Early Retirement Extreme Forums

George the original one wrote:

old_fart wrote:If I had $15000 in expenses and a $10,000 pension would I just need $5000 x 35 ($175,000) to be good for life or will I need to have $15,000 x 35 ($525,000) even with the pension? The $178,000 is sitting in an account getting 1/2 percent interest, I don't want to invest it, I'm paranoid and won't to keep it 100% safe even if it's not growing.

If the pension gets cost of living increases and is guaranteed not to be legislated away (or go bankrupt), then yes.

It's a state government pension so as long as the state doesn't go bankrupt I think it's safe and in 7 years I'll get social security, another $15,000 a year and ss does get cost of living increases, so with $175,000 in the bank now - $35,000 till SS kicks in, I'll have $140,000 left and should actually be able to save that $35,000 back into savings before inflation eats up the pension and SS yearly. I'm just hoping it'll be enough.

Honesty I don't want to earn any more money if I don't have to, that's why my cash is sitting in a savings account. I don't really want to pay anymore taxes than I'll have to pay on the pension.

Well, I haven't been full-time employed for 12 years now. At the time, I quit my job to start my own business I had about $8000 in the bank and a starving musician husband who was maybe making $28,000/yr from his day job and two kids who were 11 and 14 and a way-too-big 135 year old money-pit of a house with a mortgage. So, I am the opposite of the forum members who can't even quite pull the trigger at $1,000,000. However, I should note that one of the reasons I joined this forum is because I have suffered too much anxiety over the years because I haven't been conservative enough in my approach (do not recommend to others.) My other reason for joining being social support for my pretty much lifelong practice of living the good life on very little money. As others have noted, your phase-of-life, especially in regard to whether you are currently raising children makes a big difference in solution to this puzzle.

Anyways, I have no intention of ever fully retiring because what I crave is varied self-employment and/or flexible-temporary employment. Of course, it may happen someday that none of the ways in which I wish to be self-employed create any cash flow whatsoever except for my job as a self-employed manager of my passively invested assets in which case it will appear that I am retired. However, as Jacob noted, it almost invariably happens that if you involve other people in the equation of any work you are doing or even just let them see you doing it, it will result in some stream of cash flow in your direction. For instance:

"My what a nice crop of arugula you are growing!"

"Thank you. Would you like some?"

"Thank you. Most generous. Can I please at least give you a couple dollars?"

Also, the amount of Social Security I am due at age 67 is more than adequate to cover my current living expense so it might appear like I am retired at that point.

Minor quibble with equation of Skills + Money = Lifestyle would be that I think it is more like Skills + Practice + Money + AssetYouWereBlessedWith@Birth = Lifestyle because, for instance, most people possess the skill to floss their teeth but many people who possess the skill do not engage in the practice of it and some people are born more cavity-prone than others.

I was thinking about the Skills + Money = Lifestyle too, and maybe I'm just quibbling about vocabulary, but I tend to see lifestyle as independent of those things.

I'd say "standard of living" is a function of skills + money + 7w5's extensions and probably location.

But you could have 2 people with very much the same material positions and situations, equivalent self reliance, but very different styles to the way they live. In other words, while some lifestyles typically have higher "costs" than others, for a given "cost" it's usually possible to have a variety of lifestyles.

That said, expressing a quantity that is the sum of financial resources and skill/ability resources, while simple, is profound, and there are more than a few people out there who operate as though they're oblivious to it.

Sorry, duplicate.

IlliniDave said: But you could have 2 people with very much the same material positions and situations, equivalent self reliance, but very different styles to the way they live. In other words, while some lifestyles typically have higher "costs" than others, for a given "cost" it's usually possible to have a variety of lifestyles.

Good point. For instance, Amish vs. Bohemian lifestyle. It seems to me that you could pretty well narrow down any person's ideal lifestyle by giving them their choice of 3 (or maybe 5?) magazines from the inventory of a very well-stocked bookstore and all of the 124,251,000 different combinations could be purchased for less than $20.

Yes, lifestyle is not the same as standard-of-living. What I originally claimed was that nor is standard-of-living the same as cost-of-living because skill and design can substitute for a lot of the normal cost. The last observation is frequently ignored or dismissed.

chicago81 wrote:With very few exceptions, most people will need to do one of the following:
1. Live in a paid off home
2. Live in a mortgaged home
3. Pay rent to live in an apartment or rent someone's spare room
4. Live in their car/van, live on the streets, or be a beach bum (e.g. not living in 'structure')

I'd add one more option to the list (and in my opinion it's the best):

5) live in one unit of a multi-unit mortgaged property, such as a 4-plex. The down payment on a 3-4 unit building isn't much more than the downpayment on a house, and rental income from the other units will typically cover the entire mortgage, meaning you're living rent-free.

FWIW, we paid 95k for our [fixer foreclosure] house. According to zillow (and the RE listing I've seen locally for houses similar to ours), it would rent for about $1400. A 4-plex would be around 350k cash listing. A 2-plex would be 250k. The current market around here is such that RE seems to sell around listing price.

Basically, if you're willing to leverage and accept a combination of RE risk and management, the current cost is quite low. Leverage, that is, accepting a mortgage, is the key word here.

I spend about 3k/mo right now and I'm 36 years old. I have about 90k in student loans to pay back, I have about 300k saved up and take home about 200k a year. I'm a recent convert and up to now been spending every last dollar plus some on anything that was advertised to me. I firmly believed that my happiness was linked to material possessions. So I decided to just try what jacob and others have done and my happiness actually increased. I'm still going through the motions, so I haven't gotten the big picture yet. Which is why I'm gonna say that right now the number I "need" is 650k and the number I "want" is 850k.
I'm certain that as I continue to grow as a human being and stop drinking the consumer kool aid I'll realize in the near future that [actual need=0.5*current need] and [need=want].

I think my retirement number is somewhere between $350K and $500K, plus income from my current rental, maybe an additional one. I'm around $300K now, but I still have a mortgage on my rental house. My goal is to pay off the rental. The house I live in is paid for, and I live according to one article in the least expensive city in America. If I can stick it out another 5 years, my pension should pay me about $500/month, not a huge amount, but significant enough. There seems to be little chance of staying beyond that 5 year mark (which would greatly improve my pension payout); most days the big question is if I can last one more day.... But I'll only be 55. I would like to work at SOMETHING after that, just to pay at least a small amount into social security to avoid having those zeros average in. Probably not a huge deal, but I'm leaning more toward "early semi-retirement."

As to lifestyle stuff, I live pretty "small." I spend a pretty small percentage of my current income, compared to most people, anyway, but probably not compared to people on this board!! I see some US travel in my future after retirement, maybe a couple of trips to Europe, but no plans to be a crazy world traveler.

I could probably do it on less, but I also have a brother I need to consider in my planning; he's slightly handicapped and needs some help with certain things related to daily living, etc. So I want to make sure I have some extra padding in the retirement budget.

jacob wrote:As I recommend, the things I do almost all tend to lead towards some cash in some form. However, most people I know don't do this---they don't take the step to monetization or extending the value they build to other people (e.g. websites, forum/group participation/network); they don't even try. This is unfortunate, because I think this is important.

Jacob's already elaborated on this, in response to Jenny. And 7W5 has provided an earthy-ish example too.

I get the point, the principle : but can people come out with more concrete examples?

(Don't mean to derail. I'm putting up a separate thread.)

IlliniDave wrote:+2.

IlliniDave : Was that "+2" of yours just a humorous reference to the "+1" just preceding, no more than a joke, or is that normal usage?

I ask because I came to know of the provenance of the "+1" that people here use so liberally only recently, and am curious about your use of "+2".

jacob wrote:money + skills = outcome

Okay then, how does this look?

Money + Skills – Unnecessary wants = Outcome

I’ve said this same thing before, actually. As a comment in the blog. Jacob did a post on how he could go yachting on perhaps a tenth of the cost that it would take an unskilled person to go yachting. Something like that. And my take was, if you think about this and introspect, and find that you don’t really need to go rushing around in wet clothes on boats, you’ll save even more money, and time as well.

To put this in purely materialist terms that may resonate more with folks here : lifted from the Coffee thread in these forums : You get value by buying overpriced coffee in cafes. You can go ERE by substituting expensive coffee-shop coffee with coffee brewed at home. You may further economize by finding ways to prepare the stuff cheap, or perhaps source the coffee wholesale or whatever. But if you’re able to do away with the stuff altogether, then surely that’s even more ERE, even more effective?

Of course, this works only if not drinking coffee does not affect your quality of life. Else it's plain dysfunctional stinginess. But we can say the same about not living in mansions with grounds and pool, or about not going fine-dining every weekend, or just about anything.

Devil's Advocate wrote:

IlliniDave wrote:+2.

IlliniDave : Was that "+2" of yours just a humorous reference to the "+1" just preceding, no more than a joke, or is that normal usage?

I ask because I came to know of the provenance of the "+1" that people here use so liberally only recently, and am curious about your use of "+2".

Oh, well "+1" signifies agreement, and "+2" just signifies additional agreement, as in "I agree as well." Not sure it get's used a lot around here but does on some other forums I read.

JohnnyH wrote:Property taxes out west aren't that low, and areas that have seen growth have created governments that expect aggressive tax increases... That said, after calling their BS, I got mine down from almost $1000 to ~$450 annually. Some property owners kept up on ridiculous "market value" appraisals and disputed with each new valuation. These properties have reasonable taxes. Most property owners never took the time and after 4-8 uncontested appraisals the "market value" imposed for taxes is 2-4x the actual market value. Worse you have to really fight to get these down into reality and these uncontested houses see their resale value depressed because of looming tax liability.

Median property tax map:
http://interactive.taxfoundation.org/pr ... 59prop.png

I think the cheapest living in the county is to be found in places like OK and AR. But they have been experiences ridiculous growth recently (secret is out) and this may no longer be the case.

renting ain't so bad for me.....

Welcome to the fourth page....

Living in a paid off home is hands down one of the best things you could ever do for financial security. I paid cash for my first house at 28 with money I had saved for the preceding 2.5 years and it was an awesome feeling. With a paid off house, you could work at any job and still live well since you have the single biggest expense taken care of. Your savings stretch further, and there is a general peace of mind knowing that you always have a roof over your head. It's guaranteed investment. You can always rent the spare rooms a well, so as to produce extra income. With many, this is a common back up plan in case they burn through savings and need income. You can garden, raise rabbits, chickens, etc. for food. You can drastically reduce your living expenses living in a paid off house.

SimpleLife wrote:Welcome to the fourth page....

Living in a paid off home is hands down one of the best things you could ever do for financial security. I paid cash for my first house at 28 with money I had saved for the preceding 2.5 years and it was an awesome feeling. With a paid off house, you could work at any job and still live well since you have the single biggest expense taken care of. Your savings stretch further, and there is a general peace of mind knowing that you always have a roof over your head. It's guaranteed investment. You can always rent the spare rooms a well, so as to produce extra income. With many, this is a common back up plan in case they burn through savings and need income. You can garden, raise rabbits, chickens, etc. for food. You can drastically reduce your living expenses living in a paid off house.

true, but I can't save enough money to buy a decent house i don't think(in an area where I enjoy living).....That basically takes away all my capital I could use in the stock market, bonds, etc.

In addition, now I'm not as mobile. If I want to move, I have to worry about renting it, managing it, etc. If I want to sell it, I may not get what I paid for it(this happened to me with a condo).

In addition, owning a home takes a nearly constant flow of cash for repairs, insurance, taxes, etc. that most people don't mention.

As a renter, I don't have to worry about taxes, repairs, insurance, etc. and I'm not tied down. This is especially true if I'm living towards ERE, which means I don't have a lot of stuff to store...I don't need a lot of space.

I know there are arguments both ways, but I just prefer the flexibility and freedom of renting at this point. I have enough FI to meet a rent and my monthly expenses.

Devil's Advocate wrote:

jacob wrote:money + skills = outcome

Okay then, how does this look?

Money + Skills – Unnecessary wants = Outcome

I’ve said this same thing before, actually. As a comment in the blog. Jacob did a post on how he could go yachting on perhaps a tenth of the cost that it would take an unskilled person to go yachting. Something like that. And my take was, if you think about this and introspect, and find that you don’t really need to go rushing around in wet clothes on boats, you’ll save even more money, and time as well.

To put this in purely materialist terms that may resonate more with folks here : lifted from the Coffee thread in these forums : You get value by buying overpriced coffee in cafes. You can go ERE by substituting expensive coffee-shop coffee with coffee brewed at home. You may further economize by finding ways to prepare the stuff cheap, or perhaps source the coffee wholesale or whatever. But if you’re able to do away with the stuff altogether, then surely that’s even more ERE, even more effective?

Of course, this works only if not drinking coffee does not affect your quality of life. Else it's plain dysfunctional stinginess. But we can say the same about not living in mansions with grounds and pool, or about not going fine-dining every weekend, or just about anything.

speaking of which, I'm totally off coffee for 2 weeks now....It was my main vice in life and it seemed impossible to quit. Now, I have less anxiety, and have cut another expense(yes, I loved an ice coffee from coffee shops) in downtown Boston. I'm drinking only decaf herbal tea now and it's fine. I'm less irritable without the coffee too.

my number is about 650k, which I've reached when you consider my federal pension that starts next year and my savings.

I am new to the ERE blog but have been greatly inspired. Calculating how much you will need in retirement a few questions arose. How do you factor in you 401K/403 contributions since these are penalized if you withdraw early?

My situation: Husband is 30 y.o. and I am 28 y.o. Husband and I have 120,000 in 401K (husband's)/403b (mine) contributions, and husband has an additional 60,000 in an ESOP account. We have 18,000 in taxable investments and 10,000 in emergency savings. I estimate we would need 30,000 per year (which I added lots of cushion) to live on in "retirement" and would like to make this dream a reality within 10 yrs. Outside of our 401k/403b investments (which we each contribute 15% of our paycheck towards +4% employer match) we save an additional 5000 per month which we are putting towards paying off our mortgage and further investing. Our mortgage will be paid off in 7 yrs. And most likely my husband will retire before me, as much of the above numbers came from my husband's contributions but also bc I am on the public service loan forgiveness program and must work 10 yrs (I am 1 yr in) to have the remaining balance of my student loan paid off.

Based on the 4% withdrawal rule, I estimated we will need 750,000. But do I include the 401k/403b making up part of this number? I also calculated 30,000 x 21 yrs which is how many yrs away from when I "retire", age 38, to when I am allowed to start withdrawing from 401k/403b contributions, age 59 1/2, which would be 630,000. Should I go with this latter number or am I totally off with my calculations? Also, are we contributing too much to our 401K/403b, but I also realize once we retire we will no longer be contributing, do I need to factor this into my equation?

Please enlighten me fellow ERE members, as I feel figuring out how much money you will need to "retire" is the first step to financial independence and is the most crucial math equation I will ever calculate.

There really isn't a simple way to handle it. My plan is to get enough resources outside my 401k to last me until I'm 60 to avoid the 10% penalty tax. But I still have to allow for the fact that even without penalty tax the withdrawals are taxable income.

The process I use is something like ...

Using your $30,000 desired for expenses, let's say you determine that your fed/state income tax on that would be $3,000. Plus, lets assume it will all be early withdrawal money from tax advantaged accounts. You'll then pay $3,000 additional in penalty tax. So, to get $30,000 into your pocket you'll really need $36,000 out of your accounts. Using 4% that implies a $900K number. But once you hit 60 it will be $33K withdrawn implying an $825K number to support it. So you could maybe split the difference depending on how many years you are early withdrawing.

Of course if you have substantial taxable savings/investment accounts it further complicates things (but overall in a good way because you'll probably pay less tax on any withdrawals). It gives you the option to sit on the tax deferred money until the penalty goes away. The process is the same as above, just with different tax rates.

After doing all that for myself I have a "number" X that is Y dollars in tax advantaged plus Z dollars in taxable accounts, Z being sized (with generous margin) to see me through until I can get at the Y without early withdrawal penalty taxes.