I’ve been a reader of your material since first discovering “25 Myths You've Got to Avoid If You Want...” at a goodwill back in 2011. Ever since reading that book i’ve been sounding the trumpet of indexing, and encouraging friends, family and acquaintances to think about the their larger financial landscape. There’s no surprise that your site has grown so well, especially with the more common understanding that indexing outperforms actively managed funds over the long term and costs a lot less to boot. The latter becoming almost general knowledge to many has alot to do with your writing (especially Humbledollarholics). Thanks for all of your fantastic material as well as the material from other contributors. I am looking forward to the new book, and recommending your site to more people!
😊 I agree. Bengen’s study was absolutely groundbreaking, at the time advisors were recommending 7% withdrawal rates. Bengen’s study demonstrates a withdrawal rate number and portfolio allocation that would survive even a Great Depression and a world war in succession and a roughly 10 year bear which is amazing when you think about it, and the stock allocations used were not nearly as diversified as the indexing tools we have today. When you crunch compounding (@1mm or 500k) numbers over 40-50 year compounding periods you can end up with huge amounts if early retirees are willing to adjust the withdrawal rate to 2% in down markets, and potentially work part-time (25K in income is worth 500k in investments when accounting for the 4% rule).
Tax planning is a large part of the picture. Everyone needs a tax avoidance strategy. If the vast majority of your income comes from Qualified dividends, and Roth Distributions you’re in the 0% tax bracket as Qualified Roth distributions are not taxed, and Qualified dividends are taxed at the Long Term Capital Gains Rate as long as you stay within the 12% bracket threshold, your LTCG rate is 0%. Now the 0% is a misnomer as taxes were paid, just on the planting of the seed and not the full harvest. Planning out your conversion of traditional (pre-tax) amounts over periods when your income is low allows you to convert in lower marginal tax brackets, and ultimately avoid costly RMDs when approaching your 70’s in retirement especially if your estimated compound growth could push you over the 8mm mark. The Roth Conversion ladder is a good way to make your way to the 0% bracket and is definitely apart of the approach for us humble dollar readers with a long term approach.
Check out Michael Kitces’ article on the 4% rule. It is a well written evaluation of the implications of the rule. In essence, the 4% doesn’t account for making adjustments (lowering your withdrawal rates during down markets). Accounting for making adjustments during down years can make the 4% lean towards being a conservative approach. The Problem With FIREing At 4% And The Need For Flexible Spending Rules https://www.kitces.com/blog/the-problem-with-fireing-at-4-and-the-need-for-flexible-spending-rules/
Fantastic article, I tend to lean to the three to two fund strategy. I once met a man in grad school who was 90 years old and had 90% allocated in stocks. I assume he had low living costs and a high risk tolerance that allowed him to weather the ups and downs of the market. His lifetime strategy was to essentially as he put it to, “Let er rip”. I lean towards his principles. In my taxable account, my long term approach is to hold etf’s (tracking the Dividend 100, such as $SCHD) which generate 99.9%+ of dividend payouts in qualified dividends. In my pre-tax (Traditional) and post-tax (Roth), I intend to migrate to either a three fund strategy ($VXUS, $VTI, $BNDW) or two fund strategy ($BNDW, $VT) probably with a 90% stock allocation, and 10% bond allocation). A few Roth conversions during the bear market years and mini-retirements over the 20-30 year period, and hopefully I can be super close to the 0% tax bracket in retirement. Live off a combination of Qualified Dividends, Roth Distributions, and social security payable (fingers crossed) 😊.
Thanks for penning this article. I agree wholeheartedly, whats the since the since in having a ton of monetary wealth without the time or the health to actually reap the rewards? F.I.R.E. or retirement isn’t soley about accumulating large gobs of cash, but rather finding the appropriate balance between time, health, wealth and pleasurable endeavors (whatever that may be).
This was a timely post. I was in the process of deciding whether to go with a first-lien or second-lien HELOC (.25% upcharge). I wasn’t too keen on giving up the low fixed rate on our primary mortgage. I recently made a large payment to obtain 80% equity within my home, and the best rate on the HELOC. A mortgage recast based on our large payment will allow our family to reduce our fixed payment by 50%, and reducing the interest rate risk; if inflation rears it’s ugly head. Thanks for sharing as always.
Awesome post! Thankfully, having read many of John’s books has provided our family with the wisdom to drive our fixed costs lower each year, live off of one income, live within walking distance from work, avoid divorce, and resist hedonic adaptation as much as we can. We tip-toe into the hot jacuzzi of ratcheting up our savings rate each year...slowly adjusting to the temperature of the water which has allowed us to slowly ratchet up our savings rate. It hasn’t been easy; many times, disputes were had, but as our investment accounts hit the critical mass more trust in the process was received. Last year, we hit our highest number which was roughly 60%. As a bulleted point to living within your means, Buying a home you can easily afford with low maintenance costs and taxes helps a ton. Our current mortgage payment represents 3% of our pre-tax income.
The kids are costly (we love them despite), we leverage economies of scale as I like to call it. We buy in bulk, and our third daughter has all of our first and second daughter’s clothes that they have grown out of (some new stuff too). We’re going lower the temperature a bit as we approach our 40’s as best as a prodigious saver can do.
Comments
The distinction between frugal and cheap is a slippery slope. I enjoyed your article, thank you for sharing.
Post: Cheap Talk
Link to comment from February 24, 2022
I’ve been a reader of your material since first discovering “25 Myths You've Got to Avoid If You Want...” at a goodwill back in 2011. Ever since reading that book i’ve been sounding the trumpet of indexing, and encouraging friends, family and acquaintances to think about the their larger financial landscape. There’s no surprise that your site has grown so well, especially with the more common understanding that indexing outperforms actively managed funds over the long term and costs a lot less to boot. The latter becoming almost general knowledge to many has alot to do with your writing (especially Humbledollarholics). Thanks for all of your fantastic material as well as the material from other contributors. I am looking forward to the new book, and recommending your site to more people!
Post: How We’re Doing
Link to comment from January 1, 2022
😊 I agree. Bengen’s study was absolutely groundbreaking, at the time advisors were recommending 7% withdrawal rates. Bengen’s study demonstrates a withdrawal rate number and portfolio allocation that would survive even a Great Depression and a world war in succession and a roughly 10 year bear which is amazing when you think about it, and the stock allocations used were not nearly as diversified as the indexing tools we have today. When you crunch compounding (@1mm or 500k) numbers over 40-50 year compounding periods you can end up with huge amounts if early retirees are willing to adjust the withdrawal rate to 2% in down markets, and potentially work part-time (25K in income is worth 500k in investments when accounting for the 4% rule).
Post: Mix and Match
Link to comment from December 4, 2021
Tax planning is a large part of the picture. Everyone needs a tax avoidance strategy. If the vast majority of your income comes from Qualified dividends, and Roth Distributions you’re in the 0% tax bracket as Qualified Roth distributions are not taxed, and Qualified dividends are taxed at the Long Term Capital Gains Rate as long as you stay within the 12% bracket threshold, your LTCG rate is 0%. Now the 0% is a misnomer as taxes were paid, just on the planting of the seed and not the full harvest. Planning out your conversion of traditional (pre-tax) amounts over periods when your income is low allows you to convert in lower marginal tax brackets, and ultimately avoid costly RMDs when approaching your 70’s in retirement especially if your estimated compound growth could push you over the 8mm mark. The Roth Conversion ladder is a good way to make your way to the 0% bracket and is definitely apart of the approach for us humble dollar readers with a long term approach.
Post: Mix and Match
Link to comment from December 4, 2021
Check out Michael Kitces’ article on the 4% rule. It is a well written evaluation of the implications of the rule. In essence, the 4% doesn’t account for making adjustments (lowering your withdrawal rates during down markets). Accounting for making adjustments during down years can make the 4% lean towards being a conservative approach. The Problem With FIREing At 4% And The Need For Flexible Spending Rules https://www.kitces.com/blog/the-problem-with-fireing-at-4-and-the-need-for-flexible-spending-rules/
Post: Mix and Match
Link to comment from December 4, 2021
Fantastic article, I tend to lean to the three to two fund strategy. I once met a man in grad school who was 90 years old and had 90% allocated in stocks. I assume he had low living costs and a high risk tolerance that allowed him to weather the ups and downs of the market. His lifetime strategy was to essentially as he put it to, “Let er rip”. I lean towards his principles. In my taxable account, my long term approach is to hold etf’s (tracking the Dividend 100, such as $SCHD) which generate 99.9%+ of dividend payouts in qualified dividends. In my pre-tax (Traditional) and post-tax (Roth), I intend to migrate to either a three fund strategy ($VXUS, $VTI, $BNDW) or two fund strategy ($BNDW, $VT) probably with a 90% stock allocation, and 10% bond allocation). A few Roth conversions during the bear market years and mini-retirements over the 20-30 year period, and hopefully I can be super close to the 0% tax bracket in retirement. Live off a combination of Qualified Dividends, Roth Distributions, and social security payable (fingers crossed) 😊.
Post: Mix and Match
Link to comment from December 4, 2021
Thanks for penning this article. I agree wholeheartedly, whats the since the since in having a ton of monetary wealth without the time or the health to actually reap the rewards? F.I.R.E. or retirement isn’t soley about accumulating large gobs of cash, but rather finding the appropriate balance between time, health, wealth and pleasurable endeavors (whatever that may be).
Post: Fit to Retire
Link to comment from December 2, 2021
This was a timely post. I was in the process of deciding whether to go with a first-lien or second-lien HELOC (.25% upcharge). I wasn’t too keen on giving up the low fixed rate on our primary mortgage. I recently made a large payment to obtain 80% equity within my home, and the best rate on the HELOC. A mortgage recast based on our large payment will allow our family to reduce our fixed payment by 50%, and reducing the interest rate risk; if inflation rears it’s ugly head. Thanks for sharing as always.
Post: Skimping on Cash
Link to comment from June 26, 2021
Awesome post! Thankfully, having read many of John’s books has provided our family with the wisdom to drive our fixed costs lower each year, live off of one income, live within walking distance from work, avoid divorce, and resist hedonic adaptation as much as we can. We tip-toe into the hot jacuzzi of ratcheting up our savings rate each year...slowly adjusting to the temperature of the water which has allowed us to slowly ratchet up our savings rate. It hasn’t been easy; many times, disputes were had, but as our investment accounts hit the critical mass more trust in the process was received. Last year, we hit our highest number which was roughly 60%. As a bulleted point to living within your means, Buying a home you can easily afford with low maintenance costs and taxes helps a ton. Our current mortgage payment represents 3% of our pre-tax income. The kids are costly (we love them despite), we leverage economies of scale as I like to call it. We buy in bulk, and our third daughter has all of our first and second daughter’s clothes that they have grown out of (some new stuff too). We’re going lower the temperature a bit as we approach our 40’s as best as a prodigious saver can do.
Post: What It Takes
Link to comment from March 24, 2021