for too long). Could save a small fortune in the current environment with outfitting the place with hardware...
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After about two 1/2 years of retirement, I can say that for me, a budget is pretty meaningless. I know that those seem like strong words to the anal but your new life can have NO relationship to your old life.

All those old budget items are gone. I have new budget items that I would have never dreamed of three years ago. In another 10 years I would expect to have a more traditional lifestyle.

I now sort of spend paycheck to paycheck instead of all that saving and planning. As long as I just spend my "paycheck" it doesn't matter what I spend it on.

I did spend more my first year on travel and fun then was in my orginal budget, but I got a grip.

While I agree that you need to track expenses for several years to see how your money flows; and that data is important for making saving decisions and some assumptions about retirement, its not all that important down the road.

Sally

Sally
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I wrote:

>>>>>
Then swipe the Porche driver's co-ed right out from under him, while he's spending 16 hour days at the office.
>>>>>

And galeno responded:
>>>>>
I'm proud of reb. He's definately "getting" the concept of FIRE <grin>. Kudos my boy!!
>>>>>

Galeno I am absolutely blushing . On this we agree. So many people say to me: "You are going to retire at 40? Won't you be bored?"

To this I have to reply: "You have to be F*ckin' Kiddin me." I'm 40 and I look more like 30. I can do whatever I want all day. I live in one of the largest liberal university towns in all Europe. The best of the gene pool arrives daily, fresh out of school, arriving for the first time in Europe from all over the world ... looking for ... something .... It's absolutely nirvanah!

However, I know my place, and you are unquestionably the acknowledged master of post-FIRE debauchery. I am humbled in your presence.
<g>

-reb
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After about two 1/2 years of retirement, I can say that for me, a budget is pretty meaningless. I know that those seem like strong words to the anal but your new life can have NO relationship to your old life.


I, the anal one, agree. Things can be very different in retirement, but you also say

While I agree that you need to track expenses for several years to see how your money flows; and that data is important for making saving decisions and some assumptions about retirement, its not all that important down the road.

I think anyone that has gone through the exercise of tracking their expenses will forever think about spending in a new way. So for many, just the exercise is important. I realize that most people find budgeting a huge chore. I think it was TheBadger that said something like

Actually, to be completely honest, I track our expenses more out of purient interest rather than adhere to a budget. I assume he has a line in his budget for motorcycles :-) I'm pretty much that way too. I enjoy watching those spreadsheet numbers add up to less. Not everyone is that way, and if it gives them a pain, they shouldn't do it except at a more macro level (like they don't spend more than they have <g>)

arrete


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reb writes:
To this I have to reply: "You have to be F*ckin' Kiddin me." I'm 40 and I look more like 30. I can do whatever I want all day. I live in one of the largest liberal university towns in all Europe. The best of the gene pool arrives daily, fresh out of school, arriving for the first time in Europe from all over the world ... looking for ... something .... It's absolutely nirvanah!

However, I know my place, and you are unquestionably the acknowledged master of post-FIRE debauchery. I am humbled in your presence. <g>


reb, I'm coming to visit! if they are looking for "something" they might as well find me for a while <grin>. post-FIRE debauchery is limitless. Even masters like myself are on a continual quest for new flavors of nirvanah.
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reb, I'm coming to visit! if they are looking for "something" they might as well find me for a while <grin>. post-FIRE debauchery is limitless. Even masters like myself are on a continual quest for new flavors of nirvanah.

What is the market for cabana boys for sugar mommas?
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