Author Topic: Any ER'ees have no passive income, living off savings  (Read 6636 times)

JoJo

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Any ER'ees have no passive income, living off savings
« on: February 09, 2020, 08:20:58 PM »
I think I'm ready to retire.  My expected WR is somewhere around 2%.  I'm conservative, so sitting now at about 50% in the market 50% fixed.   Most of the stuff in the market is in 401k, etc.  But a close friend is trying to convince me I need some passive income like huge amounts of dividend stock, rental properties, etc.    Anyone else have no passive income?  Do you think I should to diversify? 

ixtap

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Re: Any ER'ees have no passive income, living off savings
« Reply #1 on: February 09, 2020, 08:23:27 PM »
What is your asset allocation? I can read, I just choose not to sometimes.
 
Folks pushing dividend stocks tend to have a misunderstanding of how dividends work. Rental properties are not passive income, unless you are paying someone to take care of them for you.
« Last Edit: February 09, 2020, 08:56:47 PM by ixtap »

2Birds1Stone

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Re: Any ER'ees have no passive income, living off savings
« Reply #2 on: February 09, 2020, 08:35:41 PM »
Since a ~3.1% WR has 0% historical failure rate at even a 50/50 AA.....I would say unless you're sitting 100% in cash/bonds you should be good to go......

You're probably going to end up dead long before you go broke.

ToTheMoon

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Re: Any ER'ees have no passive income, living off savings
« Reply #3 on: February 09, 2020, 10:02:44 PM »
That's right @JoJo!  Just clean off your desk and...oh wait... LOL

Get out of there and enjoy the rest of your life :)

Lucky13

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Re: Any ER'ees have no passive income, living off savings
« Reply #4 on: February 09, 2020, 11:20:49 PM »
For an example of ER'ees with no passive income check out the couple who wrote "Quit Like a Millionaire" (I really enjoyed the book and they also have a blog etc)


JoJo

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Re: Any ER'ees have no passive income, living off savings
« Reply #5 on: February 09, 2020, 11:34:06 PM »
For an example of ER'ees with no passive income check out the couple who wrote "Quit Like a Millionaire" (I really enjoyed the book and they also have a blog etc)

I've heard of this - will check it out.

spartana

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Re: Any ER'ees have no passive income, living off savings
« Reply #6 on: February 10, 2020, 01:36:21 AM »
I'm not sure if I count but no passive income for my first 10 years or so (laddered CDs, bonds, money from downsizing house, etc) that I used as needed until I could get a small gov pension at 50 . Once I'm older I'll tap into tax deferred investments like 457 and IRA.

ETA: My expenses are very low and so my amount of savings wasn't particularly high but ended up lasting longer then planned. I did buy stocks along the way but have held them as my expenses continued to be low and I haven't had to sell.
« Last Edit: February 10, 2020, 01:42:53 AM by spartana »

jeroly

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Re: Any ER'ees have no passive income, living off savings
« Reply #7 on: February 10, 2020, 02:58:00 AM »
I think I'm ready to retire.  My expected WR is somewhere around 2%.  I'm conservative, so sitting now at about 50% in the market 50% fixed.   Most of the stuff in the market is in 401k, etc.  But a close friend is trying to convince me I need some passive income like huge amounts of dividend stock, rental properties, etc.    Anyone else have no passive income?  Do you think I should to diversify?
If you’re invested in index funds, then they and the bonds should be throwing off dividends aka “passive income,” no?

jim555

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Re: Any ER'ees have no passive income, living off savings
« Reply #8 on: February 10, 2020, 07:18:32 AM »
I live off interest and dividends.  Holding off on the pension for another 10 years.

BECABECA

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Re: Any ER'ees have no passive income, living off savings
« Reply #9 on: February 10, 2020, 08:52:12 AM »
With such a low 2% withdrawal rate, you’re pretty much just going to be living off the dividends that come regularly: VTSAX has a 1.77% dividend and VBTLX gave off 2.12% this year. Just set your dividends to transfer to your checking account and you can just be living off those.

I will be living off no passive income, aside from these small dividend percentages. It’s all about the withdrawal rate, and at 2% you’re set for a few lifetimes!

secondcor521

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Re: Any ER'ees have no passive income, living off savings
« Reply #10 on: February 10, 2020, 08:59:13 AM »
I think I'm ready to retire.  My expected WR is somewhere around 2%.  I'm conservative, so sitting now at about 50% in the market 50% fixed.   Most of the stuff in the market is in 401k, etc.  But a close friend is trying to convince me I need some passive income like huge amounts of dividend stock, rental properties, etc.    Anyone else have no passive income?  Do you think I should to diversify?

Like @spartana, I don't know if I qualify.  I'm 93/7 in two different mutual funds across my IRA, Roth, and taxable.

If you're invested in mutual funds and have a 50/50 AA, you're more diversified than I am.  And I've been FIREd for about three years now.

My passive income includes dividends from my stock mutual fund in my taxable account, but it's not really that much because most of my FIRE stash is inside my IRAs where the dividends reinvest.  I don't own rental properties or dividend paying stocks individually.  I once heard that rental properties are like "a lightly taxed second job" - no thanks!  And as for dividend paying stocks, I agree with @ixtap.  Your friend needs to understand dividends and the notion of total return.

I do have a side gig, but that was unexpected, unplanned, and unnecessary.

I'm at a 1.86% gross WR currently, and about a 0.41% net WR after accounting for side gigs and other odd bits of income that aren't related to my portfolio (what I call NPI - non portfolio income).

Padonak

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Re: Any ER'ees have no passive income, living off savings
« Reply #11 on: February 10, 2020, 09:08:21 AM »
PTF

JoJo

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Re: Any ER'ees have no passive income, living off savings
« Reply #12 on: February 10, 2020, 10:07:48 AM »
Side gig is something I'd consider too - get a fun job and keep my costs low during that period.



EscapeVelocity2020

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Re: Any ER'ees have no passive income, living off savings
« Reply #13 on: February 10, 2020, 10:56:35 AM »
For an example of ER'ees with no passive income check out the couple who wrote "Quit Like a Millionaire" (I really enjoyed the book and they also have a blog etc)

Not to be pedantic, but the couple you cite most certainly have a decent side-gig/income stream from their blog (given the pop-up ads and affiliate links) and book sales. In theory, they say they can live off of their investments, but they are not doing so in practice and so their experience might not be indicative.
« Last Edit: February 10, 2020, 10:58:24 AM by EscapeVelocity2020 »

BigMoneyJim

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Re: Any ER'ees have no passive income, living off savings
« Reply #14 on: February 10, 2020, 11:56:46 AM »
Hi JoJo, I've seen you post around here a lot and am happy to hear you're able to consider retirement!

I retired 4 months ago with doubts and no income, although I have a pension in 5 years and SS in 12 years at the earliest opportunities.

I'll tell ya there are a LOT of perspective changes—for me, anyway—in the last months leading into retirement and the first few months of it. I'll try to bullet point some of my insights for me I think could apply to you:

  • It never makes more financial sense to retire than to keep working! So unless we want to work until we're physically or mentally incapable of doing so, it's going to look like a bad idea on paper (and to most others).
  • If you run portfolio survivability / monte carlo / FIRECalc calculations/projections and have doubts, try looking up your life expectancy and overlaying that info on the projections. For me, seeing portfolio failure vs the increasing odds of being dead spurred me into earlier retirement.
  • You can always go back to work later. Let's say our worst fears are realized and we can only make 1/2 or less of our preretirement income when returning to work later. You can still make that work, right? I can. So the question is whether to definitely work more now or *maybe* work more later if things go poorly.
  • One or two years of stupidity isn't going to sink your life plans. Retiring is not an irreversible commitment to never making income again or sticking to a spending plan no matter what happens in your world going forward. (This is a *very* recent insight for myself for the next 12 months of my retirement and some major changes upcoming. I have 2 years' expenses in cash; you have 50% of your port in fixed income. We have some wiggle room for bad decisions!)
  • Expanding more on the last point, I found myself being too rigid and worried about concepts like lean FIRE vs fat FIRE vs downshifting vs semiretirement. These aren't fixed tracks we're following but assets, tools and strategies to be deployed, and as situations, experience, and perception changes, so will our plans to spend, save, find income, etc.. Retirement isn't a separate thing from work, just a different life strategy. All the calculations and forecasting I did before retirement was just to convince myself I can do it. They are guides on how to proceed, not ironclad laws on how to live my life when not working. New ideas, strategies, and opportunities present themselves once your mind is freed from the constructs of a working life prescribed by others.

Ok, those "bullet points" fail the PowerPoint test. Oh well.

As far as passive income...I get the appeal. But I'm convinced—by studies and others' experiences—you can retire "safely" on much less by spending down your principal, presuming you don't prioritize leaving a large inheritance after death.

Also: Dividends: Sure, again, the appeal: "Don't eat your seed corn." Makes sense. But for 20 years I've seen people argue this, and their favorite examples do not last: GE stock, TIPS and iBonds at 4%. They act like they are eternal, but they are most certainly NOT. Sure, maybe the U.S. stock market growth isn't eternal, either, but it has a much better reliable aggregate history than dividend producers.

Also: real estate: I've never understood why this is considered "passive", but I seem to be in the minority. (To me it seems like a job with unpredictable hours and being on call 24/7, or else hiring all that out which is managing contractors, vendors, or employees.) And it has its ups and downs, too. And it is not near as liquid as stocks or fixed income. It also requires a skill set that I don't have, and I don't gather you have.

Edit: Does your close friend manage money in a way that you admire/want to replicate? Most people (probably including me) have trouble offering advice from outside their own point of view. Someone who has saved up enough to live 30+ years on 2% of their portfolio annually has different money skills and habits than someone who hasn't.
« Last Edit: February 10, 2020, 12:18:48 PM by BigMoneyJim »

ysette9

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Re: Any ER'ees have no passive income, living off savings
« Reply #15 on: February 10, 2020, 02:05:13 PM »
We will both be RE next year but for now are just FI. Our plan is to be living off our investments only because I want out “income” to be low for Roth conversions and ACA subsidies. For those reasons I don’t want any other income streams from things like rental properties or whatnot. Living off of your investments is a fabulous place to be in terms of the US tax code. Celebrate it!

blue_green_sparks

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Re: Any ER'ees have no passive income, living off savings
« Reply #16 on: February 10, 2020, 09:35:22 PM »
We will both be RE next year but for now are just FI. Our plan is to be living off our investments only because I want out “income” to be low for Roth conversions and ACA subsidies. For those reasons I don’t want any other income streams from things like rental properties or whatnot. Living off of your investments is a fabulous place to be in terms of the US tax code. Celebrate it!

+1

EscapeVelocity2020

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Re: Any ER'ees have no passive income, living off savings
« Reply #17 on: February 10, 2020, 10:38:32 PM »
We will both be RE next year but for now are just FI. Our plan is to be living off our investments only because I want out “income” to be low for Roth conversions and ACA subsidies. For those reasons I don’t want any other income streams from things like rental properties or whatnot. Living off of your investments is a fabulous place to be in terms of the US tax code. Celebrate it!

My DW works a bit for fun and makes 5 - 10k/yr.  She doesn't pay any tax on her earnings and we don't use her healthcare, but being FI, maybe we'd be better off chucking my ~25% Fed tax bracket job :)  She's actually stealing 1 - 2.5k/yr from me! 

We do end up satisfactorily further ahead by still having the higher income (and the generous bennies), so it's not actually a terrible thing.  But this endless bull market has me wondering...  I've already made huge gains this year, on top of tremendous gains last year!

ender

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Re: Any ER'ees have no passive income, living off savings
« Reply #18 on: February 11, 2020, 06:46:30 AM »
I think I'm ready to retire.  My expected WR is somewhere around 2%.  I'm conservative, so sitting now at about 50% in the market 50% fixed.   Most of the stuff in the market is in 401k, etc.  But a close friend is trying to convince me I need some passive income like huge amounts of dividend stock, rental properties, etc.    Anyone else have no passive income?  Do you think I should to diversify?

Is your close friend retired already? Or wealthy?

I find that a ton of people who are broke have a lot of financial advice.

There are many, many people here who have FIRE'd on more than 2% WRs.

Play with cfiresim and put in your 50/50 allocation and 2% withdrawal rate.  That portfolio only occasionally dips below 50% of the starting value and in 100% of 30-year period historically, ends up with more than the initial start.

Malcat

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Re: Any ER'ees have no passive income, living off savings
« Reply #19 on: February 11, 2020, 07:00:03 AM »
I think I'm ready to retire.  My expected WR is somewhere around 2%.  I'm conservative, so sitting now at about 50% in the market 50% fixed.   Most of the stuff in the market is in 401k, etc.  But a close friend is trying to convince me I need some passive income like huge amounts of dividend stock, rental properties, etc.    Anyone else have no passive income?  Do you think I should to diversify?

Is your close friend retired already? Or wealthy?

I find that a ton of people who are broke have a lot of financial advice.

There are many, many people here who have FIRE'd on more than 2% WRs.

Play with cfiresim and put in your 50/50 allocation and 2% withdrawal rate.  That portfolio only occasionally dips below 50% of the starting value and in 100% of 30-year period historically, ends up with more than the initial start.

Agreed.

Feel free to fully ignore the financial advice of anyone and everyone unless you admire their particular financial set up and specifically want to emulate it in some way.

Otherwise, their advice is utterly meaningless.
Also, the kind of people who claim to know what's best for you tend to have the least objective understanding.

A tell tale sign of someone being extremely knowledgeable about a subject matter is that they will qualify what they say with multiple caveats that they *aren't* and expert and that they *can't* know what's best for your particular situation.

Why? Because people who know A LOT, know that they don't know everyone or how to apply it to every situation.

People who understand things very poorly tend to get small pieces of information that make perfect sense in their very limited context, and then have absolute faith in that factoid because they know too little to question it.

If you do want to consider someone's suggestion, ask them where they learned that idea. A shocking number of people will cite their own parents as their main source of personal finance knowledge.

JoJo

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Re: Any ER'ees have no passive income, living off savings
« Reply #20 on: February 11, 2020, 08:37:29 AM »
The person with advice is 10 years older than me and has double my stash and is probably going to die with over $10M in the bank.  He cites something bad like 2008 happening or worse but I have no real estate exposure, i'm mobile to live in a cheaper country.  And if the market gets f'ed and the dollar gets way, way devalued, the relatively extra $ from additional work is a drop in the bucket (annual take home pay now about 5% of my stash). 

Cassie

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Re: Any ER'ees have no passive income, living off savings
« Reply #21 on: February 11, 2020, 10:41:57 AM »
With your low withdrawal rate you should be fine.

spartana

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Re: Any ER'ees have no passive income, living off savings
« Reply #22 on: February 11, 2020, 10:57:48 AM »
I think I'm ready to retire.  My expected WR is somewhere around 2%.  I'm conservative, so sitting now at about 50% in the market 50% fixed.   Most of the stuff in the market is in 401k, etc.  But a close friend is trying to convince me I need some passive income like huge amounts of dividend stock, rental properties, etc.    Anyone else have no passive income?  Do you think I should to diversify?

Like @spartana, I don't know if I qualify.  I'm 93/7 in two different mutual funds across my IRA, Roth, and taxable.

If you're invested in mutual funds and have a 50/50 AA, you're more diversified than I am.  And I've been FIREd for about three years now.

My passive income includes dividends from my stock mutual fund in my taxable account, but it's not really that much because most of my FIRE stash is inside my IRAs where the dividends reinvest.  I don't own rental properties or dividend paying stocks individually.  I once heard that rental properties are like "a lightly taxed second job" - no thanks!  And as for dividend paying stocks, I agree with @ixtap.  Your friend needs to understand dividends and the notion of total return.

I do have a side gig, but that was unexpected, unplanned, and unnecessary.

I'm at a 1.86% gross WR currently, and about a 0.41% net WR after accounting for side gigs and other odd bits of income that aren't related to my portfolio (what I call NPI - non portfolio income).
My dividends just get reinvested too but now that much of the clown cash was used to buy a house I'll start tapping a bit. Then I will actually start having to pay taxes again. Or not if I start with Roths and leave the government 457 for latter. As you can tell I do more of the bucket thing then follow the 4% rule.

@JoJo I know you have quite a large stash and fairly low expenses so I think you'll be fine whatever you do. But since you've already downshifted and are able to take very large blocks of time off work to do your awesome trips (check out her journal and blog!) do you need to fully FIRE yet when it seems you aren't quit emotionally ready to pull the plug? While I personally tried the CoastFIRE or FIREbattical route (one reason I had so much cash) with a couple of multi-year long work breaks, I found after my second one I just didn't want to go back to work again. I was lean FIRE but downsizing my house put a lot of extra money (to burn in FIRE ;-)) in my pocket. But unlike you my job didn't allow for part time or seasonal otherwise I may have stayed.
« Last Edit: February 11, 2020, 10:59:31 AM by spartana »

JoJo

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Re: Any ER'ees have no passive income, living off savings
« Reply #23 on: February 11, 2020, 11:25:01 AM »
@spartana

I have had a huge revelation over the last couple weeks, and especially this last weekend and truly think I am ready.  Sure, losing the paid health insurance will be bad, but I know there are alternatives.  I've been lucky and have had a healthy life (despite obesity) but now I need to deal with the obesity and I think not working and reducing that stress will greatly help.    There's some BS going on at work that's only getting worse and I just got all my medical tests back and clean bill of health (except the weight which I know I need to work on) so everything is aligning to make 2020 my year. 

I changed my 401k deductions today so I can get my full 19,500 in before my end date. 

Thanks all for convincing me that passive income isn't a necessity.  I do expect around $2500 in frozen pension benefits and SS once 65 rolls around so I'm not 100% relying on the savings. 

Malcat

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Re: Any ER'ees have no passive income, living off savings
« Reply #24 on: February 11, 2020, 12:14:22 PM »
The person with advice is 10 years older than me and has double my stash and is probably going to die with over $10M in the bank.  He cites something bad like 2008 happening or worse but I have no real estate exposure, i'm mobile to live in a cheaper country.  And if the market gets f'ed and the dollar gets way, way devalued, the relatively extra $ from additional work is a drop in the bucket (annual take home pay now about 5% of my stash).

To be fair, having a lot of money doesn't in any way make someone an expert in terms of personal finance.

I have very little money compared to the colleagues whom I am paid to give financial advice to. The wealthiest person I advise is probably the most clueless with money. He's AMAZING at making it, and he's very good at spending much less than he makes, but his actually knowledge of personal finance kind of ends there, and he's very prone to absolute thinking and financial platitudes like "the only way to preserve wealth is to own land" and other nonsense like that that his father instilled in him.

spartana

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Re: Any ER'ees have no passive income, living off savings
« Reply #25 on: February 11, 2020, 12:57:00 PM »
@spartana

I have had a huge revelation over the last couple weeks, and especially this last weekend and truly think I am ready.  Sure, losing the paid health insurance will be bad, but I know there are alternatives.  I've been lucky and have had a healthy life (despite obesity) but now I need to deal with the obesity and I think not working and reducing that stress will greatly help.    There's some BS going on at work that's only getting worse and I just got all my medical tests back and clean bill of health (except the weight which I know I need to work on) so everything is aligning to make 2020 my year. 

I changed my 401k deductions today so I can get my full 19,500 in before my end date. 

Thanks all for convincing me that passive income isn't a necessity.  I do expect around $2500 in frozen pension benefits and SS once 65 rolls around so I'm not 100% relying on the savings.
I get it. Health is definitely a good reason for wanting FIRE asap. While I would never consider you obese, I read your thread about leg pain and know that even dropping a few pounds can make a big difference pain levels and add to a higher quality of life. A lot of people here have been able to increase both their health and fitness levels once FIRE, and their quality of life does seem much better both physically and mentally. Plus your weird desk set up. I never worked in an office setting so not familiar with what is normal, but your set up would probably make me quit asap.

Lucky13

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Re: Any ER'ees have no passive income, living off savings
« Reply #26 on: February 11, 2020, 01:24:57 PM »
I have had a huge revelation over the last couple weeks, and especially this last weekend and truly think I am ready.
wow that's great!  :D

American GenX

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Re: Any ER'ees have no passive income, living off savings
« Reply #27 on: February 11, 2020, 04:40:59 PM »

No passive income from a pension for me (ever) and no SS for about 15 years, so early retirement will all be from my stash.  No windfalls or inheritances are expected in my future, either.  But 4% of the stash will get me by yearly just fine including a nice amount for discretionary spending.

ender

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Re: Any ER'ees have no passive income, living off savings
« Reply #28 on: February 11, 2020, 06:20:19 PM »
It's also hard for super saver folks to start spending down too.

TomTX

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Re: Any ER'ees have no passive income, living off savings
« Reply #29 on: February 12, 2020, 07:17:29 AM »
We have been living off savings for four years and will likely continue to do so for another 8-10. Retirement stash is robust and will continue to grow in the meantime. A market crash would allow us to shift some of the cash stash into investments if it made sense. I have no worries about running out of money. It feels good.

Four years with a big chunk of cash out of the market? VTI is up ~80% in the past 4 years, not counting dividends - and dividends would roughly equal your return on "savings" in the same timeperiod.

EricEng

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Re: Any ER'ees have no passive income, living off savings
« Reply #30 on: February 13, 2020, 02:12:24 PM »
Passive income via stock dividends is pointless.  If it wasn't you could make a fortune buying and selling dividend stocks the day before and after dividend payment.  Stock drops in value after dividend payment proportional to payout.
https://www.bogleheads.org/forum/viewtopic.php?t=192540

Having stocks that pay 2% dividend annual is no different than selling 2% of your portfolio every year except dividends leave you no flexibility.  If you don't want the income, tough.

FIRE 20/20

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Re: Any ER'ees have no passive income, living off savings
« Reply #31 on: February 13, 2020, 04:43:53 PM »
You've already received good advice, particularly about listening to that friend when there are many people who are probably much more knowledgeable available.  I'll just add that I FIREd about 9 months ago and I have zero income other than investment returns.  I will get a pension in about 12-22 years, and will start SS somewhere around 20-30 years. 
I initially planned to start a consulting company as a backup plan and to keep my professional certifications active, but within 2 months of FIRE I abandoned that plan.  FIRE was much better than I expected, and my OMY plus market returns dropped me to just under a 3% withdrawal rate. 


bmjohnson35

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Re: Any ER'ees have no passive income, living off savings
« Reply #32 on: February 13, 2020, 07:31:03 PM »

Retiring end of the month.  I purposely waited until then, so I could obtain as much income within the limits of Obamacare.  In 2020, we will use the combination of income from 1st 2 months, and dividends/interest from mutual funds and money already in checking accts.  We won't have any traditional income in 2021.  We have our investments 80% stock index funds and 20% index funds.  We also have enough in a traditional savings account to pay annual expenses for 3 years.  In 2022, spouse will start receiving SS. In 2025, I will be able to start collecting pension. In 2032, I can start collecting SS.

Sit down and create a spreadsheet and lay out your personal situation. Play with the numbers and variables to see if you think you have your bases covered.  Throw in some curve balls (market crash, unexpected expenses, etc.).

There is no one-size fits all.  You can always go back to work, if absolutely necessary.

Good Luck,
BJ
 

PhysicianOnFIRE

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Re: Any ER'ees have no passive income, living off savings
« Reply #33 on: February 17, 2020, 07:52:33 AM »
It's almost impossible not to have at least some passive income unless you're 100% invested in companies like Berkshire Hathaway and certain growth stocks that throw off no dividends.

But you don't need any passive income to retire off of your nest egg. Total return of your investments is what matters, and dividends are a part of that, as is capital appreciation.


EscapeVelocity2020

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Re: Any ER'ees have no passive income, living off savings
« Reply #34 on: February 17, 2020, 08:14:35 AM »
It's almost impossible not to have at least some passive income unless you're 100% invested in companies like Berkshire Hathaway and certain growth stocks that throw off no dividends.

But you don't need any passive income to retire off of your nest egg. Total return of your investments is what matters, and dividends are a part of that, as is capital appreciation.

Good points.  It’s also impressive how much ‘passive’ income some ER’s generate.  That signature line PoF, now that is impressive!

bluebelle

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Re: Any ER'ees have no passive income, living off savings
« Reply #35 on: February 18, 2020, 09:54:58 AM »
for those of you that do not have a lot of passive income, how do you draw down your savings?  Monthly, quarterly, semi-annually, yearly?   Also, how do you decide which account/fund to draw down?   

Do you re-balance every time you draw down?

Are your draws automatic?   I think I need to automate mine somewhat....I've been a saver all my life, and the draw down period freaks me out.....I'm concerned I'd stress and dither about when to sell if I don't automate it....with the proviso that if there were a big correction, I'd halt the automatic sells for a period.  I plan to have 1-2 years of expenses in a high-interest savings account, so we can draw on that during down market periods....that and ratchet down the spending - we have lots of fluff in our FIRE budget.

Acastus

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Re: Any ER'ees have no passive income, living off savings
« Reply #36 on: February 20, 2020, 12:41:00 PM »
As long as you spend less than you make with your retireme t portfolio, it should not matter if you are spending dividends or principle. If your total return was 8%, spend 4% by whatever means are needed. The overall effect is the same as spending only high dividend company dividends. Spending a portion of total return should also be lower risk. Why do some companies have high dividends? Because they are risky. Otherwise, investors would bid up the price of the stock until the dividend was similar to an average company.

What retirees need is a system for cashing in shares in a dispassionate way. I have not made a final decision for how to do this. I read some McClung, and I like his stock harvesting after 20% real return method. His review showed it may only be marginally better than other methods. I also think the US will behave more like Europe in the future and have somewhat lower returns. At the moment, I am primarily spending taxable savings so I can maximize Rith conversion without losing ACA subsidies. That works for about 5 years, then I need a permanent system.
« Last Edit: February 20, 2020, 01:45:20 PM by Acastus »

Telecaster

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Re: Any ER'ees have no passive income, living off savings
« Reply #37 on: February 20, 2020, 01:24:44 PM »
Also: Dividends: Sure, again, the appeal: "Don't eat your seed corn." Makes sense. But for 20 years I've seen people argue this, and their favorite examples do not last: GE stock, TIPS and iBonds at 4%. They act like they are eternal, but they are most certainly NOT. Sure, maybe the U.S. stock market growth isn't eternal, either, but it has a much better reliable aggregate history than dividend producers.

Also: real estate: I've never understood why this is considered "passive", but I seem to be in the minority. (To me it seems like a job with unpredictable hours and being on call 24/7, or else hiring all that out which is managing contractors, vendors, or employees.) And it has its ups and downs, too. And it is not near as liquid as stocks or fixed income. It also requires a skill set that I don't have, and I don't gather you have.

Good list. 

The whole notion of "passive income" is an illusion anyway.  There are two ways to make money:  Do stuff or own stuff.   Owing real estate can generate money, but it does it in the same way owning stocks does.  You are the owner, and you get the profits.   One advantage of owning real estate is that the returns are fairly predictable.   That's surely a good thing, but I wouldn't say it is a requirement.   There are disadvantages that come along with it too.  Does the good outweigh the bad?  I dunno, maybe.  (I own investment real estate, FWIW).

A few years ago the stock market was in the doldrums and dividend strategies were all the rage, so I took a deep look into them.   I concluded dividend strategies are basically an illusion too.  I get it. You get a check you can hold in your hands and spend however you like.    The CEO can't do something dumb with the money. etc.  But once you select good quality companies and diversity enough for safety, you barely get more dividends than the broader market pays anyway.   And of course, it is a taxable event of someone else's choice of size and timing. Why bother?

@JoJo  2% WR?  You're gold. 

American GenX

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Re: Any ER'ees have no passive income, living off savings
« Reply #38 on: February 20, 2020, 04:15:43 PM »
It's also hard for super saver folks to start spending down too.

That sounds like it could be me.  My savings rate has been very high over the last few years, very little discretionary spending - like $1000 or so per year, and about $25 so far this year.  But my FIRE calculations show that I should be able to spend close to $50,000 per year on discretionary if I was to FIRE in 2021.  That's as a single person, and that would be 50X my discretionary spending rate of recent years!  It's hard to imagine actually making that type of a jump in my discretionary spending.

Omy

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Re: Any ER'ees have no passive income, living off savings
« Reply #39 on: February 21, 2020, 06:49:08 AM »
Just do it...you will be fine, Jojo!

We have rental properties that throw us $50k/yr and dividends that throw another $15k/yr. So that gives us the illusion that we should be fine indefinitely. However, we could be making much more in the stock market if we didn't own real estate...and it would save us the hassle of managing our rental properties. It's usually not a lot of work...but on occasion it's all consuming. Don't be us if you want a care free retirement!

BTDretire

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Re: Any ER'ees have no passive income, living off savings
« Reply #40 on: February 22, 2020, 07:36:52 AM »
  I have no passive income except for what VTSAX throws of in dividends and LTCGs.
 
We started retirement with a taxable account that has 8 to 10 years of expenses.
Half of if are LTCGs, I expect to live on withdrawals from that account and only withdraw LTCGs up to $78,750 and stay in the 0% tax bracket. A couple more years of tuition payments and we won't even need $78,750 for expenses.
 I haven't figured out how low I will draw down that account, but I''ll be on SS before it is to low.

TomTX

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Re: Any ER'ees have no passive income, living off savings
« Reply #41 on: February 22, 2020, 04:52:56 PM »
  I have no passive income except for what VTSAX throws of in dividends and LTCGs.
 
We started retirement with a taxable account that has 8 to 10 years of expenses.
Half of if are LTCGs, I expect to live on withdrawals from that account and only withdraw LTCGs up to $78,750 and stay in the 0% tax bracket. A couple more years of tuition payments and we won't even need $78,750 for expenses.
 I haven't figured out how low I will draw down that account, but I''ll be on SS before it is to low.

Well, be sure to sell enough stocks to keep getting that $0 tax rate. If you don't need to spend, just re-buy at the higher basis ("wash sale" only applies to losses is my understanding)

Also, don't forget the standard deduction of $24,800.

BTDretire

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Re: Any ER'ees have no passive income, living off savings
« Reply #42 on: February 25, 2020, 07:22:24 AM »
  I have no passive income except for what VTSAX throws of in dividends and LTCGs.
 
We started retirement with a taxable account that has 8 to 10 years of expenses.
Half of if are LTCGs, I expect to live on withdrawals from that account and only withdraw LTCGs up to $78,750 and stay in the 0% tax bracket. A couple more years of tuition payments and we won't even need $78,750 for expenses.
 I haven't figured out how low I will draw down that account, but I''ll be on SS before it is to low.

Well, be sure to sell enough stocks to keep getting that $0 tax rate. If you don't need to spend, just re-buy at the higher basis ("wash sale" only applies to losses is my understanding)

Also, don't forget the standard deduction of $24,800.
Ya, I had the VTSAX dividends and some other, 'this year only income' to fill the $24,800 standard deduction. This is the year I get a good handle on both my taxes and my spend rate. (first full year of retirement)

Chris Pascale

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Re: Any ER'ees have no passive income, living off savings
« Reply #43 on: February 26, 2020, 06:54:27 PM »
I think that Kristy and Bryce (Millennial Revolution) have no passive income. They have written 2 books - one for kids, one for FIRE ppl - but it's a rare thing that you sell books without any work put forth, like interviews, blogging, etc.

EscapeVelocity2020

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Re: Any ER'ees have no passive income, living off savings
« Reply #44 on: February 26, 2020, 11:00:32 PM »
I think that Kristy and Bryce (Millennial Revolution) have no passive income. They have written 2 books - one for kids, one for FIRE ppl - but it's a rare thing that you sell books without any work put forth, like interviews, blogging, etc.

Apparently this was a really confusing question - Any ER'ees have no passive income, living off savings.  I'm willing to bet all my life savings that Kristy and Bryce have both passive income - their yield shield on retirement funds - as well as active income from books and blogging (a.k.a. having income).  So they are literally the least applicable answer to the OP's question.

Chris Pascale

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Re: Any ER'ees have no passive income, living off savings
« Reply #45 on: February 27, 2020, 03:16:43 AM »
I think that Kristy and Bryce (Millennial Revolution) have no passive income. They have written 2 books - one for kids, one for FIRE ppl - but it's a rare thing that you sell books without any work put forth, like interviews, blogging, etc.

Apparently this was a really confusing question - Any ER'ees have no passive income, living off savings.  I'm willing to bet all my life savings that Kristy and Bryce have both passive income - their yield shield on retirement funds - as well as active income from books and blogging (a.k.a. having income).  So they are literally the least applicable answer to the OP's question.

You're right about the dividends and interest. But who wouldn't have at least the latter? Scrolling up, this point was made a few comments back.

Edited to Add: While Bryce and Kristy could make money with their website and book, it's perfectly reasonable they might operate at a loss.

Regarding only using a pot of money, as the question asks, you'd probably expend more effort to not make money with your money than to do so.
« Last Edit: February 27, 2020, 05:22:30 PM by Chris Pascale »