Gyroscopic Investing

Pointedstick wrote:total out-of-pocket cost for my wife's recent childbirth was $200!

Nice.

When my 3 year old was born my out of pocket was about $4,500, having hit the personal and family maximums.  The hospital and doctors bills were near $60,000.  Being born a few weeks early and spending 3 weeks in intensive care will do that before you know it.

(Luckily once she figured out how to metabolize food and then eat (no more tube!) and started to put on weight then she could maintain blood sugar and body temperature and everything was perfect -- no deafness, vision problems or any other developmental issues and they sent her home.  The only problem was she was just born without an ounce of fat.  Very fortunate compared to another baby born the same day, not quite as premature but much worse off.  Now she's in the 50th percentile for height, but only 30th percentile for weight.  Hasn't stopped her from completely dominating her brothers...)

Without a doubt.

The median net income in Germany is 19000 US$/year (when accounting for purchasing power parity). So, 30000 US$/year should be quite sufficient for a household here around! You just have to play around with the investment portfolio, because health insurance costs actually depend on realized capital gains in such a case. Thus, in such a case a manually implemented PP might become a big problem when rebalancing often.

sophie wrote: I think this is the Achilles heel of the early retirement community.  The typical American who plans to work until age 65  wouldn't be better off, but they don't have any savings to lose.  They'll just declare bankruptcy, wipe out the credit card and medical debts, keep their house and cars, and move on.  An ERE devotee, on the other hand, will lose his/her nest egg and have to start over.

I guess you'll have to balance out the benefits of one lifestyle over the other.  Maybe losing the nest egg and starting over won't necessarily be worse than having to work straight through to age 65 and then depend on Social Security.

Thanks, Sophie. My concern is that you can get stuck losing your nest egg and not be capable of starting over. It's all ok if you think that government programs will take care of you and  your family indefinitely, but I do not want to count on that. If I am doing such things as moving cash to Treasury Direct and buying Perth Mint certificates, I am not going to take the risk of something that is equally dire and a lot more probable.

If you are planning to send kids to college, does the 1M affect financial aid? Seems that this should be considered. Options:
Kids don't go to college
Kids work and pay own way
Loans

To be fair, it seems that indicating that you could live off of 1M means that 1) you no longer work, 2) you are comfortable covering all parental expenses if you have kids and 3) you can cover all anticipated and unanticipated future medical costs in retirement.  Higher education and health care are more secure in Germany, aren't they dkalder? Hence the ability to live on median of 19K.

BearBones wrote: If you are planning to send kids to college, does the 1M affect financial aid? Seems that this should be considered. Options:
Kids don't go to college
Kids work and pay own way
Loans

To be fair, it seems that indicating that you could live off of 1M means that 1) you no longer work, 2) you are comfortable covering all parental expenses if you have kids and 3) you can cover all anticipated and unanticipated future medical costs in retirement.  Higher education and health care are more secure in Germany, aren't they dkalder? Hence the ability to live on median of 19K.

I don't really know if those are more "secure" in the long run - given the current state of affairs. But for the moment they are in most cases cheaper. The lowest stage of public health insurance costs 150PPP$/month, which you are eligible for if you have no job, are not officially self- or unemployed (but e.g. early retired) and have less than 10000PPP$ realized capital gains in a year. Public health insurance does not care about prior conditions.
Private health insurance can go even lower when you are young and without prior conditions - and is totally independent from your income - but is very dangerous when getting older, because it may become very expensive quickly. And there are no real HDHP options.
Basically, when living off 1M$, it is probably best to be privately insured up to 45y of age, then be employed for exactly one year in *any* kind of job (requirement to be allowed back into the public system) and then switch back to the public health insurance. I am not quite sure if you could employ yourself in a self-owned LLC to achieve that. As the public and the private health insurance system both have totally different ways to determine premiums and the premiums may rise differently in the future - as well as the fact that it is not easy to switch between both systems - it is hard to judge which strategy would be best for a 1M$ early retiree. Especially when switching might become extremely difficult after any new laws in the future.

It's always fascinating how mature societies put up these twisted systems.

Higher education on the other hand is easier - it's free again as university tuition fees have mostly been abolished after lasting only a few years.

Apart from those two aspects it really is PPP$ - meaning you will buy as much food, transportation and housing with those 19K here as in the US. Please note that gas is nominally much more expensive (because of very high gas taxes), thus many people use public transport or the bicycle, houses of a similar size cost much more (thus most people rent an apartment and the majority does not own a house) and VAT is also higher, which is paid from the net income. Those are all reasons for the PPP$ ratio as it is.

I think the biggest threat to a 1M$ early retiree in Germany is future tax increases and expropriations. The parties right up to what we consider "center" are talking about increasing the capital gains tax up to 30 or 33% from 26.75% right now and reintroducing a wealth tax, which taxes the principal up to a one-time payment of 10% (!). If you see, what happens right now in France (>60% stock capital gains tax, millionaires tax etc.), a millionaire retiree in Germany should be frightened, too.
The general mood in the population is becoming increasingly socialist again and if the crisis tightens, I would not want to be a millionaire here around. I would probably try to emigrate abroad. Apart from that, it's easy to live off 30K$ for the time being, as most people have to settle for less.

In general, I find it very interesting how different wage, tax and social security levels in different countries make certain more unconventional live models more or less difficult to pursue. E.g. I have crunched the numbers and it is much more difficult for an employed engineer to retire early in Germany than it would be in the US with a similar job and qualification.

BearBones wrote:

BearBones wrote: It's all ok if you think that government programs will take care of you and  your family indefinitely, but I do not want to count on that. If I am doing such things as moving cash to Treasury Direct and buying Perth Mint certificates, I am not going to take the risk of something that is equally dire and a lot more probable.

That's a really good point!

I guess that as long as you view early retirement as the ability to take risks and do what you want to without the need to worry about your next paycheck, you'll always have the flexibility to step up your earnings if you need to rebuild a nest egg.

Regarding college expenses...yes, the $1M would completely disqualify your kids from grants and most loans.  If you set up 529 accounts and include regular contributions in your budget, that would help.  Alternatively you could try to keep as much money as you can in retirement accounts and physical gold, and gift the rest to your kids.

BearBones wrote: If you are planning to send kids to college, does the 1M affect financial aid? Seems that this should be considered. Options:
Kids don't go to college
Kids work and pay own way
Loans

I have strong feelings about college and saving for it. Here are the cases I see:

Case 1: academically talented kid, strong motivation, firm direction
This is an easy one. The kid will probably be accepted everywhere, so you can use this to your advantage have her apply to 2nd and 3rd tier colleges, where she will receive an identical education but be offered a totally free ride, and maybe even a stipend! I had a friend who did this and saved his parents the $250,000 they'd saved. I could have done it too if I'd been smarter, even though I was only a slightly above-average student. This case requires no money from you.


Case 2: academically middling kid, some motivation, little direction
You let the kid take the reins of the college admission process. They will either gain some motivation and direction from this experience, or let the deadlines pass by and not apply, in which case they take a year off and enter the workforce. That will hopefully give them the motivation they need, or else maybe they'll discover that they're happy without a college degree. If they do go to college, it'll probably be to a state school, which, depending on the state, are often cheap enough that a student can still work their way through the bills (several recent grad co-workers of mine did just this, so I know it's possible). This case requires little to no money from you. If your kid ends up attending a school that they need to take out some loans for, you can always help them out later.


Case 3: academically poor kid, no motivation, no direction
No reason to spend a penny here. This kid enters the workforce like case 2, or maybe even the military if the lack of motivation and discipline is severe enough. College would just be a waste of everybody's resources to this kid in their current state. Once they morph into someone more responsible, you can reconsider. No cost to you.


Keep in mind these are worst-case scenarios where your kid is white, male, upper middle-class, has no special skills, hidden talents, charming stories, experience volunteering with a worthwhile organization, or ability to proclaim in a heartfelt manner their guilt about the oppression their racist, exploitative ancestors have inflicted upon others. Any of those could be leveraged into lucrative scholarships.

I think the reason why so many people spend bazillions on college for their kids is because they're saving money for academically middling kids to attend "reach" schools, which is the worst position to be in. There's this mania that's gripped people and convinced them that even directionless, academically underprepared kids need a bachelor's degree, and the colleges are laughing all the way to the bank. Don't do it. You're not doing your kid any favors, and you're destroying years of your hard-earned savings.

It's well-intentioned, but now that everyone does this, it's harder and harder for your kid to stand out, especially if he wants to major in the liberal arts. If you kid wants to major in photography for example, don't send them to college, buy them a camera and help them start a photography business. Wedding photographers can charge 2k per event. They can be earning a nice living by age 18. No homework, no student loans, a four-year head start on everyone else… they could be financially independent by 30.

Pointedstick wrote:

dualstow wrote:

Pointedstick wrote: Absolutely. At 3% safe withdrawal rate, you're looking at a $30,000 per year income. I'm currently supporting a wife and child on a little more than that in the SF bay area. If I moved elsewhere and bought a modest house (< $100,000) with a chunk of the principal, that's a $27,000/year income with no rent or mortgage payments. Easily doable.

Are you kidding me? If that's true, you're as impressive as that Israeli guy who posted here and then disappeared.
My income is more than that, but even though I live in a much cheaper state, I'm not saving nearly enough.
$5,000 a year to property taxes right off the top. Burglar alarm fees, internet & utilities. I have money left for fun, but ... $30K would only be enough if I were single. Maybe I'm spending inefficiently?  ???
But, I have a friend in SF who earns 100K a year, and so does his wife. They said they don't save that much. (Two kids).
---
And, I realize that this is not about saving, per se, but let's call what I'm saving "back up money." Either way, I'd be way over budget.

I'd be happy to share more details! I wish the Israeli had stuck around too; woulda been mighty nice to hear how he did it.

I won't ask you to give up anything too personal. I know you prefer to have friends over for dinner rather than eat out with them, and there's a big savings right there. Thanks to tax & tips, I spend 6-8K on dining out each year. My wife never asks to eat out very often. I'm the one dragging her out, because it's the one thing I really like to spend money on. We both cook, but there are certain things that we only eat at restaurants.

We don't have a car, so we spend $0 on gas or car insurance or car maintenance. I depend on friends when I need to get to a wedding in the countryside, and public transit or shoe leather for the rest. But 30K? I think my credit cards bills (no fees or interest, ever) add up to 22K, and that's before we get to the bills that I *have* to pay.

Maybe you have some savings highlights that you could mention?

dualstow wrote: I won't ask you to give up anything too personal. I know you prefer to have friends over for dinner rather than eat out with them, and there's a big savings right there. Thanks to tax & tips, I spend 6-8K on dining out each year. My wife never asks to eat out very often. I'm the one dragging her out, because it's the one thing I really like to spend money on. We both cook, but there are certain things that we only eat at restaurants.

We don't have a car, so we spend $0 on gas or car insurance or car maintenance. I depend on friends when I need to get to a wedding in the countryside, and public transit or shoe leather for the rest. But 30K? I think my credit cards bills (no fees or interest, ever) add up to 22K, and that's before we get to the bills that I *have* to pay.

Maybe you have some savings highlights that you could mention?

Posted to http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

Not having a car is great. If you don't already use mint.com, it's absolutely unbeatable for figuring out where the money's going. For me, I don't feel like I really do anything dramatic in the name of saving money. It's just a bunch of little things that add up. We avoid paying for things we don't use, we don't waste food or go out to eat more than once a month or so, we don't go bar-hopping or go to the movie theater more than once or twice a year (this can get ridiculously expensive; one month when the two of us went to see three new movies, we spent $77. Insane!), we don't really ever buy new clothes, and our video entertainment comes from YouTube and Netflix. I wouldn't say we've really altered our lifestyle that much at all, and we certainly don't feel deprived. I mean, we live in a modern apartment within walking distance to work and food, we own an automobile and several computers, there's a small arsenal in the closet, we eat delicious, nutritious meals, we carry mobile telecommunications devices in our pockets, and we're able to take care of a dog.

Probably the biggest thing that keeps us from overspending is retaining a sense of wonder. Having a car, computers, cell phones, access to a global information network, free streaming video on demand; these are unimaginable luxuries that we feel blessed to be able to own.

BearBones wrote: Second thought: I see lots of folks who go blind in their 60's and 70's due to genetic predisposition (can happen, healthy lifestyle or not). Not completely blind; just can't read or drive. If this happens to you and something also happens to your spouse, would you still able to live on 30k/yr? Remember, you still have decades to live, so you don't want to draw down your principal too much.

What kind of disease is this?

Pointedstick wrote: As for the old-age blindness, at a certain point, I just agree to stop worrying. A lot of things could happen; I could be hit by a truck tomorrow and become quadriplegic. I could progressively lose all sensation in my hands and need to have them amputated. I could become a vegetable.

You might want to budget for disability insurance.

Pointedstick wrote:
Posted to http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

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we don't really ever buy new clothes
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ding ding ding!
I'm not sure, but I think you may have married the most wonderful woman in the world.

Pointedstick wrote: I have strong feelings about college and saving for it. Here are the cases I see:

Case 1: academically talented kid, strong motivation, firm direction
...This case requires no money from you.

<etc>

For 99.5% of the population this is just fine.  But before you dismiss Harvard, Yale, and MIT, realize that they really do open a lot of doors.  They provide academic experiences that you can't get anywhere else, and the advantage can still be apparent many years later.  If you really believe in your heart of hearts that you have a kid who is headed for a highly competitive scholarly career and they can get into one of those places, then at least think twice before you turn down the opportunity.  For anyone else, the high tier schools are nice but probably not enough of an advantage to warrant paying those high tuition bills.

There are ways to get loan forgiveness afterward.  One example is the NIH Loan Repayment Program (lrp.nih.gov), for physician-scientists.

The Ivies are kind of a special case since they'll identify students they really want and offer them free rides since they have endowments so large that they don't even need to charge tuition to begin with. But you really need to be a star. Like, all A's, 2400 SAT score, 36 ACT score, because those are the kids you'll be competing against. It also helps if you're "diverse" in one of the ways colleges find desirable (came from the lower middle-class, grew up in a foreign country, speak foreign languages, etc).

Students not good enough for an Ivy League education but still in the top 10% of their graduating class can still get an education 95% as good by applying a few levels down.

I guess the lesson I'd like to impart is: find a college that wants you, because they will pay for you. Any college that only you want will make you do the paying.

dualstow wrote:

Pointedstick wrote:
Posted to http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

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YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY
ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ
we don't really ever buy new clothes
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ding ding ding!
I'm not sure, but I think you may have married the most wonderful woman in the world.

I think so too! 

But seriously, there are lots of great ways to save money on clothes. I'm not aware of them but I know there's a whole corner of the blogosphere dedicated to saving money on stylish clothes.

I've studied this in detail over the past year or two, tracking expenses on Mint and studying investment options (which led me to the PP).  The conclusion I reached is that my wife and I need a million dollars and a paid-off house to achieve financial independence. It's become a bit of a mantra. So the poll fits right in line with that.

Of course, the "paid-off house" part of the equation is drastically affected by where you live.  That's one reason we recently left the Bay Area. 

I thought this gave an interesting backdrop to this:
http://www.dailymail.co.uk/news/article ... e-U-S.html

Nearly half of the world's richest one per cent of people live in the U.S., according to a top economist. But the threshold required to make it in to that elite group is lower than you might think - just $34,000 per person........ the global median income is just $1,225 a year

I wonder how many of those 3.5B people on < $1,225 per year use mint.com

Ps,

Early retirement is really about how far you are willing to push the envelope. After mortgage, my entire expenditures for month average in the 400 dollar range. This includes all bills and food.

Although this might seem miserable, I think one thing that has helped greatly is to first create a clear picture of the difference between "pleasure" and "happiness". Spending a great deal of money on clothes or fancy vacations might be pleasurable, but it won't do a lot to impact your happiness. I try and focus on the later and am grateful for the moments of pleasure that come along. I went through a period in my life where I would go out and buy a new guitar every month or so...similar to the shoe habit many women have. Taking home the new instrument and playing it would bring a temporary high, but a few weeks later it would fade and my overall level of happiness would be the same and my bank account would be about 500 dollars lower. I realized pretty quickly that there isnt a strong correlation between money and happiness. If that was the case, I figured why not push the envelope?

Now money only acts as a security blanket in a world where community has disintegrated. Other than that, I have little purpose for it in my daily life. I'll admit, I struggle occasionally against falling into the alluring world that advertisers bombard you with. Before making the purchase though, I just reflect a bit on how I will feel about this item in a month and I realize that buying probably won't change my present state of overall contentment very much.

Here are some intense envelope pushers :-)

Eliminate toilet paper and wash yourself (probably only works if you don't pay for water)

Turn off hot water and take cold showers (or do so at your gym if you are a member)

Eliminate furniture from your life and tell everyone you are cultivating a Japanese aesthetic

Turn off air conditioner (your parents probably grew up without it)

Get creative in the kitchen. Figure out new combinations and recipes based on seasonal and on sale items.

Establish a uniform...Think president Obama and Steve Jobs. It works for them.

Find a lot of free hobbies. Past times like golf or power boating will drain your bank account.

Eliminate the cell phones and move to magic jack. With ubiquity of wireless Internet its not so bad.on that topic, you should be sharing Internet with your neighbors as well.

stone wrote:
I wonder how many of those 3.5B people on < $1,225 per year use mint.com

Good point. I read somewhere that the bottom 5% in wealth in the US still have more money on average than the top 1% in India. I think we can all use a little fresh perspective on "necessary expenses" every once in a while.

How about no expenditures? This man has been happily living in caves for quite sometime.

http://www.bbc.co.uk/news/magazine-17762033

$400 a month after your mortgage, doodle? That's incredible! Once your morggage is paid off, you only need to acquire $160,000 and then you're free.

Does that $400 include health insurance? I assume you have no car, right? What about food? I'd be curious to know what kinds of meals you make. Do you have a cell phone? Do you generate your own electricity?

Technically, I'm free right now in that I really work out of habit and interest. I have often thought of cutting back work to like 15 hours a week which would cover all my expenses but I don't know what I would do with all that free time.

As for bills the only one I have is electric which is 26 dollars a month....half of which is service fees and what not.

I don't own a car and haven't for about 4 years. I had a couple motorcycles but I sold them off as well. I bike, walk, or carpool everywhere and occasionally jump on a bus. This has the added benefit of incorporating low intensity exercise into my daily life which has been shown to have great health benefits.

As for food, I always eat in season which keeps prices down on fruits and veg. I also keep my meat intake rather moderate and supplement protein with a daily shake. I would like to learn how to fish (as I live on the coast) which would save even more.

I don't have a cell phone, I use an iPod touch with magic jack (10 dollars a year) and heywire for texting which is free :-)

Health insurance is provided through job but if it wasn't I would just get a catastrophic insurance plan. I generally self medicate by doing my own research online.

That is inspirational. Do you get free internet from libraries or something? You mentioned sharing internet with neighbors… do you not count that as a bill? Do you do all your own laundry with a WonderWash or something? I'm reeling… you put ERE Jacob to shame. Really really amazing. I suspect I won't be able to get my non-housing costs down as low as $400 a month due to the wife and kid, but man, that's unbelievable. Hats off to you.

It's amazing to me how the amount you need to save really attenuates downward the more you cut your expenses. $400/month only requires $160,000, a sum which can be saved by anybody in a first world country after a decade or less. But go up to a paltry $1,200/month and you suddenly need $480,000, a sum much larger and more difficult to acquire in a reasonable amount of time.