Author Topic: Need a MMM mentor....  (Read 10948 times)

Bruce40

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Need a MMM mentor....
« on: June 23, 2014, 02:21:09 PM »
Hello I'm looking to retire early. Although I think I have most of the hard stuff done (saving) I need a strategy to help me with my retirement plan.

 Need answers/assistance with the following:

-Do I have enough funds to retire? Some constructive analysis and feedback. i.e. is my plan solid/thoughtful
-How to develop a strategy using the funds I have to live the lifestyle I want.
- My estimated annual spending is approx $20 per year

Profile:
Taxable accts: 300K
Retirement accts: $159K
No Debt
Currently rent..

-Thanks

Bruce
« Last Edit: June 23, 2014, 02:31:41 PM by cbm1218 »

matchewed

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Re: Need a MMM mentor....
« Reply #1 on: June 23, 2014, 02:24:33 PM »
So lay out your plan. No need to let out details which would compromise your "anonymity" on the internet. If you just speak in terms of types of accounts and quantities it would be pretty easy to evaluate.

Plus there are rules of thumb (25x expenses = FIRE).

Calculators - cfiresim.com

and generic advice like minimizing expenses and taxes when it comes time to FIRE.

Ask some questions and we can probably point you in the right direction.

lauren_knows

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Re: Need a MMM mentor....
« Reply #2 on: June 23, 2014, 02:28:46 PM »

Rika Non

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Re: Need a MMM mentor....
« Reply #3 on: June 23, 2014, 03:25:21 PM »
I would say in you are ~40, and with assuming some inflation and general cautious cushion:
$20k in current spending:
20000 / 0.75 (taxes, etc)
Need ~27k per year in passive income to live with small cushion.
Moderate yield of (6%) is a minimum of 450k in taxable accounts.

So a bit more savings to taxable income needed.

Bruce40

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Re: Need a MMM mentor....
« Reply #4 on: June 23, 2014, 04:00:51 PM »
These are my main objectives for my investment program.

    Objective 1: To retire at the age of 40 and live in Latin America. Purchase a small home/apartment to reduce cost of monthly rent where I can live/retire.

    Objective 2: To have an annual income from my investments of at least $18,000 after taxes and in today’s dollars (inflation assumed to be 3.0 percent yearly)

As mentioned my spending averages about $18-20K per year....I hope to save an additional $10-14K per year to add to my savings. Other sources of income will be part time teaching I estimate to earn approx $10K per year to start.  Which I will invest in a Dividend stock fund or Vanguard Total Stock Market Index....at this point I believe the Stock market is massively overvalued which is why I'm mainly in cash/cds at this point approx 10% equities/90% liquid investments

Appreciate any additional feedback

nereo

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Re: Need a MMM mentor....
« Reply #5 on: June 23, 2014, 04:24:36 PM »
Hi Bruce

One key detail you've left out is how many years it will be until you turn 40.  If you are 39 now, I don't see how you can meet your goals.  If you are 18 then it's a much different story.

Your comment about being 90% liquid because you believe "the Stock market is massively overvalued" gives me great pause.  At today's yields you are almost certainly loosing money via inflation by holding it in CDs or in cash.  Also, while the stock market might (or might not) be overvalued now, it's your timeline that is important.  I'm confident the market will be much higher than it is 20 years from now.  I'm relatively certain it will be higher than it is 10 years from now.  And I'd still give a greater-than-50% chance that it will be higher 5 years from now.  Unfortunately, right now you can't get the same sort of return from a CD in real-adjusted terms.  \

Give us a bit better timeline of when you will turn 40 and we may be able to help you out more
best
N

mozar

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Re: Need a MMM mentor....
« Reply #6 on: June 23, 2014, 04:40:38 PM »
I'm not convinced that Latin America is so much cheaper. Have you traveled to possible locations? Did you plan to travel back and forth from the USA multiple times a year?
You could retire, but you don't have much of a cushion.

Bruce40

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Re: Need a MMM mentor....
« Reply #7 on: June 23, 2014, 04:52:15 PM »
Don't plan on making multiple trips back and forth to the US....

matchewed

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Re: Need a MMM mentor....
« Reply #8 on: June 23, 2014, 05:01:09 PM »
Also to keep in mind that you're assuming inflation in another country. It is probably much easier to make assumptions on average inflation in the US as it is a more developed country. What justification do you have for using 3% in a different country?

Bruce40

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Re: Need a MMM mentor....
« Reply #9 on: June 23, 2014, 05:05:40 PM »
3% was a general estimate I used...I will obviously have to put more in the market..just somewhat wary given current levels..

Mr. MM retired with over $600K...I have a little less then that..so I'm somewhat optimistic..yields are low right now..but once they bounce back...I will hopefully increase my income levels...

nereo

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Re: Need a MMM mentor....
« Reply #10 on: June 23, 2014, 05:08:39 PM »

Mr. MM retired with over $600K...I have a little less then that..so I'm somewhat optimistic..yields are low right now..but once they bounce back...I will hopefully increase my income levels...
one of the key things Mr MM. had going for him was that he had paid off his home.  Depending on what you plan on needing for rent that can make a big difference in how much you'll need to retire.  If you figure you can rent a place for $500/month, you'll need an extra $150k in savings to cover that at a 4% SWR.

Bruce40

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Re: Need a MMM mentor....
« Reply #11 on: June 23, 2014, 05:12:16 PM »
Agree...however my rent is already calculated into my annual spending....

nereo

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Re: Need a MMM mentor....
« Reply #12 on: June 24, 2014, 07:07:11 AM »
Agree...however my rent is already calculated into my annual spending....

ok - just wanted to make sure since you were comparing MMM's initial savings with your own personal goal.  Many people read headlines like "MMM and his family of four live off only $24k/year!" and never realize that its without paying for rent or a mortgage. 

Your posts are a bit muddled, giving a goal (retire by 40) but not a timeline (how many years until you hit the big 4-0).  Also you mention anticipated spending is $20/year [sic], as well as 18-20k (same ballpark).  Then income from part-time teaching may be $10k to start (is that in addition to the $18k-20k you plan to spend, or will that be part of it?  will you continue to teach for years into retirement?).  However, you say you plan on investing that $10k instead of using it to defray your expenses. Finally you throw out there that you want to buy a small house/apartment " to reduce cost of monthly rent where I can live/retire".  Buying a place is all fine and good (I have my own home) - but buying a home won't necessarily ease your expenditures, especially since it will require either a mortgage or a lump-sum investment.

So first, here's my boiled-down assessment.
You have $459k in investments right now, with the potential to save "10k-14k per year"
To support $18k/year spending, you will need $450k invested in the market, assuming a 4% SWR.
Congratulations, you are already there - BUT, this historically only works when the majority of your money is in the market, not with 90% of it sitting liquid.

If you plan on buying a home you will have to adjust your spending to account for this, since you do not currently have enough in your savings to purchase a home and support $18k withdrawls (unless you find a place for $9k - maybe a yurt somewhere in the jungle?)  If the expected $10k/year in part-time teaching could be applied towards housing, you could easily afford to purchase something for $120k and only have a 15 year term.

If you can clarify any of the details above (years until goal, whether part-time teaching income will be in addition to your $18k expenses or included with it, and whether you plan on ever investing more into the market) then we can help more.

cheers
N



dude

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Re: Need a MMM mentor....
« Reply #13 on: June 24, 2014, 07:33:39 AM »
....at this point I believe the Stock market is massively overvalued which is why I'm mainly in cash/cds at this point approx 10% equities/90% liquid investments

Appreciate any additional feedback

How long have you held this view?  One year, two years, three?  Because there have been many pundits saying the same thing in each of the past three-four years, and they have been wrong every year so far.  What you are doing is classic market timing.  At what point will you have decided that the market is no longer overvalued?  A 10% correction?  20%?  P/E Ratio of <16?  P/E 10 of < 17?

I can understand your reluctance to get in now, because you fear short-term loss, but if you are taking the long view, as you should, there is never an "ideal" time to get in because nobody, but nobody, can predict when and at what level that will be.  Better to decide on an allocation and stick with it (adjusting yearly), dollar-cost average your contributions, and let it ride.

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Re: Need a MMM mentor....
« Reply #14 on: June 24, 2014, 07:49:49 AM »
I would say in you are ~40, and with assuming some inflation and general cautious cushion:
$20k in current spending:
20000 / 0.75 (taxes, etc)
Need ~27k per year in passive income to live with small cushion.
Moderate yield of (6%) is a minimum of 450k in taxable accounts.

So a bit more savings to taxable income needed.

At this low level of spending taxes shouldn't matter at all. http://www.gocurrycracker.com/never-pay-taxes-again/

I think you're close Bruce40 but this scares me:

....at this point I believe the Stock market is massively overvalued which is why I'm mainly in cash/cds at this point approx 10% equities/90% liquid investments

This is bad. This is market timing which can be dangerous.

If you are correct you will look like a genius, buy a bunch of stocks cheap, and make a ton of money. It could solidify your retirement for good.

If you are wrong it will drastically hurt your chances of a successful FIRE. If you plan to do this during this market "overvaluation" will you be doing this again in 5-7 years, then again during the next big run-up? This could be a very dangerous way to plan your retirement.


Dr. Doom

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Re: Need a MMM mentor....
« Reply #15 on: June 24, 2014, 08:38:17 AM »
....at this point I believe the Stock market is massively overvalued which is why I'm mainly in cash/cds at this point approx 10% equities/90% liquid investments

Appreciate any additional feedback
What you are doing is classic market timing.  At what point will you have decided that the market is no longer overvalued?  A 10% correction?  20%?  P/E Ratio of <16?  P/E 10 of < 17?

Right, +a million on this.  I suggest you read jlcollinsnh's stock series if you haven't already.

I also have seen no mention of a spouse or children.  Kids can be raised on the cheap but they do change the equation somewhat.  Part of setting an appropriate FIRE number is looking into the future for things which may increase your COL. 




dragoncar

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Re: Need a MMM mentor....
« Reply #16 on: June 24, 2014, 08:47:29 AM »
....at this point I believe the Stock market is massively overvalued which is why I'm mainly in cash/cds at this point approx 10% equities/90% liquid investments

Appreciate any additional feedback

How long have you held this view?  One year, two years, three?  Because there have been many pundits saying the same thing in each of the past three-four years, and they have been wrong every year so far.  What you are doing is classic market timing.  At what point will you have decided that the market is no longer overvalued?  A 10% correction?  20%?  P/E Ratio of <16?  P/E 10 of < 17?

I can understand your reluctance to get in now, because you fear short-term loss, but if you are taking the long view, as you should, there is never an "ideal" time to get in because nobody, but nobody, can predict when and at what level that will be.  Better to decide on an allocation and stick with it (adjusting yearly), dollar-cost average your contributions, and let it ride.

Asking the important questions here...

Bruce40

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Re: Need a MMM mentor....
« Reply #17 on: June 25, 2014, 09:12:25 PM »
what if the market drops 20-30% in one day...and doesn't recover for 2 years or so if not longer? Will all of you simply ride out the storm? A 20-30 percent drop on $500K is fairly significant.....none of you currently lose any sleep given the state of the financial/economic marketplace? Was it not too long ago when the world believed that Greece would unravel our whole system...not to mention Spain/Italy etc...what happened to those ahem...countries? I guess they were all bailed out...like everything else.

I've worked hard for the small amount I have..I plan to ease back in...but not when the market is at an all time high...I sold about $40K worth of equities about 4 months ago...and converted another $90K into money market...

I'll be 40 in 2 years. (I do plan on having a family but one needs to find the right person for that) preferably someone who shares the same financial viewpoints as you do...or you looking to basically make your life very very difficult..

George_PA

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Re: Need a MMM mentor....
« Reply #18 on: June 25, 2014, 10:47:43 PM »
- My estimated annual spending is approx $20 per year

Wow that is impressive that you found a way to live a whole year on so little, you must be pretty frugal already.  Some people will spend that much just to order pizza in the evening for dinner one night.

nereo

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Re: Need a MMM mentor....
« Reply #19 on: June 26, 2014, 08:46:08 AM »
what if the market drops 20-30% in one day...and doesn't recover for 2 years or so if not longer? Will all of you simply ride out the storm? A 20-30 percent drop on $500K is fairly significant.....none of you currently lose any sleep given the state of the financial/economic marketplace? Was it not too long ago when the world believed that Greece would unravel our whole system...not to mention Spain/Italy etc...what happened to those ahem...countries? I guess they were all bailed out...like everything else.

I've worked hard for the small amount I have..I plan to ease back in...but not when the market is at an all time high...I sold about $40K worth of equities about 4 months ago...and converted another $90K into money market...

I'll be 40 in 2 years. (I do plan on having a family but one needs to find the right person for that) preferably someone who shares the same financial viewpoints as you do...or you looking to basically make your life very very difficult..

Sure - markets are near their all-time high.  BUt I think it's important to keep things in perspective.  Over the last century, the market hit an all time high in more than half of all the years.  So having the market be at an all time high really isn't that extraordinary. 
Will the markets drop sometime in the next few years?  Almost certainly.  But it's virtually impossible to say when it will drop any by how much.  Historically the market has dropped by 10% from a recent high about once per year.  It drops 20% about every 4.5 years, and 30% about every two decades.  But the problem is those are just averages.  The market could drop 10% on monday, or it could increase 15% until december and *then* drop 10% - in which case you'd have missed out on some nice gains.  And all of this is ignoring dividends, which makes market drops far less important than they seem on a stock chart.

What is important isn't where the market is now, but your time horizon.  Since you are planning on retiring at age 40, you have two years ahead of you before you start withdrawing from your 'stach, and decades for it to persist and support you. Unfortunately, with today's savings account rates and bond yields you are loosing money keeping 90% of your portfolio liquid. 

regarding your question about the market dropping 20-30%, and whether we'd all just ride out the storm, my answer is an emphatic YES.  That's the inherent power behind the 4% rule... it weathers all but the most severe economic storms, including drops of 20% or more.

One battle-tested strategy for smoothing out the ups-and-downs is to keep a small portion of your portfolio in bonds, and to either rebalance that every year or simply draw from your bonds during market crashes and replenish during market peaks.  You said that you can save $10k-14k/year, right?  With two years to go, you could invest your $457k + the additional $20k-28k into a mixture of 75/25 stock/bond portfolio.  Historically that portolio would succeed 96% of the time, with no additional income from part-time teaching.  It's about as golden as you can get.

i hope that helps some...
N



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Re: Need a MMM mentor....
« Reply #20 on: June 26, 2014, 09:05:51 AM »
what if the market drops 20-30% in one day...and doesn't recover for 2 years or so if not longer? Will all of you simply ride out the storm? A 20-30 percent drop on $500K is fairly significant.....none of you currently lose any sleep given the state of the financial/economic marketplace? Was it not too long ago when the world believed that Greece would unravel our whole system...not to mention Spain/Italy etc...what happened to those ahem...countries? I guess they were all bailed out...like everything else.

There's ALWAYS doom and gloom in the financial "news."  I think the fact that Greece didn't cause one whit of difference should be evidence to you that the whole thing will be just fine, and to ignore that *.
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nereo

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Re: Need a MMM mentor....
« Reply #21 on: June 26, 2014, 09:44:29 AM »
what if the market drops 20-30% in one day...and doesn't recover for 2 years or so if not longer? Will all of you simply ride out the storm? A 20-30 percent drop on $500K is fairly significant.....none of you currently lose any sleep given the state of the financial/economic marketplace? Was it not too long ago when the world believed that Greece would unravel our whole system...not to mention Spain/Italy etc...what happened to those ahem...countries? I guess they were all bailed out...like everything else.

There's ALWAYS doom and gloom in the financial "news."  I think the fact that Greece didn't cause one whit of difference should be evidence to you that the whole thing will be just fine, and to ignore that *.

Yup!  ... and I would add to that, even when bad things DO happen, they don't have as large of an impact they seem like they will at the time.  Just in the last 60 years we've had the end of the Korean war, the Vietnam war, The Cold war, Cuban Missile Crisis,  Panama, the Iran Contra affair, Bosnia, Kosovo, Iraq war I, Iraq war II, Afgahnistan and the Arab spring/winter.
We've had hyperinflation in the 70s, the junk-bond bubble in the 80s, the tech bubble in the late 90s and the housing mortgage bubble in the early 2000s. 
We've had 8 recessions since 1960 and "the great recession". 
We've seen terrorist attacks large-and-small, the assasination of JFK, and the rise of the Kardashians.

Though all of this what's the result of the market?  6.8% returns (dividends reinvested, adjusted for inflation) over the last 60 years.
When you focus on small time periods of a few months or just a few years, it can look scary.  But if you zoom out and look at a multi-decadal time scales, then you get a truer picture of what investing long-term in the markets is all about.


matchewed

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Re: Need a MMM mentor....
« Reply #22 on: June 26, 2014, 09:47:15 AM »

nereo

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Re: Need a MMM mentor....
« Reply #23 on: June 26, 2014, 09:59:35 AM »
https://www.youtube.com/watch?v=eFTLKWw542g
Nice!  Looks like I left about 60 things out of my 'list'.
...and still the market trudges upwards.  sometimes stumbling, sometimes dropping for a bit, but overall upwards.

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Re: Need a MMM mentor....
« Reply #24 on: June 26, 2014, 10:05:16 AM »
Yup!  ... and I would add to that, even when bad things DO happen, they don't have as large of an impact they seem like they will at the time.  Just in the last 60 years we've had the end of the Korean war, the Vietnam war, The Cold war, Cuban Missile Crisis,  Panama, the Iran Contra affair, Bosnia, Kosovo, Iraq war I, Iraq war II, Afgahnistan and the Arab spring/winter.
We've had hyperinflation in the 70s, the junk-bond bubble in the 80s, the tech bubble in the late 90s and the housing mortgage bubble in the early 2000s. 
We've had 8 recessions since 1960 and "the great recession". 
We've seen terrorist attacks large-and-small, the assasination of JFK, and the rise of the Kardashians.

Though all of this what's the result of the market?  6.8% returns (dividends reinvested, adjusted for inflation) over the last 60 years.
When you focus on small time periods of a few months or just a few years, it can look scary.  But if you zoom out and look at a multi-decadal time scales, then you get a truer picture of what investing long-term in the markets is all about.

I LOVE this post, particularly the part I bolded which is a disaster. Maybe not on par with terrorism and wars, but a close second.

matchewed

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Re: Need a MMM mentor....
« Reply #25 on: June 26, 2014, 10:06:55 AM »
https://www.youtube.com/watch?v=eFTLKWw542g
Nice!  Looks like I left about 60 things out of my 'list'.
...and still the market trudges upwards.  sometimes stumbling, sometimes dropping for a bit, but overall upwards.

Well more importantly your list captured the rise of the Kardashians, which as we all know is the greatest threat this country has ever faced. I'll have to write Billy Joel to request an update to the song. What rhymes with Kardashians?

avongil

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Re: Need a MMM mentor....
« Reply #26 on: June 26, 2014, 11:11:11 AM »
Average salary in Uruguay is around 8K, but you really don't live that well on that. 18K, is doable.  Add 10K in extra income and you will probably be ok.  Personally I'd shoot for 25K in income + the additional 10K  to cover any instabilities.  Don't forget about health care, you usually have to be a member of a hospital, check those prices and make sure you select one that wont kill you.


 

Bruce40

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Re: Need a MMM mentor....
« Reply #27 on: June 26, 2014, 01:26:04 PM »
what do you guys think about Suncor (SU) I don't usually buy individual stocks..but this one has about a 2% yield and sits on large natural resources....Otherwise I'm going to invest in the Vanguard dividend play & Total Market Index (incrementally) in my retirement accts.

avongil

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Re: Need a MMM mentor....
« Reply #28 on: June 26, 2014, 01:41:58 PM »
I'd say that's a bad idea. Any new competitive technology or oil price swing could make it sink...  Stay with diversified vanguard index funds.


 

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Re: Need a MMM mentor....
« Reply #29 on: June 26, 2014, 09:53:24 PM »
I like SU and CNQ.  Lots of backstory there, lots of investment in their heavy oil facilities that are paying off and increasing earnings without any additional CAPEX.
If you have a lot of time to invest in individual stocks, I would only put a certain percentage into dividend growth stocks (like SU and CNQ, as they've grown them every year for a good while) and the rest in index funds.  On that note, small cap value funds consistently outperform the S&P by about 2 percentage points annually.  OVer 50 years, that's a massive improvement.  They're the first to drop, and drop furthest, in a correction, and I believe we're closer to the top than the bottom of this market run.  I could be wrong, we just don't know, so I'd scale in slowly to anything.

 

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