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whyme

Early retirement considerations

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On another thread, Ed asked "Can you make the case as to why I personally should not FIRE? I truly want to hear the argument."

I will not make that argument (I don't even know what, exactly, FIRE entails--I suspect that it looks very different from case-to-case).  But I do think that there are common issues that don't seem to be talked about much in the small bit of reading about that movement that I've done which are worth considering.  For example, if one has worked out that they can live on $25,000/year, they have arranged their affairs to produce an expected $30,000 of annual income (in today's dollars), they'll retire at 40, sounds good. But one may find themself reassessing that $25,000 budget at some future point when they don't have much control over their income.  I'm guessing that many of the current FIRE followers will face these issues a few decades from now.  I'm not talking about catastrophes.  These are life changes that affect most people I know who are above, say, 55, myself included.  

1. You will change.  There are physiological reasons why many 17-year-olds enjoy roller coasters, while most 70-year-olds do not.  Your body will change, and there's a good chance your interests and tastes will, too. Expenses that seem frivolous or uninteresting now may become desirable, even necessary.  It may be exhilarating to hike and pitch a tent, but a quiet el bed may become a necessity for travel at some point.  You may reach a stage where you really want to hire help in your home for things you now expect to do yourself (cleaning, gardening, household repairs, food preparation, health maintenance, etc.).

2. Your responsibilities to others will change.   This is a big one.  I wrote a long paragraph here describing my own situation, but the details became too personal to post publicly.  I'll just say that I have two elderly relatives, a mother and a stepmother,  for whom I feel responsible (I'm an only child); my mother lives in another country and I visit three or four times per year.  The other one lives about 75 miles away and requires my help in navigating bills, doctors, transportation, etc.  The ups is that one can face unexpected responsibilities that may last for decades and may involve expenses.  If you have parents, children or siblings, there's a good chance that something will come up which will either strain your limited financial resources or leave you feeling unable to support them in their time of need.  You may find that if your loved one needs lawyers, rehab, therapists, nursing care, housing, who knows what... you'll be responsible for the arrangements and expenses.

 

PS: this silly board software has prohibited the word h o t e l above, hence the phrase "el bed."  Really, h o t e l?  Also, u p s h o t is verboten, reduced to "ups."  Glad this isn't a cooking discussion board.

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Maybe this is a stupid question.  I’m wondering how they plan for major home renovations and just random unexpected crap.  I just had to replace a roof.  And life happened a couple of times in addition to this; water heater went, dryer went, washer went, baby short circuited our cars computer by loading the CD player with quarters, etc.  it all happened at once.  Is this included in their yearly budget?

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Jebjebitz

Your questions are all good questions. But, like any movement, those who buy in often ignore the facts. They are caught up in the moment. The goals of the movement are admirable but I just am not sure it makes total sense.  The right person can pull it off but its got to be harder than it looks to live in that lifestyle. But I am not trying to judge, just playing the devil's advocate.

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31 minutes ago, jebjebitz said:

baby short circuited our cars computer by loading the CD player with quarters, etc.

Your baby might be a candidate for the FIRE movement. He thinks your CD player is a piggy bank. Saving already.

 

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There are two titles to the essentially same movement. FIRE--Financial independence Retire Early. The 2nd one I think is much more simple to grasp, FI--Financial independence. There is a lot of overlap between the two groups and they overlap with us and the Bogle heads. Live within your means, save and learn to manage your investments in low-cost funds. That's it with people like us who discusses building wealth. While our goal is to have a healthy retirement nest egg and retire sometime after age 55, their goal is financial independence at an early age.

I have met and interacted with them at a conference last summer. They are doing the same thing I did when I was younger, live below their means, pay down debt, saving and investing in real estate, renting out a portion of your current house, and never buy new cars. In fact, they are going down an even better route, not owning cars at all.  

The jury is still out regarding how these young people will manage with 40 to 50 years without working. My guess is that many will continue to work but only at jobs they find valuable and fulfilling. That is one of the criticisms of us older people who really don't know what they are about. Older people keep saying "retirement." The FI group does not have that word in their vocabulary. And the work world is changing and many can work at home while they live cheaply in the north woods, small towns, or prairie in the middle of the country. 

Bottom line--they are anti consumers and they vociferously reject the stress-filled rat-race with expensive and useless THINGS only meant to "impress people you don't like." 

We all know things do not make us happy. I give them a lot of credit and the movement is spreading. Suzy Orman gave them one heck of a boast in the public arena. And with a documentary coming out in January, they will continue to grow. 

I think its exciting to watch. And I think it will be a benefit to society if we become less consumeristic and save more. 

 

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2 hours ago, jebjebitz said:

I’m wondering how they plan for major home renovations and just random unexpected crap.  

I presume that anyone attentively planning to retire--early or not--will make provisions for emergency needs and predictable periodic expenses such as a new roof.  FIRE aficionados also seek to minimize those eventualities, I think: they may choose a small house with smaller expenses, maybe they make do without a car, or with a modest "beater" that they own for two decades, etc.  There's much to be said for living well below your means and applying extreme skepticism to our culture's propaganda linking consumer purchasing to happiness.  My point above is that even if you achieve happiness on a modest budget, later-in-life changes in circumstances (sometimes unexpected and outside your control) could create an entirely rational desire for more income at a time when you can't generate new income (or an enlarged investment portfolio) the same way you can when you're in the workforce in your 30s or 40s. 

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3 minutes ago, sschullo said:

The jury is still out regarding how these young people will manage with 40 to 50 years without working. My guess is that many will continue to work but only at jobs they find valuable and fulfilling.

If that's the scenario--the person is unhappy as a software engineer making $175,000/yr, lives frugally, avoids debt and puts together a substantial investment portfolio, then re-invents herself as a much happier freelance graphic designer making $40,000/year (while that investment portfolio continues to compound), I can't find much to criticize.   I certainly agree, Steve, that the FIRE folks' attention to financial planning and their skepticism about consumerism are admirable (though some of the columns I've read have a Puritanical moralizing tone that I'm not crazy about--did you encounter that at the conference? ).

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21 minutes ago, whyme said:

I presume that anyone attentively planning to retire--early or not--will make provisions for emergency needs and predictable periodic expenses such as a new roof.  FIRE aficionados also seek to minimize those eventualities, I think: they may choose a small house with smaller expenses, maybe they make do without a car, or with a modest "beater" that they own for two decades, etc.  There's much to be said for living well below your means and applying extreme skepticism to our culture's propaganda linking consumer purchasing to happiness.  My point above is that even if you achieve happiness on a modest budget, later-in-life changes in circumstances (sometimes unexpected and outside your control) could create an entirely rational desire for more income at a time when you can't generate new income (or an enlarged investment portfolio) the same way you can when you're in the workforce in your 30s or 40s. 

I don't think they are saying that life doesn't have risks. Sudden death of a spouse is expensive too with lost support and shock and unhappiness in the short term. 

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8 minutes ago, whyme said:

If that's the scenario--the person is unhappy as a software engineer making $175,000/yr, lives frugally, avoids debt and puts together a substantial investment portfolio, then re-invents herself as a much happier freelance graphic designer making $40,000/year (while that investment portfolio continues to compound), I can't find much to criticize.   I certainly agree, Steve, that the FIRE folks' attention to financial planning and their skepticism about consumerism are admirable (though some of the columns I've read have a Puritanical moralizing tone that I'm not crazy about--did you encounter that at the conference? ).

It was more about what you can do to cut spending, living in their house AND traveling cheaply to build wealth. One person traveled by either house or pet sitting in the area they wanted to visit. They love to travel! The had presentations on "house hacking" which is their newest description of buying a duplex, live in one and rent out the other so the renter can pay for part or all of the mortgage, and build on from there. That is exactly what my late partner and I did back in the late 70s and 80s. We made most of our money in California real estate. Many of the ideas are not new, but these young people found a supportive community to get ideas and make friends. 

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3 minutes ago, sschullo said:

... presentations on "house hacking" which is their newest description of buying a duplex, live in one and rent out the other...

Ha!  Drop in computer lingo and make it seem like a new idea.  Of course, live-in-one two and three unit places are very common here in California, and have been for about a century.  Elsewhere, too, I presume.  It's not a bad idea at all, if you can put up with the role (and the work) of being a landlord.

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4 hours ago, whyme said:

Ha!  Drop in computer lingo and make it seem like a new idea.  Of course, live-in-one two and three unit places are very common here in California, and have been for about a century.  Elsewhere, too, I presume.  It's not a bad idea at all, if you can put up with the role (and the work) of being a landlord.

These folks are doing it big time and supporting each other with presentations and how to illustrations. The coordinator of our event owns 12 homes. And the community is supporting each other. Back in the day, there was no such community.  

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People who retire, whether it is early or not, need to accurately project their spending. I suspect most folks working towards FIRE are closely tracking expenditures. I think FIRE folks should have a plan in place for growing expenditures:

1) Closely track spending, particularly in the first few years of retirement. If spending grows, then go back to work until you can build up a portfolio to support your higher spending.
2) Before you retire, develop a fallback plan. Maybe that means you'll pick up part time work when you're up for it. Maybe it means getting a roommate. Maybe it means moving to a cheaper house/location. I like the idea of having a fallback plan that can reduce spending by roughly 10k without pushing you into a lifestyle you don't want.

On 10/21/2018 at 2:04 PM, jebjebitz said:

I’m wondering how they plan for major home renovations and just random unexpected crap.

When I estimate my yearly spending, I account for everything I can imagine. I amortize the irregular expenses (roof, appliances, cabinets, sinks, lawn equipment, car repairs, etc) and I merely account for the regular expenses (lawn maintenance, property taxes, insurance, electricity, pool chemicals, etc). So the majority of years I come in a good bit under budget, but when I come in over budget it is usually significant. In the end, if I didn't forget potential expenses, it ought to even out.

...additionally, not only would I use a low withdrawal rate (say 3%), but I would also add a buffer to my estimated expenses (say $500/month) for things I'm probably forgetting (mundane expenses like toothbrush heads, sprinkler nozzles, bicycle chain, paper towels, etc are easy to forget in your budget).

On 10/21/2018 at 5:28 PM, whyme said:

some of the columns I've read have a Puritanical moralizing tone

Can you expand on that?

The FIRE folks I know or have read, are just trying to maximize their happiness or reduce their unhppiness depending on your perspective. Morals or right vs wrong don't even enter into the equation.

In fact, the only "puritanical moralizing" I've seemed to encounter is that working hard at a career somehow makes you a "good" person and the person who wants to retire to sit at home and relax for decades is somehow "bad".

 

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9 hours ago, EdLaFave said:

When I estimate my yearly spending, I account for everything I can imagine. I amortize the irregular expenses (roof, appliances, cabinets, sinks, lawn equipment, car repairs, etc) and I merely account for the regular expenses (lawn maintenance, property taxes, insurance, electricity, pool chemicals, etc). So the majority of years I come in a good bit under budget, but when I come in over budget it is usually significant. In the end, if I didn't forget potential expenses, it ought to even out.

 

Ok thanks.  This is well beyond where I am at right now.  I’m finishing up my first year of tracking all expenses in an excel spreadsheet.  I hope to see where I can trim expenses, where money is being wasted,etc. and move some resources towards paying down lingering debts.  I hope to someday having a better idea of exactly how much I’m spending each month/year and how much we can put away.

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What worked for me was what so many financial gurus said in the past, and I first read it in Riches Man in Babylon is Pay Yourself First and spend the rest. My late hubby and I never used a budget, too much work. I hate tracking spending. Even today, I tracked my grocery bill for a month just out of curiosity because I hear this constantly on many forums. I am a good estimator while I am shopping and I spend money on healthy groceries, fruits and veggies are cheaper than dairy products, and eat at home frequently. Ok, I spent about $450.00, OK that's nice, kind of what I already knew, so now what? The information is useless to me. Now, this is my experience. I am naturally frugal, and I have fun too as we traveled extensively over the years. 

But my late hubby and I were both naturally frugal and that is the reason why we grew a very healthy nest egg.

For those folks who struggle to control spending, YES, USE A BUDGET! Or better yet, read Vicky Robins book "Your Money or Your Life." She is the guru of living a good life while controlling spending. She is a rock star with the FI and FIRE community for good reason. She lived it for all of her life, and absolutely brilliant. She could talk for hours about her work, and every word she utters or writes is interesting, compelling and infectious. Read her book and it will change how you look at work, life, money, useless things, and the bottom line, your relationship with money. 

Steve

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