Rebalancing – July 2021

I’ve written before about performing regular rebalancing of your investments. This makes you sell off your items which have become too much of your allocation due to increase, and purchase of items that are low in your allocation, due to decrease in value – basically buying low and selling high. I usually do this fairly regularly, every six months.

African elephant female and her baby elephant balancing on a blue balls.

Since rebalancing does incur some costs, you don’t want to rebalance too frequently – but you do want to do it. Recently, I’ve read several articles on the subject (including this one from thebalance). The suggestion from many of them is not to do it on a specific, regular date, but when your portfolio shifts in a significant amount – usually 20% above your allocation or more (i.e. if you have your S&P allocation of your portfolio be 25%, when it is either goes up to 30% or down to  20% of your allocation, then it would be time to rebalance).

I’ve rebalanced fairly regularly every six months, but I thought I’d give it a try for 2021 and 2022. At this point, my allocation hasn’t shifted enough to be 20% off for any of my asset classes. 

I’ll let folks know when it does.

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Mr. 39 Months

Getting interviewed by my professional magazine on finance

Back in May of 2011, I wrote an article for my professional society ( magazine, titled “Graduate Finances.” After the 2008-2009 recession, I wanted to share some basic financial ideas with future graduates, so they’d have an idea of what to do when they get their first job. The article covered basic budgeting, investing, benefits. Etc. In the years since, I  have had folks comment positively on the article.

Just recently, IISE has reached out to me for their new Podcast, and asked me to interview and discuss the article, and recent changes that might be made to the advice. The provided a list of questions they would be asking. I’ve included them below, and my answers to them.

Below are some starter questions to help prepare you for the interview, though I will surely ask additional questions based on the course of the conversation:

  1. This conversation surrounds an article you wrote for Industrial Engineer magazine (now ISE magazine) called “Graduate Finances,” and we’ll provide a link to the article on our show notes at the podcast website. You initially wrote it in early 2011, which was just a few years after the punishing fiscal bomb that was the Great Recession. What prompted you to give this advice to young engineers starting out?
    • I had become very interested in investing and saving for retirement around the year 2000 ( bust). When 2008-2009 hit, I saw a lot of people jump out of the market (rather than just let it sit) and knew that was the wrong answer.
    • My professional IISE chapter often goes to our local colleges and presents/discusses issues with students, and I’ve spoken at regional and national conferences before. I found that most engineers didn’t have any financial knowledge from college or high school (almost no graduate does).
    • I often got questions about what to do with their first job, and I wanted to provide some guidance.
  1. You open the article with “Day 1,” which typically involves an introduction meeting with a company’s human resources representative. Obviously, we’ve each been through this more than once in our careers, but for our younger audience who may be entering the real world soon after listening to this, what should they expect to learn about in that initial HR meeting?
  2. I’m assuming we are talking about financial aspects of HR. There will be a host of policies and programs that are not financially related that HR will bring forward.
  3. Other benefits that will save you money (insurance, legal, education, medical)
  4. Medical benefits – look for high deductible plan and an H.S.A. (Health Savings Account). This is almost a super Roth-IRA. You can save it before taxes, invest it, and then use it to pay medical bills later on
  1. I faced a battle with cancer a few years into my career and after joining my third employer (which just happened to be IISE). Before that, I will admit that I didn’t pay that close of attention to medical benefits and insurance details. Between youthful ignorance and newspaper veterans telling me that the insurance covered “next to nothing,” I lost sight of its value. Having cancer changed that for me. What would you suggest engineers ask HR about on Day 1 regarding their medical coverage?
    • They need to understand the costs involved and relate that to their potential budget. Coverage is a key point. Most company’s benefits will cover catastrophic issues, but the key is the deductible. How much do you want to pay out of pocket before the medical gets picked up.
    • Often you can get a benefit/cost reduction for regular checkups, not smoking, etc. Look into this.
    • For the younger ones, most feel their invulnerable, so they don’t pay much attention to medical.  I would suggest they look into a medical plan with a high deductible with an HAS – a Health Savings Plan. This lets you save money before taxes, and you can invest it in the market and let it grow. It can be used to pay medical expenses now, or 10+ years from now.
    • I don’t recommend an FSA – you have to spend that in the calendar year, and it’s a tracking nightmare. 
  1. I started my career in newspapers (back when people still subscribed to their local paper en masse) and I remember feeling a lot of pride when I received my first paycheck. It said to be that I was an adult and a working journalist. Unfortunately, it was only around $750 after deductions for two weeks of work and I didn’t fully grasp the expenses that were about to be dumped on top of me, like student loans and living expenses (my folks weren’t all that cool with me living at home after graduation). What was your experience like as you were coming into adulthood and suddenly trying to learn your new job as well as set yourself up for a financial future? In what ways did you feel like you got it right early on and where did you make your biggest errors?
    • I was an anomaly getting out, because I went into the military, so the first 5 years I had government housing, medical, etc.
    • Once I got out, my wife and I had to learn a lot of this (housing, medical, etc) but we were a little more mature, and had our spending in line.
    • For someone starting out, I’d look for someone maybe 5 years older they could use to mentor them on this. There is also some good information on the internet. I’d look into the FIRE community for this.
  1. What insights should young people entering the American workforce understand about deductions removed from their pay? Where is that money going?
    • Taxes (Fed, State, local) – obvious. Should be considered when you are looking at jobs.
    • Social Security/Medicare – Tax to pay for benefits to older Americans
    • Unemployment – paid into by you and your company
    • Other – state dependent (my state has Family Leave, Disability, Workforce Development)
    • Your choice in benefits – Medical, Dental, Vision, 401K, Insurance, etc.
  1. The combination of career success, bad luck on the health front and poor decision-making, among other factors, led me to a lifestyle rooted around minimalism – not in the “live like a hermit” context that many people believe it to be, rather to develop an ability to determine what has the most value and what has no value. And it’s become evident to me over my adult life that budgets, even simple ones drawn on a napkin, can go a long way into showing me just where I stand when it comes to income and expenses. What budget methods would you recommend to graduating students, such as the “60 percent” rule or the “50/20/30” model?
    • I gave several versions in the article, but I am a real enthusiast for the “pay yourself first” model. Do your investments first (401K to at least the match, HAS, Roth IRA) maybe 10% – 20% of your paycheck.
    • Every year from that point bump it up at least 1% (i.e. if you get a 3% pay raise, one third of that goes to new investments like 401K or Roth IRA)
    • Then you have your 80% – 90% left to spend.
    • Budget for any debt (student loans, etc).
    • What is left over is what you have to live on (housing, food, transportation, etc)
    • Remember that, unless you have a real disaster, the first couple of years will be the tightest. Every year, every pay raise, every debt payoff, it will get  a little easier
  1. For anyone who has been out of college in the past 20 years, we’ve witnessed a lot of events that have made an impact on the national and/or global economy – the Sept. 11, 2001, attacks; the housing market crash in 2008; and our current pandemic. These types of events have made investing a shaky proposition for me personally, but I’ve done more of it in the past few years albeit conservatively. I’m fairly certain you’re not one to recommend investing in Bitcoin or other risky ventures. Unless I’m wrong, what factors do you recommend young graduates consider when it comes to investing? Should they start investing in stocks and bonds right out of the gate or focus on their 401Ks and/or Roth IRAs, or anything deemed low risk?
    • The biggest issue, I think, for young engineers is the long term nature of investing. Most people at 22 can’t envision 10 years from now, let alone 40 years.
    • I’d have a “core” of investments in the basics (401K, Roth IRA, etc) and if you’re young, I’d invest almost 100% in stock index funds. The market has never been down over a 20+ year period, and young folks have that sort of timeline for their investments. As you get older, you can shift more to bonds or other fixed investments.
    • Index Funds/ETFs!
    • Maybe have 5% – 10% of your funds for “fun money” where you invest in Bitcoin, Tesla, etc. Just assume that you will be gambling.
    • Again, I’d do some reading on the FIRE movement (Financial Independence, Retire Early). The concept there is that if you bust your butt to pay off debt and invest, you can get yourself into a situation where you are Financially Independent and don’t have to work. Then you can do the sort of work you really enjoy!
  1. In the original article, you listed about a dozen sources for further reading and education on money and personal finance, but it’s been a long decade since “Graduate Finances” first published. Do you have any new favorite digital resources like websites or podcasts that have a better reach on younger generations? Any books or authors that you would recommend as well?
  2. Take everything with a grain of salt. Everyone’s situation is different, and some folks like to take more risk than you may be comfortable with.
  1. As you wrote in your article, ISE students graduate with a strong foundation of functional knowledge applicable to their careers – the ability to research and investigate, to analyze data, etc. Should colleges and universities provide more opportunities or add emphasis on personal finance education? Are there opportunities for parallel teaching (think the Daniel/Mr. Miyagi relationship in “The Karate Kid”… “wax on, wax off; sand the floor; …”)?
    • I think there should be a personal finance course as an option, but that is just me.
    • If not, at least provide additional opportunities to study this
    • The issue is that most young folks just don’t think personal finance is an interesting topic. Often discussions of money are considered “dirty” in our culture. 

What would you add or change to these?

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Mr. 39 Months

Goals/Objectives for 2021

I’ve done the goal setting posts before and gone over my 2017, 2018, 2019 and 2020 goals in previous posts. For 2020, most of the financial goals were accomplished, but as with many people, the non-financial goals were mostly listed as “incomplete.”

For 2021, my financial goals have one key goal that I have removed – increase in Net Worth. The lessons from 2018 to 2020 is that the finance markets will be driven up & down, sometimes on a whim. With over 83% of our net worth as investments and savings, a stock drop of 20% (or gain of 20%) will dramatically decrease/increase our net worth – without me being able to control it at all.

One thing about goals, they should be meaningful, but they should also be something you can drive. Our Net Worth is really beyond our control right now. What I can control is the amount we continue to save as we close in on retirement – and that goal will remain.

As I noted back in July 2020, our expected FI date was past July. The crash of March/April certainly cut into that, but with the big rise in Nov-Dec, we could officially retire today (according to my numbers). Can you say “sequence of return risk.” However, I think the market is overpriced and due for a correction, so I don’t really feel comfortable retiring now. The job I’m currently doing is enjoyable, and I’m due a decent bonus payment in early April, so I plan on staying on for the moment (can you stay “one more year syndrome?”).

So what about goals for 2021


  • Save $29K in tax-advantaged accounts. 401K, and Roth IRA.  
  • Save $41K in regular accounts.  Starting to build that bucket of funds we’ll need prior to hitting age 65.
  • Increase dividend income from all accounts to $29K/year (compared to 28K in 2020).
  • Passive income covers 38% of base living expenses in retirement, estimated at $78K per year (hit 37.1% last year). My long-term goal is to get my dividend/passive income up to where it covers over 100% of my expected retirement living expenses, so my investments can continue to grow.
  • Did not put in a Net Worth Growth goal.


  • Attend at least 12 SJREIA meetings (my local real estate investors association) this year. They’re holding regular online meetings now, and eventually we’ll get back to live meetings.
  • Increase the number of blog visitors by 10%. Actually lost -18.5% from 2019. Not sure if this was poor writing, not commenting on others work, or just Covid. I want to grow it in 2021.
  • Build TKD Woodworking (my side-hustle name) with in-person sales (craft fairs, farmer’s markets, etc.).
  • Make $1,000 in sales (not necessarily profit) on items with TKD woodworking
  • Write/publish a book on finance.  I wrote one for new graduates in 2017, but I have identified an area of the community which hasn’t been served as well in the past. Hopefully I can assist with something here.  I’ve got the first five chapters outlined/partially done, but still have a ways togo.


  • Continue to work with to stay fit at home. Get to constant use of level 1 of exercise. With Covid, attending gyms just doesn’t appear to be in the cards.
  • Average 2 hours of cardio per week, which is about what I’m doing now.
  • Backpack over 100 miles on AT (did around 60 miles in 2020). The trail that I haven’t hiked is getting further and further away, making it impossible to do weekend trips. Right now I’ve got over 150 miles scheduled for 2021. .
  • Reduce weight by 20 lbs. from Jan 2021 (lost 8 lbs. in 2020). Again, I want to get in better shape as I get closer to financial independence and retirement
  • Read at least one book a month. I surpassed this goal in 2020, and re-learned the joy of reading.


  • Visit one national parks (that is the plan, right now)
  • Visit family in Tennessee, Vermont and New York. Family is very important to me. One of the things I am looking forward to with financial independence is the opportunity to visit family more often. Need to get up to see my brother in Vermont.
  • Week with Mrs. 39 Months for our 35th wedding anniversary in July. Not sure where we’Take a week at the shore and just relax with family. Currently planned for July, but we’ll see how many family members can come.
  • Visit Ellis Island. Still want to do this – its so close. As 50% Czech from immigrant great grandparents from the turn of the century, I believe they went through there, and I want to see it

So those are my somewhat ambitious goals for 2021. I am going to do my best to hit them, so wish me luck.

What are your goals for 2021?

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Mr. 39 Months

Do you have a “Sleep at Night” Allocation? Timing the Market…..

Well, the stock market has certainly gone crazy, with the Fed pumping in money and another round of stimulus being offered (with more on the way?). In addition, the operations by day traders has increased dramatically, further fueling a rise in the market (can you say Tesla?). For many folks, the double-digit increase in the market at the end of the year was a welcome bonus. Still…….

I wrote earlier in the month about how I was moving out of bond funds. I provided my reasons, and the numbers behind my decision. At the time, I was thinking that the bonds just couldn’t keep up with the market, and were holding me back.

As part of my new year analysis, I look at some basic finance info to try and get a “feel” for the direction of the market, based on the writings of Ben Stein in his book “Yes you can Time the Market.” Its pretty much the trends on stock price, P/E ratio, and bond yields. I used it to determine how well I would have done if I followed it since I graduated (Roughly 8% – 11% better than straight dollar cost averaging over last 35 years), at the end of 2019 (where it predicted a drop) and in mid-March 2020 (where it predicted you should jump back in). The overall lesson is that, if you have a long-term outlook, you can do a little better than just following the market.

Well, the concept is there are four (4) areas where you can follow the trend and determine if you should be purchasing stocks, or purchasing bonds.

  1. Price of S&P500 vs. 15-year average: Jan 1, 2021 = 3,756.07 vs.15-year average of 2,160.4. Signal says stocks are overpriced, do not buy more
  2. S&P500 P/E ratio vs. 15-year average: Jan 1, 2021 = 37.74 vs. 15-year average of 24.7. Signal says stocks are overpriced, do not buy more
  3. S&P 500 Dividend yield vs. 15-year average: Jan 1, 2021 = 1.55% vs. 15-year average of 2.04%. Signal says stocks are overpriced, do not buy more
  4. Earnings vs. AAA corporate Bonds. Jan 1, 2021 = 2.65% (1 / PE ratio of 37.74) vs. AAA bond yield of 2.28% (very low yield). Signal says bonds are provided lower yield (though not by much) so bonds are overpriced for their yield

So 3 of the 4 signals say stocks are overpriced, and the 4th one is a close as it has been in a decade. All signs seem to speak to current stocks being overpriced.

Note that the concept does not suggest you should sell all your stocks, or sell all your bonds. What it is saying is that in the current environment, the stocks (or bonds) are too high priced, and you should focus your purchases on another asset class. Relook at it later on, and potentially change your purchases with the new data (I look at it once/year).

So why the subject line? Well, its often said that you should have an investment allocation that it aggressive, but still lets you sleep at night. After finding out that the P/E ratio was 37+ yesterday, I had a difficult time sleeping last night. The other times when this ratio topped 35+ was right before the dot.Com bust (2001) and the great recession (2008).

I know I just changed I just changed my allocation to get out of bonds, but I’ve decided to go back with them (20% of my allocation). I think the market is just a little too expensive right now, with all the money being pumped into it. I may end up with lower returns than some other folks – but it will help me sleep better at night.

How are you guys doing with the run up?

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Other articles on this topic:

Is it time to get out of bonds (Millennial Revolution)

Mr. 39 Months

OK, I’m out!

That’s it – I’m moving out of my bond funds!

As many of you know, I changed by allocation at the beginning of the 2020 to reduce my bond portion from 30% to 20% of my portfolio. My reasoning was that the US Fed was keeping rates for borrowing low, so the yield I could expect from fixed assets would be low.

Of course, my timing sucked (as usual) and within 2 months of purchasing more stocks, the market tanked and the bonds became more valuable. Still, I held my course and even rebalanced In July, selling bonds and purchasing underpriced stocks – even though the market wasn’t going anywhere. That is why I have been very happy with the Nov/Dec. recovery

The US Federal Bank continues to keep rates low. The yield on the 10-year treasury is running at 0.947%! Thus, if you loan the fed $100, at the end of the year, you will have made $0.95. In ten years, you will get back $109.89. How can anyone make money in this?

So, with the S&P 500 paying a 1.6% dividend, and my Income account paying 4.19% dividends for the year, my thought is that I am going to take those bond funds in my 401K/IRAs, and convert them to mutual funds that focus on Dividend growth. For 2020, my bond funds returned about 2.2% growth and 3.0% in dividends – total of 5.2%

For my IRA/401K/Mutual Funds, I’m looking at three funds:

  • Wife’s IRAs (Trowprice): PRDGX (Dividend growth) – 13.93% 1 year / 14.49% 5 year
  • My IRAs (Vanguard): VDADX (Dividend Appreciation Index) – 15.46% 1 year/ 14.92% 5 year
  • My 401K/Deferred: VIMAX (Mid-Cap, my company does not offer a dividend growth fund, and I’m already invested in S&P500, small cap and international here) – 18.24% 1 year/ 13.28% 5 year

The plan here would be to use my rebalancing step, which I normally do in early January, to shift out of bonds and move into these new dividend growth stock funds. I’ll try and do that later this week.

Of course, knowing how well I time things, I’d expect a major market correction/crash shortly after I do this – so you’ve been warned.

So what changes are you guys making at the start of the year?

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Similar articles

Millennial Revolution

Mr. 39 Months

Investment Update Dec 2020 – What a difference a month makes!

Wow. Just Wow.

Not sure whether it’s the announcement of a potential vaccine, or the election being over, the market took all its pent-up energy and exploded. The investments were up across the board, and I’m sure everyone benefited from their investments shooting up. The result for us was an overall 10.7% increase in our accounts, and our annual number being pushed back into the “black” and the annual return rising to 7.53%. Maybe the year isn’t a total loss.

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

  • 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.

  • Bonds were up 1.1%
  • S&P was up 10.9%
  • International was ups 13.0%
  • Small Cap up 16.9%
  • REIT Index up 10.1%

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

  • 50% Dividend Stocks
  • 50% REITs

The dividend paying stocks were up an average of 12.5%, and the REITS were up an average of 19.8%. Again, wow. The dividend account has been down all year and hasn’t recovered anywhere near what the 401K/IRA accounts have. Now its come roaring back. Hopefully it will end the year in the black.

I hope December is at least level, so that we can end the year in the black.

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

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Mr. 39 Months

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

Have you changed your asset allocation?

I tend to re-balance every six months (In July and January). Re-balancing – make it regular and timely. Its helped save me some money (I didn’t suffer as much in Feb/Mar as others, as I took a share of my stock increases for 2019 and purchased bonds with them). So now its July and time to re-balance again.

Now, my standard allocation is:

  • 30% Index Bond funds
  • 17.5% S&P 500 Index
  • 17.5% Small cap Index
  • 17.5% International stocks index
  • 17.5% REITs index

I have found in the first six months of 2020 that my bonds were up to around 33% of my investments, while my REITS were down around 15%, and the stocks were lower as well. Usually, I’d just rebalance everything to the numbers above, and be “on my way.”

However, the Chinese Covid virus and the market volatility had me thinking. The “Fed” (US Federal Reserve Board) in an attempt to keep the market afloat, has dramatically dropped interest rates, and begun buying debt again. The result is that, as before, savers got punished and folks looking to increase their debt could find easy money. It thus made bonds less attractive, as any new debt issued is going to be at lower interest rates for the foreseeable future.

What is someone to do as they close in on retirement? Typically you pull money away from the volatile market and embrace safer investment alternatives – but you can’t do that with rates this low. I’ve tried experimenting with an income account for years, and I just can’t make it work with dividends. So I am stuck, like so many others, in shifting my allocation to more stocks.

In early July, I returned to the allocation that we had for most of the last 20 years:

  • 20% Index bond funds
  • 20% S&P 500 Index
  • 20% Small Cap Index
  • 20% International stocks index
  • 20% REITS index

Based on my previous horrible timing, I’m assuming we’ll have a stock collapse in the next 3 months, so be ready.

Have you made any changes to your investment allocations recently, based on current events?

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Mr. 39 Months

I don’t need to tell you that taxes suck

Finally was able to get everything together for the taxes in 2019. We use a CPA because of some complications, though its fast closing in on the time when I plan on taking back over doing our own taxes (I did them up till about 2011).

Well, we got the info back, I reviewed them, and the end result was….. we owed about $2,400 to the Fed (and $500 to our state). Plus penalties. Ouch.

I thought we’d prepaid enough to make sure this wasn’t an issue, but apparently not. We’ll have to take some money out of savings to pay for it. This way, we won’t be selling stocks during the current down market. That is why you have spare funds in place.

I can kick myself a bit, but in the end, the next step should be to evaluate your current tax withholdings for 2020 and make sure they are taking enough out. Low and behold, after running the numbers – we were about $2,800 low in withholding, based on what I see coming for the year.

Back to the federal/state W-4 form, where we determine withholdings, make a few adjustments which will reduce our available income a little over $200/month, and we should be set for taxes at the end of 2020. Better to take action at the beginning of the year than to try and find money at the end of the year.

I tend to try and get our taxes to $0, or have us owe a little money. I know some people like to get a nice refund, but I’d rather not give the government and interest free loan. I can use the money better.

Hopefully, your tax situation is better than mine!

Mr. 39 Months

Financial Advisor meeting #5 – Final Sad Trombone & comment on Financial Samurai

I’ve included several posts about our recent meetings with a financial advisor

Well, our advisor had some major family health issues with a loved one (cancer), so needless to say, it took a while to get our final report. We got it yesterday, in the form of a large, 3-ring binder, full of lots of data, analysis and recommendations. There was analysis of cash flow, net worth and draw down for several scenarios:

  1. Base scenario of both of us continuing to work for 4 more years, till I hit 60 and Mrs. 39 Months hits 62
  2. Scenario where we pull out more than the minimum from our 401K from 60-70 in order to reduce our RMDs
  3. Scenario where we I leave my current job, and get a much lower paying job that I love that earns $40K a year, and work at it till I hit 67
  4. Scenario where we have a major health issue requiring long-term health care when I hit 80
  5. Scenario where we retire the July (my FI date)

The analysis was very comprehensive. It was also very disheartening. In the first three scenarios, they all ended up pretty close to the same, we end up running out of money when we are 94/96 (i.e. three years before my target “death” date of 97/99). The major health and my July 2020 scenarios pretty much had us running out of money in the mid-80s. Since Mrs. 39 Months family has lots of her Aunts living into their 90s and 100s, that doesn’t seem like a good bet for us.

So why the difference? What has the advisor’s numbers coming in so much under my original planning? I’ve identified some callouts:

  • Original vs. Adjusted Budget: My original budget had us spending $72K/year, but after going deep into conversation with Mrs. 39 Months, this was revised up to $78K/year. Only $6K, but it does add up
  • Social Security & cost-of-living adjustments: I used the reports that came from social security to estimate our payments, but the reports assume you continue to work till you hit your retirement age (67 for us). Stopping at 60/62 reduces it, and stopping in July 2020 would reduce it even more. In addition, the advisor assumed a Social Security increase of 2% a year (below his inflation rate, see below), so the money will slowly be losing it purchasing power. I just assumed a straight line that would match inflation. Seeing the current state of social security in the US, I can’t say I disagree with the advisor
  • Inflation: My original planning just took inflation out of the picture. I used historical investment returns post-inflation (i.e. the returns I used had historical inflation already taken out). The advisor used a 3.25% inflation rate and a 6% for medical. I can’t really argue with the assumptions –  they do appear somewhat logical to me.
  • Return of investments: This is where I have real issues with the advisor. Based on our asset allocation (about 60% stocks, 40% bonds/savings) he came back with an estimated return over 40 years of 5.3% (i.e. only 2% above inflation). Since the average stock return from 1926 – 2018 is almost 10%, I found that too low. I’ve asked him to do another scenario with a 7.2% return (more in line with a 60/40 split)
  • Lifestyle spending: I have asked him to drop some of our lifestyle spending (travel, dining out, etc.) by 35% starting at age 75. I just don’t think we’ll be traveling or partying as much in our 80s and 90s.

We’ll see how this works out with the changes, but overall, I have to say I’m a little disappointed in the results, though not in the process. I believe the advisor is being very conservative in a lot of his assumptions – which appears to be the opposite of the FI community. Let’s face it, we are all very optimistic go-getters!

This sort of falls in line with news that the FI community found out about recently from the Financial Samurai blog last week. He wrote that he was planning to go back to work after 7+ years of early retirement. In his post, he listed his reasons (I invite you to read the posting) and I’m sure many of the readers could see his points (though his budget is way out of line with mine, since he lives in San Francisco). If you read closely, I think a lot of his reasons are non-financial. He just misses being around folks, the comradery, etc. It goes back to all the warnings that run through a lot of our community postings – you need to retire “to” something, rather than “from” something.

So, since I enjoy many of the aspects of my work, I am not too “bummed” about the potential of having to work longer in order to achieve “Fat FIRE.” We will see where the journey goes.


Mr. 39 Months