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beachbumz
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PostPosted: Thu Mar 03, 2005 12:48 pm    Post subject: Is Hocus FIREd? Reply with quote

I posted this over at Intercst's board in response to a post Intercst put up about Hocus' retirement in the section titled "Land of the Busted Retirements". I'm sure I will catch some grief over it over there (maybe here to Smile), but after all the talk about it, I was curious and wanted to run the numbers for myself and this is what I concluded:

Hello All!

I've been thinking about this one for a couple of days now (yeah, I know, I need to get a life). But since this is posted in the "land of busted retirements" and not "hoco-mania", I figured I'd post my thoughts on it.

I do not believe that Hocus' plan is qualified as a "busted retirement" as least not just yet. Having said that, it's not a plan I would have ever chosen, but I can say the same thing about the plans of some other board members as well (and vice versa I'm sure). I believe he is quite a bit better off than most his age, but he is definately not the poster child for the 'model' early retirement plan (if there is one).

I believe that Hocus IS FIREd at least for now and possible indefinately (but not with his current portfolio). My definition of financial independence is the ability to live off your passive investments without the need for any kind of job or employement. I also think there are many 'retirees' that work part time because they want something to do or they are doing something that is fun to them and maybe getting paid. If they can quit anytime they want, without affected their FI, I still say they are 'retired'. (Of course, there are plenty of so called retirees over 65 that are working because they are not financially independent.)

My reasoning that he may be ok is based on social security being there in basically it's current form for him. (I'm pretty sure it will not be for me, but it possibly will be for him).

The numbers I used to analyze his situation are:
Budget of $38,000 per year
Portfolio of $400,000
House equity $300,000
SS in 14 yrs of $14,400
Additional spouse SS in 16 yrs of $8000

Also, I assumed that in year 16, that his expenses would drop by $8,000 (due to children being 18 and assuming they are then on their own...a big assumption I know). It's just an estimate, who knows...

Further, I assumed that Hocus could keep his personal inflation rate to 2.5% or below. I know this doesn't appear to be the case over the last 5 years, but I hope it's because of the children.

I assumed a rate of return of 7.5% (5% real) for the portfolio and a 4.5% (2% real) return for the house.

I based my numbers on him selling the big house when the children reach 18 (or so) and having an additional 200K (in today's dollars) to invest, after purchasing a down-sized house.

I think that is about it.

Based on these numbers, firecalc gave Hocus about a 70% chance of success. While that's not a number I would chance things with, the odds are in his favor. Also, I think some of raddr's analysis, shows that withdrawal rates could possibly be higher with the right portfolio allocation (I assume this would yield a higher success rate over firecalc )

So, basically, I believe Hocus, or a family in this situation, WITH the right portfolio has at least a moderate chance of success. I know that Hocus wants to make money writing (I also know that hasn't materialized yet) and, I guess, is willing to 'flip burgers' if that doesn't work out. I just wanted to look at this from the standpoint of what advice would I give someone who found themselves in this situation.

If I made a mistake in my analysis, please let me know (just try to do it as if it's not hocus we are talking about )

CBB

Beachbumz Cool



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hocus2004
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PostPosted: Thu Mar 03, 2005 1:16 pm    Post subject: Reply with quote

I published the "Secrets of Retiring Early" report in late June 2000. Intercst gave it a five-star review. He said that if I ever got around to writing a book, he was confident that it would become "the bible of the Retire Early movement." There was a notice near the top of the FAQ statement at the Motley Fool board advising newcomers to "read every post by hocus, his are all at the top of the most-recommended list. There was universal acclaim at the Motley Fool board for my FIRE plan.

I posted the "Price-Adjusted SWRs?" post on May 13, 2002. JWR1945 checked into my claims and found that the historical data backs them up all down the line. I discovered that William Bernstein agrees with me that the methodology used in the REHP study is "highly misleading," that changes in valuation levels affect long-term returns as a matter of "mathematical certitude," and that intercst had the SWR number wrong by a full two percentage points at the top of the recent bubble in stock prices. Intercst now says that he has no plans even to read my book but that he instead plans to organize a group to post smear reviews of my book at Amazon.com There is now universal disdain at the Motley Fool for my FIRE plan.

It's the same plan.


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beachbumz
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PostPosted: Thu Mar 03, 2005 1:28 pm    Post subject: Reply with quote

OK, but I don't see how that relates to my analysis.

Beachbumz Cool



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arrete
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PostPosted: Thu Mar 03, 2005 1:36 pm    Post subject: Reply with quote

Quote:
My definition of financial independence is the ability to live off your passive investments without the need for any kind of job or employement.

I agree
Quote:
I also think there are many 'retirees' that work part time because they want something to do or they are doing something that is fun to them and maybe getting paid. If they can quit anytime they want, without affected their FI, I still say they are 'retired'.

My husband will like that. Smile I think he's working, he thinks he's retired. He is FI and doing it for fun part-time, so I guess he's right. Laughing

FI, and staying that way is key. One caveat I have is that you shouldn't include the entire value of a home in the part of the assets that can be drawn for living expenses. After all, one must live somewhere.

arrete


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beachbumz
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PostPosted: Thu Mar 03, 2005 1:54 pm    Post subject: Reply with quote

Hi Arrete!
Quote:
My husband will like that. Smile I think he's working, he thinks he's retired. He is FI and doing it for fun part-time, so I guess he's right. Laughing


If he 'says' it's fun, then I guess that's true (at least the way I see it) Very Happy
I (fortunately) haven't run into anything like that!
Quote:
FI, and staying that way is key. One caveat I have is that you shouldn't include the entire value of a home in the part of the assets that can be drawn for living expenses. After all, one must live somewhere.


I couldn't agree more. That's why, in my analysis, I used a $200,000 figure. Hocus says his house is worth $300,000. My assumption was that he could sell and downsize into a $100,000 house/condo, in today's dollars (perhaps in a different location). I only included that value in Firecalc after the 16 years.

Beachbumz Cool



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hocus2004
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PostPosted: Thu Mar 03, 2005 2:24 pm    Post subject: Reply with quote

OK, but I don't see how that relates to my analysis.

I believe that your analysis was well-intentioned. I also believe that it is a diversion from issues that matter a whole lot more and that people are finding it hard to struggle with.

Whether my plan works or not is a big deal to my immediate family and perhaps to a few close personal friends, It should not be much of a big deal to anyone else.

All others take whatever ideas I put on the table that are useful to them and make use of them, and ignore any ideas I put on the table that are not of use to them. That's what they do with all other posters too, of course.

Intercst has for several years now been promoting discussion of all sorts of nonsense diversions because he does not want the community to examine the two issues it needs to examine--whether he got the number wrong in the REHP study and whether he engaged in deliberate deception to cover up the error. The issue you are analyzing would not even be on the table if there were not a good number of community members who are both greatly concerned about those two issues and greatly reluctant to engage in a direct and clear examination of them.

Sooner or later, we will talk straight. There is no other way over to the other side.


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beachbumz
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PostPosted: Thu Mar 03, 2005 3:13 pm    Post subject: Reply with quote

[quote="hocus2004"]OK, but I don't see how that relates to my analysis.
Quote:
I also believe that it is a diversion from issues that matter a whole lot more and that people are finding it hard to struggle with.


I don't doubt it! Sad

"people"=Hocus Question

Beachbumz Rolling Eyes



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arrete
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PostPosted: Thu Mar 03, 2005 3:58 pm    Post subject: Reply with quote

BB - thanks for setting me straight about the housing, but I do think it is chancy if you are reduced to including your housing into your SWR. Normally that isn't done unless you are in an odd position such as living on a double lot where you can sell part, or the like. There are other costs that are quite variable (upward, unfortunately) like healthcare costs. Our policy (for the 2 of us) is over $12,000, and it isn't all that fancy. And that doesn't include deductible or co-pays. If it were for 4, it would be even more - quite a chunk out of $38,000.

I actually don't find consideration of the structure of a portolio a diversion at all. If part of the portfolio requires an asset that can't be touched for a long period of time, then it really shouldn't be considered for near term expenses.

Maybe a better way to look at the problem is to divide it into 2 parts. The 16-18 years until house assets are added and then the correct number of years after the housing is added (and SS). I'm not sure that would help the withdrawal rate, but it would get around the problem of an asset that isn't exactly liquid.

Other possible portfolio problems that raise the SWR is a large percentage of 1 stock or a large percentage of fixed assets. You aren't likely to get a real rate of 5% on fixed assets. My husband and I actually have the first problem, but the stock is very solid, so we aren't too worried about it.

Maybe that'll give BB some ideas for new number runs. Don't want him to run out of things to do. Laughing

arrete


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beachbumz
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PostPosted: Thu Mar 03, 2005 4:19 pm    Post subject: Reply with quote

Hi Arrete!
arrete wrote:
BB - thanks for setting me straight about the housing, but I do think it is chancy if you are reduced to including your housing into your SWR. Normally that isn't done unless you are in an odd position such as living on a double lot where you can sell part, or the like. There are other costs that are quite variable (upward, unfortunately) like healthcare costs. Our policy (for the 2 of us) is over $12,000, and it isn't all that fancy. And that doesn't include deductible or co-pays. If it were for 4, it would be even more - quite a chunk out of $38,000.


Yeah, I think Health insurance is, by far, the real wild card here. My personal situation is much stronger, but I still worry about that. (and, WOW, yours is steep Shocked)
Quote:
I actually don't find consideration of the structure of a portolio a diversion at all. If part of the portfolio requires an asset that can't be touched for a long period of time, then it really shouldn't be considered for near term expenses.

Maybe a better way to look at the problem is to divide it into 2 parts. The 16-18 years until house assets are added and then the correct number of years after the housing is added (and SS). I'm not sure that would help the withdrawal rate, but it would get around the problem of an asset that isn't exactly liquid.


Arrete, this is exactly what I did. I didn't include anything about the house until the 16th year, and then I "sold" only the $200K (actually it would be sell 300K and spend 100K on new house...in todays dollars). This added the 200K adjusted for inflation to the portfolio in year 16, which is the only way the case has any chance for success (again, remaining FIREd) as the initial 400K would be pretty much depleted. At least, this was my intent, I hope I did it right. Embarassed
Quote:
Maybe that'll give BB some ideas for new number runs. Don't want him to run out of things to do. Laughing


Thanks for lookin' out for me, I'm always looking for more work! Laughing

Beachbumz Cool

arrete[/quote]



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arrete
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PostPosted: Thu Mar 03, 2005 4:30 pm    Post subject: Reply with quote

Oops. Sometimes I don't read so good.

This particular scenario I see as more of a sabbatical/downshifting kind of thing. In the back of your mind, you would always have to worry about employability, and that doesn't seem like a comfortable retirement to me. I like a little more padding. I actually worked a couple of extra years to get that padding.

I am a real advocate of running the numbers and seeing how sensitive various changes are. If you are really snazzy, you can attach various risks/volatilities to different assets.

arrete


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hocus2004
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PostPosted: Thu Mar 03, 2005 4:33 pm    Post subject: Reply with quote

"people"=Hocus

Yes and no, Beachbumz.

I am the one saying that we should take the issue head on, deal with it in a frank and realistic way. Most others are not comfortable with that. To that extent what you are saying is so.

But I am not the one who keeps this issue alive. I don't come to the boards everyday and put up new intercst threads. Very rarely do I do that. Over 95 percent of my posts dealing with the intercst matter have been responses to other people's posts. I don't push this stuff on people in inappropriate ways.

People want resolution to the issue. There is an intense, intense, intense desire for that. People are flailing around trying to come up with a way to resolve it that doesn't involve the solution that I have proposed. It is that desire on he part of others that generates all the threads re this matter. It's just absurd to think that one poster could keep something like this going for 33 months if all others had no interest in the subject.

The stumbling block is that people don't want to travel down the road of straight talk because it's not very hard to see where it leads and they don't want to go there. My question is--What choice do we have?

Yes, we can keep our heads buried in the sand for another 33 months. That's an option. But then what? That's always the ultimate question and no one has put forward a realistic alternative to the proposal that I have put forward.

I don't get to decide the timing. But you need to put forward an alternative if you really want things to go another way. No one has even tried to do so. That's why I have lost confidence in recent months that there is any alternative anymore.


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beachbumz
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PostPosted: Thu Mar 03, 2005 4:49 pm    Post subject: Reply with quote

arrete wrote:
Oops. Sometimes I don't read so good.

This particular scenario I see as more of a sabbatical/downshifting kind of thing. In the back of your mind, you would always have to worry about employability, and that doesn't seem like a comfortable retirement to me. I like a little more padding. I actually worked a couple of extra years to get that padding.

I am a real advocate of running the numbers and seeing how sensitive various changes are. If you are really snazzy, you can attach various risks/volatilities to different assets.

arrete


No problem, I was probably not very clear anyway.

That's a pretty good way to look at it Arrete. I know that Hocus has said that he never intended to 'retire' in the sense that most of us take it, so he plans on making money some how (whether writing, flipping burgers or whatever).

The little extra padding is a must for me too, because I don't want to go back to work. If I end of having to, due to unforseen circumstance, oh well, it was fun. Very Happy

I basically was trying to answer the question, "are these people FIREd", which hinges basically on "are they financially independent". I think the answer is that they are, if only marginally, and have a moderate chance of continuing that way. But, my answer is contingent on two big factors, what is going to happen to Social Security and health insurance/care. Hey, I was bored... Laughing

Beachbumz Cool



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hocus2004
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PostPosted: Thu Mar 03, 2005 4:59 pm    Post subject: Reply with quote

I basically was trying to answer the question, "are these people FIREd", which hinges basically on "are they financially independent". I think the answer is that they are, if only marginally, and have a moderate chance of continuing that way.

There's a section of my book in which I deal with this question, Beachbumz.

My view is that there is no such thing as being FIRE'd in a final sense. Financial independence is something that you achive gradually over the course of time. If you save one dollar, you are a tiny, tiny bit more financially independent than you were before you possessed that dollar. If you save 10 billion dollars, you do not yet possess every last dollar that you could find some possible positive use for, so you are not even then completely independent of money concerns.

The way that I usually describe my current circumstances is that I am "retired" from the need to engage in corporate employment to cover my costs of living. I am "retired" from the aspect of the work experience that I want to be retired from but not from those aspects that I do not want to be retired from. My hope is to remain involved in the aspects of the work experience that I do not want to be retired from even past age 65.


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PostPosted: Thu Mar 03, 2005 5:32 pm    Post subject: Reply with quote

beachbumz wrote:
...
My reasoning that he may be ok is based on social security being there in basically it's current form for him. (I'm pretty sure it will not be for me, but it possibly will be for him).

The numbers I used to analyze his situation are:
Budget of $38,000 per year
Portfolio of $400,000
House equity $300,000
SS in 14 yrs of $14,400
Additional spouse SS in 16 yrs of $8000
...
I assumed a rate of return of 7.5% (5% real) for the portfolio and a 4.5% (2% real) return for the house.

I based my numbers on him selling the big house when the children reach 18 (or so) and having an additional 200K (in today's dollars) to invest, after purchasing a down-sized house.

I think that is about it.

Based on these numbers, firecalc gave Hocus about a 70% chance of success. While that's not a number I would chance things with, the odds are in his favor....

If I made a mistake in my analysis, please let me know (just try to do it as if it's not hocus we are talking about )

CBB

Beachbumz Cool

Your analysis is interesting. It validates Hocus's approach while pointing out a weakness in FIRECalc and other historical sequence calculators. I will work from your numbers.

First, Hocus has planned all along to provide a separate income stream of $10000 per year.

His current income need is $28000 per year.

You identify Social Security income in 15 years in the neighborhood of $22400 per year. This identifies the critical planning period as being 15 years.

TIPS at 3.5% interest have a truly-safe safe withdrawal rate of 8.7% over 15 years. If we allow spending $200K of TIPS in 15 years, the income produced is $17400 per year.

If we require the remaining $200K of TIPS to maintain their principal, they throw off $7000 per year.

This means that Hocus is assured of $24400 per year ($17400+$7000) until Social Security ($22400 per year) kicks in. The current equity in his house would replace the $200K in TIPS that he would have used up. If it appreciates, so much the better.

This means that Hocus has at least $400K after 15 years. Hocus should be able to take advantage of favorable conditions (e.g., stocks with a Safe Withdrawal Rate of 4% or more over a period of 30-35 years) some time within the next 15 years. If 4%, the income stream would be $16000. Add $22400 of Social Security income and you get $38400 per year after 15 years.

The numbers work. The single deficit is $3600 per year during the next 15 years. House appreciation should cover that. (Applying 2% to the $200K equity yields $4000 per year).

Why doesn't FIRECalc produce the right number? First, our calculators do a poor job with non-stock investments. They don't know how to handle TIPS correctly. Second, it is blind to the fact that stocks are attractively priced at times and poorly priced at times.

Have fun.

John R.


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beachbumz
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PostPosted: Thu Mar 03, 2005 6:50 pm    Post subject: Reply with quote

Hi JWR1945!

Interesting! I will review your post in detail when I can, but initially I do have a bit of a problem with the following comment:
Quote:
First, Hocus has planned all along to provide a separate income stream of $10000 per year.

His current income need is $28000 per year.


I would say that Hocus has a current income need of $38,000 per year and is planning on generating a separate income stream of $10,000 per year. But, honestly, I've never had a lot of luck spending "planned" income. Very Happy I hope Hocus is successful in doing this, but he has not to date. Also, remember the point of my post, which was to determine if he is financially independent according to my definition, which means only income and principal from investments, no outside income.

Beachbumz Cool



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PostPosted: Fri Mar 04, 2005 2:45 am    Post subject: Reply with quote

I hope Hocus is successful in doing this, but he has not to date.

There is real risk here. Dealing with the risk factor was the entire point of me putting together a Passion Saving plan. If there had been no risk, I would have just handed in my resignation without saving a dime.

I considered that. I looked at the possibility, saw too much risk in it, and decided to do it this other way instead. The sort of risk analysis that you are doing here is something that I began working on in late 1991.

I have been earning a living with my writing for 23 years now. My earlier jobs were corporate jobs, not self-employment. But I was successful in all of them. I received lots of pay raises and promotions. How many writer do you know who are paid $125,000 a year? I even initiated new features and got some new products launched. So I have a little bit of entrepreneurial experience. I have several years of management experience.

The four years prior to those 23 years I was in law school (I have a regular law degree plus a Masters in Tax Law, which takes an extra year). I like to think that those 27 years count for something, that the odds for me are not the same as they are for the 21-year old who says "I think I'd like to be a freelance writer."

I've also devoted 13 years worth of nights and weekends planning the transition. You've heard about the 40 Black Binders. Many of those binders are filled with my analyses of what sort of business to get into and how to make it a success. Figuring all that stuff out is a key component to my plan. I expect the investing book to be my second book. The third book will probably be a book on how to analyze self-employment options and find the one most likely to work for you.

The "Passion Saving" book has several sections that discuss my plan to start a tax newsletter. That was the plan until I started posting at the Motley Fool board. It was the reaction that my stuff got at the Motley Fool board that persuaded me to go this route instead.

I think it is fair to say that the reaction my stuff got at the Motley Fool board was nothing short of phenomenal. The Motley Fool board was a small board until I started writing regularly for it. After I started, it quickly became the second most popular board in the history of the site. The site owner devoted an entire column to singing the praises of my stuff. He said that all high school students should be required to read my stuff before they are permitted to graduate. I sold 5,000 copies of my report in six months and it was only available for sale at a single internet web site. Motley Fool changed the marketing focus for their retirement seminar after seeing the reaction to publication of my report--It was going to be just a regular retirment seminar, but then they changed it to a "Retire Early" seminar and asked me to serve as an instructor so that they could include my name in the ads for the seminar.

It could be that none of that means much. The field I am getting into is one of the most competitive there is. So there is indeed risk in expecting too much too soon. That's why I used such a low number as my number for expected earnings from the writing business. I used the mimumum wage number. I reasoned that, if I can't earn the minimum wage working for myself, I ought to make other plans.

And of course I will. If I can't bring in mimumum wage, I'll make other plans. I am a healthy 48. There must be something I can do that will bring in minimum wage. I've got binders and binders full of ideas. If the writing thing doesn't pay, perhaps one of those other options will work out better. Who knows where I am going to end up? I'll know for sure whether I have what it takes to make it as a freelance writer, that's for sure. One way or another, I'm going to know for sure. That itself is a good thing.

I might get hit by a truck tomorrow, BeachBumz. So might you. The entire Planet Earth might get blown to bits by some nutcase. There's risk in getting out of bed in the morning. The purpose of the work I did on my plan was not to eliminate risk. Hold it to that standard and it fails. But that was never the idea. The idea was to calculate risk and to mitigate it. That I think I did to at least a reasonable degree. I think I did the thing I tried to do.

None of that should matter all that much re the question that we are really trying to struggle with here. I put those words forward to respond to your particular question, but I don't think it matters. What matters is this. Whether my approach works or not, there are a heck of a lot of people in our community who want to know more about it. That's an established fact. These people said so in posts that reside in the Post Archvies of the various boards.

Both my saving stuff and my investing stuff generated tons of positive feedback. One of the comments I heard regularly goes right to the heart of the questiion you are asking--Is this financial independence? One of the comments I heard all the time was: "What I really like about this approach is that it doesn't require me to stop working altogether. I'm intrigued by this Retire Early stuff. But I can't see myself never working again after age 40. So this is really cool that you have come up with a way that you can retire from the stuff you want to retire from but not from the stuff you don't want to retire from."

What matters is whether people are interested in the ideas or not. If they are, they should be permitted to hear them. End of story.

We have experienced a bump in the road. The bump is that one particular community member saw the amazing reaction that my investing stuff generated when it was brought to the table and saw that as some sort of threat to an image he had build up of himself as being the Retire Early Guru of Planet Earth. He is the one who put all these crazy questions on the table. He is the one who would prefer that we waste the rest of our lives discussing nonsense rather than ever return to matters of substance again. He is the Kayak Guy. I am the Retire Early Guy.

He's gonna lose. It may be that I cannot persuade you all to show him the door. But you all are not the only people on Planet Earth who care about the subject of early retirement. There are others. Those others have no previous relationship with the Kayak Guy. They don't think of him as a guru. Why should they? He hasn't put up a signifiant post relating to early retirement in several years now.

These other people are going to ask that honest and informed on-topic debate be permitted. And what is he going to do then? Put up a Kayak post?

And you think you are engaging in an act of kindness towards him? One day in the not too distant future he is going to find that his kayak has sprung a leak. I think that the way you all are doing it is the cruelest possible way to do it. I think you should be ashamed of yourselves. That's my take.


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PostPosted: Fri Mar 04, 2005 4:34 am    Post subject: Reply with quote

Sorry I was unable to read that last post Hocus, it was just toooo long for me. Very Happy

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PostPosted: Fri Mar 04, 2005 5:07 am    Post subject: Reply with quote

PLEASE KEEP IN MIND THAT MY ANALYSIS WAS NOT SO MUCH ABOUT HOCUS AND HIS PLAN, I'M SURE HE WILL BE FINE. IT WAS ABOUT WHETHER I THOUGHT THAT ANY ONE WITH THAT PORTFOLIO WOULD BE CONSIDERED FIRED BY MY DEFINITION (NO INCOME FROM NON-PASSIVE SOURCES).
Quote:

Your analysis is interesting. It validates Hocus's approach while pointing out a weakness in FIRECalc and other historical sequence calculators. I will work from your numbers..


Unfortunately, JWR, you did not work from my numbers, as you added the $10,000 in "planned" income. Also, I think the main weakness to Firecalc here was the user. Embarassed I did not run it using 100% tips. However, I checked it today and it gives a 19.7% success rate.
Quote:
First, Hocus has planned all along to provide a separate income stream of $10000 per year.

His current income need is $28000 per year..


I have already responded to this, but I will mention again, that I believe that Hocus' current income needs are $38,000 (this is based on Hocus saying that his budget is $38,000). If you add the $10,000 in 'planned' income, then the answer to my question "is Hocus FIREd" by my definition, is obviously NO, because based on your figures, he HAS to generate that income.


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You identify Social Security income in 15 years in the neighborhood of $22400 per year. This identifies the critical planning period as being 15 years..


Basically correct. I used $14,400 in year 14 and $8,000 in year 16.
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TIPS at 3.5% interest have a truly-safe safe withdrawal rate of 8.7% over 15 years. If we allow spending $200K of TIPS in 15 years, the income produced is $17400 per year..


I agree with your statement here. Problem is, Hocus (or anyone with this portfolio example) needs $38,000 in income for the first 14 years of analysis. By my calculations, the 200K would be depleted about 4 or 5 months into year 8. The remaining 200K, I believe, would be depleted in year 14. Based on my theory, there would be some problems in years 14 and 15, before the kids are gone and the wife's SS kicks in. A shortfall of maybe $35K or so. Assuming this amount could be borrowed until the house is sold, that would leave $165,000. Which is still not all that far from my numbers. (All that assumes that I calculated the TIPS thing right and I am, by far, NO expert on TIPS.)
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Why doesn't FIRECalc produce the right number? First, our calculators do a poor job with non-stock investments. They don't know how to handle TIPS correctly. Second, it is blind to the fact that stocks are attractively priced at times and poorly priced at times..

Have fun.

John R.


My GUESS here is that, according to Firecalc, the plan would fail in the years after SS and before death (I assumed a 40 year life expectancy) with only a 3.5% real return. I didn't have time to check that calculation because...

I'm off to the beach now!!! I hope everyone has a great weekend! Very Happy

Beachbumz Cool



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ElSupremo
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PostPosted: Fri Mar 04, 2005 6:35 am    Post subject: Reply with quote

Greetings Arrete Smile
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One caveat I have is that you shouldn't include the entire value of a home in the part of the assets that can be drawn for living expenses. After all, one must live somewhere.

I'm to late to second this so I'll third it!



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hocus2004
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PostPosted: Fri Mar 04, 2005 6:50 am    Post subject: Reply with quote

If you add the $10,000 in 'planned' income, then the answer to my question "is Hocus FIREd" by my definition, is obviously NO, because based on your figures, he HAS to generate that income.

You're studying an absurd question, Beachbumz. You are asking "If I change hocus' plan around enough so that it doesn't work anymore, will hocus' plan still work?" Not surprisingly, the answer that you produce with this "analysis" is "Under those circumstances, there's a good chance that it might not."

Your conclusions follow from your premise, but your premise is a deception. Why call the plan you are analyzing "the hocus plan" if the plan you are analyzing calls for $10,000 less in income than the plan that hocus put forward as his plan? Why bother asking me what my plan is if you are not willing to examine the plan that I put forward in my name?

You need a new name for the plan you are "analyzing." And you need to find someone willing to defend that "plan." Until you find someone willing to speak up in defense of the absurd plan you have concocted, my guess is that any discussions of it are not going to be too interesting or too illuminating.

You have in essence subtracted $250,000 from the capital being used to support my plan (using the Mutltiply-by-25 Rule, it takes $250,000 in capital to generate $10,000 of annual income). I don't know the precise numbers for the plan that intercst retired with, but my recollection is that he had something in the neighborhood of $500,000 on his retirement date. Subtract $250,000 from $500,000, and you are left with $250,000. Put that number into FIRECalc for someone who retires at age 40, and see what sort of likelihood-of-success probabaility it spits back at you.


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