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EdLaFave

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Everything posted by EdLaFave

  1. I don’t intend for this to be harsh (text sometimes is), but the viability of FIRE is based on math and the approximation of values that are nearly guaranteed to fall within a specific range. It absolutely is reasonable to live off of capital for the majority of your adult life if you’ve acquired a sufficient amount of capital. Again, it is an equation, yes there are degrees of uncertainty, but somebody’s age doesn’t inherently make FIRE unreasonable. A silly example: if you gave me 10M at birth then I’d never need to work a day in my life. If the argument is that most people are financially irresponsible, and athletes and celebrities are the poster children for irresponsibility, then you can reasonably conclude FIRE isn’t reasonable for them. Of course those folks will almost certainly never have a portfolio big enough to even dream of FIRE. If somebody earns poverty wages then you can reasonably say FIRE isn’t viable for them. I don’t think most people earn enough to FIRE. However, big time savers can make FIRE a reality because the math says so. I don’t think FIRE requires extreme budgeting. I think people save for the lifestyle that brings them happiness and then they do it. I comfortably live on 25k-30k worth of spending, some need less, and some need more. I don’t think FIRE is about sacrifice, quite the opposite actually, I think FIRE is about indulging in whatever brings you happiness. I do think a lot of FIRE folks are repulsed by consumerism and find no joy or happiness there. For instance, just walking through a mall makes me feel incredibly gross and uncomfortable.
  2. Intelligence, intuition, whatever it is...I agree, almost entirely with what you’ve said, and the rest of it I just mostly agree with. FIRE folks will be tested in a recession. I think about the stress I might feel if I had 33x annual spending and suddenly I only had 16x. Would I just go back to work until things eventually recovered? Could I find a job? Would the recovery take 10 years? Apparently even being rich enough to consider FIRE comes with its own stresses.
  3. I didn't listen to the podcast, but I can't seriously engage in her argument because: She didn't provide any math. She merely said FIRE is an awful idea because you're giving up years of income, which is a lot like saying "Thing A isn't going to work because it is Thing A". The folks pushing for $15/hour call it a living wage because roughly $30,000 buys you the necessities of a dignified life. It may not be the life you want, but it is a life. The idea that you might need to save 166-333 times the annual living wage is patently absurd. There may be an argument against FIRE, but this isn't it. Tony, it sounds like you're not making a general argument against FIRE, it sounds like you're making a realistic observation that most people don't make enough to FIRE. In that case I agree, but I will add a couple thoughts: I'm not in the prognostication game, but I"m not sure continued runaway medical costs are more likely than legislation to bring per capita costs down by half---roughly to the level of the rest of the industrialized world. If such legislation were to be written, it is quite possible that the tax revenue required wouldn't fall too heavily on FIRE folks who are no longer earning large incomes but are instead living off relatively modest investment income. Now we don't have total control, life is unpredictable, but I believe a very large portion of health spending is due to self inflicted wounds (poor diet, vices, insufficient exercise, lack of access to care, etc.) and it wouldn't surprise me if FIRE folks make active efforts to mitigate those risk factors because they have the time, lack of stress, and resources to do so. If you're FIRE then you've already paid for your college education. I graduated in 2007. I went to an in-state school to get a 4 year degree. I worked. I lived with many roommates. I got need and merit based scholarships/grants. I graduated with a few grand of debt plus maybe 10 grand of debt associated with my car, which is still running today!!! I'm not sure how much education costs have increased, but it is certainly possible to get a valuable degree at a low price, especially in relation to the increased earning power it provides. Again I'm not in the prognostication game, but lots of places already have tuition-free community college...that may expand further to cover 4 year institutions at some point. I think we're all betting on stock market returns and we're all accounting for the inevitable ups and downs. If we start to explore economic collapse type of scenarios then we're all in trouble regardless. If we're exploring downturns like the 2000s, they're survivable. Fixing social security is incredibly simple: make it a progressive tax, tax the entirety of somebody's income, and maybe even reduce the payout received by the rich. However, I think quite a few FIRE folks are probably already counting on $0 from SS because they want independence and because they haven't worked the number of years to get a "full" payout. It would be interesting to perform the analysis. Presumably the higher taxes would be disproportionally shouldered by the wealthy...but if you're FIRE then that might be you during your earning years. I suppose that would make it easier for the "average" person to FIRE because although their taxes went up to pay healthcare, they may have gone up less than the free market would have charged for healthcare.
  4. I’ve created a few detailed budgets that are based on historical personal data and might reflect how my life unfolds. Depending on the budget used, I’ve got somewhere between 27-34 years worth of expenses, which would represent a withdrawal rate between 2.9% and 3.7%. I haven’t thoroughly read the FIRE community, but it seems they’d declare me financially independent. I tend to agree with that, but the conservative part of me feels it would be “safer” to have 32-42 years of expenses, which would represent a withdrawal rate between 2.4% and 3.1%. Any thoughts or insights?
  5. There has been a lot of FIRE talk here recently and I’m reading some of their blogs. What does the FIRE community say about how many years worth of expenses you need to retire at, let's say, 35?
  6. I love the aggressive allocation. Aside from my emergency fund, I'm 100% stocks. You and I can commiserate whenever the next crash happens and half our money disappears! I've been mentally preparing for that event for maybe 5 years now. I totally get wanting to track total performance (dividends + growth). However, one of the things I love most about index funds is that I don't have to track performance. I sleep well at night knowing I got exactly what was fair---whatever the market returned. I don't miss the days of active management where I was working out equations to see how my fund was doing...ugh.
  7. If you eventually enroll in the Fidelity 457b, please come back and tell us whether or not you have full internet access. Our Third Party Administrator is TSA Consulting Group and when I was working to add Fidelity and Vanguard to our vendor list, one of their VPs (on a conference call with the folks at district) had an excessive amount of negative stuff to stay about the low cost vendors. I haven't looked at the financial arrangements but I believe the TPA must benefit from the high cost vendors and therefore they do what they can to discourage districts from adding Vanguard/Fidelity and they discourage employees from enrolling in the plans if they're available. So it wouldn't surprise me if this is all nonsense in an effort to nudge you away from Fidelity. Or maybe they're right. Or maybe it is pure ignorance. I'd like to find out.
  8. I think the question Shannon posed isn’t just Fidelity 457b vs CalSTRS, it may also be Fidelity 457b vs Vanguard 403b. Fidelity 457b is objectively superior to CalSTRS, even without internet access (something I’m a bit skeptical of). Fidelity and Vanguard are neck and neck. It sounds like Shannon already started the process with Vanguard. If Krow’s suspicion is right, that a Vanguard 403b will preserve the fee free withdrawal feature of a 457b, then I’d absolutely keep going down that road. If Krow’s suspicion is wrong, then it is reasonable to consider switching paths and going with Fidelity. However, for me personally, I wouldn’t go through that hassle to preserve the fee free withdrawals...but that is highly dependent on my circumstances. ...it is worth pointing out that we are really sweating the small stuff here. As long as Shannon puts as much into tax advantaged accounts (403b, 457b, IRA, etc) as possible, uses low fee vendors, and invests in cheap total market index funds...then she is going to do incredibly well.
  9. Interesting. I didn’t know that.
  10. Sadly Vanguard does not offer a 457b, which leaves Fidelity as the only elite offering in that space (aside from arguably some of the state run 457b plans). I've never had a Fidelity 457b so I don't know, but I have to imagine preventing online access for 457b plans is actually more expensive. When I googled it I couldn't find anybody complaining about that. Maybe you will let us know the definitive answer? If I had to choose between rolling my 457b into a Fidelity 457b or a Vanguard 403b then I'd choose the Fidelity 457b because it would maintain the perk of penalty free withdrawals. This wouldn't be a huge deal for me, but why give up the perk unnecessarily? You're lucky to have such a reasonable district. Vanguard and Fidelity for your 403b. Fidelity and CalSTRS for your 457b. Very lucky.
  11. What is a TSA match? Does TSA mean tax sheltered annuity? Are you just saying the employer will match some percentage of your salary/contributions in the 403b?
  12. I’d add to what Krow said...the best vendor is the one who lets you build a fully diversified portfolio at the lowest cost. You may want to read my Investing 101. Fidelity is arguably the best vendor in the industry; you’re lucky to have them. I documented their plan here.
  13. Just a reminder that a primary goal of any troll job is to get people fighting with each other.
  14. I don't know what the truth is. It doesn't surprise me to see a 457b listed underneath the "Deferred Compensation Plan" banner; that makes total sense. What I'm not sure about is if 457b plans are just a subset of the plans under that banner. I'm not sure if a 401k, 403b, etc also fall under the same banner; that would make total sense to me. Missouri State lumps 403b and 457b plans under the same banner here. The Round Rock Independent School district lists a 403b under the same banner here. ...from a quick google search I saw other examples. I also saw that there was a particular tendency to refer to a 457b as a DCP. I don't know what the truth is. Whatever the case, I hope it works out for the teachers in Illinois, but until I see the final details and until those details are clear, I'll naturally assume teachers/investors are being taken advantage of. That has been a safe bet for a long time. I hope I'm wrong.
  15. I didn’t know that a deferred compensation plan is the same thing as a 457b and I haven’t found anything on google yet to confirm a DCP is equivalent to a 457b. In fact, this investopedia page seems to state that DCP is a general term not limited to a 457b. If you’re right then this is confusing terminology because so many other plans are also based on deferring compensation. I found the article to be confusing. I guess we will see what happens, but this is the quote that got me: ”The amount teachers will be able to contribute to the new deferred compensation plan also has to be determined. One possibility is 4 percent, the amount that workers were supposed to contribute to a 401(k)-style plan under a Tier 3 pension plan.”
  16. It wasn’t clear to me if this was a 457b or something else?
  17. Cliff notes of the interesting bits?
  18. The article was really light on details, probably because the plan itself is very light on details. It sounds like it is in addition to a pension, 403b, 457b, etc. and all of the predatory plans will be allowed to continue. It also sounds like there may be a 4% of salary contribution limit, which isn't a lot on a teacher's salary. I'm pretty cynical and un-trusting on this because it reminds me of the "Model Plan" here in Florida. They hit all the right notes with the rhetoric, but then implemented something in direct conflict with everything they said. It is especially frustrating because it is so easy to solve this problem: Expand the TSP so everybody can use it for 401k, 403b, 457b, etc....or create a new plan modeled on the TSP if that is easier. Force school districts to exclusively use that plan. Force school districts to auto-enroll employees in a target date investment with the TSP using a "reasonable" contribution amount that they can opt out of or change if they want.
  19. That’s awesome. I’m glad you’re going to end up with a portfolio that reflects your risk tolerance. Your stated asset allocation is very reasonable.
  20. Take your time. Ask questions. Come back much later and reread the thread. No rush. A lot has been said but if you grasp the concepts in the Investing 101 page I linked to earlier, then you’re in great shape. I agree. That is the decision I’ve made in the past. I’m not an expert on this. Give it a google. I believe with a 457b you can withdraw from it at any age without having to pay a fee as you would in a 403b or 401k. However, if we are talking about early retirement then I believe you can withdraw from those other accounts fee free too. So this is more of an irregular/emergency situation issue. The two accounts are so similar that a lot of people will simply pick the one with lower fees. Not really. Maybe you want to have a little money in the 457b to take advantage of the penalty free withdraw perk, but you want the rest in the 403b because it has lower fees and better investment options? This is the single most important choice you will ever make. So take your time with it and try to honestly evaluate your relationship to money. Stocks have higher expected returns but they will repeatedly have huge drops. You need to be able to sleep through the night and not panic sell when that happens. Divide a stock percentage by half and that is a rough estimate for how much your portfolio will drop in a crash. Pick a percentage you can financially and emotionally afford and know that the fewer stocks the lower the expected return. This is the most dangerous thing that can happen in the mind of the investor. We all have to intellectually accept the fact that we cannot predict anything at any time...especially not in a time frame measured in months or years. Maybe decades but nothing less. Then we have to acknowledge the reality that our emotions will keep telling us that we can predict things. We have to promise ourselves to ignore our emotions. Pick a bond percentage that makes you feel secure. Invest in total market index funds. Stick to the plan. Write down your predictions in concrete terms as you just did and then look back years later to see how you were so often wrong. If you look in my post history, you’ll see I emotionally predicted a recession in January. I was wrong but I ignored my emotions and kept investing so I won. It is reasonable to have an emergency fund in a high interest savings account. Some people buy CDs. Other people hold bonds in an investment account (taxable, IRA, 403b, whatever). It is up to you. It doesn’t really matter that much.
  21. This new information makes rolling over to a 403b less risky because you won’t be there too long, but I still find the slightly lower costs of an IRA appealing. One thing to keep in mind if you’re moving from job to job is that it makes expensive retirement plans more viable because you’ll only have to pay the fees for a short time before rolling over to a low cost IRA. It’s common for people, especially teachers planning to work in the same district for decades, to ask if their expensive 401k/403b/457b is worth the tax break. You’ll have an advantage in these scenarios. IRA = individual retirement account. So it is entirely up to you to open, fund, and manage the account without any tie to your employer. The employer is tied to accounts like 401k, 403b, 457b, etc because the only way you can invest in them is by your employer deducting money from your pay and putting it in the account. I don’t know Tony’s rep but probably. I think you can open an account from their website or by calling. A 457b is another tax advantaged account that is very similar to a 403b, but has some slightly different rules. Often times the same financial institutions that offer 403bs also offer 457bs. In any given year you can contribute $18,500 to a 457b and another $18,500 to a 403b. Most teachers have access to both types of accounts. Other government workers have access to only one...you may fall into that case, but find out for sure. That is a reasonable portfolio for what I think is a typical worker. However, aside from my emergency fund, which is 100% in bonds, I have a 100% stock portfolio. On a side note, for people in my circumstances I think an emergency fund is a sub-optimal result of mental accounting. In my case it’s an artifact from the past when I truly couldn’t afford to have a chunk of money disappear. I should probably get rid of it, but I move slowly when making financial changes If you have 25% bonds then your portfolio might drop by 37.5% during the next crash. If that reflects your risk tolerance then great! When it comes to asset allocation, don’t make the mistake of thinking each account has to reflect your asset allocation. It is the summation of all of your accounts that must reflect your asset allocation. I wrote a blog post on investing and marriage that briefly and indirectly highlights why this is best.
  22. I’m going to steer clear of the inheritance/rollover issues because I don’t have the knowledge to provide trustworthy answers. I believe investing with Vanguard is a great choice. I think the target date fund is awesome because you probably would prefer to pay the slightly higher fees than manage a three fund portfolio. I think it is important that you choose the date for the target fund. You need to understand the risk and be okay with it. I still think a Traditional is likely to be better for you than a Roth, but I think you’ll be just fine either way. Just save as much as humanly possible and never sell your investments (short of paying for bills in retirement).
  23. I think the IRS allows you to rollover old 401k (and 403b) accounts to your new 403b. However, you may not find that to be optimal because: 1. You could roll it over to an IRA where you’ll have access to the best funds at the lowest costs. 2. You’ll be subjected to the whims of your employer. At any point they could decide to get rid of every reasonable vendor and go with only high cost vendors. This perhaps isn’t likely, but I’ve certainly read threads where it happened. SecuirtyBenefit waives their $35/year fee if you exceed $50,000 so rolling it over to a 403b might help you get there sooner However, I think they also charge an extra 0.01% more per fund. So these are conflicting forces that need to be quantified over time. If you rollover to a Traditional IRA then it may make doing a fancy maneuver called a Backdoor Roth less desirable. I’ve always rolled over my old employer accounts to an IRA. If you do something like roll a Traditional 403b into a Roth 403b that’ll increase your taxable income for the year and cause you to owe more in taxes. It may also be the case that your 403b has surrender fees associated with it, but every case I’ve seen it is worth it to pay the surrender fees because the annual fees are so high. However, sometimes it is worth waiting...for example if the surrender fee is set to expire next month, but it isn’t worth waiting a long time In reality you may pay lower fees by doing a rollover. It is often the case that your employer subsidizes your retirement account and that subsidy ends when you quit. So by rolling the account over, you may be escaping a fee that you may not have realized you were paying. I won’t comment on taking loans against retirement accounts except to say it intuitively feels like a bad idea. If it is possible to temporarily stop contributing to your retirement accounts and use that extra money to pay for tuition then that might be desirable. Also, if it is possible to get loans where interest doesn’t begin until graduation then that may give you flexibility. ...just ideas to explore. The best plan you have is Security Benefit’s DirectInvest, which I documented here. Just be careful because they’re an unethical company and may try to steer you towards enrolling in a bad plan. You can read about our story when enrolling here as well as the steps we went through to enroll here. Your second best plan is Aspire, which I documented here. There were some vendors I wasn’t familiar with and Lincoln may have a self directed plan (called PDP) for you to investigate, but it is only available in some areas. My only advice for teachers is to beware of 403b/457b vendors, annuities are dangerous, and know that you can put $18,500 into each account type per year...37k per year. My advice for somebody who is 40 (or any age really) is to pick a stock/bond mix that is appropriate for your risk tolerance. You may want to read my investing 101 page if you’re looking for the fundamentals. I think Traditional IRAs are optimal for the vast majority of people because I believe it will result in them paying less in taxes. You can read the case for this opinion here.
  24. Breaking out the large font. I’m just happy I’m not alone in not trusting these posts. They seem disingenuous to me. ...but of course keep posting if you want, it’s just my two cents.
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