Author Topic: Views on alternative retirement "income"  (Read 3666 times)

GoodStash BadStache

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Views on alternative retirement "income"
« on: December 04, 2014, 10:28:08 AM »
Hello all,

I've been crunching the numbers on how close my wife and I are to early retirement and I'd like to get some opinions on how you all address post-retirement "income" from non-work sources in calculating your FIRE number.  The question popped up when I was looking at what we'll be earning as cashback from our American Express cash rebate card for 2014, which has been $600-800 annually for the last several years.  When I subtracted that cashback from our annual expenses the equivalent value in retirement dollars comes out $15-20,000 per year at 4%, which could cut a few months off of a potential retirement date.

Obviously some sources of income are too speculative or probably end up being a wash (like Christmas gifts), but are there any other alternative (non-work) sources of "income" in retirement that you've offset against your retirement expenses?  Perhaps some of you who are retired can weigh in on how unexpected expenses measure up against unexpected income.

matchewed

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Re: Views on alternative retirement "income"
« Reply #1 on: December 04, 2014, 10:32:59 AM »
Unexpected income would not even come up in my planning. It is not a guaranteed upside so why calculate it? But the flip side is non-guaranteed downsides AKA risks. Those you mitigate. You may not know when your furnace will breakdown but you sure can save for repair/replacement/learn how to do it yourself in order to prepare for the unexpected expense of it breaking.

GoodStash BadStache

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Re: Views on alternative retirement "income"
« Reply #2 on: December 04, 2014, 10:49:44 AM »
Unexpected income would not even come up in my planning. It is not a guaranteed upside so why calculate it? But the flip side is non-guaranteed downsides AKA risks. Those you mitigate. You may not know when your furnace will breakdown but you sure can save for repair/replacement/learn how to do it yourself in order to prepare for the unexpected expense of it breaking.

Conceptually I agree with you, but it seems like every source of retirement income would be subject to some degree of downside.  Without doing some major actuarial calculations I couldn't pin down specific numbers, but the income sources most of us are looking at to fund our retirements (dividends, interest, rent) aren't risk-free either.  I don't think it's necessary to figure in every last dollar of savings I could squeeze out of our budget (i.e. no margin of safety), but I'm trying to avoid being too cautious at the same time as well.

Villanelle

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Re: Views on alternative retirement "income"
« Reply #3 on: December 04, 2014, 10:58:34 AM »
Keep in mind that if the expenses you pay with that card decrease, so will the cash back.

Personally, I would never add a number as low as $600-$800.  That's slush money, as far as my planning goes.  For my comfort levels, if I am cutting it that close, the I would be worried about every penny, every flat tire, every increase in the cost of milk, and anything else.  So I'd not consider something that small at all.

matchewed

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Re: Views on alternative retirement "income"
« Reply #4 on: December 04, 2014, 11:00:02 AM »
Unexpected income would not even come up in my planning. It is not a guaranteed upside so why calculate it? But the flip side is non-guaranteed downsides AKA risks. Those you mitigate. You may not know when your furnace will breakdown but you sure can save for repair/replacement/learn how to do it yourself in order to prepare for the unexpected expense of it breaking.

Conceptually I agree with you, but it seems like every source of retirement income would be subject to some degree of downside.  Without doing some major actuarial calculations I couldn't pin down specific numbers, but the income sources most of us are looking at to fund our retirements (dividends, interest, rent) aren't risk-free either.  I don't think it's necessary to figure in every last dollar of savings I could squeeze out of our budget (i.e. no margin of safety), but I'm trying to avoid being too cautious at the same time as well.

Sure everything has risks. That being said there is a huge amount of information on this thread regarding trying to use dividends solely as a form of income (a no no by most peoples views for good reason). Rent does have risks but those are distinctly (more) under your control and the actions you can take to mitigate them are clearly there (sell the asset that you are renting for example). You may not be able to anticipate what the (you call it interest) returns on your investments will be on any given year and it is a little hopey for us to anticipate greater economic growth and prosperity for the future but I don't see much evidence for the opposite.

I guess I see a difference from what I wrote above and what you characterized as "unexpected income". I'd characterize unexpected income as inheritance, non-planned jobs, and cash rewards through credit cards (I just happen to think that the reward structure has more variability to it than perhaps say the return on the stock market). Those sources of income shouldn't IMO be considered for a FIRE attempt. I'd focus on the tried and true things like rent, business income, living off of your investments essentially. Do you see the distinction I'm trying to make?

matchewed

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Re: Views on alternative retirement "income"
« Reply #5 on: December 04, 2014, 11:00:35 AM »

GoodStash BadStache

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Re: Views on alternative retirement "income"
« Reply #6 on: December 04, 2014, 11:49:46 AM »
Unexpected income would not even come up in my planning. It is not a guaranteed upside so why calculate it? But the flip side is non-guaranteed downsides AKA risks. Those you mitigate. You may not know when your furnace will breakdown but you sure can save for repair/replacement/learn how to do it yourself in order to prepare for the unexpected expense of it breaking.

Conceptually I agree with you, but it seems like every source of retirement income would be subject to some degree of downside.  Without doing some major actuarial calculations I couldn't pin down specific numbers, but the income sources most of us are looking at to fund our retirements (dividends, interest, rent) aren't risk-free either.  I don't think it's necessary to figure in every last dollar of savings I could squeeze out of our budget (i.e. no margin of safety), but I'm trying to avoid being too cautious at the same time as well.

Sure everything has risks. That being said there is a huge amount of information on this thread regarding trying to use dividends solely as a form of income (a no no by most peoples views for good reason). Rent does have risks but those are distinctly (more) under your control and the actions you can take to mitigate them are clearly there (sell the asset that you are renting for example). You may not be able to anticipate what the (you call it interest) returns on your investments will be on any given year and it is a little hopey for us to anticipate greater economic growth and prosperity for the future but I don't see much evidence for the opposite.

I guess I see a difference from what I wrote above and what you characterized as "unexpected income". I'd characterize unexpected income as inheritance, non-planned jobs, and cash rewards through credit cards (I just happen to think that the reward structure has more variability to it than perhaps say the return on the stock market). Those sources of income shouldn't IMO be considered for a FIRE attempt. I'd focus on the tried and true things like rent, business income, living off of your investments essentially. Do you see the distinction I'm trying to make?

I believe I understand the distinction you're making.  What I was getting at regarding income is that there is a wide continuum of risk:rewards that we accept in exchange for the investment of our money (from T-bills to lottery tickets).  I wouldn't plan to retire early based on "I hope" outcome statements, but once your basic expenses are met I think there's some flexibility to look at other aspects of income and expenses.  I appreciate the feedback.

matchewed

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Re: Views on alternative retirement "income"
« Reply #7 on: December 04, 2014, 11:56:21 AM »
Unexpected income would not even come up in my planning. It is not a guaranteed upside so why calculate it? But the flip side is non-guaranteed downsides AKA risks. Those you mitigate. You may not know when your furnace will breakdown but you sure can save for repair/replacement/learn how to do it yourself in order to prepare for the unexpected expense of it breaking.

Conceptually I agree with you, but it seems like every source of retirement income would be subject to some degree of downside.  Without doing some major actuarial calculations I couldn't pin down specific numbers, but the income sources most of us are looking at to fund our retirements (dividends, interest, rent) aren't risk-free either.  I don't think it's necessary to figure in every last dollar of savings I could squeeze out of our budget (i.e. no margin of safety), but I'm trying to avoid being too cautious at the same time as well.

Sure everything has risks. That being said there is a huge amount of information on this thread regarding trying to use dividends solely as a form of income (a no no by most peoples views for good reason). Rent does have risks but those are distinctly (more) under your control and the actions you can take to mitigate them are clearly there (sell the asset that you are renting for example). You may not be able to anticipate what the (you call it interest) returns on your investments will be on any given year and it is a little hopey for us to anticipate greater economic growth and prosperity for the future but I don't see much evidence for the opposite.

I guess I see a difference from what I wrote above and what you characterized as "unexpected income". I'd characterize unexpected income as inheritance, non-planned jobs, and cash rewards through credit cards (I just happen to think that the reward structure has more variability to it than perhaps say the return on the stock market). Those sources of income shouldn't IMO be considered for a FIRE attempt. I'd focus on the tried and true things like rent, business income, living off of your investments essentially. Do you see the distinction I'm trying to make?

I believe I understand the distinction you're making.  What I was getting at regarding income is that there is a wide continuum of risk:rewards that we accept in exchange for the investment of our money (from T-bills to lottery tickets).  I wouldn't plan to retire early based on "I hope" outcome statements, but once your basic expenses are met I think there's some flexibility to look at other aspects of income and expenses.  I appreciate the feedback.

Yeah I can agree with that. In the "If You Think This is About Extreme Frugality..." post discussion I talk about the idea that FIRE affords people the opportunity to take risks and make income in ways which they wouldn't have tried prior to FIRE. So the "retirement" is not based on this income. The "retirement" allows you to pursue this income with less risk to your lifestyle.

The_path_less_taken

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Re: Views on alternative retirement "income"
« Reply #8 on: December 04, 2014, 12:17:53 PM »
Unless the income was somehow guaranteed...and even if it's family who hired you...what has a 100% guarantee...I wouldn't factor it in.

IOW I would calculate that in as a slush fund. "I might do xwy and might make a grand a month." just isn't something I'd want to depend on.

So I personally would prefer my investments be above the 4% withdrawal rate without the "maybes".