The more interests you have, the happier you will be. Imagine if one of your hobbies is analyzing clouds, or cumulonimbuses for the scientifically savvy. You could step outside any time during the day and entertain yourself for hours. There are so many things around us that our minds tend to filter things out so we can focus on more important tasks. If we stopped to admire everything, we’d probably never get anything done!
Income diversification is important during weak economic times since you never know when one stream might dry up. However, the funny thing is that I’ve never purposely thought about creating new income streams for the purpose of diversification until this year. Instead, my diverse interests have lead me to have a diverse amount of income! It never occurred to me to count up my non-job income and figure out what percent it is of total income. But, as I started adding things up, I was amazed to realize some months would regularly achieve 25% and up to 50% of my gross base salary!
VARIOUS EXAMPLES OF INTERESTS THAT CREATE INCOME Read more…
While cleaning up the FS Forum application spam I had a realization. For the past eight years I’ve been happy with what I have. Before 2005 I was restless because I still needed to prove myself at work and make sure I wasn’t a failure by age 30 in two years time. The 1997 Honda Civic I was putzing around in wouldn’t do so I upgraded to something nicer within the 1/10th rule. Even my condo I had so proudly bought on my 26th birthday began to feel insufficient after a couple years.
After turning 28 things just clicked one way or another. A promotion a year earlier provided the confidence to buy my current house. Moose was also rescued off Craigslist the same year after his owner rushed to Amsterdam for a job transfer. I’ve faithfully taken care of him ever since, most recently buying him a new power steering pump for a pretty penny.
Meanwhile, I already found the love of my life, which is more important than all the money in the world. I’ve seen colleagues never find anybody because of a busy career or simply bad luck. Some admitted they’d give up their fancy titles and riches just to find someone. They wished they worked harder on love instead of career.
THE STEADY STATE
The two week vacation to Hawaii was perfect except for one thing. My financial advisor from Citibank failed to call me the day a particular deal was closing as previously discussed. This investment offered between a 15% to 20% guaranteed return on the Dow Jones over four years if the Dow closes above the initial strike price plus any upside beyond the guarantee and a 10% downside buffer. I wanted to know whether the guaranteed return was 15%, 16%, 17%, 18%, 19%, or 20% to determine how much to invest. I already made up my mind that I would lob anywhere between $20,000 – $30,000 into this note.
Instead of getting a call on the day of closing, I get an e-mail two days after the close saying he got his calendars totally mixed up. Sigh. At least give a believable excuse! You know like, “I went binge drinking the night before and called in sick on Monday.”
Tim’s lack of follow up is costing me around $1,000 in paper gains in just a couple of weeks as the Dow has moved from 14,300 to over 15,000 at the moment. As an early retiree, I’m investing all the disposable income I’ve got because I’m looking for capital appreciation and income to help replace my lack of W2 income. Leaving cash in a money market account yielding 0.1% is a financial crime I refuse to commit.
Lesson learned. For those of you who are interested in an upcoming IPO and plan on going away for vacation, put in your IOI (indication of interest) before you leave and stagger your order size depending on the final price. My financial advisor might still forget to input the order, but at least there will be an e-mail trail indicating my IOI, and the firm can fill the order in arrears.
THE MAIN REASONS TO HAVE A FINANCIAL ADVISOR Read more…
If you have tremendous money strength, you will never have to draw down on your retirement principal. Your goal, if you choose to accept, is to create an estate that will provide for your loved ones long after you are gone. This is what endowments do. Why not consider doing the same if you are a magnanimous and financially savvy individual? You’re reading Financial Samurai after all!
I always scratch my head when I hear advisors talk about the “4% withdrawal rule” or any withdrawal rate that’s greater than a risk free rate of return for that matter. Times have changed folks. Interest rates are close to zero, the stock market isn’t a slam dunk, and we are living much longer now.
There are so many variables that it is impossible to calculate a bullet proof withdrawal rate rule unless that rate is 0%. Sure, there’s a 99% chance you will die before 110 and a 99.9% chance you’ll die before 150, but who really knows? We might be one with machines by the year 2030 and live forever!
Instead of thinking about how much you can withdraw to bleed your retirement funds down to $0 by the time you die, I highly encourage everyone to think about leaving a financial legacy for your loved ones that is so great you’ll never run out of money. Even if we fail to come up with a perpetual giving machine to leave for others, the end result will be much better than if we only focused on ourselves. Related: Is Not Wanting To Be Rich Selfish?
BREAKING DOWN THE IDEAL WITHDRAWAL RATE Read more…
View from Koko Head, Oahu
After rolling over my 401(k) into an IRA, I’d like to focus on potentially the single most beneficial reason why everyone should convert their 401(k) into an IRA after they leave their jobs: Rule 72(t).
Rule 72(t) allows for penalty-free withdrawals of your IRA account before the age of 59.5 provided that the IRA holder take at least five “substantially equal periodic payments” (SEPPs). The amount depends on the IRA owner’s life expectancy calculated with various IRS-approved methods.
Three IRS approved methods to calculate SEPP:
1) Required minimum distribution method: This method takes your current balance and divides it by your single life expectancy or joint life expectancy. Your payment is then recalculated each year with your account balance as of December 31st of the preceding year and your current life expectancy. With this method, your payments will change depending on your account value.
2) Fixed amortization method: This method amortizes your account balance over your single life expectancy, the uniform life expectancy table, or joint life expectancy with your oldest named beneficiary. Such a method is more stable.
3) Fixed annuitization method: This method uses an annuity factor to calculate your SEPP. It’s hard enough calculating life expectancy and portfolio performance, let alone forecast interest rates for annuities so let’s skip this method.
The most common withdrawal calculation method is #1. I’d like to use my example for how using Rule 72(t) can help an early retiree extract more income and lead a more comfortable financial life.
TAXES BAD, MORE INCOME GOOD Read more…
Mahalo! I’m currently on vacation from vacation so apologies if comments or e-mails do not get responded to in a normal fashion. Long time FS reader Jason is sharing his early retirement story and isn’t quite sure whether it’s all worth it. Hopefully you guys can provide some different perspectives as always. Thanks!
After almost 20 years of work, I feel like I’m on the road to an early retirement. According to my back-of-the-napkin calculations, I’ll be done in another 5 years, give or take, which will put me in my mid-40s. But, as much as it’s inspiring to have a game plan and see the progress, I feel it’s also sucked some of the happiness out of my life.
From No Net Worth To $500 After Four Years Of Work
When I came out of college with a degree in Math in 1995, the economy was not the best and I had no idea if I was even remotely employable. It took me close to 6 months (sending out 10 resumes by mail each day) but I finally landed a beginning-level job in the IT industry. The salary was over minimum wage, but not by much. I was very happy with getting the job, but I felt as though I could do better. I then asked myself “What’s next?”, a phrase that even now drives my wife crazy. Within 1 month, my resume was updated and I was fishing for the next thing.
In the following years, I worked like hell at my career. Working during the day, taking courses at night, learning all I could. I was now a software developer (a job I still do) and was switching jobs every 2-3 years, always negotiating a higher salary. During these years, I also moved to the US from Canada and became familiar with the harsh and often arbitrary immigration system.
It was very clear that if I were to become unemployed, there would be no safety net. Then, the large layoffs from the dot-com implosion started to happen in 2000 and the company I was working for closed. I managed to find something else, but it was not easy and I had to move across the country to do it. Even in a good economy, few companies want to spend extra money on immigration lawyers and paperwork.
Starting A Failed Online Business Read more…
This past week I decided to convert my 401(k) into a rollover IRA and I’d like to share with you why. As I wrote in a previous article, I took profits in my 401(k) after the S&P 500 reached the 1,551-1,555 range. That’s a 9% gain for the year and inline with my 2013 forecast which now seems conservative with every pundit on the street calling for 1,600+. Where were their calls at the end of last year I don’t know. I guess it’s easy to get bullish after the market has made a strong move!
Given I no longer have earned income, I can no longer contribute to my 401(k). The market is fully valued in my opinion which means I see a greater risk of a pullback during the summer than continued gains. Even though my 401(k) has 40 or so mutual fund choices provided across various sectors, countries, and asset classes it isn’t enough for what I want to do.
THE BENEFITS OF ROLLING OVER TO AN IRA Read more…