Author Topic: Earmarks  (Read 5766 times)

dividendman

  • Handlebar Stache
  • *****
  • Posts: 1378
  • Age: 38
Earmarks
« on: April 17, 2017, 03:41:44 PM »
I'm in the 2018 cohort but might pull the trigger way early.

I have 900k and my yearly expenses are significantly under 36k (including averaging out costs like car repair and clothes that might not occur consistently).

Here is my dilemma, I know there are some expensive things I might want to do but they would be one-off things (e.g. a 50k down payment for a house since I currently rent, or a 10k round the world trip, or 10k to give to each of my younger family members when they graduate).

I saw two solutions without having to work post FIRE:
1) "save up" by under-spending on the 36k until I have enough to do the big purchase
2) hold off fire and save up to earmark money for these potential large purchases and put that money in a low risk short-term bond fund or something similar

I've chosen 2) mostly because I make so much now I can save the above examples in just several months. But I'm wondering what others are doing of if there is an obvious flaw to this? Am I then skewing my asset percentage to be too conservative? Am I Missing out on gains? Is losing another 6 months of non-FIRE time worth it?

Has anyone else earmarked money like this for FIRE and actually FIRED and spent the money?

The point of the earmarks is that even if I spend all that money in short order it won't affect my "core" stash for the 4% rule.

Hotstreak

  • Pencil Stache
  • ****
  • Posts: 826
Re: Earmarks
« Reply #1 on: April 17, 2017, 04:42:54 PM »
Your annual expenses are currently under $36k, or they will be under that in retirement (assuming home maintenance, mortgage, etc)?.  If you paid these one time expenses, would you still have enough income based on the 4% rule?  For instance $50K house + 10K vacation + 40k siblings = 100k, leaving you with $800k or $32k/year.  If you can retire on that much then essentially you already have your "earmarked" money and you are good to go.

dividendman

  • Handlebar Stache
  • *****
  • Posts: 1378
  • Age: 38
Re: Earmarks
« Reply #2 on: April 17, 2017, 05:14:02 PM »
Yeah, I could do that. But I feel that since I know of these things and I'm already working, might as well earmark em to reduce sequence of returns risk. If I think up a new expense post FIRE that's big, I'll save up.

maizefolk

  • Walrus Stache
  • *******
  • Posts: 5743
Re: Earmarks
« Reply #3 on: April 17, 2017, 07:12:28 PM »
But I'm wondering what others are doing of if there is an obvious flaw to this? Am I then skewing my asset percentage to be too conservative? Am I Missing out on gains? Is losing another 6 months of non-FIRE time worth it?

In order:
Nope.
Yes, but it doesn't matter because you'd have more money than you needed for living expenses if you did this.
Probably, but again, if you already have all the money you need to support your FIRE it is okay to leave some potential gains on the table.
Only you can answer this one.

Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 3403
Re: Earmarks
« Reply #4 on: April 18, 2017, 09:48:05 AM »
None of the things you mentioned have to be done at a specific time. The family will graduate at a particular time but probably won't turn down a gift a couple of years after graduation if the market is down at graduation and then picks up.

If you have average or better luck in the first few years of FIRE, your investment growth will easily cover these things. If you have terrible luck (a 50% downturn just as you tell your boss to go FU), then you will have to wait a few years for these optional things.

Don't work a day more than you need to.

dividendman

  • Handlebar Stache
  • *****
  • Posts: 1378
  • Age: 38
Re: Earmarks
« Reply #5 on: April 19, 2017, 12:04:18 PM »
Don't work a day more than you need to.

Hah. Yes, a fine theory. Now that I'm staring at it in the face I am becoming a coward! OMY is coming for me!! Haha, I shouldn't have made fun of the rest of the scaredy-cats.. damn.

I think I'm considering this earmark thing as just a fancy way of OMY (or half year or whatever) without actually admitting to myself I'm doing it. Damn.

deborah

  • Senior Mustachian
  • ********
  • Posts: 12255
  • Location: Australia or another awesome area
Re: Earmarks
« Reply #6 on: April 20, 2017, 01:17:58 AM »
Life happens. It is sweet to allocate money to something you see in the future, but the probability is never 100% that it will happen. Instead of earmarks, know that you have enough to do everything you want to do, and then retire.

Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 3403
Re: Earmarks
« Reply #7 on: April 21, 2017, 07:23:17 AM »
Don't work a day more than you need to.

Hah. Yes, a fine theory. Now that I'm staring at it in the face I am becoming a coward! OMY is coming for me!! Haha, I shouldn't have made fun of the rest of the scaredy-cats.. damn.

I think I'm considering this earmark thing as just a fancy way of OMY (or half year or whatever) without actually admitting to myself I'm doing it. Damn.

Yes, you are thinking like a coward. This is allowed if it is genuinely what you want but you need to own it, not hide behind ideas about presents and travel.

Send me your boss's number and I'll call them and quit for you. Do you go by Dividend Man or Divid Endman at work?

respond2u

  • Stubble
  • **
  • Posts: 119
Re: Earmarks
« Reply #8 on: April 22, 2017, 10:54:58 AM »
I'm in the 2018 cohort but might pull the trigger way early.
<snip>

Has anyone else earmarked money like this for FIRE and actually FIRED and spent the money?

The point of the earmarks is that even if I spend all that money in short order it won't affect my "core" stash for the 4% rule.

I chose the earmark route based on what cfiresim said I needed to retire.
You might check that 4% number. It's fine if your 60, not so much if you're younger.

Why not  spend the $10K on the world tour now and book it for September. That'll give you something to look forward to help overcome the natural loss & change aversion.

Plus, you should have plenty more saved up by then.

Cannot Wait!

  • Pencil Stache
  • ****
  • Posts: 938
  • Age: 54
  • Location: Canada
  • FIREd 2016 @ 49
Re: Earmarks
« Reply #9 on: April 22, 2017, 06:08:51 PM »
If you're only 34, there is PLENTY of time to unretire if you find you want things in the future that you can't afford.

meadow lark

  • Walrus Stache
  • *******
  • Posts: 5744
  • Location: Louisiana
Re: Earmarks
« Reply #10 on: May 18, 2017, 11:59:51 AM »
My plan is to go back to work (probably very briefly) if I need more money.  But, that is super easy in my career,  I am currently tired of working and OMY is the farthest thing from my mind!  If you decide you want a bigger stache, that is completely fine.  Work longer.  I wouldn't bother putting the extra in bonds, unless you know you will be spending it soon.

JoJo

  • Handlebar Stache
  • *****
  • Posts: 1730
Re: Earmarks
« Reply #11 on: May 18, 2017, 03:15:24 PM »
Earmarks are the reason I haven't pulled the plug.   I'm way over the amount I need but I have a few dream trips that are really once in a lifetime things, plus worrying about the inevitable huge medical expense in the future.

Mr. Green

  • Magnum Stache
  • ******
  • Posts: 3044
  • Age: 37
  • Location: Wandering
Re: Earmarks
« Reply #12 on: May 18, 2017, 03:35:24 PM »
A position to consider....

A 4% withdrawal rate leaves you with significant probability (the majority of historical scenarios) where your stash grows faster than you can spend it. So by default, the odds are already in your favor that your one-off future expenses are already paid for. Couple that with the fact that you said you're not even spending 4% of your stash and you have an even greater chance that they're already paid for. What you're considering (more money for earmarks) is the same thing as trying to move your success rate percentage higher. At a certain point, the diminishing returns (an increase in your percentage) just aren't worth the time spent achieving them. After all, 100% success is impossible to attain. Sure you could suffer a crazy once in a century sequence of returns that would jeopardize your earmarks, and even your regular post-employment plans, but Trump could call Putin's wife fat and we could all be nuked tomorrow too. Of course that's a really extreme example of forces outside your control that you are powerless to stop from influencing your future (or end it).

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1236
Re: Earmarks
« Reply #13 on: May 18, 2017, 05:31:47 PM »
I've been going a slightly different path, of dealing with as many of these as I can before I finish work.

Examples: 
Booked in a bucket list trip ($20k)
Had some surgery that I knew I would need at some stage while still having access to sick leave $5k cost of surgery/hospital, and $5k additional income from taking sick leave vs doing it post FIRE.
Got married $10k my share (ok, so if I drove the timing purely by my FIRE desires, I may as well have held on a little longer to pre-pay a divorce too)

But the point is you have choice about when you wrap up at work, and to an extent, you can bring forward some of these expenses. 


Salim

  • Handlebar Stache
  • *****
  • Posts: 1156
  • Age: 70
  • over the hills
Re: Earmarks
« Reply #14 on: June 03, 2017, 05:58:54 AM »
Congrats on your achievement! I think either choice is fine, so pick the one that is most comfortable, partly because stress can shorten your life.

Full-time work was very uncomfortable for me, so I quit while still shy of my savings goal. I just reached the goal, two years after retiring, because we had learned how to live within our means and the market has been good. (O happy day!)

Now that we have enough money to support a good monthly draw, we will adjust spending to protect the amount of savings we want to maintain. If you like your job and want more of a financial cushion, working a few more months seems prudent.

BTDretire

  • Magnum Stache
  • ******
  • Posts: 3077
Re: Earmarks
« Reply #15 on: June 03, 2017, 07:39:43 AM »
 You are only 34, I say pad your stache for a couple more years.
Having a couple of years worth of extra savings shouldn't create
much of a problem for you, wishing you had a couple more years
savings is a problem.
                                    The Contrarian :-)

ShortInSeattle

  • Pencil Stache
  • ****
  • Posts: 574
Re: Earmarks
« Reply #16 on: June 03, 2017, 11:09:55 AM »
I like your earmark plan; I think it's smart.

In the end, you'll be the one who needs to live with the level of assets you've set aside, and so that means *you* need a gut-level of comfort that will lead to your true enjoyment of FIRE.

It's good to get advice, but also good to attend to your own wisdom about what feels right for you.

SIS

Livingthedream55

  • Pencil Stache
  • ****
  • Posts: 525
  • Location: Massachusetts, USA
Re: Earmarks
« Reply #17 on: June 09, 2017, 07:19:46 AM »
I'm in the 2018 cohort but might pull the trigger way early.

I have 900k and my yearly expenses are significantly under 36k (including averaging out costs like car repair and clothes that might not occur consistently).

Here is my dilemma, I know there are some expensive things I might want to do but they would be one-off things (e.g. a 50k down payment for a house since I currently rent, or a 10k round the world trip, or 10k to give to each of my younger family members when they graduate).

I saw two solutions without having to work post FIRE:
1) "save up" by under-spending on the 36k until I have enough to do the big purchase
2) hold off fire and save up to earmark money for these potential large purchases and put that money in a low risk short-term bond fund or something similar

I've chosen 2) mostly because I make so much now I can save the above examples in just several months. But I'm wondering what others are doing of if there is an obvious flaw to this? Am I then skewing my asset percentage to be too conservative? Am I Missing out on gains? Is losing another 6 months of non-FIRE time worth it?

Has anyone else earmarked money like this for FIRE and actually FIRED and spent the money?

The point of the earmarks is that even if I spend all that money in short order it won't affect my "core" stash for the 4% rule.

Option 2 will take only a matter of months? Go for it!

I am under 2 years to retirement but my plan will include a cash buffer (outside of the Vanguard stash which will supply 1/3 of my monthly income, the other 2/3 will be coming from a pension) of around 40k PLUS I plan to "save" another $500 monthly in retirement (by underspending) for both nice things (a generous gift as each child marries/has kids) and S*it hits the fan expenses (major house repair or big medical expense) ... I think we each have to determine as ShortinSeattle and others have said ... our own comfort level before we pull the plug to our employment source of income.