What steps are you taking to ensure you have enough saved to retire? Let us know in the comments if you're finding value in additional steps we didn't cover in the video.
From my perspective, the main step I am taking is overshooting my retirement number along with instituting a cash buffer. Overshooting your target number will ensure you have placed yourself into a position whereby you are withdrawing less than 4% from your portfolio. And the cash buffer will allow you to dip into a cash reserve in times of market downturns to ensure you don't draw down too much principal in lean years.
We’re doing multiple burn down spreadsheets and Advisors reviews to make sure we have enough. Biggest challenge is the 10 year age difference with my wife and I. Being FI with different retirement dates is a bit of a puzzle.
We are a few years away from retirement and I'm wondering if there were any items or things you spent money on before retirement to prepare. For example, we are thinking of new cars..
@@tamib64 Jason here - in our case, I don't think so. But if you check out his own posts, Fritz talks about buying a truck and fifth wheel as things he purchased in preparation. The finish line is in sight - how exciting! Best wishes to you
You’re very welcome, Fritz. We sincerely appreciate your viewing of our content. As we hope came across, we found your article very valuable and an excellent summary of the vital steps needed to put on one the path to success. Best wishes to you!
I *love* this channel. I retired this year and in the years prior to retirement, I wrestled with many of the same topics/exercises discussed here. It’s a pleasure to find virtual coffee buddies that validate, upend or stretch my thinking as I navigate retirement.
Thank you so much, Renee! We truly appreciate the feedback. A belated congratulations to you on your own retirement! Any tips for our audience that you haven’t yet heard from us? Best wishes to you!
@@TwoSidesOfFI I, too, am really loving your channel! I don;t know if this falls under the “dumb question category”, but since you asked Renee for topic suggestions, I have not seen many channels discuss FIRE or retirement planning for people who have pensions. Is it because pensions are defined and saving up for projected retirement needs is moot or not sexy? I will have a pension but my husband will receive social security. I am considering retiring at 53YO (at a penalty) vs my government job’s full retirement of 55YO, to move away for a job opportunity for my husband. My head is spinning with all types of scenarios!
@@isabelg8788 Great question! Pensions and other fixed income sources are certainly important. They are somewhat simple to model as you just need to input them in a cash flow model (like the one Fritz has in the linked article) in the year they become active. Tools like cFIREsim and NewRetirement.com (see our resources as twosidesoffi.com/resources/ for links to these) also allow you to model the impact of income streams like pensions and Social Security. The main impact from a FIRE context is to reduce the need to withdraw from your investment portfolio. Best wishes to you
Holy crap, you guys are the best. I don't recall how I stumbled across you on UA-cam, but I'm so grateful I did. I've been binging your videos and am so excited there's still so much more to watch/listen to! It helps that we're the same age as you guys and have a similar FI goal date to Eric and Laura. I can't explain how excited I am about how you guys so clearly align with our desires and goals. THANK YOU!
Hi Mary, thank you so much for your kind words. We are so glad to hear that you are enjoying the show! Please keep us posted on how things are going towards your own goals, and best wishes to you!
I'm not sure what this says about me or about YNAB, but I have wondered if Jason used YNAB. I do and love it. I'm 10 years older than you two but having the last 5 years in YNAB has made our decision to retire in 2023 more comfortable. I like the approach (and its made me a more mindful spender/saver) and I like the ease in toggling off expenses (like college tuition!) with the reporting on real spending. Really like your content!
Jason here - Hi Eileen! YNAB is really great, right? It made a huge difference with respect to our comfort level regarding our planned expenses in retirement, just as you describe. Thanks so much for your support and the feedback!
I think you can make the math super complicated if you so chose. I found the simplest option is DGI investing. Once my dividends cover my expenses I am set financially. Don’t have to worry about selling stocks or if the market drops 10%. Just spend what you get in dividends, if your in good DGI stocks those div should grow by 5-10% a year. Even in 2020 my div grew 6%.
You are spot on. This is exactly my plan as well. I used to wrestle with all the back and forth like these guys. I set a goal once my dividends exceeded 6k a month in passive income, I’m well off in retirement because my expenses are only 2500 per month. So now I have double which is an added security not even including tax deferred accounts.
I like that you included a step for forecasting retirement spending, I think this is an overlooked step. With the calculation of FI, people focus on replacing current spending, but for us, that doesn't account for health insurance since my husband's work currently pays. We needed to save extra to cover that health insurance ourselves.
Great discussion, as usual! To point#2 I don't see this as 100% retired after FI vs 0% retired before. I think many people working towards FI love to make money, and won't dislike to continue making it after FI... personally, I would enjoy making around $1K a month (without killing myself, just keeping myself busy), and would feel I have another layer of financial 'cushion'...
Jason here - very true! I definitely enjoy making money and if I can do that from things I really enjoy, on my schedule? I'm all for it. I still take a few consulting calls here and there and have my once weekly wine tasting room gig. As we've discussed before, I'm certain that Eric will continue in his own business endeavors post-FI as well. Best wishes to you
Agreed! FI doesn't mean I will stop working completely, it means I will work for whom I want to and when it works for me. For me FI is the ability to have the freedom to chose how I spend my time and how I contribute to society.
i keep an emergency fund for small stuff like car repairs, computers, phones etc. For any major home repair like a roof, i have my roth IRA that i keep for later years, but will tap for a tax free unexpected larger expense.
For you to net your hypothetical $50k per year it seems pointless to factor in taxes. Long term capital gains aren’t taxed at all until you report more than $80,800 per year (since you’re married filing jointly)
We appreciate your point and for many it would be absolutely true. But it could be an issue for Eric and others like him with appreciable passive income. Modeling that is at least an exercise worth doing in our opinion. The tricky bit I estimating your glide slope, which often may not be evident until you know how you’re feeling as you approach your FI date.
I'm currently 24 and I'm maxing out my Roth IRA and putting the rest in a taxable account. Hopefully, I'll be able to retire early. Thanks for the info!
Dealing with taxes. My fire number need to cover at least 20k/year which at the moment is under the standard deduction for married filing jointly. Also we will be living off of dividends and hopefully never have to pull from the principal. Dividends will be in the 0% tax bracket. I will basically be paying no to very little in taxes. And for passive income during FIRE, I will be selling covered calls. This will help with building the portfolio more during retirement.
Jason mentioned not having access to IRA money (without paying a penalty) until you reach 59 ½ but there are IRS provisions that allow for it. You’re probably already aware of this but you can take Substantially Equal Periodic Payments under code 72(t). Once you go down that path, you have to take the payments for 5 years or until you turn 59 ½, whichever is longer. Love the videos!
Hi Tim, thanks so much for calling this out! You're absolutely right and we didn't get into SEPP plans in that episode. They are indeed another potential avenue to consider. Here's an article to help people get started. As you'll see, there are some important aspects of these plans to consider when thinking about the appropriateness of this option for you, particularly if you are a younger early retiree. www.investopedia.com/terms/s/sepp.asp
I just found your videos a month or so ago and I just wanted to let you know I've been enjoying them. I'm just beginning my fire journey. Your videos have been very informative and easy to listen to. It's useful to hear real world examples of fire, from people actually living it. I find a lot of fire stuff tend to be very very theoretical.
for step 3, we just look at total cash out the door each month instead of tracking all the details. Used to track the details but too much of a pain to do every month. you can also keep track as what part of that is big discretionary items (vacations, new car, home renovations)
Jason here - I think leading up to RE it's really important. I say that because I feel it's the best way to truly understand your expenses, determine must-have vs. nice to have, and better be enabled to project how they may change over time. Once you're retired and have some experience under your belt, your idea seems very reasonable to me, and something I feel I'm going to arrive at eventually myself. In the present it really helps me to ensure I understand how we're spending vs. our "retirement budget". Just my opinion - I hope it's useful!
Eric - you might want to look into the “permanent portfolio” or “golden butterfly” portfolios atkeast for your after tax portfolios. They sort of simplify and deal with a lot of these issues in a clear and concise way (buckets, sequence of return risk, hedges, rebalancing and draw down). Essentially you divide up your portfolio into 4 parts: gold, long term treasuries, short term treasures (or cash) and stocks. A variation on this is 5 parts where you have 40% toward stocks with 1/2 being small cap value and the other 1/2 being large cap. The really basic principle here is 1/N (with n being the number of asset classes). Anyway, these portfolios provide a smoother ride (lessening sequence of return risk) in all market conditions while only slightly underperforming a 60/40. Plus you have a chunk of cash that you can use for drawdowns or emergencies Just rebalance when one or more of the slices is 10% out of whack. If you backrest these portfolios for the 70s or the “lost decade “ from 2000-2010 you’ll be pleasantly surprised.
I have recently found your channel and trying to catch up. I can't wait to catch up to hear if Eric is as 'concerned' about a 3 year bucket. :). I have a 3 year bucket and it is the only thing that allows me to sleep at night right now.
Jason here - We're glad you found us, Tammy! I feel the same way about my 2-year cash bucket. Stay tuned as you'll soon get your answer as Eric and I do indeed talk about this topic :) Best wishes to you
We already FIRE'd. How did we ensure we had enough? We didn't pull the trigger until greater than 25X / 4%. We don't budget. It's too time consuming, just like we don't balance a checkbook. However, we DO look at each line item expenditure to ensure it's valid and we looked at our history of expenses by category in percentages. Before FIRE we monitored the expenses on a percentage basis to confirm it was consistent. It was. Now with a recent "full sail" of the market behind us, our SWR has dropped from 4% to 3% to about 2% presently. Also, with the pandemic our travel budget has been under utilized. It this keeps going on like this, we will be UNDER spending. Let's hope the market doesn't turn BEAR for 10 yrs Jason! (mis-spoke)
I'm new to all this. For the bucket method, why not just keep your normal bond stock asset mix until you reach your target dollar amount and then take out the cash when you hit the target. This way you don't have to take out of the market if it goes down in early in retirement. Your more at the whims of the market to start retirement, but less likely to have to go back to work, and your maximizing time in the market.
I did (and still do) a ton of excruciating scenario analyses with spreadsheets, but I also had a very basic withdrawal req't for being able to FIRE: I needed to reproduce the equivalent of my last-salary's net income. This means I took my prior take home pay, added the difference in healthcare premiums, subtracted my newly-defunct mortgage payment, and called that my new "paycheck." I did a sanity check with about a year of expense analysis as well, but ultimately I used a Gestalt approach that we could simply keep going as we were going, and not need to make lots of fiddly budgetary changes that would stress us out. This was also a key to assuaging my wife, who was very anxious about these changes. Unfortunately I spend way too much time still obsessing over this stuff, both in terms of watching the portfolio like it's a scoreboard, and doing endless tax and estate planning. It's extremely prudent and even a little fun, but I worry that it's too much. But... that's a subject for another time!
Sounds like a good process to us! We readily admit that we obsess over these things as well, so you're in good company. Measure twice, cut once! Best wishes to you
S&P down 20%. 47:40 didn’t age well. Now officially a bear market only 6months later. Have to learn that it’s not always up. By the way, I’ve been binging your content and I love it. It keeps getting better over time, and I like how you let Eric finish his sentences more than before.
So glad you're enjoying it! Thankfully, Eric rebalanced prior to this downturn. If you've not seen them, the first part of our two-part series on that is here ua-cam.com/video/1S-WCfZuH1A/v-deo.html
If you're not ready to try and track your expenses, you'll never be ready to FIRE imo... Download a csv of your credit/bank expenses and import them into a spreadsheet and tag them - only then you'll know where the money is going.
100% correct. At least get things knocked down into 15-20 main categories. Don't try to be super granular like I did for the first 15 years of monitoring our expenses. :)
It's what convinced me to retire. I tracked every expense (and I do mean every one) for one year prior to making the decision. I found I was wasting a lot of money in places I didn't need to without feeling like I had to sacrifice. I live on much less now and am so much happier. And I continue to track them. It's turned into more of a game/hobby now that I enjoy.
Such a great video, I recognize myself in alot of your thoughts being a few months away from retiring completely ( did a one year top off!) I sent that brilliant video to my daughter to give her a comprehensive idea of all the tools! Thanks again!
Hi James, we've touched on these topics but haven't done a super deep dive yet. We'd also recommend Fritz' Bucket Series posts that you'll find linked in the show notes of our latest episode: twosidesoffi.com/fritz-retirement/
I am trying to use US Treasury I Bonds as filling up bucket one going into retirement in 5 or 6 years. This is my second year of I Bonds. So in less than five years now, the first rung on the I Bond ladder will be penalty free. That will be 3 years of cash at retirement. I Bonds are also part of my de-risking the portfolio, yet trying my best to keep up with inflation even in cash.
Totally agree with (a) 4% withdrawal rate is too high/planning for under 3% (b) Don't count SS income in projections OR if you count it think of it at 75% of estimate. It's looking like it's all about income/tax balancing.
Why not include S.S. ? It is in effect an Annuity backed by the Full Credit of the US Government, (with partial inflation protection) which is about as “guaranteed” as one can get. If you had said “Don’t count on returns from the Market” - THAT I could agree with, but S.S.? Cheers!
It's important to count SS because added to RMDs it can put you in a higher tax bracket and cause IRMA expenses, especially if Roth conversions are not done to decrease tax deferred accounts
4 years expenses with travel in cash, Check ! Without epic travel, that cash would last us 7 years or more. Our household expenses are low or below avg so that cash is not as much as some people might need. Equities at or larger than the number we decided on, Check ! Still working - mid 50s, but going to pull the plug within 1 to 2 years. Then cash will carry us along with any gains in market in non retirement accounts to back fill that cash as desired but not needed until we get to 59.5 and can turn on our IRAs, etc. Then rinse and repeat until I turn on SS ( won't need it but it will provide a nice pressure release valve to income ). Once I get to SS at 65 to 67 ( may turn on a bit early ), it will cover our household expenses upwards of 90%. A couple years later my wife will claim and then we will not need to pull from investments unless we are making some big purchase or big trip.
Great podcasts! One thought… I do think my primary house should be part of “my number”. While I can’t spend it, I can sell at some point and live for quite a while off those funds. Or even a reverse mortgage. Just thought I’d bounce this out there for thoughts. Thanks for what you guys do!
Thanks for the comment and your support! While it’s certainly part of your net worth, it seems most common not to include one’s house in “the number”. You are right that you could liquidate it / rev mtge, etc. But if that’s not part of your explicit planning, it seems more producing to leave it out of your portfolio assets to avoid underestimating your financial capacity. Best wishes to you!
You can remortgage/refinance your house to unlock some of its value to get another property that cash flows. That avoids capital gains tax if applicable and also there is a depreciation bonus on the rental property. Your house is stored potential and appreciates usually over time.
My steps: All equities, all the time, globally diversified in indexes across 1000's of stocks. Invest for total return. + a small cash bucket. Modify spending if need be in times of market drops - esp first 5 years or so.
@@jimjam36695 Check out this article as we think you'll find it a helpful introduction. www.forbes.com/advisor/retirement/sequence-of-returns-risk/#:~:text=Also%20called%20sequence%20risk%2C%20this,the%20longevity%20of%20a%20portfolio.
Step 6: Withdrawal Rate - I always hear about the withdrawal rate and very little about income producing securities. ETFs/Funds/others, exist for the purpose of income and less about capital appreciation. Our plan is centered around income producing securities less on capital gains. Extremely important: different incomes are taxed at different rates. This is life changing when you take it into effect. Do you have income producing securities? If so, what is the percentage of your budget which is covered by these securities? Currently ours is 35% and at this time we derive income from four (4) sources and working on three (3) more (they are self-sufficient). We are retired and in preps for a country move in April. *Correction* Dividend income used does not exceed income produced to allow for growth.
Very good emphasis for steps 8 & 9 with emphasis on Cash availability. I have seen a FIRE calculation which proposed a long run to accessing the 401k there might be 3-4x in your taxable account vs the IRA/401K amount. The other drawdown will be the reduction of an IRA by ROTH conversion requires in the best case a payment of the tax bill from cash in the brokerage account. I am the poster child of FIRL - Retire Late :-) so i have a fairly small expense covered completely by my SSA + Pension . However, the imbalance of IRA / TaxableAcct is 6/1 - horror so it impacts my 2 years (70-72) late ROTH conversion calculation. Otherwise my RMDs would increase taxes when i am 74 (4 years from now). I would think you would have identified the pre-63 (medicare-IRMAA base) ROTH conversion strategy. Was that of any importance to your planning?
Jason here - thanks, Kevin. Lots of great points made here. I am certainly looking to Roth conversions as part of my own approach. But you’re right that there’s much to consider there. Thanks for watching!
Filling Bucket 1 Question: Is it really any better to sell equities from an IRA vs. just withdraw your 5yr matured Roth Conversions? Also, wouldn't keeping three years of cash help reduce RMDs in the future?
A basket approach seems like a bad way of doing with a misallocation relative to your risk profile. If you just set a % to bonds or stock then withdraw every year, it helps with rebalancing by having you spend what is up versus spending what’s in your cash pile. Just another take that I know you’re aware of but I think it’s actually LESS complicated. PS would love to get your take on risk parity and how it impacted your safe withdrawal rate assumptions.
When you guys talk about side hustles or one off type consulting, it seems to be not something that everyone can do. When one of you had said earlier that you just did an hour of consulting to cover an expense that doesn’t really seem like being retired to me.
Jason here - Thanks for the comment. we’ve talked about side hustles a bit over time. You’re right that something like the consulting I do on rare occasion isn’t necessarily within everyone’s means, nor is it really a side hustle. That said, it’s also not something I *need* to do. Rather, taking an hour-long call here or there (generally zero to two a month) is merely something I enjoy. It’s a bonus that I get paid for it, and it lets me feel like I’m “paying for” occasional purchases. Our retirement budget would cover some if not all of those things. It’s just a handy way to keep my withdrawal rate well below my target- not such a bad thing during the initial years post-RE. But importantly it’s not a necessity. Hopefully that helps clarify things. Thanks for watching.
I've recently being thinking about selling covered calls on broad market ETFs to generate additional income in retirement? Presumably if a large portion of your money is in say an S&P500 ETF you could be selling covered calls every single month with a very conservative strike price that has low probability of being in the money to generate additional income. Is this something that you guys are doing?
@@theretirementmanifesto3379 Jason here - Absolutely! I remembered the post and it was easily found by googling 'retirement manifesto covered calls'. It's a good reminder that I need to re-read it. I'm intrigued by this approach but am woefully unfamiliar with the details.
@@TwoSidesOfFI Great vid guys. As a British person on track for FI, who recently moved to the US for work reasons, I am struck by how much harder FI is to achieve in the US. Here are my thoughts. In the UK healthcare is free for life, from cradle to grave, which is obviously a big difference. Not “free” but no insurance required and free at the point of use. The UK also has no property taxes. So I own my house in England free and genuinely clear. No tax to pay every year for the right to own my house, that I paid for. Both of these are game changers in the calculation.
@@TwoSidesOfFI These factors make a huge difference. The IRS, for my convenience, do not recognize ISAs as being tax-free and tax me on any gains in them and restrict me from holding UK-domiciled funds or ETFs in them, as it classes them as PFICs, and taxes them punitively. So, makes retirement planning and a decision on whether we want to keep our US Green Cards a tough one. We lose a lot in having them.
Other other thing that is significant is in the UK we have something called an individual savings account (ISA) which is kind of like a Roth IRA, you pay in after tax money and all growth, trading and dividends, etc are tax free in all cases.
Two major advantages though are, you can each pay in £20,000 per year ($27,000 US), my wife and I both have one that I manage for us both. We also have a Junior ISA for our son, which we can pay up to £7,500 ($9,900) pa. The junior ISA is locked until he is 16, but our ISAs allow withdrawals totally tax and penalty free at any time.
Let's face it-Jason made a killing by investing in Tesla. It made him a Teslannaire and he decided to quickly retire without putting thought in to it. Eric is trying to do it "right" but Eric did not invest a chunk in Tesla stock and it's going to be harder for Eric to make the leap.
Jason here- Ah, if I’d only been so prescient as to invest tons in Tesla early on. Sadly, I didn’t. I have a very small position in TSLA as I mentioned a few times. Single stocks have never been more than a few % of my overall asset allocation.
@@TwoSidesOfFI Okay -I can admit to being wrong. Thanks for setting the record straight but I really got the impression that you made out in the stock market :)
I am used to not worrying about my spending under my current take home pay (after tax, pension and retirement contributions). When I retire in 2023, this take home, without pension and retirement pretax contribution, will be $1000 less than my current take-home. This worries me. It is hard to go back to counting pennies and no shopping to make sure expenses won’t go over income (already tracking spending). Also, I know my pension is not going to be enough 10, 20 years down the road. I have seen retired colleagues trapped by fixed pension because they thought $1500/$2000 a month was enough when they retired in 1990’s. So i plan to leave retirement investment in my current spread (40/30/30 between large mid and small cap mutual funds) for 10 years and do a 20 year scheduled withdrawal when I turn 68 (cant just take out money or specify %). It’ll give me $50k to 75k a year on top of pension. I will have to pay tax but can save the amount I don’t use up. If I die before 20 years is up, leftover goes to a nephew (don’t have kids or other relatives). If I live to my 90s, the after tax savings would be there.
What steps are you taking to ensure you have enough saved to retire? Let us know in the comments if you're finding value in additional steps we didn't cover in the video.
From my perspective, the main step I am taking is overshooting my retirement number along with instituting a cash buffer. Overshooting your target number will ensure you have placed yourself into a position whereby you are withdrawing less than 4% from your portfolio. And the cash buffer will allow you to dip into a cash reserve in times of market downturns to ensure you don't draw down too much principal in lean years.
We’re doing multiple burn down spreadsheets and Advisors reviews to make sure we have enough. Biggest challenge is the 10 year age difference with my wife and I. Being FI with different retirement dates is a bit of a puzzle.
We are a few years away from retirement and I'm wondering if there were any items or things you spent money on before retirement to prepare. For example, we are thinking of new cars..
@@tamib64 Jason here - in our case, I don't think so. But if you check out his own posts, Fritz talks about buying a truck and fifth wheel as things he purchased in preparation. The finish line is in sight - how exciting! Best wishes to you
Three Uncorrelated streams of income. Each source can fund essential expenses. 5 years of expenses in I-bonds. No liabilities.
Thanks for the review of my post, I'm honored. Your discussion was a great addition to the topic!
You’re very welcome, Fritz. We sincerely appreciate your viewing of our content. As we hope came across, we found your article very valuable and an excellent summary of the vital steps needed to put on one the path to success. Best wishes to you!
I *love* this channel. I retired this year and in the years prior to retirement, I wrestled with many of the same topics/exercises discussed here. It’s a pleasure to find virtual coffee buddies that validate, upend or stretch my thinking as I navigate retirement.
Thank you so much, Renee! We truly appreciate the feedback. A belated congratulations to you on your own retirement! Any tips for our audience that you haven’t yet heard from us? Best wishes to you!
@@TwoSidesOfFI I, too, am really loving your channel! I don;t know if this falls under the “dumb question category”, but since you asked Renee for topic suggestions, I have not seen many channels discuss FIRE or retirement planning for people who have pensions. Is it because pensions are defined and saving up for projected retirement needs is moot or not sexy? I will have a pension but my husband will receive social security. I am considering retiring at 53YO (at a penalty) vs my government job’s full retirement of 55YO, to move away for a job opportunity for my husband. My head is spinning with all types of scenarios!
@@TwoSidesOfFI The only thing that comes to mind is a discussion of mental and physical well being on either side of FI.
@@isabelg8788 Great question! Pensions and other fixed income sources are certainly important. They are somewhat simple to model as you just need to input them in a cash flow model (like the one Fritz has in the linked article) in the year they become active. Tools like cFIREsim and NewRetirement.com (see our resources as twosidesoffi.com/resources/ for links to these) also allow you to model the impact of income streams like pensions and Social Security. The main impact from a FIRE context is to reduce the need to withdraw from your investment portfolio. Best wishes to you
Holy crap, you guys are the best. I don't recall how I stumbled across you on UA-cam, but I'm so grateful I did. I've been binging your videos and am so excited there's still so much more to watch/listen to! It helps that we're the same age as you guys and have a similar FI goal date to Eric and Laura. I can't explain how excited I am about how you guys so clearly align with our desires and goals. THANK YOU!
Hi Mary, thank you so much for your kind words. We are so glad to hear that you are enjoying the show! Please keep us posted on how things are going towards your own goals, and best wishes to you!
So few channels talk about sinking funds. This is so important when calculating true expenses! Thanks for sharing!
You are welcome, Kim!
Thank you two sooo much for this channel. I have found the concepts and pointers extremely helpful!
You're very welcome! Thanks so much for your support
My America made Maytag dryer is 34 years old, … $48 heater element repair and $20 motor pulley belt repair. I guess I am not playing fair.
I'm not sure what this says about me or about YNAB, but I have wondered if Jason used YNAB. I do and love it. I'm 10 years older than you two but having the last 5 years in YNAB has made our decision to retire in 2023 more comfortable. I like the approach (and its made me a more mindful spender/saver) and I like the ease in toggling off expenses (like college tuition!) with the reporting on real spending. Really like your content!
Jason here - Hi Eileen! YNAB is really great, right? It made a huge difference with respect to our comfort level regarding our planned expenses in retirement, just as you describe. Thanks so much for your support and the feedback!
I think you can make the math super complicated if you so chose. I found the simplest option is DGI investing. Once my dividends cover my expenses I am set financially. Don’t have to worry about selling stocks or if the market drops 10%. Just spend what you get in dividends, if your in good DGI stocks those div should grow by 5-10% a year. Even in 2020 my div grew 6%.
You are spot on. This is exactly my plan as well. I used to wrestle with all the back and forth like these guys. I set a goal once my dividends exceeded 6k a month in passive income, I’m well off in retirement because my expenses are only 2500 per month. So now I have double which is an added security not even including tax deferred accounts.
I like that you included a step for forecasting retirement spending, I think this is an overlooked step. With the calculation of FI, people focus on replacing current spending, but for us, that doesn't account for health insurance since my husband's work currently pays. We needed to save extra to cover that health insurance ourselves.
Great discussion, as usual!
To point#2 I don't see this as 100% retired after FI vs 0% retired before. I think many people working towards FI love to make money, and won't dislike to continue making it after FI... personally, I would enjoy making around $1K a month (without killing myself, just keeping myself busy), and would feel I have another layer of financial 'cushion'...
Jason here - very true! I definitely enjoy making money and if I can do that from things I really enjoy, on my schedule? I'm all for it. I still take a few consulting calls here and there and have my once weekly wine tasting room gig. As we've discussed before, I'm certain that Eric will continue in his own business endeavors post-FI as well. Best wishes to you
@@TwoSidesOfFI Thank you, Jason! All the best to you as well :)!
Agreed! FI doesn't mean I will stop working completely, it means I will work for whom I want to and when it works for me. For me FI is the ability to have the freedom to chose how I spend my time and how I contribute to society.
50:52
Eric, thank you for correcting that bear/bull hiccup! When Jason said 10 year bear market, my eye started to twitch.
Jason here - sometimes recording live is hard! Thankfully we can catch each other. Thanks for watching
i keep an emergency fund for small stuff like car repairs, computers, phones etc. For any major home repair like a roof, i have my roth IRA that i keep for later years, but will tap for a tax free unexpected larger expense.
Thanks for sharing!
For you to net your hypothetical $50k per year it seems pointless to factor in taxes. Long term capital gains aren’t taxed at all until you report more than $80,800 per year (since you’re married filing jointly)
We appreciate your point and for many it would be absolutely true. But it could be an issue for Eric and others like him with appreciable passive income. Modeling that is at least an exercise worth doing in our opinion. The tricky bit I estimating your glide slope, which often may not be evident until you know how you’re feeling as you approach your FI date.
I'm currently 24 and I'm maxing out my Roth IRA and putting the rest in a taxable account. Hopefully, I'll be able to retire early. Thanks for the info!
Great! Are you eligible for a 401(k) or 403(b) with a match? Best wishes to you.
Dealing with taxes. My fire number need to cover at least 20k/year which at the moment is under the standard deduction for married filing jointly. Also we will be living off of dividends and hopefully never have to pull from the principal. Dividends will be in the 0% tax bracket. I will basically be paying no to very little in taxes.
And for passive income during FIRE, I will be selling covered calls. This will help with building the portfolio more during retirement.
Jason mentioned not having access to IRA money (without paying a penalty) until you reach 59 ½ but there are IRS provisions that allow for it. You’re probably already aware of this but you can take Substantially Equal Periodic Payments under code 72(t). Once you go down that path, you have to take the payments for 5 years or until you turn 59 ½, whichever is longer.
Love the videos!
Hi Tim, thanks so much for calling this out! You're absolutely right and we didn't get into SEPP plans in that episode. They are indeed another potential avenue to consider. Here's an article to help people get started. As you'll see, there are some important aspects of these plans to consider when thinking about the appropriateness of this option for you, particularly if you are a younger early retiree. www.investopedia.com/terms/s/sepp.asp
I’ve been really enjoying your podcast Eric and Jason. And now that I know that Jason is a fan of YNAB, I like it even more. Cheers from Australia
Thank you, Hayley!
I just found your videos a month or so ago and I just wanted to let you know I've been enjoying them. I'm just beginning my fire journey. Your videos have been very informative and easy to listen to. It's useful to hear real world examples of fire, from people actually living it. I find a lot of fire stuff tend to be very very theoretical.
Thanks very much! We appreciate your support and are very glad you are enjoying the show.
for step 3, we just look at total cash out the door each month instead of tracking all the details. Used to track the details but too much of a pain to do every month. you can also keep track as what part of that is big discretionary items (vacations, new car, home renovations)
Jason here - I think leading up to RE it's really important. I say that because I feel it's the best way to truly understand your expenses, determine must-have vs. nice to have, and better be enabled to project how they may change over time. Once you're retired and have some experience under your belt, your idea seems very reasonable to me, and something I feel I'm going to arrive at eventually myself. In the present it really helps me to ensure I understand how we're spending vs. our "retirement budget". Just my opinion - I hope it's useful!
congrats on 10k subscribers!
Thank you!
Great episode. Nice to add another resource as I had never heard of Fritz being a newbie.
Thank you for all of your videos! We are really enjoying them and they are really helping us.
Thank you! We appreciate your support
Eric - you might want to look into the “permanent portfolio” or “golden butterfly” portfolios atkeast for your after tax portfolios. They sort of simplify and deal with a lot of these issues in a clear and concise way (buckets, sequence of return risk, hedges, rebalancing and draw down). Essentially you divide up your portfolio into 4 parts: gold, long term treasuries, short term treasures (or cash) and stocks. A variation on this is 5 parts where you have 40% toward stocks with 1/2 being small cap value and the other 1/2 being large cap. The really basic principle here is 1/N (with n being the number of asset classes). Anyway, these portfolios provide a smoother ride (lessening sequence of return risk) in all market conditions while only slightly underperforming a 60/40. Plus you have a chunk of cash that you can use for drawdowns or emergencies Just rebalance when one or more of the slices is 10% out of whack. If you backrest these portfolios for the 70s or the “lost decade “ from 2000-2010 you’ll be pleasantly surprised.
Thanks for the feedback and the suggestion!
I have recently found your channel and trying to catch up. I can't wait to catch up to hear if Eric is as 'concerned' about a 3 year bucket. :). I have a 3 year bucket and it is the only thing that allows me to sleep at night right now.
Jason here - We're glad you found us, Tammy! I feel the same way about my 2-year cash bucket. Stay tuned as you'll soon get your answer as Eric and I do indeed talk about this topic :) Best wishes to you
We already FIRE'd. How did we ensure we had enough? We didn't pull the trigger until greater than 25X / 4%. We don't budget. It's too time consuming, just like we don't balance a checkbook. However, we DO look at each line item expenditure to ensure it's valid and we looked at our history of expenses by category in percentages. Before FIRE we monitored the expenses on a percentage basis to confirm it was consistent. It was. Now with a recent "full sail" of the market behind us, our SWR has dropped from 4% to 3% to about 2% presently. Also, with the pandemic our travel budget has been under utilized. It this keeps going on like this, we will be UNDER spending. Let's hope the market doesn't turn BEAR for 10 yrs Jason! (mis-spoke)
Time stamp 10:13 BAM!! The question I always was confused on because you have to subtract taxes. Thank you.
I'm new to all this. For the bucket method, why not just keep your normal bond stock asset mix until you reach your target dollar amount and then take out the cash when you hit the target. This way you don't have to take out of the market if it goes down in early in retirement. Your more at the whims of the market to start retirement, but less likely to have to go back to work, and your maximizing time in the market.
This was so useful though overwhelming!! Thanks
Thanks, Christine!
I did (and still do) a ton of excruciating scenario analyses with spreadsheets, but I also had a very basic withdrawal req't for being able to FIRE: I needed to reproduce the equivalent of my last-salary's net income. This means I took my prior take home pay, added the difference in healthcare premiums, subtracted my newly-defunct mortgage payment, and called that my new "paycheck." I did a sanity check with about a year of expense analysis as well, but ultimately I used a Gestalt approach that we could simply keep going as we were going, and not need to make lots of fiddly budgetary changes that would stress us out. This was also a key to assuaging my wife, who was very anxious about these changes. Unfortunately I spend way too much time still obsessing over this stuff, both in terms of watching the portfolio like it's a scoreboard, and doing endless tax and estate planning. It's extremely prudent and even a little fun, but I worry that it's too much. But... that's a subject for another time!
Sounds like a good process to us! We readily admit that we obsess over these things as well, so you're in good company. Measure twice, cut once! Best wishes to you
S&P down 20%. 47:40 didn’t age well. Now officially a bear market only 6months later. Have to learn that it’s not always up. By the way, I’ve been binging your content and I love it. It keeps getting better over time, and I like how you let Eric finish his sentences more than before.
So glad you're enjoying it! Thankfully, Eric rebalanced prior to this downturn. If you've not seen them, the first part of our two-part series on that is here ua-cam.com/video/1S-WCfZuH1A/v-deo.html
If you're not ready to try and track your expenses, you'll never be ready to FIRE imo...
Download a csv of your credit/bank expenses and import them into a spreadsheet and tag them - only then you'll know where the money is going.
100% correct. At least get things knocked down into 15-20 main categories. Don't try to be super granular like I did for the first 15 years of monitoring our expenses. :)
It's what convinced me to retire. I tracked every expense (and I do mean every one) for one year prior to making the decision. I found I was wasting a lot of money in places I didn't need to without feeling like I had to sacrifice. I live on much less now and am so much happier. And I continue to track them. It's turned into more of a game/hobby now that I enjoy.
I really enjoy these discussions! It seems to magically hit the same topics my husband and I try to have.
Thanks, Erin! We’re glad that our timing is lining up well with your own discussions :)
Such a great video, I recognize myself in alot of your thoughts being a few months away from retiring completely ( did a one year top off!)
I sent that brilliant video to my daughter to give her a comprehensive idea of all the tools!
Thanks again!
Thank so much, Nancy! We really appreciate it. Best wishes to you on your retirement!
Is there a video where you talk about tax optimization/account usage and cash flow planning?
Hi James, we've touched on these topics but haven't done a super deep dive yet. We'd also recommend Fritz' Bucket Series posts that you'll find linked in the show notes of our latest episode: twosidesoffi.com/fritz-retirement/
Great episode
I am trying to use US Treasury I Bonds as filling up bucket one going into retirement in 5 or 6 years. This is my second year of I Bonds. So in less than five years now, the first rung on the I Bond ladder will be penalty free. That will be 3 years of cash at retirement. I Bonds are also part of my de-risking the portfolio, yet trying my best to keep up with inflation even in cash.
Thanks for sharing, Ron. I-Bonds certainly have a place in many portfolios right now, for good reason.
Totally agree with (a) 4% withdrawal rate is too high/planning for under 3% (b) Don't count SS income in projections OR if you count it think of it at 75% of estimate. It's looking like it's all about income/tax balancing.
Why not include S.S. ?
It is in effect an Annuity backed by the Full Credit of the US Government, (with partial inflation protection) which is about as “guaranteed” as one can get.
If you had said “Don’t count on returns from the Market” - THAT I could agree with, but S.S.?
Cheers!
It's important to count SS because added to RMDs it can put you in a higher tax bracket and cause IRMA expenses, especially if Roth conversions are not done to decrease tax deferred accounts
4 years expenses with travel in cash, Check ! Without epic travel, that cash would last us 7 years or more. Our household expenses are low or below avg so that cash is not as much as some people might need. Equities at or larger than the number we decided on, Check ! Still working - mid 50s, but going to pull the plug within 1 to 2 years. Then cash will carry us along with any gains in market in non retirement accounts to back fill that cash as desired but not needed until we get to 59.5 and can turn on our IRAs, etc. Then rinse and repeat until I turn on SS ( won't need it but it will provide a nice pressure release valve to income ). Once I get to SS at 65 to 67 ( may turn on a bit early ), it will cover our household expenses upwards of 90%. A couple years later my wife will claim and then we will not need to pull from investments unless we are making some big purchase or big trip.
Great podcasts! One thought… I do think my primary house should be part of “my number”. While I can’t spend it, I can sell at some point and live for quite a while off those funds. Or even a reverse mortgage. Just thought I’d bounce this out there for thoughts. Thanks for what you guys do!
Thanks for the comment and your support! While it’s certainly part of your net worth, it seems most common not to include one’s house in “the number”. You are right that you could liquidate it / rev mtge, etc. But if that’s not part of your explicit planning, it seems more producing to leave it out of your portfolio assets to avoid underestimating your financial capacity. Best wishes to you!
You can remortgage/refinance your house to unlock some of its value to get another property that cash flows. That avoids capital gains tax if applicable and also there is a depreciation bonus on the rental property. Your house is stored potential and appreciates usually over time.
Thanks for sharing ^^
Great video! All very important. Especially sequence of return risk, cash flow, and taxes.
Thanks, Nick!
Love your content!
Thanks!
My steps: All equities, all the time, globally diversified in indexes across 1000's of stocks. Invest for total return. + a small cash bucket. Modify spending if need be in times of market drops - esp first 5 years or so.
Why especially the first five years?
This is when you are most susceptible to Sequence of Returns risk.
@@TwoSidesOfFI I don't understand. Why
@@jimjam36695 Check out this article as we think you'll find it a helpful introduction. www.forbes.com/advisor/retirement/sequence-of-returns-risk/#:~:text=Also%20called%20sequence%20risk%2C%20this,the%20longevity%20of%20a%20portfolio.
@@TwoSidesOfFI I see. Thanks
Step 6: Withdrawal Rate - I always hear about the withdrawal rate and very little about income producing securities. ETFs/Funds/others, exist for the purpose of income and less about capital appreciation. Our plan is centered around income producing securities less on capital gains. Extremely important: different incomes are taxed at different rates. This is life changing when you take it into effect.
Do you have income producing securities? If so, what is the percentage of your budget which is covered by these securities?
Currently ours is 35% and at this time we derive income from four (4) sources and working on three (3) more (they are self-sufficient). We are retired and in preps for a country move in April. *Correction* Dividend income used does not exceed income produced to allow for growth.
Great information! Gives me some homework to do.
Very good emphasis for steps 8 & 9 with emphasis on Cash availability. I have seen a FIRE calculation which proposed a long run to accessing the 401k there might be 3-4x in your taxable account vs the IRA/401K amount. The other drawdown will be the reduction of an IRA by ROTH conversion requires in the best case a payment of the tax bill from cash in the brokerage account. I am the poster child of FIRL - Retire Late :-) so i have a fairly small expense covered completely by my SSA + Pension . However, the imbalance of IRA / TaxableAcct is 6/1 - horror so it impacts my 2 years (70-72) late ROTH conversion calculation. Otherwise my RMDs would increase taxes when i am 74 (4 years from now). I would think you would have identified the pre-63 (medicare-IRMAA base) ROTH conversion strategy. Was that of any importance to your planning?
Jason here - thanks, Kevin. Lots of great points made here. I am certainly looking to Roth conversions as part of my own approach. But you’re right that there’s much to consider there. Thanks for watching!
Great video!
Filling Bucket 1 Question: Is it really any better to sell equities from an IRA vs. just withdraw your 5yr matured Roth Conversions? Also, wouldn't keeping three years of cash help reduce RMDs in the future?
A basket approach seems like a bad way of doing with a misallocation relative to your risk profile. If you just set a % to bonds or stock then withdraw every year, it helps with rebalancing by having you spend what is up versus spending what’s in your cash pile. Just another take that I know you’re aware of but I think it’s actually LESS complicated. PS would love to get your take on risk parity and how it impacted your safe withdrawal rate assumptions.
Bigger bucket why not use short term (4,8,13)-week treasury bill 19:45
Check this (more recent) video for what we're doing now: ua-cam.com/video/eteraaI_GEA/v-deo.html
U guys don’t mention that you can access principle in a Roth tax free with no penalty?
This is true, thanks. But most view this as an emergency move only.
Comment for algo. Love the discussion!
Thanks
Love your videos guy’s
When you guys talk about side hustles or one off type consulting, it seems to be not something that everyone can do. When one of you had said earlier that you just did an hour of consulting to cover an expense that doesn’t really seem like being retired to me.
Jason here - Thanks for the comment. we’ve talked about side hustles a bit over time. You’re right that something like the consulting I do on rare occasion isn’t necessarily within everyone’s means, nor is it really a side hustle. That said, it’s also not something I *need* to do. Rather, taking an hour-long call here or there (generally zero to two a month) is merely something I enjoy. It’s a bonus that I get paid for it, and it lets me feel like I’m “paying for” occasional purchases. Our retirement budget would cover some if not all of those things. It’s just a handy way to keep my withdrawal rate well below my target- not such a bad thing during the initial years post-RE. But importantly it’s not a necessity. Hopefully that helps clarify things. Thanks for watching.
That makes sense. Thanks for the reply.
Well done
I've recently being thinking about selling covered calls on broad market ETFs to generate additional income in retirement? Presumably if a large portion of your money is in say an S&P500 ETF you could be selling covered calls every single month with a very conservative strike price that has low probability of being in the money to generate additional income. Is this something that you guys are doing?
I sell covered calls (on stocks I own) and naked puts (on stocks I'd like to buy), but limit that trading to my 10% "fun money" account.
Here's a post from Fritz on the topic: www.theretirementmanifesto.com/option-trading-strategy/
@@TwoSidesOfFI - wow, you really DO read my stuff! I'm impressed that you found that one!
@@theretirementmanifesto3379 Jason here - Absolutely! I remembered the post and it was easily found by googling 'retirement manifesto covered calls'. It's a good reminder that I need to re-read it. I'm intrigued by this approach but am woefully unfamiliar with the details.
is that one of those tiny houses?
Do you mean in Eric’s video? That’s his studio.
Kind of funny to hear you say "what gets measured gets managed". After hearing how against Budgeting you are.
I think the difference is degree of granularity! He definitely measures inflows and inflows carefully :) -Jason
Where did my long comment go? Just posted long comment about FIRE in UK…
Hi Robby, not sure. We don’t see a long comment on this post. Did you reply to another episode?
@@TwoSidesOfFI Great vid guys. As a British person on track for FI, who recently moved to the US for work reasons, I am struck by how much harder FI is to achieve in the US. Here are my thoughts.
In the UK healthcare is free for life, from cradle to grave, which is obviously a big difference. Not “free” but no insurance required and free at the point of use. The UK also has no property taxes. So I own my house in England free and genuinely clear. No tax to pay every year for the right to own my house, that I paid for. Both of these are game changers in the calculation.
@@TwoSidesOfFI
These factors make a huge difference. The IRS, for my convenience, do not recognize ISAs as being tax-free and tax me on any gains in them and restrict me from holding UK-domiciled funds or ETFs in them, as it classes them as PFICs, and taxes them punitively. So, makes retirement planning and a decision on whether we want to keep our US Green Cards a tough one. We lose a lot in having them.
Other other thing that is significant is in the UK we have something called an individual savings account (ISA) which is kind of like a Roth IRA, you pay in after tax money and all growth, trading and dividends, etc are tax free in all cases.
Two major advantages though are, you can each pay in £20,000 per year ($27,000 US), my wife and I both have one that I manage for us both. We also have a Junior ISA for our son, which we can pay up to £7,500 ($9,900) pa. The junior ISA is locked until he is 16, but our ISAs allow withdrawals totally tax and penalty free at any time.
Let's face it-Jason made a killing by investing in Tesla. It made him a Teslannaire and he decided to quickly retire without putting thought in to it. Eric is trying to do it "right" but Eric did not invest a chunk in Tesla stock and it's going to be harder for Eric to make the leap.
Jason here- Ah, if I’d only been so prescient as to invest tons in Tesla early on. Sadly, I didn’t. I have a very small position in TSLA as I mentioned a few times. Single stocks have never been more than a few % of my overall asset allocation.
@@TwoSidesOfFI Okay -I can admit to being wrong. Thanks for setting the record straight but I really got the impression that you made out in the stock market :)
@@TwoSidesOfFI Really do enjoy Eric and Jason's dialogue. I hope Eric can reach his goals next year.
Step #1 - buy headphones with wires
100%. Keeping audio sync is vital!
🤣🤣🧵🎧🧵🤣🤣
I am used to not worrying about my spending under my current take home pay (after tax, pension and retirement contributions). When I retire in 2023, this take home, without pension and retirement pretax contribution, will be $1000 less than my current take-home. This worries me. It is hard to go back to counting pennies and no shopping to make sure expenses won’t go over income (already tracking spending).
Also, I know my pension is not going to be enough 10, 20 years down the road. I have seen retired colleagues trapped by fixed pension because they thought $1500/$2000 a month was enough when they retired in 1990’s. So i plan to leave retirement investment in my current spread (40/30/30 between large mid and small cap mutual funds) for 10 years and do a 20 year scheduled withdrawal when I turn 68 (cant just take out money or specify %). It’ll give me $50k to 75k a year on top of pension. I will have to pay tax but can save the amount I don’t use up. If I die before 20 years is up, leftover goes to a nephew (don’t have kids or other relatives). If I live to my 90s, the after tax savings would be there.