Goals/Objectives for 2021

So with the start of a new year,  it is time to review the goals for 2021 and see how I’ve done. I’ve done the goal setting posts before and gone over my 2017-2020 goals in previous posts. As for most people, 2021 was a mixed bag. I failed to put as much into retirement accounts as planned, but the rising stock market and my allocation definitely were successful – in terms of my goals.

For 2021, we had already achieved our FI number, and we probably could have retired already. However, with the Chinese Covid flu in place, there really wasn’t much of an opportunity to travel and do other work. So we planned to continue to work, invest a large portion of our salaries, and stay invested primarily in stocks. We did change our allocation in Sep 2021 away from some bonds and S&P to dividend paying stocks (Blue Chips). It seems to have done well.

So what about 2021?

Finance:

  • Save $29K in tax-advantaged accounts: In early 2021, it looked like I was going to retire early, so I made the decision to stop investing in the 401K and generate more regular investments. When I determined to continue to work, I failed to put my 401K investment back in place. Didn’t realize it till December, so I wasted a lot of money I could have put into tax advantaged accounts.  Grade D –  $7,801
  • Save $41K in regular accounts:  I put away my entire bonus, as well as a lot of excess money, and even saved enough to do a $60K Roth conversion in December and pay the taxes for it. Grade A – $44,500
  • Increase dividend income from all accounts to $30K/year: My 401K at work does not report dividends separately, so this number may be higher.  Grade C – $27,336
  • Passive income covers 38% of base living expenses in retirement, estimated at $78K per 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. Grade C-  35.0%
  • Beat net worth growth rate of 7% (it was +14.6% in 2020 with the stock market run up). This is my historical growth rate for the last 10+ years, so I want to beat my average. I expected the market to be flat, but instead, we grew our net worth dramatically. Grade A: +21.8%

Business:

  • Attend 12 SJREIA meetings. They hold a regular monthly meeting, a monthly meeting for new investors, and a monthly meeting for my specific county. All three could be interesting. Grade A: Attended 13
  • Double the number of blog visitors in 2021. Last year it was a little over 6,000. I want to get at least 12,000 this year, so I need to put myself out there more (i.e. comment) and write interesting topics. My thanks to everyone who stopped by, and I try to return the favor, and comment as well. Grade F – only had 5,354 visitors in 2021
  • Sell $1,000 for TKD Woodworking. Grade A – $1,300 in revenue
  • Setup Funding for TKD Homes Grade A – Account setup and funded with a significant amount to begin investing in real estate
  • 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 to go. Grade F – did not work on

Personal:

  • Begin regular workouts with Gymnastic Bodies Incomplete. Continues in early 2021, but a shoulder injury kept me from continuing in the 2nd half of 2021
  • Average 2 hours of cardio per week, which is about what I’m doing now.  Grade A: Regular do 3+ hours
  • Backpack over 100 miles on AT (did around 58 miles in 2020). Did better this year, with longer trips (3- and 4-day trips) Grade B: 78 miles
  • Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this. Incomplete. Site shutdown due to Virus
  • Reduce weight by 15 lbs. from Jan 2021 Grade F. Gained 3 lbs in 2021, mostly in Nov/Dec. Need to knuckle down and get back to where I was in 1st qtr.
  • Read at least one book a month. I surpassed this goal in 2018, and re-learned the joy of reading.  Grade A. 23 books

Travel:

  • Visit one national parks (that is the plan, right now); Incomplete due to virus
  • 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. Grade C – Visited Vermont and Tennessee, but didn’t get up to NY
  • 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. Grade A – Did week on the Maryland shore with Mrs. 39 Months
  • 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 Incomplete due to virus

So that’s how I did. How did you do in 2020?

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Mr. 39 Months

Is it the 4.7% rule now?

An interesting article at investors.com, where they discuss the 4% rule, and is it valid in the 21st century. It helps to address one of the key questions for folks in the FIRE community – do I have enough money now to retire on?

For those who don’t know the history, William Bengen was originally an engineer who, after retiring from his first job, became a financial advisor. He applied his math skills to do an in-depth study in the early 90s on what was the correct percentage of your wealth to withdraw to ensure you could have a good chance on not outliving your money. After going through investments from 1926 (pre-great crash) to 1990, he came up with the rule stating “take your assets and put them in a mixed stock-bond allocation, take 4% each year, starting in year 1,  and increase that by the inflation rate every year. You will be safe for the next 30+ years.”

In fact, he thought you could probably take out 4.5% or even 5%, but 4% was a “safe withdrawal rate.” Since then, folks have replicated the study, and time and time again, the 4% rule has stood.

However, in the current era of low-inflation and low interest rates, many analysts have said that the 4% rule is “too generous” and you should plan to take out only 3%, or even as low as 2.5%. I myself have done some analysis and read some additional articles, and written on it before.

A new article is out on investors.com, in it, Bengen states that he’s gone back through the numbers after 30 years, and the number still holds up. He continues to insist that the 4% rule is too conservative. He holds that “Retirees can safely withdraw up to 4.7% a year without threatening to wipe out their retirement savings before 30 years have elapsed.” He claims that the “Skeptics simply do not seem to read all of his research, including updates.”

Bengen believes “that 4.7% plus inflation is a safely sustainable annual withdrawal rate applies to all retirees since 1968.”

My plan is to stick to a 4% safe withdrawal rate. I think that it’s a valid rate to use.

What are your assumptions?

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Mr. 39 Months.

Continual Learning throughout your Life

Sorry I’m a day late – I got tied up with work, which took up some time.

Speaking of work, I’ve got some mandated training on a new database package that my company is using to download and analyze data for our prospective customers. As is typical in our day and age, we’ve been asked to become trained and certified by the end of the year. So I’m a little busy.

As you may be aware, I’m involved with third party logistics, which involves doing the trucking and warehousing of other customers product. Often the customers don’t have good data, or its “messy” and needs to  be massaged to be able to make good decisions on for equipment, personnel, etc. I was pleasantly surprised at this new package, and I’ve enjoyed learning it. Its going to save time and offer a lot more options.

That brought to mind the need to continually learn throughout life – not just when young, but throughout your lifetime. You need to work on keeping your mind flexible and keep interested I new things as you age. Many retirees use travel for this, but I also think people benefit from classroom learning, learning new languages, and just gaining new experiences throughout their life.

I’ve planned to take some home repair and basic plumbing classes in early 2022 at my local technical institute. I’m still taking some classes for my professional work and I’m interested in both learning a new language and a musical instrument. The whole idea is to keep learning into my 60s, 70s and 80s.

How are you working to keep learning throughout your life

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Kevin

You Are Welcome…

Well, I wrote about the potential for me to be let go due to vaccination status, and my need to potentially “time the market” with my deferred income account. At the beginning of October, I noted that October was typically a bad time for stocks, and with the potential of the account being paid out in cash if I was let go meant that I might or might not get the stocks liquidated at an opportune time. Because of that, I chose to, at the beginning of October, to move it all out of mutual funds (S&P500, International, Small Cap, Bonds) and into pure cash.

As everyone knows, my previous attempts to “time the market” have been dismal failures. Well, October 2021 was no exception. I had left my IRAs and 401Ks invested for October, and instead of going down they went up +4.7% in one month. So my decision ended up meaning I missed out on an estimated $11K of gains if I had just left everything in place.

I’m sure everyone else pretty much left their investments in place, and gained the benefit of this increase. All I can say to that is – You are Welcome.

Hopefully I’ve learned my “time the market” lesson again, and this time it might stick. As of Nov 1, I put my deferred money back into the market.

Anyway, congratulations, and I hope you all have a profitable final two months of the year.

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Mr. 39 Months

“One More Year” Syndrome

Well the Chinese Covid virus has caused a lot of issues in people’s work lives, mine included. My company was holding to a “everyone has to be vaccinated by Nov 18th” mandate, and stated that anyone not vaccinated might be subject to termination. I’m not an anit-vaxxer (I got my shingles vaccine earlier this year) but I do have some concerns with the RNA based vaccines coming out, primarily based on my military history with government vaccines and “Gulf War Syndrome” with some of my comrades.  We are hoping to get the Nova-vax when it comes out, hopefully in 4th Qtr 2021 or 1st Qtr 2022.

So what does this have to do with “One More Year” Syndrome? This is something folks in the FIRE community have talked about before. Physician On Fire notes that “To be afflicted with OMY syndrome is to continue working for “one more year” even though you’ve reached your financial goals, and no longer need the paycheck to make ends meet.” Many of us fall into this after we’ve reached our FI goals.

My company reached out to me with a proposal that I shift positions to a project engineer role, where I could work from home full time. It would not be a cut in pay, but it would decrease my bonus from 15% to 10%. I was a little surprised, because I didn’t think I was contributing that much, and wasn’t valued. As I’ve noted before, we have already hit our FI goal, so I wasn’t really sweating the Nov 18th date. Now with their offer, I have the potential of working “one more year” and further setting us up for our independence. So what do I do?

Benefits:

  • An extra 18+ months of salary & Investments (if I retire on my new date of July 2023)
  • Don’t have to begin drawing down our investments to live on
  • Continue to work at a job I find interesting (for the most part)
  • Continue to maintain medical benefits, as opposed to having to go on Cobra or the ACA marketplace
  • Can continue to develop my post-retirement interests, plans and bucket list

Minuses:

  • Still only have 3 weeks of vacation, so my free time is still severely restricted. No thru hike of the Appalachian trail in 2022!
  • Starting to develop my “side hustle” of TKD woodworking. Looking at other potential work (handyman, etc) that would have to be put on the backburner if I go in that direction
  • My mother is in her mid-80s and if she has medical issues, I’d have to request leave, as opposed to just having time to go visit whenever she needed it

Its an interesting question, and its one of the key benefits of FI, that you can actually compare and make a decision. I would hate to be in my late 50’s and still have to depend on work to make ends meet. All the hard work and saving for the past 20 years has put us in a great position.

I hope all of you either have or will be able to get this level of flexibility as you continue on your FI journey.

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Mr. 39 Months

What are your assumptions when planning for FI and retirement?

A key part of planning for Financial Independence is to determine the assumptions you make for the future. This is always a “moving target” as we are trying to predict the future. We can go back to past periods of time and try and use that (this is what the 4% rule was based on) but we are trying to predict an ever-changing future. This is fraught with risk.

A person’s personality (and their spouse’s personality) now “comes to the fore” here.  If they are optimistic, then the prediction is on high investment returns, low inflation, and good health. If they are pessimistic, then its low investment returns, high inflation and potential higher costs for health care. Most folks are somewhere in between – but this is a key part of the “angsts” of people trying to hit their retirement goals – and has been for many decades. The fact that folks are living longer (and thus the big problem if they guess wrong) has further caused people’s stomachs to churn.

Many people in the FI community have never lived in a high inflation era. Inflation got smacked down in the 80s, so for the last three decades, we’ve been living with 2% – 4% inflation. For those of us older (late 50s, 60s) we remember the 70s and early 80s, where inflation hit double-digits and caused a massive crunch in people’s plans for retirement. That’s why boomers typically overestimate inflation, and non-bloomers underestimate.

The same goes for investment returns. From 1968 – 1982, the stock market returned a net 0% – fourteen years! So again, boomers tend to be a little more conservative in their return predictions. Non-boomers have known some pretty sweet times for the market (and some crashes) so their predictions might be more aggressive. I’ve written before about how I think the market is way overvalued, so we may be in for a significant correction/crash in the near term.

So what are my FI assumptions?

  • Inflation -3% per year
  • Social Security increases – 2% per year (i.e. doesn’t keep pace with actual inflation)
  • Stock returns – 7.8% per year (down from historical 10%)
  • Bond returns – 3.1% per year (down from historical 4.6%)
  • Return for 60% stock/40% bond portfolio – 5.92%
  • Return after inflation – 2.92%
  • Life timeline: Live to 97 (me) and 99 (Mrs. 39 Months)

I used to be more aggressive with my investment returns, but after my meetings with our investment advisor in 2019, I dialed them back somewhat.

Based on this, our current portfolio, and taking Social Security at age 67, we could retire now and still end up with the equivalent, in 2021 dollars, of $291K at time of death. So we’re FI!

Still, the assumptions could be not pessimistic enough – and we could be hurting in our old age. We will see…..

So what are your assumptions for your calculations?

Mr. 39 Months

Some success in my quest to improve friendships…..

I wrote recently about reading the book “We should hang out” and the issue with middle-aged men losing their friendships and having enhanced feelings of loneliness. Since then, I’ve made it a point to reach out to past friends and talk with them on the phone, and to seek out friends from 30+ years ago (High School, College, first job, etc.). Its been an interesting experience.

I can say, however, that I had a major success story this week. One of my best friends for the last 25 years (we shared several similar hobbies and our wives became friends as well) had moved away to Chicago about 10 years ago for work, and while we’ve kept somewhat in touch, it has only been along the lines of 1 call a year. I visited about 7 years ago during a work trip, but not since then.

Well, I’ve been reaching out roughly every 3-4 weeks now by phone, and we’ve had some good conversations and gotten back in touch over the last 3 months. During the memorial day weekend, he was visiting his parents (they just retired in their mid-70s) and he drove up 120 miles to visit his daughter. He took the opportunity to cross the river and see us, talk on our back deck, and then have dinner with us. I honestly think that if we hadn’t been talking somewhat over the last several months, he might have just spent that extra time with his daughter, or tried to drive back home to Chicago.

It was great seeing him again, and both Mrs. 39 Months and I had a good time.

So don’t be afraid to reach out to folks – you might get surprised.

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Mr. 39 Months

How Big is Your Emergency Fund?

Early Retirement Now had a post out about the continued uselessness of an emergency fund. He discussed how they kept all their funds in an equity index fund portfolio, with only $1K – $2K in a checking account. They assumed they’d use credit cards and/or Home Equity Line of Credit (HELOC) “if any larger expenses came up that exceeded my monthly cash flow, e.g., car and home repairs, medical bills, etc.”

The general comment back in 2016 was “my point here, I most definitely advocate stashing a large pile of money. I simply advocate for moving all that money into an investment with high expected returns, ideally equities, instead of letting the money languish in a money market account at 0.03% interest.”

The plan, if something went wrong, is:

  • Use credit cards, with a long “float” of interest free loan
  • Use the HELOC to pay for the credit card if the issue continues for longer
  • Only sell investments if they have to – but they’ll have had years of  positive growth to offset selling at a loss

I think this argument falls into the “sleep at night” problem. The issue here is there are so many people now investing and in the FIRE movement that weren’t very aware during the 2000 and 2008 recessions, or remember the 1970 “stagflation” period (where the market went nowhere for 10+ years).

Let’s look at some holes in the plan.

  1. Assumption that credit extended will continue to be extended: Just because you have credit cards now, doesn’t mean they will issue you new ones, or not close down your existing ones (or at least reduce what you can borrow). A HELOC can be pulled back as well. Suddenly, you’ve got no credit – and you’ve got to sell investments
  2. For this sort of credit crunch, think the 2008 recession. How was the market doing at this time? 50% drop in value, erasing everything gained back to 2000, and even before that. In 1968-1970 the market dropped 35.9%, and never regained its numbers till 1982.

I also think the creation of an emergency fund is the first step in working towards FI. It could be $500 or $1000 (the number in ERN’s checking) but by building on that, you reach the point where you can shrug off medium level issues.

In ERNs defense, he does end his article stating that folks should not leave their emergency fund in the market if they are retired, or within 2-5 years of retirement.

Earlier in the year, I pulled money out of bonds and put it in the dividend stocks – only to turn around within 30 days because I just couldn’t sleep at night. It’s a personal choice, and you need to do what makes sense for you.

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Mr. 39 Months

We Need to Hang Out…..

I was listening to one of the latest podcasts from “The Art of Manliness” website, one of the sites I link to which covers frugality and purchasing decisions as part of its writing.

The podcast was titled “One Man’s Impossible Quest — To Make Friends in Adulthood.” It covers a new book out by the author Billy Baker titled We Need to Hang Out: A Memoir of Making Friends. The author covered how he found himself in his 40s with few if any male friends that weren’t the spouses of his wife’s friends. Over the 20+ years of adulthood, he gradually drifted away and lost contact with friends, and failed to make new ones.

Billy then covers how he started a project “which experimented with different ways to recover and create connections, by rekindling his old friendships, but why that ultimately didn’t scratch the friendship itch for him.” He discusses the “men’s shed” movement in Australia and its philosophy that men need “somewhere to go, something to do, and someone to talk to.”

The podcast really struck me, and I’ve been experiencing these feelings of loneliness for some time, well before Covid came and crashed into everyone. A close friend of mine that I had been active with for 15+ adult years (since moving to New Jersey) moved away eight years ago due to work, and I was surprised how much if affected me. I started realizing how few real friends I had.

So I’ve started my own experiment, trying to reach out and contact folks from the past, while also looking at what I can do to increase the number for new friends once Covid clears up.

Step 1: Take a look at my existing friends, and my relationship with them:

  • Still in contact with my best friend from High School. Talk with him every three months, on average
  • One local friend. Talk with him monthly right now, due to Covid (he has health issues which preclude contact)
  • One long distance friend (the one I spoke of above, who left 8 years ago). Contact maybe every six months.
  • Three activity groups/clubs with “acquaintances” rather than friends (Engineering Professional Society, Woodworking, Backpacking)

Step 2: Determine steps with existing friends

  • Plan on contacting friends more frequently (monthly or more)
  • Once Covid is over, look to see if I can create closer friendships with some of the members in the activity groups/clubs

Step 3: Try to revitalize old friendships

  • Try and reach out to old friends back in School (High School, College)
  • Try and reach out to old friends when we were in Germany and the early 90s
  • Once contacted, keep in regular rotation that I communicate with them

Results so far:

  • Step 2: Definitely bumped up the frequency of these. Contacting them this last week and will reach out every 2 weeks. Still trying to work on plan for activity groups, once Covid ends
  • Step 3: Some success. Was able to contact one person from High School and two from Germany, and had short conversation with each (actually had phone call with one of the Germany friends). Also created list of folks to contact and move forward with

Interesting experiment. It brings both good feelings (getting back in contact) and sad feelings (having missed out on so much of a friends life).

I’ll let you guys know how its going as the months move forward.

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Mr. 39 months

FI is great when life throws you a curve ball!

Well, last night was fun! Yesterday, my town tore up some of the streets around us and shut off the water to our local houses. Not sure the reason, probably just repairing something, now that the weather is getting nicer. By late afternoon it was back on. When they turned the town water back on, our toilets and sinks burped and popped a bit as the air was let out of the system. Just around dinner time, we found that the area around our water heater had a small puddle around it. We cleaned it up, put a pan underneath it and watched it. We figured that the disturbance from the water coming back on may have loosened a valve or something.

No such luck. Our water heater is 15 years old, and after 10 years, they start wearing out. That was this one’s problem. It turned out that our tank had a small crack in it that wasn’t fixable, and was only going to get worse. We were having to clean up every hour or two – not the sort of thing you can live with.

Luckily, we were able to get a plumber out to remove/replace the water heater (with my work schedule the next couple of days, I didn’t think I’d be able to do it). While the cost was pretty expensive ($2,300 with permits!) we knew it was an expense we were going to have to pay pretty soon – and we’d been saving up for it.

So we plopped the money down, had an expert do the work, and got it all fixed by dinner time. That is one of the hidden joys of FI – it leads to a much less stressful life, because you can be prepared for this minor emergencies.

Stay Healthy!

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Mr. 39 Months