Author Topic: Where do you keep your FI stash?  (Read 20804 times)

Mr Mark

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Re: Where do you keep your FI stash?
« Reply #50 on: July 18, 2012, 08:41:52 PM »



I wouldn't do this myself, but ....
Hi Mark, thanks for all of your wonderful advises. So what would you do yourself?

My situation,as everyone's,is unique. But I would follow items 1 & 2 also., and as priority 1 and 2 as well. I'm a big fan of the American real estate market right now.  In places, the opportunities are exceptional.
One reason I love Detroit :-)   

My asset allocation would be more complex, and only 15% bonds, no gold at all, very little cash. I've posted that elsewhere. I like diversification. About 15% allocated to local business as a n 'investor' distributed
with multiple partnerships. The rest in Vanguard AA balanced.

I firmly believe all MMM , including those already in FI, should have an infinite investment horizon, btw. This boundary between saving vs FIRE we perceive is false. Except for the opportunity to do part-time real estate properly that comes with the extra time once not tied to the 9_5,  investment strategy should be the same.

If you are a trading god, like smedleyB, you could speculate with MAX 5% of your stash, but I'd allow no 'rebuys'!

Does that help?
« Last Edit: July 18, 2012, 08:59:55 PM by Mr Mark »

smedleyb

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Re: Where do you keep your FI stash?
« Reply #51 on: July 18, 2012, 09:00:28 PM »



I wouldn't do this myself, but ....
Hi Mark, thanks for all of your wonderful advises. So what would you do yourself?

My situation,as everyone's,is unique. But I would follow items 1 & 2 also., and as priority 1 and 2 as well. I'm a big fan of the American real estate market right now.  In places, the opportunities are exceptional.
One reason I love Detroit :-)   

My asset allocation would be more complex, and only 15% bonds, no gold at all, very little cash. I've posted that elsewhere. I like diversification. About 15% allocated to local business as a n 'investor' distributed
with multiple partnerships. The rest in Vanguard AA balanced.

I firmly believe all MMM , including those already in FI, should have an infinite investment horizon, btw. This boundary between saving vs FIRE we perceive is false. Except for the opportunity to do part-time real estate properly that comes with the extra time once not tied to the 9_5,  investment strategy should be the same.

If you are a trading god, like smedleyB, you could speculate with MAX 5% of your stash, but I'd allow no 'rebuys'!

Does that help?

Zing!

My entire family lives the greater Detroit metropolitan area.  Next time the sky parts and 100 dollar bills rain on the city, you'll know who's in town for a visit. lol!

JohnGalt

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Re: Where do you keep your FI stash?
« Reply #52 on: July 19, 2012, 09:05:19 AM »
1% is almost unheard of in the US.

Right.  5 years ago it was different, and 5 years from now it will be different(?), but right now I'm getting 1% on my liquid cash at smartypig.com.

On the other hand, I'm locking in mortgages all the time at low, low rates, so I'm happy if yield on CDs, savings accounts, etc. is low for awhile.

"all the time"?  How often are you picking up property?  I'd be very interested in a post on your real estate ventures by the way... I agree that now is a great time to lock in cheap money in the form of 30 year mortgages and I think that Dallas is a good market to do it in (though I don't think our prices are as depressed as Vegas) - but just haven't figured out what I'm comfortable with getting into after mistakes and issues on my first house. 

grantmeaname

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Re: Where do you keep your FI stash?
« Reply #53 on: July 19, 2012, 09:10:12 AM »
I'd really enjoy a post on that too, if you're willing to share.

arebelspy

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Re: Where do you keep your FI stash?
« Reply #54 on: July 19, 2012, 10:01:44 AM »
"all the time"?  How often are you picking up property?  I'd be very interested in a post on your real estate ventures by the way... I agree that now is a great time to lock in cheap money in the form of 30 year mortgages and I think that Dallas is a good market to do it in (though I don't think our prices are as depressed as Vegas) - but just haven't figured out what I'm comfortable with getting into after mistakes and issues on my first house.

Maybe "all the time" is an exaggeration depending on your definition of that term.

5 houses in the last twenty months.  Close of escrow to purchase the next one is August 15, and should have two more coming up behind that (so we'll figure 8 in two years, but two of them are rehabs to be sold, only 6 are long term holds).  Basically somewhere around 3-4/year.  Planning on continuing that for the next 5 years or so, pending market conditions.

Dallas (and many other parts of Texas) is pretty darn good.  It's one of my top spots in the U.S. if I were looking to invest outside my immediate area.

I'd really enjoy a post on that too, if you're willing to share.

I'm completely willing to share, I just wouldn't know where to start.  It'd end up a long, rambling thing where I get off track a ton as I get into philosophy (pay off houses versus mortgage, how to correctly calculate cash flow, refinancing, performing and non performing notes, commercial real estate, etc. etc.) and don't think it'd do much good.

Maybe a reddit style AMA (ask me anything) would work better? I'm open to suggestions.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

JohnGalt

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Re: Where do you keep your FI stash?
« Reply #55 on: July 19, 2012, 10:54:44 AM »
"all the time"?  How often are you picking up property?  I'd be very interested in a post on your real estate ventures by the way... I agree that now is a great time to lock in cheap money in the form of 30 year mortgages and I think that Dallas is a good market to do it in (though I don't think our prices are as depressed as Vegas) - but just haven't figured out what I'm comfortable with getting into after mistakes and issues on my first house.

Maybe "all the time" is an exaggeration depending on your definition of that term.

5 houses in the last twenty months.  Close of escrow to purchase the next one is August 15, and should have two more coming up behind that (so we'll figure 8 in two years, but two of them are rehabs to be sold, only 6 are long term holds).  Basically somewhere around 3-4/year.  Planning on continuing that for the next 5 years or so, pending market conditions.

Dallas (and many other parts of Texas) is pretty darn good.  It's one of my top spots in the U.S. if I were looking to invest outside my immediate area.

I'd really enjoy a post on that too, if you're willing to share.

I'm completely willing to share, I just wouldn't know where to start.  It'd end up a long, rambling thing where I get off track a ton as I get into philosophy (pay off houses versus mortgage, how to correctly calculate cash flow, refinancing, performing and non performing notes, commercial real estate, etc. etc.) and don't think it'd do much good.

Maybe a reddit style AMA (ask me anything) would work better? I'm open to suggestions.

3-4/yr sounds about like all the time to me considering I've purchased one property in 2 years.  I think reddit style would work - but a great way to get it started would be a brief history just describing the pure history (without the philosophical aspects) and then see where the questions take it. 

arebelspy

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Re: Where do you keep your FI stash?
« Reply #56 on: July 19, 2012, 11:21:36 AM »
Maybe a reddit style AMA (ask me anything) would work better? I'm open to suggestions.

Also we could call it AAM (Ask a Mustachian) instead of AMA.

/sometimes i'm ridiculous
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mechanic baird

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Re: Where do you keep your FI stash?
« Reply #57 on: July 19, 2012, 02:50:22 PM »

I'm completely willing to share, I just wouldn't know where to start.  It'd end up a long, rambling thing where I get off track a ton as I get into philosophy (pay off houses versus mortgage, how to correctly calculate cash flow, refinancing, performing and non performing notes, commercial real estate, etc. etc.) and don't think it'd do much good.

Maybe a reddit style AMA (ask me anything) would work better? I'm open to suggestions.
I'd be more than thrilled to read your "rambling".. would be a good recap of your philosophy anyway... If you have done well in this area, then it's good rambling worth learning from.. 

Mr Mark

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Re: Where do you keep your FI stash?
« Reply #58 on: July 19, 2012, 09:24:27 PM »
"all the time"?  How often are you picking up property?  I'd be very interested in a post on your real estate ventures by the way... I agree that now is a great time to lock in cheap money in the form of 30 year mortgages and I think that Dallas is a good market to do it in (though I don't think our prices are as depressed as Vegas) - but just haven't figured out what I'm comfortable with getting into after mistakes and issues on my first house.

Maybe "all the time" is an exaggeration depending on your definition of that term.

5 houses in the last twenty months.  Close of escrow to purchase the next one is August 15, and should have two more coming up behind that (so we'll figure 8 in two years, but two of them are rehabs to be sold, only 6 are long term holds).  Basically somewhere around 3-4/year.  Planning on continuing that for the next 5 years or so, pending market conditions.

Dallas (and many other parts of Texas) is pretty darn good.  It's one of my top spots in the U.S. if I were looking to invest outside my immediate area.

I'd really enjoy a post on that too, if you're willing to share.

I'm completely willing to share, I just wouldn't know where to start.  It'd end up a long, rambling thing where I get off track a ton as I get into philosophy (pay off houses versus mortgage, how to correctly calculate cash flow, refinancing, performing and non performing notes, commercial real estate, etc. etc.) and don't think it'd do much good.

Maybe a reddit style AMA (ask me anything) would work better? I'm open to suggestions.


Arebelspy,

I like real estate too. And agree its all about cash flow, but smedleyb had a point when he noted the way your portfolio is over weighted compared to market with respect to exposure to the  Las Vegas rentals market.

Cash flow entails assumptions about the future. And the assumption of long term (10 years?) capital preservation risk is a fair one. Black swan effect, eggs and baskets, etc. How do you address such systemic risk?

arebelspy

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Re: Where do you keep your FI stash?
« Reply #59 on: July 19, 2012, 10:33:24 PM »
You're absolutely right Mark, and it's a fair question.  Basically... it's a risk I'm comfortable taking right now.

I do plan to diversify out of real estate quite a bit (and maybe one day hold no real estate in my portfolio, who knows), but right now I'm more or less going "all in" due to the (what I feel is a) once in a lifetime opportunity.

It's something I'm planning on doing over the next 5 years (subject to change) while in the accumulation phase and then moving on.  There is the potential risk that Vegas becomes a ghost town and all my properties become worthless.

As a fallback, I hit fully vested in my retirement cola'd pension at age 47, so although I'm currently planning on being FI a decade or so before that, plan B lets me ER then with 75% of my salary (more than enough, as our current savings rate is way above 25%).   I work 180 days a year currently (after you take out holidays, weekends, and winter, spring, and summer breaks).  I love what I do, and may continue doing it after I'm FI.  Doing it another decade if something goes terribly wrong with my RE plan doesn't sound too bad to me.  And I have plans C and D as well, but I think plan A will work, so they're likely unnecessary.

In other words, yes, I'm doing something that has some risk right now, but I'm comfortable with that risk.  Especially given my level of knowledge on the subject.  I think the accumulation phase is when one should be riskier, because if it doesn't work out... you work an extra year.  No big deal, unless you loathe your job. 

If one gets too scared to take an opportunity because they fear a black swan event, I think they'll have a hard time succeeding in general.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

tooqk4u22

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Re: Where do you keep your FI stash?
« Reply #60 on: July 20, 2012, 07:23:47 AM »
As a fallback, I hit fully vested in my retirement cola'd pension at age 47, so although I'm currently planning on being FI a decade or so before that, plan B lets me ER then with 75% of my salary (more than enough, as our current savings rate is way above 25%).   I work 180 days a year currently (after you take out holidays, weekends, and winter, spring, and summer breaks).  I love what I do, and may continue doing it after I'm FI.


Don't want to pick a fight and I beleive you are a teacher, which is one of the most important jobs there are and it is hard work.  That said, to retire at 47 with 75% pay for the rest of your life is precisely the issue with pensions and the government budgets. I am not sure what your pay is but I believe you are a teacher in CO so you probably top out at around $75k in today's dollars.  Assuming 15 years to go until you hit 47 and assuming the top pay scale grows at 2% (below inflation) then at your retirement at 47 your pay would be $100k.  $100k X 75% + $75k/  $75K / 4% SWR =$1,875,000.  Assuming a 7% return over your 25 year career you would have to save about $30k/year, which really doesn't matter because it is risk free and if the pension is COLA it is even worse.  This is not sustainable and when government employees say we are not compensated fairly it is BS.  Back when Govt employees made 2/3rds of comparable pay and they got nice pensions then it may be ok - but that doesn't seem to be the case anymore - govt jobs give high pay and even more lucrative pensions, which become even more lucrative because of the high pay.  And becomes ever more unsustainable. 

I should have got a government job.   

grantmeaname

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Re: Where do you keep your FI stash?
« Reply #61 on: July 20, 2012, 08:00:52 AM »
If I'm reading this right, Nevada's government pension system is funded entirely by employee contributions for schoolteachers, who deposit 21.5% of their pay in the system in exchange for a pension upon retirement. For non-schoolteachers, the employer and employee contribute 11.25% each. So it's hard for me to see this as that dramatically different than the private sector model, or to see it as a gigantic drain on the government. Care to explain to me how I'm thinking about that wrong?

tooqk4u22

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Re: Where do you keep your FI stash?
« Reply #62 on: July 20, 2012, 08:47:01 AM »
If I'm reading this right, Nevada's government pension system is funded entirely by employee contributions for schoolteachers, who deposit 21.5% of their pay in the system in exchange for a pension upon retirement. For non-schoolteachers, the employer and employee contribute 11.25% each. So it's hard for me to see this as that dramatically different than the private sector model, or to see it as a gigantic drain on the government. Care to explain to me how I'm thinking about that wrong?

Ok - I got the state wrong and never claimed there were no contributions from the individual although it is high in NV as you say although NV teachers won't be eligible for SS so they don't pay into that system. All that said, the math still results in a huge deficiency.  As I pointed out $30K a year, which would equate to average earnings of $140k/year over that 25 year career - clearly not the case as the average is likely much lower so it is still being funded largely by the locality (of course in reality the pension fund is probably grossly underfunded like all the others out there).  It is made worse by the early age of the retiree because the benefits have to paid for so long and are COLA.  And it is even worse if healthcare is provided indefinitely - some localities provide that.

As I said it is not sustainable.  Keep in mind I am not try to argue what is right or wrong or who should be paid what and when - simply claiming that the math for government pensions doesn't work (not sure it ever really did, but it absolutely doesn't now).  Over the last two decades the cocktail of increasing pay and benefits, high return assumptions by the pension plans, and the governements themselves not actually funding the plans doesn't work.  Many states in the west including NV and CO appear to be tying to reform these systems but that will change the game for employees and taxpayers - both will pay more or concede some benefits. 

Unfortunately I think it will be the employees that will not get what they thought they would and in NV they are trying to move from a defined benefit plan to a defined contribution plan and while not the worst thing in the world as that is what the private sector mostly has it is significantly different and in if they did it arebelspy pension would be PV based contributions to date and converted and he would continue to make contributions along with city/state that I guarantee you would not add up to anywhere close to the value of the DPB at 47.
« Last Edit: July 20, 2012, 09:01:27 AM by tooqk4u22 »

sol

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Re: Where do you keep your FI stash?
« Reply #63 on: July 20, 2012, 08:56:04 AM »
I should have got a government job.

Funny, I have a government job and I've been thinking I should have gone with the private sector.

For comparison purposes, I only contribute a mere 0.8% of my pay towards my pension, and it then pays me 1% of my salary times of years of service.  So if I work 15 years it will cover 15% of my salary.  Do the math on it, you'll see it about matches long term market returns.

If you think that's too generous, you're not alone.  The law just changed so that new federal employees will instead contribute 3.1% of their pay for the same 1% benefit, which is clearly a losing deal by anybody's math.

Why are federal employees being handed a 2.1% pay cut?  To pay for extended unemployment benefits for everybody else, like our friend Financial Samurai who "engineered" his layoff so that he could retire early on unemployment.  That money is coming directly out of the paychecks of working feds.  How happy do you think I am about that?

To make it even worse, my federal pension doesn't get a COLA until retirement age, which means anybody retiring before 62 gets that 15% of salary from their old salary whenever they quit, non-indexed for (in my case) 20 years of inflation.  It's almost worthless.

But my main complaint about being a federal worker isn't the crappy pension, it's the federal pay system.  Some feds make as much as their private sector counterparts, but those people have jobs like file clerk and janitor.  If you're an educated professional, a scientist, lawyer, engineer, or even a manager, you make about 30% more in the private sector than you do as a fed if you're average.  And you make WAY more in the private sector if you're good, since the government cannot reward exemplary service with promotions or raises.  Doesn't matter how awesome you are at your job, you make the exact same amount as the guy who always shows up late and watches youtube all day.  It's very disincentivizing.

grantmeaname

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Re: Where do you keep your FI stash?
« Reply #64 on: July 20, 2012, 08:59:39 AM »
All that said, the math still results in a huge deficiency.  As I pointed out $30K a year, which would equate to average earnings of $140k/year over that 25 year career - clearly not the case as the average is likely much lower so it is still being funded largely by the locality (of course in reality the pension fund is probably grossly underfunded like all the others out there).  It is made worse by the early age of the retiree because the benefits have to paid for so long and are COLA.
I'm not following. Are you arguing that NVPERS is actuarially unsound?
If that's the case, wouldn't it not have a funding ratio approaching 80%, among the best in the country? What about the math results in a huge deficiency?

tooqk4u22

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Re: Where do you keep your FI stash?
« Reply #65 on: July 20, 2012, 09:22:31 AM »
I should have got a government job.

Funny, I have a government job and I've been thinking I should have gone with the private sector.

For comparison purposes, I only contribute a mere 0.8% of my pay towards my pension, and it then pays me 1% of my salary times of years of service.  So if I work 15 years it will cover 15% of my salary.  Do the math on it, you'll see it about matches long term market returns.

If you think that's too generous, you're not alone.  The law just changed so that new federal employees will instead contribute 3.1% of their pay for the same 1% benefit, which is clearly a losing deal by anybody's math.

Why are federal employees being handed a 2.1% pay cut?  To pay for extended unemployment benefits for everybody else, like our friend Financial Samurai who "engineered" his layoff so that he could retire early on unemployment.  That money is coming directly out of the paychecks of working feds.  How happy do you think I am about that?

To make it even worse, my federal pension doesn't get a COLA until retirement age, which means anybody retiring before 62 gets that 15% of salary from their old salary whenever they quit, non-indexed for (in my case) 20 years of inflation.  It's almost worthless.

But my main complaint about being a federal worker isn't the crappy pension, it's the federal pay system.  Some feds make as much as their private sector counterparts, but those people have jobs like file clerk and janitor.  If you're an educated professional, a scientist, lawyer, engineer, or even a manager, you make about 30% more in the private sector than you do as a fed if you're average.  And you make WAY more in the private sector if you're good, since the government cannot reward exemplary service with promotions or raises.  Doesn't matter how awesome you are at your job, you make the exact same amount as the guy who always shows up late and watches youtube all day.  It's very disincentivizing.

(1) Pensions are geared toward longevity in the career so early retirement is highly penalizing, as it should be, but if you spend 30 years you get 30%, which btw is based on your highest pay or avg of 3 years highest pay but certainly not your lowest pay. Plus you get up to a 5% match if you partcipatein the TSP - so you have a DBP and DCP.  So contributing 1% to get a COLA pension is nothing - it may not be as good as some states or cities but it is clearly not crappy.

(2) I don't disagree on FS retirement.

(3) Also agree that is is BS that everyone gets paid the same regardless of performance and hard to fire but there are plenty of professional level that are getting paid handsomely just look at the # of fed employees making over $100k - sure some attorneys/engineers could make more but the BLS data says average that is not the case so fed employees give up some upside that is statistically deminimis for a sure thing with above average (BLS) pay and benefits - that's a good trade for anyone that is not exceptional (btw that is most of us). Additionally fed workers don't work nearly as much as their private sector corporate counterparts and should be factored into the equation.  Also, private sector people can be fired tomorrow for no reason in most states.

I guess if it is so crappy then quit and get a private sector job.

 


arebelspy

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Re: Where do you keep your FI stash?
« Reply #66 on: July 20, 2012, 09:28:33 AM »
I don't have time to read and discuss right now, but I will try to come back to this.

Two general comments:
1) In general most pensions are bull*.  Unfounded promises for the future. In theory they could be really good. In practice, they have not worked out well.  That being said, I'm gonna utilize mine, cause I sure as heck am gettin paid less because it's part of my compensation package.
2) 30 years, not 25. We have the option to "buy" up to 5 years, which I will be doing. So run your calculations on 30 years.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

tooqk4u22

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Re: Where do you keep your FI stash?
« Reply #67 on: July 20, 2012, 09:43:38 AM »
[by the early age of the retiree because the benefits have to paid for so long and are COLA.
I'm not following. Are you arguing that NVPERS is actuarially unsound?
If that's the case, wouldn't it not have a funding ratio approaching 80%, among the best in the country? What about the math results in a huge deficiency?
[/quote]

Yes - 80% is means it is underfunded and I think it is actually more like 70%.  Assets are based on an 8% return expectation (which is reasonable) but it is combined with discounting liabilities (future pension payments) back at a rate that is higher than normal inflation expectations.


I don't have time to read and discuss right now, but I will try to come back to this.

Two general comments:
1) In general most pensions are bull*.  Unfounded promises for the future. In theory they could be really good. In practice, they have not worked out well.  That being said, I'm gonna utilize mine, cause I sure as heck am gettin paid less because it's part of my compensation package.
2) 30 years, not 25. We have the option to "buy" up to 5 years, which I will be doing. So run your calculations on 30 years.

1) That is my point exactly and I absolutely agree you should utilize it unless of course it is not there - hope it is there for you, which I am sure it will be in some form/amount but maybe not exactly what was originally promised to you. And there are far worse offenses in the govt pension world than NV - some hardly require contributions, assume high rates of return, have early retirement options, etc.

2) Not of NV but most of these options to buy year are BS from a mathmatical perspective - trade a small percentage where they ask that you prepay five years of contributions in trade for five years of pension payments - further adding to the pension BS point in #1.


sol

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Re: Where do you keep your FI stash?
« Reply #68 on: July 20, 2012, 09:51:07 AM »
if you spend 30 years you get 30%, which btw is based on your highest pay or avg of 3 years highest pay but certainly not your lowest pay.

Considering that I didn't finish my PhD until I was 31, putting in 30 years of service is kind of a tough sell.  The government pension is a pretty good deal if you work til your mid-60s, and an even better deal if you start right out of high school and work that long.  It's just a really crappy deal for anyone who lives below their means and saves diligently.

Quote
(3) just look at the # of fed employees making over $100k - sure some attorneys/engineers could make more but the BLS data says average that is not the case so fed employees give up some upside that is statistically deminimis for a sure thing

There's a lot of misinformation out there about federal pay levels, pushed by agenda groups.  They generally focus on the fact  that the average federal worker makes significantly more than the average private sector worker, but they overlook the types of jobs feds have.  There are no federal burger flippers, but lots of accountants and lawyers, and when you look at the private vs public pay for a particular job, feds always seem to lose out.

But your point about job security is well taken.  On the one hand, it frustrates me to see slackers get the same raise that I get (0% for past two years due to pay freeze, thanks Congress!) but on the other I know my job is more secure than most.  Sadly, the private sector equivalent of my job is "tenured professor" so even the job security angle isn't so helpful to me.

Quote
Additionally fed workers don't work nearly as much as their private sector corporate counterparts and should be factored into the equation.

Did you just call me lazy?

Quote
I guess if it is so crappy then quit and get a private sector job.

I've thought about it, and at this point it's mostly a matter of inertia and complacency.  I like my work, I have a family to support, and I own a house 1.5 miles from my office.  And more importantly, I just don't really need the money.  I have simple tastes and a modest lifestyle, and upsetting the status quo for more dollars hasn't yet seemed necessary.

If I had a special needs child or an ailing parent or some other unforeseen expense, I would certainly uproot my family in search of a bigger paycheck, but for now I'm staying put.

grantmeaname

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Re: Where do you keep your FI stash?
« Reply #69 on: July 20, 2012, 09:52:35 AM »
Yes - 80% is means it is underfunded and I think it is actually more like 70%.
Well, it's cool that that's your opinion, but the official publication of the NVPERS that I linked to says it's 80%, so if you don't mind I'm going to stick with that.

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Assets are based on an 8% return expectation (which is reasonable)

In fact, an 8% return expectation is over 2% less than the board has received on its portfolio since its inception.

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but it is combined with discounting liabilities (future pension payments) back at a rate that is higher than normal inflation expectations.
Why would they discount based on inflation expectations if there's a COLA in the pension? Also, citation needed. Also, liabilities are also discounted based on incomplete vesting due to things like workforce turnover that occur at known rates-- they have these people there called actuaries that actually do this all day long, for a living! Isn't that marvelous?

tooqk4u22

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Re: Where do you keep your FI stash?
« Reply #70 on: July 20, 2012, 10:04:34 AM »
Considering that I didn't finish my PhD until I was 31, putting in 30 years of service is kind of a tough sell.  The government pension is a pretty good deal if you work til your mid-60s, and an even better deal if you start right out of high school and work that long.  It's just a really crappy deal for anyone who lives below their means and saves diligently.

I agree - the pensions are definitely geared to long term employees and said as much before and it is needed to support the system - in this case a DCB is better because you can take it wiht you.

There's a lot of misinformation out there about federal pay levels, pushed by agenda groups.  They generally focus on the fact  that the average federal worker makes significantly more than the average private sector worker, but they overlook the types of jobs feds have.  There are no federal burger flippers, but lots of accountants and lawyers, and when you look at the private vs public pay for a particular job, feds always seem to lose out.

Agree that there is always agenda driven information out there but I still don't believe I am wrong.  Again if you are comparing a fed attorney to a top producing partner at a big firm then no doubt the fed loses - but really would the fed attorney really be capable of that kind of performance.  You need to compare to the BLS averages and that will show you that a fed makes as much as or more than the BLS averages (and that is before benefits).


Did you just call me lazy?

No - just recognizing that there is an inherent tradeoff in work/life/compensation for different jobs.  I didn't say feds don't work when they are on the clock I am saying that to get ahead and exceed those BLS numbers in the private sector it typically requires far more investment in time on the job and being available all the time (f'in blackberry/laptop). Although there are plenty of arguments that suggests efficiency/productivity for feds is on par with private - and as you pointed out there really is no incentive for feds to work harder/smarter because the lowest common denominator gets the same as the best one.

I've thought about it, and at this point it's mostly a matter of inertia and complacency.  I like my work, I have a family to support, and I own a house 1.5 miles from my office.  And more importantly, I just don't really need the money.  I have simple tastes and a modest lifestyle, and upsetting the status quo for more dollars hasn't yet seemed necessary.

If I had a special needs child or an ailing parent or some other unforeseen expense, I would certainly uproot my family in search of a bigger paycheck, but for now I'm staying put.

This is the tradeoff I was eluding too and the one that would make me switch to govt. 
« Last Edit: July 20, 2012, 02:51:05 PM by tooqk4u22 »

smedleyb

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Re: Where do you keep your FI stash?
« Reply #71 on: July 20, 2012, 01:55:13 PM »
You're absolutely right Mark, and it's a fair question.  Basically... it's a risk I'm comfortable taking right now.

I do plan to diversify out of real estate quite a bit (and maybe one day hold no real estate in my portfolio, who knows), but right now I'm more or less going "all in" due to the (what I feel is a) once in a lifetime opportunity.

It's something I'm planning on doing over the next 5 years (subject to change) while in the accumulation phase and then moving on.  There is the potential risk that Vegas becomes a ghost town and all my properties become worthless.

As a fallback, I hit fully vested in my retirement cola'd pension at age 47, so although I'm currently planning on being FI a decade or so before that, plan B lets me ER then with 75% of my salary (more than enough, as our current savings rate is way above 25%).   I work 180 days a year currently (after you take out holidays, weekends, and winter, spring, and summer breaks).  I love what I do, and may continue doing it after I'm FI.  Doing it another decade if something goes terribly wrong with my RE plan doesn't sound too bad to me.  And I have plans C and D as well, but I think plan A will work, so they're likely unnecessary.

In other words, yes, I'm doing something that has some risk right now, but I'm comfortable with that risk.  Especially given my level of knowledge on the subject.  I think the accumulation phase is when one should be riskier, because if it doesn't work out... you work an extra year.  No big deal, unless you loathe your job. 

If one gets too scared to take an opportunity because they fear a black swan event, I think they'll have a hard time succeeding in general.

What makes you think that the properties you're accumulating won't continue to lose value over the next 10 years at, say, a modest rate of 2% a year?

How do you know that the cash flows you're  basing these deals are stable if the economy continues to stagnate and ultimately contract (see Detroit, another one trick local economy).

http://www.rentjungle.com/average-rent-in-las-vegas-rent-trends/

You seem to be saying you have some information at your disposal about the future of real estate in Vegas which puts you on the path to FI and ultimately wealth.  Not all real estate markets go up in America.  Some markets head down -- way down -- for many years, even it real estate overall seems to go up over time.

But again, how do you know that real estate prices in Vegas will stop going down, and that rents won't take a huge hit as the demographics, economy (gambling is everywhere), and resource scarcity (water shortage, not enough flow in Colorado river to for electricity generation at Hoover, pushing energy costs through the roof) destroys housing demand? 

Aren't you really just guessing, and thus gambling?   

tooqk4u22

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Re: Where do you keep your FI stash?
« Reply #72 on: July 20, 2012, 02:50:31 PM »
Well, it's cool that that's your opinion, but the official publication of the NVPERS that I linked to says it's 80%, so if you don't mind I'm going to stick with that.

Hate to break the news to you but your link and figure is from 2007 current number for 2011 is 70.2%. 

In fact, an 8% return expectation is over 2% less than the board has received on its portfolio since its inception.

If you say so, but we all know past is not a predictor, I said 8% was reasonable.  Keep in mind that they need to balance short term needs with long term needs so that can't dump all thier investments in bonds or equities exclusively, which will result in an modest rate of return.  Also 2011 return since inception (27 years) is 9.7% and last 10 years is 5.6% and that includes a 21% return in last year - again 8% is reasonable for an institutional investor with a balanced portfolio and types of investments they can make that individuals don't have access to.  If you think a balanced investment allocation is going to do better than that you know more than I do.
 

Why would they discount based on inflation expectations if there's a COLA in the pension? Also, citation needed. Also, liabilities are also discounted based on incomplete vesting due to things like workforce turnover that occur at known rates-- they have these people there called actuaries that actually do this all day long, for a living! Isn't that marvelous?

All that is factored in no matter what discount rate you use although all of those can be manipulated as well.  If you are discounting it back at a rate that is higher than perceived inflation (obviously open to interpretation) then you are effectively lowering the present value of the liability.  As for the Cola you have backwards because we discussing from the party obigated to pay it not receive it (you know when we discuss inflation on these forums and somebody chimes in that I have a COLA pension then everyone says oh great then no worries because your covered - that's because someone else has to pick up the tab.  There are other variables that pension funds use to game the books, I assure you pension accounting is the worst and they change it all the time. 
« Last Edit: July 20, 2012, 02:54:28 PM by tooqk4u22 »

Mr Mark

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Re: Where do you keep your FI stash?
« Reply #73 on: July 20, 2012, 04:21:45 PM »

What makes you think that the properties you're accumulating won't continue to lose value over the next 10 years at, say, a modest rate of 2% a year?

How do you know that the cash flows you're  basing these deals are stable if the economy continues to stagnate and ultimately contract (see Detroit, another one trick local economy).


Let's not get too stereotypical about the Motorcity ... Detroit is showing a way back, with diversification into services like Quicken Loans, plus urban farming, art scene, bars and clubs, sports, light manufacturing, and the import/export business with Canada. I'd like to think Detroit will be one of the early 'post-modern' cities in the USA.

And housing is a deal, even in the great neighborhoods. :-)