Money Boss

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Archives for 2017

Spending and Withdrawals During Early Retirement: A Real-World Example

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Sometime soon, I’ll be moving most of the Money Boss archives to a new home at Get Rich Slowly. This site will transform into something else — most likely, a static page containing the core content of the Money Boss philosophy.

Until the dust settles at GRS, however, I can’t publish there. And I have something to say!

The Four-Percent Rule

One of the fundamental ideas behind financial independence and early retirement is that there’s a “safe withdrawal rate”, a pace at which you can access your investments so that your nest egg will last for thirty years (or longer).

For simplicity’s sake, a lot of folks talk about the “four-percent rule”: Generally speaking, it’s safe to withdraw 4% from your portfolio every year without risk of running out of money. (This “rule” manifests itself here at Money Boss when I say that you’ve reached Financial Independence once you’ve saved 25x your annual spending — 33x your annual spending if you want to be cautious.)

In August, William Bengen (who first proposed the 4% rule in a 1994 article), participated in an “ask me anything” discussion at the financial independence subreddit. Here’s the top question and answer from that thread (with additional formatting for readability):

Question
Is the 4% rule still relevant in today’s economy? What safe withdrawal rate would you recommend for someone planning for longer than 30 years of retirement?

Answer
The “4% rule” is actually the “4.5% rule” — I modified it some years ago on the basis of new research.

The 4.5% is the percentage you could “safely” withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you “throw away” the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year’s inflation rate. Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950.

Now, on to your specific question. I find that the state of the “economy” had little bearing on safe withdrawal rates. Two things count:

  • If you encounter a major bear market early in retirement, and/or
  • If you experience high inflation during retirement.

Both factors drive the safe withdrawal rate down.

My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%!

However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970’s, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things.

In my opinion, inflation is the retiree’s worst enemy. As your “time horizon” increases beyond 30 years, as you might expect, the safe withdrawal rate decreases. For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%. I have a chart listing all these in a book I wrote in 2006…

If you plan to live forever, 4% should do it.

That’s some helpful information, and it comes directly from a man who has been researching this subject for 25 years. Obviously, it’s no guarantee that a four-percent withdrawal rate will hold up in the future, but it’s enough for me to continue suggesting that you’re financially independent once your savings reaches 25 times your annual spending.

But here’s the catch — and the reason I’m writing this article: From my experience, spending in early retirement is not a level thing. It fluctuates from year to year. Sometimes it fluctuates wildly. [Read more…]

The Future of Money Boss

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As I’m sure you’ve all noticed, it’s been a long, slow summer here at Money Boss. I haven’t written much about money — and when I have done so, it’s mainly been about my new house.

While it’s true that the house itself has been the biggest barrier between me and writing — it’s been almost a full-time job for me since July 1st! — that’s not the only thing that’s been going on.

You see, about the same time Kim and I started looking for a new place to live, another opportunity presented itself. I hinted at this in early April when I wrote about how 2017 felt like the year of opportunity for me:

“As if all of this isn’t enough, I had a phone call yesterday that I can’t discuss in detail. What I can say is that an unexpected — but amazing — opportunity may have fallen into my lap. I’ll have a second call about this situation in a week or two, and I’m curious to see what happens.”

Well, it took six months for that opportunity to come to fruition, but last week it finally did so. You see, I’ve re-purchased Get Rich Slowly, the money blog I started in 2006.

So, while I was silent this summer, I was actually working hard behind the scenes. I was talking with the previous owners about the terms of the deal. I was talking with my personal board of directors about whether I should even pursue this path. And I was brainstorming just what I’d do with the the site if I did get it back. (For instance, I spent the last week of June coming up with this layout as a basis for a re-design. That’s time I could have used to write articles at Money Boss, but instead I was focused on Get Rich Slowly.)

This morning, I made it official. I announced that I’m back at Get Rich Slowly.

What does this news mean for Money Boss? That’s a great question, but I’m not sure I have a great answer. Not yet, anyhow.

I am proud of the work I’ve done at this site, and I think it’s a useful resource — especially my Money Boss manifesto. That said, I’m not keen on maintaining two sites about money. Long-time readers know how much I struggle to keep multiple sites going at once.

I do know this: Get Rich Slowly will address a much wider range of material than I was able to tackle here. For better or worse, I intended Money Boss to mainly be about “advanced personal finance”, which is awesome. But as much as it’s awesome, it’s also limiting. Get Rich Slowly will let me write about anything related to money.

All this is to say that my attention will be elsewhere for the foreseeable future — possibly indefinitely.

One option I’ve considered is moving most of my Money Boss articles over to Get Rich Slowly, and just keeping the core content here as a sort of “mini course”. Or I could use Money Boss as a place to publish occasional longer articles about advanced personal finance, just as I had originally intended. Again, I’m not sure which will happen — but I wanted to let you folks know what’s going on.

I’m not a slacker. Honest! But sometimes a year of opportunity is also a year of change. The six months have been all about change in my life. In this case, it’s a change back to what once was: I’m back at Get Rich Slowly.

The Money Pit

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I have some good news and some bad news.

The good news is that Kim and I are, at long last, finished with major remodeling on our new home. That means I’ll have plenty of time to write about money again. Yay! (As bonus good news, I’ll probably be writing less about the house. But not today. Today, I’m writing about the house.)

The bad news is that our remodeling projects took much longer (and cost much more) than we expected. To seasoned homeowners, this will come as no surprise. Nevertheless, it’s no fun to have spent two-and-a-half months (and tens of thousands of dollars) to make repairs.

When we bought our new home, we knew it needed work. The pre-purchase inspection revealed plenty of problems, from a failing roof to rotten siding to crumbling decks. It was even possible that the foundation was falling apart!

While replacing the siding, the contractor discovered extensive rot and moisture damage.

Before buying, Kim and I talked at length about whether we wanted to take on this sort of project. For five years, we lived in a cozy condo — a condo that was relatively new and trouble-free. Did we really want to trade that for a long list of headaches? Ultimately, we decided we did.

I crunched the numbers. “If the condo sells for as much as I think it will, we should have $40,000 or $50,000 to make repairs,” I said. “That should be enough to cover everything — unless the foundation is shot.”

The condo sold for more than I expected, which meant that we moved to our new old house with a $59,000 “profit” that could be funneled directly into our remodeling projects. We started right away.

The Money Pit

I’m not sure how things are in other parts of the country, but here in Portland contractors are booked solid for weeks — or months. I started calling around in early July, only to learn that many companies wouldn’t be able to start work until September or later. (One roofing company asked if it’d be okay for them to replace our roof in November.)

We eventually were able to book people for all of the work we wanted to have done. Over the past two months, we’ve paid for the following projects:

  • HVAC System. We completely replaced the previous HVAC system, installing an ultra-high efficiency furnace and air conditioner. (In retrospect, the A/C was probably the dumbest home improvement decision I’ve ever made. It seemed like a good idea at the time, though.) Total cost: $15,069.
  • Gas line. The folks who bought our condo didn’t want the gas range, so they simply gave it to us. Great! Except that we didn’t have a gas line running to the kitchen. We paid a handyman to install everything. Total cost: $1,000 and a lot of cursing.
  • Floors. When we moved in, the floors were shot in every room but two. There was extensive water damage (and rot) in the bathroom and one bedroom. The carpets in three rooms were caked with mold, mildew, and animal urine. It stunk so bad that some days it gave me a headache. We hired a company to replace the carpets, install oak floors in the kitchen, and refinish the wood floors throughout the house. Total cost: $9,585 and mild cursing.
  • House envelope. Our biggest expense came from having to replace the entire envelope surrounding the home. We paid one company to do all of this work. While replacing the roof, they found extensive rot in one area and had to replace the plywood. While removing the old siding, they found many areas of rot, including a large section behind the bathroom where termites had invaded. This led to an unplanned bathroom remodel (see below) plus some re-framing. Last of all, they replaced the front deck, which had begun to collapse. Total cost: $36,680.56.
  • Gutters. While replacing the envelope, our contractor paid another company to install new gutters and downspouts. Total cost: $1,300.
  • Bathroom. As I mentioned above, we had to tear up half of the bathroom (and part of one bedroom) in order to remove rotted material that was drawing insects to the house. This project was a colossal headache to everyone involved — but it looks great now! Total cost: $4,300.05, many late nights, and tons of cursing.

All told, we’ve spent $67,934.61 on remodeling since July 1st. That’s roughly 15% over our $59,000 budget. I guess things could be worse — we might have had to replace the foundation! — but the expense is still painful. We had hoped to spend less than $59,000 so that we could use the leftover money to buy a hot tub for the backyard. I guess the jacuzzi will have to wait.

“You should watch The Money Pit,” a friend told me recently after hearing about our trials and tribulations. I scowled at her. “No, I’m serious,” she said. “It’s hilarious. Plus, you’ll totally be able to relate to it now. It might actually feel better about your situation.”

No Longer a Shack

Our shiny new floors! title=When I’m out walking the dog, I often stop and chat with neighbors. They’re curious about all of our projects. “That place is a shack,” one lady told me last week. “I’ve been in it many times. It needs a lot of work.” I’m pleased to report that our house is no longer a shack.

Now that the hard stuff is over, there are lots of little things left to do — new paint in every room, prepping the guest bedroom, minor repairs all over the place — but the major projects are complete. We’re ready to relax and enjoy the space. Last weekend, we finally felt comfortable having our first houseguests.

Next week, I’ll tackle one last thing before the autumn rains set in. Based on the recommendation of my pal Mr. Money Mustache, I’m having a pre-fab shed delivered. After that’s installed in the back yard, it’ll become Money Boss HQ. It’ll take some time to insulate, hang drywall, lay floors, and so on, but my hope is that by the end of October, I’ll be able to move my office from its current location (a 25 minute drive from home!) to its new spot, right next to the vegetable garden.

The Big Fat Truth: J.D. Roth Interviews JD Roth

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I’m not the only semi-celebrity J.D. Roth. For more than fifteen years, I’ve been receiving email and tweets and Facebook messages intended for the other JD Roth, the former executive producer of The Biggest Loser — and tons of other television shows.

Apparently the other JD Roth has a lot of fans. Actually, I’m one of them. I’ve been watching his shows since 2009, when season seven of The Biggest Loser inspired me to start my own weight-loss journey. When he published his book The Big Fat Truth in the spring of 2016, I read it the day it was released. I thought it was great, and wished that I could interview the author, but Kim and I were in the middle of our 15-month RV trip across the U.S. and I couldn’t make the logistics work.

Earlier this year, when I learned that Roth had created a TV version of The Big Fat Truth, I knew the time had come at last: J.D. Roth was going to interview JD Roth. Last month, we made it happen.

Note: It can be tough to tell the two of us apart. We’re both 5’8″. We both have the same facial hair. We both have beautiful wives/girlfriends. And we both share similar underlying philosophies regarding success and personal development.

That said, there are some subtle differences between the two of us.

For the purposes of this article, here’s how to tell us apart: When I write about myself, I won’t do it in the third person. I’ll say “I” and “me”. When I write about the fitness JD Roth, I’ll use proper journalistic form and refer to him by his last name.

The Big Fat Truth

“I’ve been watching your new show [The Big Fat Truth on the Z Living network], and I really like it,” I told JD Roth at the start of our phone conversation. “I like that it’s less of a game show and more about helping participants address not only their health, but the other things they’re struggling with in their lives.”

“Yeah, it’s all interconnected.”

“Plus, The Big Fat Truth feels less produced than The Biggest Loser. There aren’t any weekly weigh-ins and there’s not dramatic music. It’s you sitting down and helping real people living their real lives facing real challenges — but still achieving real results.”

“Thank you.”

“In one episode, for instance, you have a couple analyze how they allow words to hurt them — how they use what others say as an excuse to make bad food choices. Or there’s the mom episode where you go over to Nancy’s house and it’s a mess. Her basement is a disaster, so you ask her to clean it up. I think you say something like, ‘Fix your mind and the body will follow.’ I love that.”

“All of these things in your life — your basement, your bank account, your belly — are a microcosm of what’s going on in your mind. Being ready to assess your inner life is probably the hardest part of losing weight. But it’s also the most important.”

“Here’s an exercise I’ve used in the past,” Roth said. “I tell participants to go home and clean out their bedrooms. If you want to lose weight, empty out your bedroom. Let yourself wake up to peace, organization, and calm. Give yourself this one oasis to escape from the chaos of life. This small step is a great place to start.”

If you’re interested in checking out The Big Fat Truth, you can watch the first full episode in the video embedded above. Or you can catch the show very Sunday at 8pm (Eastern and Pacific) on the Z Living Network. And, as mentioned, I think the book is terrific too.

From Desire to Transformation

“How do you help people move from desire to transformation?” I asked. “Many people want to lose weight, just like many people want to get out of debt. How do you move them from wanting to doing?” Before Roth could answer, I explained my own approach. [Read more…]

Just Solve the Problem!

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I have a splinter in my foot. It’s been there for the past ten days, and boy let me tell you: It hurts!

While the contractors were working to replace the siding on our new home, they discovered a termite infestation outside the bathroom.

Termites

Further investigation revealed that the floor under the tub was not only wet and damp, but had actually completely rotted. So, we hired somebody to repair the damage. On the first day he was here, I went into the bathroom barefoot. Oops. I stepped on a shard of glass tile, and it’s been in my foot ever since.

This sliver doesn’t really affect normal activity. If I wear sneakers and socks, I barely feel it. But if I wear sandals, I get a sharp stabbing pain in the side of my left foot. If I try to run, the same thing happens. And forget about going to the gym!

Now, the obvious response here is, “Why haven’t you taken the sliver out of your foot?” Great question!

That very first night, Kim did try to remove the sliver, and we thought she got it. But the next morning when I took Tally for a walk, I realized the sliver was still there. It’s been there ever since.

This, my friends, is a perfect example of a couple of things.

  • First, it’s my family’s mentality in action. For some stupid stupid reason, we Roths don’t like dealing with medical issues. When we’re sick, we suffer for days (or weeks) before going to a doctor. When we’re hurt, we just suck it up. When I was young, my mother sprained her ankle. She limped around for months before seeking medical attention. In college, I broke a finger playing touch football over Thanksgiving. I dealt with the intense pain until Christmas break, at which time I finally decided to see a doctor.
  • Second, this a perfect example of putting up with a problem instead of finding a solution. Most people — myself included — are willing to tolerate a great deal of dissatisfaction and discomfort before deciding to remedy whatever is wrong in their lives. I’m not sure why this is the case, but it’s true.

During this morning’s walk with the dog, the pain was especially bad. Every time I planted my left foot, it felt like somebody was stabbing me with a needle. “I just need to solve the problem,” I thought to myself — and that reminded me of some wise advice I once received.

Just Solve the Problem

About a decade ago, I worked with a life coach. Each week, we’d have an hour-long phone conversation about the ways I was trying to become a better person. I made great progress in some areas, but little progress in others.

One day, we were talking about my inability to eat a healthy breakfast. I’ve always been the sort of guy who knows he should eat a nutritious breakfast but doesn’t actually do so. My coach had been encouraging me to make this a habit in my life, but I kept complaining about all the reasons it wasn’t possible. Eventually, she’d had enough.

“J.D., you’re being ridiculous,” my coach said, exasperated. “This isn’t rocket science. Millions of people eat a healthy breakfast every day. You can too. You need to stop making excuses. You need to identify the problem and solve the problem. Just solve the problem!” [Read more…]