AugustPlace Journal

[AugustPlace]

This was my introduction post which has some background info:
viewtopic.php?f=1&t=4930

I'm 49 now and have been working in a stressful job for 11 years and want to leave as soon as possible. I could go into excruciating detail on why, but for now let's say that if I can retire this year then I will.

Before resigning, I'd like one of two things:
1. Confidence that my savings can generate enough income to pay my expenses.
or
2. Another better job lined up.

Here are some rough numbers:

Total annual expenses: $7,500. This includes all car expenses, but does not include health insurance (provided by current employer). I used to go without health insurance but it's mandatory now in the US, so this will add to my costs. Also, If I move the housing expense will rise, but I may be able to let go of the car.

Income from job: $32,000
30% of pre-tax income goes into a 401K account with a diversified series of funds.

I'm debt free.

Assets:
401K retirement account: $140,000 (can't use this until 2025)
Bank Certificates: $155,000 (earning very low interest - about 0.2%)
Savings and Checking accounts: $28,000

You may see lost opportunity here, and I agree. I can't go back in time, so now want to structure my finances to get a decent return going forward. Perhaps not super optimized at this point, just in a better ballpark.

I'm not asking you to plan out my investments - I am open to your comments/opinions about how close you think I am to early retirement.

Thanks
August

[theanimal]

You have certainly set yourself up well. Your safe withdrawal rate is at 2.3%. With just the savings outside your retirement account you have 25 years of savings..definitely enough to tie you over until you can access the 401k.

As for investing there are a lot of options: indexing, dividend growth, permanent portfolio etc. A lot of it depends on your personality and ability to tolerate risk. I'd say do some research and find which one best suits you. But in my eyes, I think you are ready for early retirement (financially speaking). Nice work!

[EdithKeeler]

Are you sure you can't access your 401(k) before that date? Not that I'm recommending it, but you probably could do Substantially Equal Periodic Payments and access it before then.

You and I are the same age; your finances look better than mine, though! Your expenses are awesomely low. I'm very impressed. It seems to me that with expenses that low, you could quit your current job and hedge your bets a little bit with a small, part time job to cover your needs, and leave the rest of your investments alone for a while, if you wanted to go that route and feel a little more secure about possibly a more gradual change. Health insurance is an issue, but I think your premium would be pretty low under the ACA with that income level. I know when I was helping my brother shop for insurance on the exchanges, we found a plan that was I think 67/month with a $2500 deductible, and that was based on his income of about $10k a year.

[AugustPlace]

Thanks for the replies theanimal and EdithKeeler (your name reminds me of that Star Trek episode)

Something has come up at work that's interesting.

I've been working for the same company since 2002. The job has changed over time, with more and more responsibilities adding on (and little being removed). Today I am still responsible for one task which is the first thing I was hired to do. The workload for this task has reduced greatly over the years, as it has been slowly phased out. It just needs about 1-2 hours a week now. Others from my old department have moved on to other jobs, so I'm the only one left on my team that can handle any aspect of doing this job function.

I recently found out that this task is finally going to be eliminated in July 2014. After that time, nobody will need to make these adjustments for any of our products. Of course I do much more now and the employer can have me continue doing the 200 other things I'm trained in. I just will no longer be known as the guy who is an expert in that one thing.

I'm seeing this as an omen of sorts. A "sign" that this year is when I should design my exit into early retirement. There is plenty to do - as July is two months away and I don't even have my investments set up properly yet.

Sometimes I say that I "hate" my job, but I don't really. I just hate what it does to me - 80% of my waking hours devoted to the job, the mental and physical exhaustion, keeping me from doing things I'm interested in. The job doesn't provide any satisfaction or fulfillment, or a sense of making the world a better place. This job is solely done to "get money". And I don't even like money. It's a pain in the ass!

When I was a little kid and people asked what I wanted to be when I grew up, I'd say "a millionaire". Not because I wanted money, but because I wanted to have so much money that I didn't have to worry about it. I'm not a millionaire now, but with ERE I could be in a situation where I don't have to worry about how I'm going to pay for life's necessities.

[AugustPlace]

This post is to add some detail to my expenses. My housing cost is very low because I'm currently a live-in caregiver (for my elderly mother), trading labor for rent. I don't know the market value of the service I provide, so this might be a good deal or it might not. For now I assume the service provided has the same value as the price of renting a room in someone else's house, so they cancel each other out.

Car Expenses:

Gasoline 160/month = 1,920/yr
Oil changes 60/yr
Registration 40/yr
Inspection 20/yr
AAA 100/yr
Insurance 420/yr
Repair fund 50/month = 600/yr

total 3,160/year for the car

--
House expenses:

Time Warner 180/month = 2,160/yr
Food-Grocery 160/month = 1,920/yr
Mobile phone 150/yr
P.O. Box 70/yr

--
Internet hobby:

Domain names 100/yr
Web hosting 80/yr

--
Grand total $7,640 / year
I might have left something out but this is close.

Alternate Scenario - if I were to move to a one bedroom apartment within walking distance of grocery store, post office, etc. This means I'd give up the car and have a higher housing expense.

Cheap apartment locally - $600/month
Utilities (heat/elec/gas) - $200/month
Internet - $50/month (this would replace the Time Warner cost above)

$10,200 new housing cost annually
+7,640 all other expenses outlined above
-2,160 old time warner
-3,160 car
alternate grand total = $12,520

Added to this post-retirement would be health insurance and the occasional car rental.

[AugustPlace]

In the Money Questions section, someone asked about investment options. Jacob asked them a series of questions, and I thought I'd answer them here about myself.


1. How much mental effort do you intend to expend on this? To learn? To maintain?

Educate myself by reading a couple books, then verify info with Google searches. Make a plan and follow it. For maintenance I'd like to look at it once a month at most.

2. Do economy/finance/markets/business interest you? (Do you read the business section first? Do you watch CNBC?)

Honestly no. I don't read/watch economic news at this point.

3. How do you feel about losing $1000 if you had $10000? What about $50000 if you have $500000?

I'd feel that a 10% loss would be a large setback, but wouldn't give up assuming my plan is sound.

4. How much faith do you have in experts? What about Nobel Prize winners?

When an expert spends large anounts of time researching and testing a subject, and I have not spent this time, I'd value their experience. Any prizes they have won would not change this.

5. Do you believe more in math or common sense?

Let me put it this way. One thing I learned in tech school was that it's more important to have an answer close to the expected result than it is to have a precise answer correct to the Nth digit. After a point, the smaller digits begin to lose their significance. I see estimating as a value because it gets me on the right track quickly. For someone who tends to get lost in details, if the focus is on accuracy instead of a real-world result, I get distracted and fail to take action.

6. What do you do if 90% of what you hear disagrees with what you strongly believe?

My beliefs wouldn't change because of what others think. But, maybe this question is about understanding or knowledge instead of a core belief. If my understanding of an issue conflicts with the majority then I might have a "wait and see" attitude.

7. How long until you change your mind under those circumstances?

After there is some kind of test or trial and evidence shows I was wrong, then I'd change my mind.

-------------
I looked up the permanent portfolio because I was a fan of Harry Browne (even voted for him in 2000). It's interesting but right now I think I need more knowledge before I can get how the different parts relate to each other.

Dividend stocks appeal to me. I like the idea of buying and holding long term while earning dividends. Similar to what I do now with bank certificates.

So, based on my answers above, what direction do you think would be good for my investments?

[Chad]

I hesitate to suggest a strategy for you, as you haven't actually experienced those questions you have answered. Thinking about them is good, but a lot of people's reactions to losing 10-20% of their portfolio is different than what they expected.

For instance, if you were to go with the dividend stock strategy, what would you have done in 2008-2009 when you saw your portfolio drop by 50% or more? Some negative event similar to this magnitude (probably not quite this bad) happens roughly every 10-15 years, which means if you live to be 80 you will see at least two of these events. Would you be able to hold and ride it out? Which was the prudent thing to do, especially if you owned dividend stocks. The dividends for high quality stocks didn't change much during that period, but their price did.

Exxon dividend history
http://www.nasdaq.com/symbol/xom/dividend-history

General Mills dividend history
http://phx.corporate-ir.net/phoenix.zht ... -dividends

Phillip Morris dividend history
http://www.nasdaq.com/symbol/pm/dividend-history

You will notice that all of those companies maintained their divided through the 2008-2009 crash. Your portfolio would have fallen almost 50%, but your dividend income would have remained rather stable. Now 5 years later your portfolio would be back in the black and you would have been collecting increasing dividends the entire time. But, could you have kept yourself from selling in 2008-2009?

My best suggestion is to pick a strategy and implement it for at least 6 months, if not more, before you leave your job. You need to get comfortable with a strategy, while you still have income from work.

[AugustPlace]

Hi Chad
You're right, I am just guessing on some of these. I think if I did go for dividend stocks, my intent would be to buy and hold them for the rest of my life, unless they stopped paying dividends. So I don't know for sure how I'd react. Selling when the market drops is something the unwise do, and I like to think I'm not unwise.

Although I was writing here about leaving the job asap -- truthfully I don't have a concrete plan to resign. I just think about it all the time because I'm so completely dissatisfied with working there. If I were to be laid off with a nice severance package, I would rejoice. But quitting without a workable plan to replace the job would be very unlike me. The best solution might be to continue working somewhere else.

My first experience with investing (aside from a passbook savings account - remember those?) was when I was about 19 years old and a salesman talked me into investing in commodities. I put in about $1500, and by the time I was done I had $2.17 left. It was a learning experience though. I learned that I shouldn't rely on a broker's advice - I need to do my own research. A few years later I tried again, but just trading on paper without using real money. Sometimes I made a little bit, and sometimes I lost too much. Never again did I feel confident enough to risk real money on commodities.

After that I went through a long stretch of time where I was broke, or in debt. That's when I developed and honed my frugality skills. Every dollar was needed just to get food to survive on. Investing seemed like an impossible dream at that point.

Later after I found steady employment and got out of debt, I became a saver. I socked away as much as I could, probably as a psychological response to my recent lean times. I put everything in certificates of deposit so I would be sure not to lose any principal.

I did start putting large amounts into my 401K from the job. It was all in a stable equity fund for a few years, until I figured out how to move it into various funds. I was fortunate to do this when the market dropped, so I gained quite a bit when the market recovered. I just used the recommended portolio for people comfortable with mild risk, instead of researching the funds myself. I was putting in the maximum amount (50% of income) for a year and a half until I realized I was contributing too much and might be hit with a penalty. So I scaled it back to 30%.

So that brings me to today when I have money in safe bank cerificates that are earning next to nothing, and a 401K with a balanced group of funds I don't fully understand.

I bought a used copy of Your Money or Your Life and plan to read it soon. I also have an audiobook of A Random Walk Down Wall Street that I've been meaning to listen to.

[AugustPlace]

In 2014 I did read Your Money or Your Life and A Random Walk Down Wallstreet. I also went through the Stock Series by jlcollinsnh.

I started to move bank CD money into Vanguard index funds. I plan to continue this as the certificates expire this year. Index funds fit my criteria of being simple, relatively easy to manage and effective in the long run.

Still working the same exhausting job, plus caretaking duty, having little energy to spare. I want to start some kind of computer based side business this year. A partial retirement where I'm working parttime from my laptop sounds like a wonderful dream. The trick is getting it started while putting 90% of my energy into other work.

Thinking about retirement in terms of life stages. From age 50-60 I would have the money I've been keeping in banks but am now moving to Vanguard. From age 60-70 I would be withdrawing from the 401K. Assuming my mother dies before I do, there will likely be an inheritance (not sure what, let's assume another 100K). After 70 I would qualify for social security. Even if the investments only keep up with inflation I might have enough right now.

The main cause of my uncertainty is that I'm not living in a realistic financial situation right now, living in someone else's house. At some point I'll be moving to my own house (which I don't have yet) and I don't have a handle on what my expenses will be then.

[AugustPlace]

Another thing that concerns me about retiring on 300K invested, is that there is a narrow margin for error. There will likely be unexpected expenses that I can't plan for.

For example, earlier in the year my mother had to be taken via ambulance to a hospital ER because of sudden extreme pain in her legs - she was not able to move out of a chair, even with my help. The ER doctor drained some fluid from her knees and gave a new diagnosis of gouty arthritis. Then they wanted to send her home. But she still could not move. Because the procedure was considered "outpatient" and the diagnosis didn't qualify for inpatient status, the insurance would not pay for an admission. We had to admit her anyway to give us time to arrange for some kind of physical rehab. She ended up staying 5 days, at about $2500/day that she has to pay for. We appealed it twice, but with the same result. So this is $12500 that disappeared from her principal in less than a week.

Another situation happen to me this year. I was driving my 17 year old car at night, and two deer ran across the road in front of me. I hit the brakes and avoided one, but hit the other at about 40 mph. It impacted the grille above the bumper. I was able to drive the rest of the way to the house. The radiator was dented and coolant was leaking out. I used AAA to get a free tow to my garage, hoping they could replace the radiator, and I could replace the cosmetic damage to the grille myself with used parts. The damage was more extensive than I thought. Replacing the radiator, cooling fan, hoses, condenser, doing an evacute/recharge of the fluids, and a wheel alignment - estimate for parts/labor/tax was $1750. And this did not include the cosmetic repairs. This is on an old rusty beater car worth about $900 prior to the accident. Insurance didn't cover this because I have a minimal liability policy only. And even if they did "total" the car I'd only get 900 and be facing 2500 or so in repairs.

I was planning to drive this for another 5+ years, but now I have the unexpected expense of buying another used car. Ideally I would just give up car ownership, but as long as I'm working a job and responsible for bringing food/medicine to my elderly mother's remote house I require a vehicle.

It seems that it's likely as time goes on that I'll have to pay for things I can't predict. So how much of a margin for error should be built into a retirement plan? It seems to me the 4% rule assumes that everything goes as planned, with insurance paying for things outside your control. But sometimes insurance won't pay and you take a hit to your portfolio.

[George the original one]

Yes, $300k in America leaves a thin margin of safety. Ordinarily, a young person would likely just go back to work, but you're not that young, so a bit more in the bank is worthwhile. Whether that's to bolster emergency monies or just to pay for more insurance is up to you.

If you weren't working and gave up the car, what would be the plan for taking food/medicine to your mother? Why wouldn't that work now?

[AugustPlace]

That is a good question George

I'm living in her house now, and as long as I'm here I will want my own car. I'm driving her car to work this week while I look for another one. Giving up a personal car would mean moving to a bike/walk friendly location, and moving is not an option in our situation. Unless she hires a full-time live-in caretaker to replace me, which she can't afford. And she won't give up her house unless some illness forces her to make a change. I think she should have moved to assisted living long ago, but she is stubborn.

[AugustPlace]

I have a work shirt that's starting to fray around the collar. Whenever I put it on before going to the gray cubicle, I think about whether or not to buy a new one. I say "it just has to last until I stop working".

I do have a minimal job wardrobe anyway. One pair of dark pants, and one spare pants the same color. Six long sleeve button down shirts. I wear the same pants for a week, swapping out the shirt daily. Then I run it all through the wash on the weekend while wearing my jeans.

My damaged Jeep is gone, replaced with a Scion xD. Even though I got a good deal, I have regretted this choice a bit, as the tiny front wheel drive car is bad in the snow and have got myself stuck many times in February. It is true that you only need 4 wheel drive if you need to go off road, however the driveway I use is reduced to off road conditions in the wintertime every year. We'll see what happens in Spring, maybe I'll trade it in for a small SUV.

On the positive side, this week I'll be moving another 35,000 from an expired low interest CD to Vanguard. Slowly but surely, getting all my savings into index funds. And the market has dropped a bit, so stocks are "on sale".

[AugustPlace]

I just did my taxes. I had about 10% of my savings invested for 2.5 months last year. I earned $295 in dividends.

So if I extrapolate that out to 12 months it's $1416, and if all of it was invested instead of 10%, that would have been $14,160 per year. Not guaranteed of course but it's in the ballpark. More than $1000 income per month without working every day? It seems like this might be possible.

[AugustPlace]

A few things I want to document in my journal. And I am thirsty for feedback.

1. Moved another expired bank certificate into Vanguard. I try to do this when the market dips a bit.

2. Had an idea to plan a sabbatical from work. Sort of a trial period retirement. I would call it a "gap year" where the plan would be to take one year off from full-time jobs. After a recovery period (to let go of stress and build physical fitness), I'd spend time trying to develop income sources using websites, social media, and affiliate programs. I made about $580 doing this last year hardly trying, so it could be built into something significant if I had time to work on it. If my income is sufficient at the end of the gap year, I wouldn't go back to a job.

3. I took the Keirsey Temperament Sorter in the 1990's and it said I was an IXTJ (X means evenly split between S and N). I didn't mention it before because I don't see much value in it. It seems like a horoscope-type entertainment thing to me.

4. A problem has developed in my life recently. A friend has decided that I should build a website for him. He is not computer literate and thinks of me as his "computer guy". He has mailed me several large envelopes full of promotional flyers he wants me to read, analyze, sort and categorize. I have little time and am NOT interested in the subject matter, but I do want my friend to be successful. I'd prefer my involvement be limited to giving advice, not physically building a whole website (and then marketing and advertising it). When I said I wasn't interested, he started to say inspirational things and told me "I believe that you can do it", insisting that I take this on for my own good. He talks about "our website" and how we are in business together now and how I have to stop "playing games" and get this done. I shut up and did not firmly refuse to do it, but really did not say yes either. Now he is expecting me to produce this website.

I seem to have this personality flaw that gets me into situations like this. It's probably the same reason I am an adult man living in his mother's house, when I would prefer to be in my own place. Also why I am working a job that I am not well suited for, in an industry that I detest.

All I want out of life is freedom. For people to stop demanding that I do things for them. This is what I imagine early retirement to be like. Where I no longer have to spend 90% of my life energy servicing other people and I can live the simple, contemplative life I have always wanted. Or I could be fooling myself, as it seems I have this sense of "responsibility" hard wired into my brain, and I'm not a good vocal communicator.

[1taskaday]

Just an observation of no real relevance;

Maybe if your personality type was a Strong "N" instead of borderline with "S/N" you would be more able to say a clear NO to your friend's request.Or better still,not have got yourself into the position where you feel some duty to fullfill HIS wishes.

ISTJ "The Duty Fullfiller".

INTJ "The Strategist".

Maybe there is more value in it than you think...

I have an ISTJ sister,whom I adore,but she sure does end up doing a lot of what she thinks society/other people expect her to do...against her own wishes.

I on the other hand, am an INTJ and as my mother says,"I will probably end up dying alone with my cats",I say bring it on...

Side note:I don't have any cats.

[AugustPlace]

Right now I have 33% of my pre-tax job income going into my 401K. The account value is about 160K now. The employer matches 75% of the first 6% that I contribute. My percentage contribution is so high because 1) I don't need it to pay bills, and 2) I wanted to make up for lost time as I didn't start saving until after I was 40. For a year I had it up to 50%, but it was getting close to the limit that a person can put in a 401K per year so I dialed it back.

I'm thinking of lowering the percentage, maybe to 10% or even to 6%. That way I'll get more money in my paychecks, that I can put in my Vanguard taxable index fund accounts. It seems like I'd have more control of the funds if it's in Vanguard versus in a 401K that I won't touch until I'm 60. Any suggestions on this?

Still plugging away at the job. I probably don't need to work now but keep going for a few reasons. 1) habit. 2) what my family expects me to do (I know, not a good reason). 3) a weird sense of obligation to the employer - is this like Stockholm syndrome? 4) social aspects of being in the trenches with coworkers. 5) free health insurance.

and 6) I don't have a handle on my post-job expenses. The two big unknowns are housing cost and health insurance. I have had apartments in the past but for the past 15 years have been living in other people's houses. I'm out of touch on the current rates of house things. For the health insurance I'd go through the state exchange and see if I qualify for a subsidy. Those are the silver plans, right? Need to research these things. I'm not likely to stop the job until I have a clear picture of what's on the other side.

[AugustPlace]

As you may know I'm a live-in caretaker for my mother. Her ability to manage living in the house has declined rapidly over the last month, eventually reaching a point where she was unable to walk. Even with a walker and me physically holding her upright.

We had to call for an ambulance one day because she was stuck on the stairs. Her knees gave out and she was not able to go up or down, and I was holding her to prevent a fall down the stairs. She went to the hospital ER, but they would not admit her because there was no illness or injury. Going back to the house wasn't a safe option, so she was moved to a nursing home.

The cost of the nursing home "custodial care" is not going to be covered by insurance because she wasn't admitted to the hospital. You need a 3-day inpatient stay to qualify for transfer to skilled nursing, according to Medicare. It's going to cost about $11,000 a month.

I don't know if she is going to stay there long term, or just stay to do therapy so she can regain enough strength to go to assisted living or even back to the house, probably with a full time home health aide.

So, how does this impact my own retirement plans?

If she does live in a facility for the rest of her life, then I'd no longer be responsible for her care. She may have to sell the house, so I'd need to find a place to live.

I've heard that Medicaid can't seize a house to pay bills if a child caretaker has been living there more than two years. So the house might be put in my name. Don't know how I feel about owning a house - if it's long term I'd prefer to live somewhere with less maintenance. Or I might want to travel after I stop working to figure out where I want to settle down.

My brother said I'm in an enviable position. Soon I may be able to go anywhere and reinvent myself.

This is giving me a window into how medicare/medicaid works for the elderly.

Also it illustrates how important it is to invest in your own health by staying active. My mother did not exercise, relying on her medications only to stay healthy. If she was a fit 86 year old, she would still be living in her home.

[AugustPlace]

I stopped posting here last year because I didn't feel it was a good use of my time to write publicly about possible investments and my job frustrations. Maybe I'll try again, to document milestones.

My life as a caregiver had been crazy the past six months. There were several ambulance rides to the hospital ER, two inpatient stays, and three skilled nursing facility admissions. When she wasn't in a facility we had daily home nursing care while I was at work. My family says that my mother stayed in her home much longer than she would otherwise because of my efforts. But she did pass away last month.

I went through a period of devastating sadness. Then I felt adrift like a boat with no anchor, often wondering what was the point of it all. Now I'm probably numb to it and trying to focus on the details of what to do now.

I'm still living in her house, but the house is supposed to be sold within one year to distribute the proceeds to her beneficiaries. Leaving me with 50+ years worth of my parent's accumulated stuff to sort through. My siblings are willing to help when they have a few days here and there. My housing expense was low, but now I'll have to figure something else out. Nice one bedroom apartments are about $1000/month around here. My last apartment was $400/month, but that was a long time ago.

A priority for me now should be regaining my health. The stress of recent times has led to bad habits such as no exercise, too much alcohol, junk foods. I know that health is an investment that can pay off in a longer, more enjoyable life. I'm still working the same high intensity job, and they recently offered me "retention pay", which is a $1.50/hour bonus to stay in the same position. Too many people on my team have left lately. I should keep going there until my mom's estate is sorted out. Lots of changes on the horizon for me.