Entries Tagged 'Retirement' ↓

Today I read a rather refreshing article called “Casting off life’s cares” on the LA Times. Basically it tells the story of an ordained pastor named Dave Dixon who gave away pretty much all of his possessions and started to live on a boat and sing songs in a restaurant a few hours a week. His expenses are $565 per month, and he says that “time, not money, is the real commodity in life”. He says that his lifestyle is divinely inspired and “sees himself living out God’s message that faith and people, not possessions, are what is of true value.”

Interestingly enough, I wrote about Chinese proverbs today on Wise Bread and this article reflects the first proverb I wrote about, “an inch of time is worth an inch of gold; but it is hard to buy one inch of time with one inch of gold”. Time is definitely more precious than money, and Dave Dixon has that figured out.  Additionally, I think it’s great to see that someone realizes that you really don’t need much to survive in this world.  My friend the Retirement Hobo said that in South East Asia he was able to eat well on $1 a day, and $10000 is a good retirement fund there.  He might be exaggerating a bit, but I really think that if we are able to let go of a lot of luxury that we have we can live well on very little money.

I think it is awesome that this pastor Dixon seems to trust God so much with his lifestyle.  Though, it’s funny that the author of the article describes Dave as “quixotic” multiple times in the article. Obviously, some people might think that Dave is a fool for trusting God with his health and not having health insurance, but  apparently God provided for him when he had a kidney stone.  He may seem like a stupid bum living on a rickety boat, but I know so many people with huge houses that they slave over and complain about.  Can these people with so many more possessions than Dave Dixon say that they are really truly free and happy?  Dave said in the article, “my possessions made me work harder and stole my time”, and I agree with that sentiment.  We all have an extremely ephemeral existence on this earth, and for us to devote so much time and effort to acquire things we can’t bring with us to the next life is quite pointless.

Now, would I sell everything  and go live on a boat?  Probably not because I don’t like boats very much, but I wouldn’t mind living in a faraway city in Asia where rent is less than $100 a month.  I could even have a little piece of land where I can plant some tomatoes, peas, and corn, and raise a few chickens and ducks.  These are all things I had when I was a kid in China, and really that’s all I need to be happy.  It is a dream lifestyle that is so far removed  from my current daily grind in a glass tower, and maybe one day I can convince the hubby to go there.

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Okay, I am not really at the stage where I am liquidating my investments yet, but my parents soon will be. I have also been hanging around the Early Retirement forums quite a bit so I have been thinking about this since I do want to retire early. When you retire, how do you handle liquidating your retirement funds for everyday expenses?

From what I have read, it seems that these early retirees take the following strategies.

1. Let the nest egg grow as long as possible - Most people advocate letting the investments grow as long as possible and spending other income such as pensions, Social Security, or side income.

2. Keep a cash equivalent reserve of 3 to 6 years - Some early retirees say that they have a big cash fund that could last them for a few years. When they use it up, they sell enough investments to last them for another few years and let the rest grow.

3. Withdraw 4% or less of the entire portfolio per year - The 4% withdrawal rule has been discussed extensively all over the forums. Basically the idea is that 4% is a safe withdrawal rate that gives you the greatest chance of your portfolio lasting for your retirement. It is called a “safe” withdrawal rate based on simulations of portfolio withdrawals during different periods of the stock market. A tool the early retirees love is FIRECalc.

4. Be aware of taxes - One suggestion I read is that in years where you expect to spend a lot you should liquidate the tax-free accounts like Roths, but in the years where you don’t spend a lot you should liquidate the taxable accounts because your tax rate would be lower.

There are also many discussions of annuities but most people seem dismissive of these because annuities cost quite a bit. I think for me I would have a hard time switching from a saving mindset to a spending mindset. I would probably worry if I were spending more than my income, but being retired wouldn’t really prevent me from incoming generating activities like blogging so maybe it won’t be so bad. Anyway, one day I will get there, but for now I just like reading other people’s stories.

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My friend the Retirement Hobo sent me this email from Asia and he wanted me to share it with you all. For more of his writing, check out his blog, and this post about a magical mountain. One day soon I will retire. For now, I can only enjoy my friend’s travels vicariously through his writing.

Quick “whats happening” update, then elaborate and pointless commentary in 5…4…3…2…

Since Bali, I’ve been bouncing around from Java to Lombok to Nusa Tenaggra, to Bali, to Java. These are all islands in Indonesia with their own culture and beauty and I was able to do many cool things and meet many cool folks.

Some points of interest include walking through the valley of the shadow of death to stare into a live volcano, surfing the crazy waves of Bali, going mano-a-komodo with a dragon, learning the ropes to breathe underwater and becoming a certified diver then having my first independent dive turn into a search-and-rescue mission. I am currently in a cute Java suburb of starfruit trees, green mountains, while teaching English to a local school. I leave for Singapore tomorrow, much to the chagrin of many lovable 10 year old kids.

Love works in funny ways. When seeking love, you look so hard that you seem to almost deceive yourself into falling for anyone. But then one day it happens. You just fall and you fall hard and it moves so quickly and works so beautifully you don’t have time to sit back and think about how it happened and take it all in.

I haven’t fallen in love, but that is how I imagine it to work. But I have taken to diving in a similar manner. The moment I stepped into the ocean water, I knew I loved her. When my tank ran out of air, it tore me up to leave her. When I got a new tank, I was jumping as fast as I can into the water to see her. And when I was with her, it was so much and so much more. It was beauty that I did not know existed, and it was always changing. Every time I think I scratched the surface to unraveling her, a new world of discovery opens up. Every moment was excitement, looking at her, around her, and in her. Is this not love?

I am a traveler at heart. Traveling is leaving a piece of your soul wherever you go. It is experiencing new things at a break-neck pace. At least thats what I think, I think. That is why diving is so amazing for us travelers. Most of our blue planet is covered with ocean. Most of the ocean is untouched and unknown to humans. There are new things and soul-receptories at every meter and every liter of the ocean.

When I breathed for the first time underwater, I was stepping onto a new planet, I was becoming a new species. And by doing so, a million curious eyes turned to me and said, “Hello, mister!” Clown fish looked up from their oceanic vegetation and did their “Finding Nemo” impression. Giant Turtles majestically soared above my head. Schools of Napoleon wrasses, the size of my torso swam in circles around me. Sharks zigzag around darting back and forth, making my heart skip a beat. Even an octopus decided to wriggle around on the floor and change colors before my very eyes. Schools of tiny fish swam in perfect synchronization. Seahorses jumped around. Tunas that could feed an army of sushi enthusiasts. Titan Trigger Fish, Stonefish, Lionfish, Scorpion fish, Bumphead Parrotfish. And the colors, just so many colors.

It’s just a different world. On land, humankind is at its apex. We’re basically reduced to two levels in the food chain: hairless apes, and everyone else. It’s a thrill to see one wild animal, even if we have to search for days. On the ocean floor, every species seem to be dealt a new hand. Everyone is equal, and we swim side by side along the coral reefs. I just cannot emphasize how teeming with life the ocean is. And the landscape of reefs, sandy dunes, ship wrecks, overgrown with underwater flower, seaweed forests hazed over by shimmering currents in the water – wow. Land just sucks in comparison. Oh, why am I forced to breathe oxygen?

Just about everything fits so well. When you are underwater, it is a relaxing venture – in fact overexertion causes you to lose oxygen. You’re required to relax! And then eating a lunch of fresh seafood that we bought in a boat-to-boat fisherman exchange, discussing what you saw – what a perfect complement to a dive day. Divers who meet other divers are instant friends. It only makes sense. You are required to dive with a buddy for safety. So, diving forces you to relax and make a new friend. I cannot think of what else actually forces you to do such a thing.

The ocean is sweet. You are looking not just to the left and right of you but above and below you. It seems like you are flying like Superman over an underwater Metropolis. There’s just nothing wrong with it at all. Except that it’s so damn expensive and you risk getting lost at sea fighting off sharks and Komodo Dragons.

The End, until my next update.

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It has been three years since I graduated from college, and it certainly has been interesting. I made quite a few friends, and also picked up a hodgepodge of technical skills from three different companies. Oh yeah, I got married too. So now what? Well, my grand goal is to become financially independent in 7 years because by then I would have served corporate America for a total of 10 years, and I think that is enough. Is this doable? Well..

I know it’s doable because my parents earned enough to retire together in the past 10 years despite having more financial challenges than my husband and I. Ten years ago my parents were more than forty years old and their salaries were much lower than our current salaries even after adjusting for inflation. They had pretty much no savings because they just graduated from grad school and they spent what money they had on the relocation from Hawaii to the Bay Area and bought a car. They also put me through college and weathered the dot com bubble, but they managed to do quite well. If they wanted to retire now, they really could do it. My mom doesn’t think so, but actually the numbers are in their favor. So I really see their success as an inspiration and a mark of certainty that my husband and I can do the same.

My mom once said that I can’t use them as a benchmark because they are much older than us so we need a lot more money for retirement. She also said that I was a very cheap child to raise so maybe we won’t be so lucky with our future kid(s). Additionally, inflation is running wild now and the buying power of their money was greater than ours. Another thing is that their Social Security benefits will be much better than ours. I have considered all of those things and I still think it is possible for me to quit my job in seven years because we are currently saving and investing a very large percentage of our income. Additionally, I will keep on writing so I will have some income and the hubby doesn’t necessarily have to quit his job. Though he did say that if we were financially secure and he did not need to work he would design and program games on his own rather than work for a company where he doesn’t have total control over the process of creating a game. He also loves kids so he said that if he has the opportunity to be home with our future offspring he would take it. So I take those comments as an indication that if we could both “retire”, he would join me.

Don’t get me wrong. I don’t hate my job and I don’t hate working, but I hate the fact that society makes us believe we are supposed to stop working at age 65 or 67. At that age, you don’t have that many years left to enjoy life. I think ultimately retirement for me and my husband means that we can pursue our own passions rather than whoring our talents and adding to someone else’s bottom line.

Seven years is really a stretch goal for our financial independence because we would only be 32 by that time and we would have to support ourselves for many years. I calculated that we probably need at least a portfolio worth $1.4 to $1.5 million with the FIRECalc based on an assumption that we live on around 4% of the portfolio and our side income. Some people think I am a bit crazy, but I really believe that it is possible even with children. Anyway, we will see in seven years, and hopefully The Baglady is still around then so all of you can see if this grand goal has been achieved.

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I don’t write very detailed numbers concerning my personal finances on this blog even though it is a personal finance blog. I always write some estimates and approximations and also things that have happened in the past. That seems a bit weird since I sort of advocated revealing salary information and being transparent about personal finance. I am actually really open with my close friends about my personal finances, but I do feel weird about revealing exact numerical details to the world. I also don’t keep a networth graph here like many other PF bloggers because I feel that is akin to keeping score with money. The hubby also doesn’t like to give out too much information. Anyway, today I decided to satisfy some personal finance voyeurs by posting our savings and expenses in terms of their percentages of our gross income. I took most of the numbers from our current paychecks, and some numbers are averages of bigger expenses.

Taxes

Payroll taxes: 20.16% - This includes Federal and California State Income taxes, Social Security and Medicare Taxes, and the CA SDI Tax. The total may seem a bit low because the income taxes are only taxed off our income after our fairly significant 401k deduction. The income taxes are also tiered, so only a portion of our money is taxed at the highest brackets. Though I am pretty sure we may owe some more taxes this year because I exercised some incentive stock options at the beginning of the year and we may trigger the AMT.

Living Expenses:

Rent: 12.26% – We have been living here for less than a year, and when our lease is up in July the rent might go up, but we don’t think it would be too egregious because our landlord is not some huge corporation and we’re taking care of his apartment. We really do enjoy living here.

Car Insurance :1.71% – The hubby just recently got a rate reduction for being a good driver. It took about three phone calls to the insurance company but those phone calls saved us $400 per 6 months term so I am pretty happy about that.

Car maintenance : 1.08% – This is an monthly average of the amount of money we spent on maintaining our cars in the past 9 months or so. We actually spend big chunks of money at once. For example, my last car maintenance was a bit over $1000, but this happens rarely so I averaged it out.

Utilities: 1.1% – The main utilities we pay include cable internet, the hubby’s cellphone, and electricity.

Food: 4.69% – I feel that we spend quite a bit on food every month, but actually sometimes eating out is cheaper than cooking. For example, making a couple sandwiches at home actually costs a lot because deli meats and bread are getting expensive. A lot of the times the hubby and I just buy one dish and split it because restaurants give too much food anyway. There is a really good Thai place nearby so one time we just bought one curry dish for $10 and then cooked rice at home and stuffed ourselves.

Gas: 2.52% – We have been doing good at saving gas lately by driving slower.

Entertainment: 1.1% – As it was laid out in The Baglady Budget, we have a 2% ceiling on entertainment, but actually we never spend that much. On average we have spent about 1.1% per month, and that’s why the hubby is running a surplus that he wants to use on a computer in a few months.

Donations: around 6.5 to 8% – We upped our donations a bit this year and we’re donating more than before. The percentage seems a bit small when it is based off our gross income. In light of the recent disasters in Burma and China we also added a few special donations this and last month.

Other: 0.7% – This category includes things like gifts. It seems that there is always a birthday or wedding around the corner. The hubby has a gift account for such expenses.

Total expenses inventory: ~31.61% of gross income

Savings:

401k: 17% – We both contribute 17% of our paychecks into our company 401k plans. The hubby was pleasantly surprised when he bumped his contributions this year from 10% and 17% and barely noticed a dip in his take home pay. The reason is that his taxes were reduced accordingly.

529 plan: 0.72% – I have a 529 plan open with Fidelity for our future child(ren). Right now we are putting very little into it every month.

The rest: 31.21% – The rest of the savings currently is going into money market funds in our Vanguard joint account. I also funded our Roth IRAs for last year with our savings. I’m not sure if we’ll qualify for Roth IRA again this year since the hubby may be getting a raise soon, but we’ll see. This money is also our emergency fund and house down payment savings. It is growing quite a bit and I may buy some more mutual funds with it once it gets past 25% of our entire portfolio.

Total savings: ~48.2% of gross income

I hope we can still save this much when we have kids, but I think we can afford to spend 15% of our income on a kid and still manage to save a good amount for the future. It is also good that we are able to essentially live on one income because this means we don’t have to worry if one of us loses employment. Anyway, it was fun to lay this out so I could see the flow of my money clearly, and I hope someone’s curiosity has been satisfied.

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