Finance, Saving

Too many eggs in the retire early basket?

Outliving your assets

With all this “Tax cut” talk, it’s really making me recalculate some of my numbers for retiring early. It’s also making me wonder how much we really need for retirement.
Everyone has an individual situation, but I’m thinking I might need a boost.

Don’t get me wrong…living frugally totally makes sense.  I tend to get inspired by others’ stories. Like the couple featured in MarketWatch at “Our next life” who intend to pull the plug in December of 2017.

Learning to live frugally is great mental training and definitely has long term compounding benefits.

However, I’m worried about several things. Namely:
1. Opportunity costs
2. Hyper inflation
3. Insolvency of social security

These are probably 3 things that are on the top of everyone’s list, right?

Real market downturns

The odds are against the markets continuing to rise in the short term. Some people are going to get severely burned, even if you’re invested in the Google’s and the Amazon’s of the world.

I’m working on another post, that focuses on the strategies of American Association of Individual investors (AAII). Their theory, focuses partly on opportunity costs. The costs involved in deploying capital, and losing an opportunity for another investment while that capital is tied up.

The reason I bring this up, is that you never know when you’re going to need that money.

Most of the financial blogs that I’ve been following, basically preach, squirrel away everything for investing, and have a small cash reserve. For me, personally, that never seems to work out quite right. Seems like when I need a big chunk of cash, the market is down or I just purchased a property and could have used that money in the stock market and made way more money than in real estate.

I’m in the market for a vacation home right now, and I’m reserving about $80K to $100K for that purchase.  I can’t risk that this balance will go down by 10% or more in the next 3 years.

Hyper inflation

As we all know….things used to move more slowly. I remember growing up and hearing my Grandmother and parents reminiscing about 5 cent loaf of bread or a penny a pound potatoes.

Just taking a quick look at this chart for various prices over 70 years has me worried.  I often joke that I never like to pay more than $15 for a concert ticket or $50 for a pair of sneakers.  It’s a nice goal, but it probably won’t surprise you that I haven’t been to all that many concerts in the past 15 years.  Some prices move up slowly, but what if that weren’t the case?

Instead of these types of increases over 70 years, what if that type of increase happened over a shorter period of time?
Can your assets handle $100 loaf of bread? That’s a game changer and one that I really don’t think the FIRE community is considering.

That’s why, in capitalism, there is still a mad dash for the cash. To collect it, to protect it, and to avoid paying taxes on it.

In the past 10 years, I saw both Giants stadium and Yankee stadium, turned from a blue collar arena into an exclusive haven for rich people, with tiered access.
It’s quite possible that, in 10 or 15 years, even people with 1 million dollar net worth will just barely be able to keep their heads above water. At the very least they probably won’t be able to easily afford first class accommodations on a Blue Origin space flight. They’re probably not going to want to spring for “ungated internet access” after net neutrality falls.  Things we take for granted today, might not be as “affordable” in the future.

Who’s going to pay?

People seem to forget that they were toying with the idea of allowing stock market type investments for social security funds.  This was just before the financial crisis. While the markets have bounced back since then, that type of investment would have wiped out a lot of people for an extended period of time.  In this political environment, I don’t feel comfortable that Federal fiscal responsibility is a priority.

My point is this. All those “Monte carlo simulations” about retirement funds, include that big chunk of social security money. If that were to change, that would obviously cause some serious re-calibrations.  The way I see it, they have to make at least one of three tough choices:  Reduce benefits, push up the age that you can start to collect, or apply some form of “means testing”.

While means testing might not be a popular idea, why should people with a giant bank account and real estate holdings receive the maximum benefits?  Is that really socially responsible?

By 2033 Payroll taxes will only be enough to pay for 77% of the promised benefits.  The remainder has to come from somewhere.

I’m thinking I need to bank another $100K to $200K in the next 10 years to make retirement on our terms a reality.  It’s either that, or I need to work harder on the wife for the idea of a reverse mortgage.

What keeps you up at night?