Saturday Linkage

Nov 28, 2020

  1. Be an Owner (Four Pillar Freedom); Excellent advice that is the core of financial independence.
  2. End of year financial checklist for high earners (passive income MD): For those making well over six-figures, there are certain steps that you can take to optimize. What
  3. Tips for Transitioning to early retirement (dragons on fire); Preparing mentally, managing expectations, be willing to take risks and to change.
  4. The End of passive investing (Banker on Fire); author writes about the standard arguments for active investing and the issues with them.
  5. Is Early Retirement Selfish? (1500 days); Goes through the standard arguments against FIRE, and rebuts them with excellent reasons to retire early.
  6. What if FIRE doesn’t work? (Monevator); Author riddled with doubt and concern, and discusses some of the issues when “The FIRE dream dies.”
  7. Life Moves On – 2020 Has Changed us (Cracking Retirement); What was important a few years ago may be less important now.
  8. Book review – How to Reinvent yourself in Retirement (esimoney);
  9. Are you too Frugal? (retire by 40); I think a lot of folks are 80% frugal, and they spend on the 20% of the items that really matter to them
  10. Always get a second opinion (full time finance); Good discussion on affiliate links on blogs, advertising in the internet age, and how a lot of items advertised on financial websites are not good options.
  11. The Prestige Trap (Wes Desilvestro);

Need something to do during winter in Covid Season? How about a home inventory?

OK, for many folks that sound more like punishment than fun, but for a lot of us in the FIRE community, we love to create and monitor lists, reports, finance sheets, etc. So this sort of thing can be enjoyable. I know, we are sick individuals.

Its also an excellent spur to make folks embrace minimalism?

Over at Women Who Money, they’ve written a pretty good article on why you need a home inventory and some practical steps on starting one. The key reason is that every year “One out of 20 households has to file insurance claims due to theft, fire, wind and water damage.” Having the items you need replaced inventoried, photographed and ready to go will dramatically help this – and may make you review your insurance to make sure it covers the needs.

The article goes through the variety of helpful aps and computer programs that could assist you in it. Some of the ways folks can do it is:

  • Make a video and describe items and their costs. One for each room
  • Photos. Again, documenting details, including brand names and serial #s
  • A digital inventory. FIRE folks friendly list, using apps, online tools, or just a spreadsheet

For some of the more expensive and/or hard-to-replace items, they suggest you include:

  • Brand
  • Size
  • Model number 
  • Cost – include the receipt if you have it
  • Store where purchased
  • Purchase date
  • Serial number
  • Photos or videos (close-ups are helpful)
  • Appraisal of antiques and collectibles
  • Replacement costs

I think one of the best things the article covers I getting started. Rather than “eating the whole elephant” they suggest you start with selected categories and do them one at a time, then branch out as necessary. The ones they suggest you start with are:

  • Electronics (don’t forget phones!)
  • Appliances
  • Jewelry
  • Art
  • Collectibles
  • Furniture

For storing the inventory as you complete it, they suggest a physical copy in a fire safe at home as well as one off-site (safe deposit box?). Also have digital copies, including out on the cloud.

I’ve had an old version of the inventory, but haven’t updated it in years. Going to start this Thanksgiving weekend with the electronics and appliances, and then go from there.

I liked this article so much, I added “Women Who Money” to my blogroll. Looking forward to reading more from them.

Mr. 39 Months

Saturday Linkage

Nov 21, 2020

  1. What happens when you get everything you want (Why we money); Good philosophical article on reaching for goals and resetting – and how to embrace happiness now vs. immediately resetting new goals and never being satisfied.
  2. Two Years without health insurance and what I’m doing about it (Mr. Money Mustache); Easier to do when you are young and fit  
  3. 5 Ways Gig Economy Workers Can Save for Retirement (Wisebread); Basic ideas
  4. Documents Required for a Personal Loan (The Simple Dollar); An expensive way to borrow, but often the only way to consolidate debt or move forward. Don’t abuse it (debt).
  5. 3 Points You Should Do When You Are Losing Your Job (my Tipid Tips); Good points if you reach that point in your life
  6. How Our Pursuit of FIRE has Helped Us During the Pandemic (Retiring on My Terms); Taking control of your life decisions can help in any situation
  7. My Credit Scored Decreased Thirty-Four points! (Budget Life List); Credit utilization increased a lot, and only made minimum payments a couple of times. Ouch!
  8. Twitter thread on the logic of paying off your mortgage (twitter.com); I know the numbers, but I still prefer to be debt free. In this age of uncertainty, with the potential for a financial tsumani hitting, I want to be debt free.
  9. When the dust settles (Irrelevant Investor); If you keep waiting for the “dust to settle” so you have the right time to invest – you will never invest.
  10. Peloton Alternatives: Get in shape without breaking the bank (Think Save Retire);
  11. A drive across America: Trip #2 (The Retirement Manifesto); A lot of retirees dream.

Saturday Linkage

Nov 14, 2020

  1. Lifestyle Creep (We want Guac): The Difference Between Lifestyle Creep and Improving Your Life
  2. The opposite of the Latte Factor (four pillar freedom); instead of cutting $1,825 from your existing level of spending each year, try earning an additional $1,825 each year.
  3. 20 Years of home price changes (visual capitalist)
  4. Contentment (clipping chains); Contentment: The Greenest Grass of the Them All  
  5. Never Assume (Humble Dollar); Numerous financial assumptions we make (richer people are happier?) that we shouldn’t.
  6. Entire FIRE community falls ill from Tainted Ramen Noodles (Accidental FIRE); Ha ha
  7. Budgeting that you won’t hate – backwards budgeting (physician philosopher)
  8. Spend less than you earn is the most important money habit (late starter fire); The first steps in achieving FIRE
  9. Consider but verify (freedom is groovy); With the current state of journalism today, you need to take everything written with a “grain of salt” because most of it is just pushing a narrative.
  10. Ten ways to sabotage your finances (retire by 40); Some are pretty obvious, some not so much.
  11. $1.3M in net worth, yet just scraping by right now (route to retire); Its not just your net worth, it’s the cash flow you can generate from that net worth

Is it the 4% rule, or the 5% rule?

The world of FIRE has been working with the 4% rule for a decade now. For those new to the concept, and analyst/statistician named Bill Bengen rocked the retirement planning world in 1994. He did an in-depth analysis on how much you could afford to spend of your “nest egg” each year, and still have money left over at the end of a typical retirement. He pretty much evaluated withdrawal rates every 6 months, starting in 1926 and going to the 1970s – and seeing what rate would allow you to still have funds at the end.

The rates ranged on average from 5% to 13%, depending on how lucky/unlucky your timing was when you retired. With the analysis he came up with the “Safe” retirement rate of 4% (actually a little higher). Even if you retired at the worst times in history to retire (1929, 1937, 1973, etc.), as long as you maintained a 60/40 allocation, you could safely take out 4% of your nest egg a year, and then adjust upward in line with inflation every year after that. This should leave you with  money at the end.

Since writing it, the FIRE community has lived by the 4% rule, or its derivatives (Fat-FIRE, lean-Fire, etc.). Most FIRE folks have said that, since we’re retiring earlier than 65, the need more than the 4% rule (some believe they can only spend 3% or as low as 2% since they’re retiring in their 30s). Bengen stated that the 4% rule was always the “worst case scenario” based on the worst time to retire (Oct 1968). This was when the stock market peaked, froze for 13 years, and inflation went through the roof..

Now Bill Bengen has gone back and relooked at his analysis in the time of low bond yields, low inflation, and high-priced stocks. He’s had another 25 years of data to crunch to add to what he already did. A lot of folks assumed he would drop the rate to reflect on these items. Instead, he’s come back and said the 4% rule is really now more of a 5% rule.

What?

In fact, he noted that at other points in history (when inflation was low and stocks/bonds were cheap) you could have withdrawn 7% – 13% and still been safe. With a 50/50 split of stocks/bonds, invested in index funds and US treasury bonds, Bengen believes you would be safe with a withdrawal rate of no more than 5%. He actually notes that “the average is 7%.” The key to the whole equation is the very low inflation right now.

Bengen does say there are still variables here (what will the Fed do, government spending, inflation, etc.) and the 5% rule should be a starting point in your analysis. Still, its nice to know that all of us panicking about saving 25X our spending (4% rule) might be ok with only 22X our savings.

Happy Veteran’s Day. Thank a Veteran if you can.

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Mr. 39 Months

Saturday Linkage

Nov 8, 2020

Sorry it’s a day late – Mrs. 39 Months and I went out to visit the beach yesterday and just got back. Guess this is starting to be a thing. Everyone wants to “get out” as this Covid goes on.

  1. Vacant land as a real estate investment (Costa Rica Fire); Another opportunity/option to investment – but you need the money to hold on – and remember opportunity cost!
  2. Dear Graduate, do you want to retire in five years? (Early Retirement Extreme); Older article, but still valid.
  3. Three ways a professional bookkeeper will save you money (my tipidtips); They can be valuable
  4. Does renter’s insurance cover water damage (the simple dollar); With  so many folks renting, its important to know what is covered, and what isn’t.
  5. Work is so slow at the moment (just baggage enough); Waiting for a restructuring  to happen, but its been delayed every year for a dozen year.
  6. Spend less to live more (budget life list); The general concept behind the FIRE, Frugality and Minimalist movements.
  7. Contributions to a dependent care FSA given Covid (Full time Finance) Some of the special medical options you have due to the Covid virus
  8. 59 year old teacher goes from house hack to 13 properties (Coach Carson);
  9. Americans are moving out of dense costly cities (Axios); a trend which will accelerate in the years ahead
  10. Pint sized home in Australia live large (the design files); I love architecture like this
  11. How the erratic stock market of 2020 rewards smart decisions (the simple dollar); Sort of what we all thought.

Investment Update Nov 2020 – Two months in a row, I’m down

Well, October is typically a down month, or a month when the market has crashes (1929, 1987, etc.) so I shouldn’t be surprised. Still, when I checked my investments a week before month-end and I was up about 1.5%. Then the bottom dropped out, and I ended up being down 1.5% for the month. Ouch!

The drop was spread out pretty much across all my allocation, with the S&P500 down 2.7%, International down 3.8% and REITS down. What was interesting was that small cap was up about 2%. For a decade the S&P500 was killing small cap. Maybe it’s turning?

So our allocation is as follows, as of July 2020:

Retirement Accounts: Remember, my allocation for these is:

  • 20% Bond Index Fund
  • 20% S&P500 Index Fund
  • 20% International Index Fund
  • 20% Small Cap Index Fund
  • 20% REIT Index Fund

My 401K doesn’t have REIT option, so it’s just 25% for each.

My dividend account new allocation (as of Jan 2020) was:

  • 50% Dividend Stocks
  • 50% REITs

The dividend paying stocks varied, but most were down. Overall, the account was down -5.9%. My value account with Vanguard was down -2.1%, so it was in line with most of the stock losses.

October pushed me further into negative numbers for the year. I’m now at -3.3% for the year. As I noted back in October,  I’m assuming we’ll gain some/all of that back for the year, and end 2020 about where we started.

Hope everyone is healthy and your market returns for the rest of the year go up!

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Mr. 39 Months

Saturday Linkage: Bill Bingen revisits the 4% rule

10/31/2020

  1. Bill Bingen revisits the 4% rule (FA-Mag); Excellent deep analysis on potential changes to the rule, based on updated data and market analysis over the last 20+ years.
  2. Is the 4% safe withdrawal rate obsolete (Can I retire yet): Good history of how the 4% rule came into effect, and what research has changed the thoughts around it.
  3. How my Investments have changed after reaching FI (Physician on Fire); Some interesting notes on how he has diversified his investments now that he has hit his “number.”
  4. How to waste your career one comfortable year at a time (Valley Girl Newsletter); For those of us still on the treadmill
  5. How to live like you are already retired (Incognito money):
  6. Best Online lenders (the simple dollar); If you are looking to improve the home, etc.
  7. Even a crystal ball won’t help (Evidence Investor); In the in the context of investing, having a crystal ball is overrated.
  8. What to make of 3rd Qtr GDP numbers (early retirement now); Still not back to where we were, but it’s a great bump back up!
  9. The destruction of Value (banker on fire); some discussion on why growth stocks have beaten value stocks over the last 10+ years. e
  10. How to live your values (City Frugal); Often we are out of sync with our values. It benefits us to reflect on them on occasion and take steps to get back in alignment.

What Assumptions are you making for your Retirement?

Was listening to an earlier podcast from the Retirement Answer Man from May of this year. His four Podcasts during that month dealt with the assumptions people make in planning for their retirement. Obviously these assumptions will greatly affect the amount we save, the timeline of our retirement, and the potential happy future we will have.

Some of the areas covered by

  • Life Assumptions (how long will you live, how long will you continue to work, who will care for you as you get older, etc.)
  • Costs (spending, regular inflation, healthcare inflation, use of averages, etc.)
  • Markets (returns on stocks, bonds, withdrawal strategies, etc.)
  • Rules for making assumptions (recognize these are assumptions, be flexible, beware of extreme assumptions, etc.)

It made me think of the assumptions we are currently using, especially after our meeting with the financial advisor at the end of 2019.

Our base assumptions:

  • Longevity: Me 97 Years old, Mrs. 39 Months 99 years old
  • Work till I am 58, Mrs. 39 Months is 60
  • Take Social Security at 67
  • Social Security annual increases: 2%
  • Inflation: 3.25%
  • Healthcare inflation: 6%
  • Investment returns (60/40 split): 7.2% before inflation
  • Budget and pay our own medical until we hit 65. Medical costs will be roughly what they are now (plus expected medical inflation rate)
  • Budget of $78,000/year for expenses (including medical for first 5-7 years) – adjusted for inflation
  • Move to new home at some point, but it will be roughly same cost as what we sell existing home
  • Place we move to will have roughly same living costs as what we currently have (i.e. no savings)

So what are the assumptions you are using to do your planning?

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Mr. 39 Months

Saturday Linkage

Oct 24, 2020

Sorry it’s a day late – Mrs. 39 Months and I went out to look at fall foliage and just got back. Enjoy!

  1. Retiring at 27? Try house hacking (Mr. Money Moustache).  A lot of benefits to starting early with this.
  2. To 5 Tips to becoming an Extreme Early Retirement Expert (Early Retirement Extreme); Not all of them are what you expect.
  3. When does refinancing into a 15-year mortgage make sense? (Simple Dollar); We did this, refinancing to a 20-year, then a 15-year, then a 10-year mortgage before paying it off. In each instance, we drop about 1.5% on the interest rate.
  4. Five situations it would pay to have travel insurance (Tipid Tips); Wish we’d done that this year
  5. How much money do you need to never work again? (Life outside the maze). Ah, the eternal FI question.
  6. Puttering around the house (just baggage enough); sometimes its fun just doing nothing…
  7. Why buy bonds now (Dollars and data): Not paying much – just need to have some guaranteed income better than a CD
  8. The Financial Benefits of Exercise (budget life list); Estimate of $500 worth of medical expenditures for exercising
  9. A list of personal finance events and conferences (Get rich slowly) For when this pandemic craziness ends. /
  10. Cannonball run! (the retirement manifesto); Big road trip!
  11. How early retirement impacts social security benefits (retire by 40): An important aspect that we didn’t realize until we met with our financial advisor. Depending on when you “walk away” It could have a major impact.