The Intersection of FIRE and Disney

[alryan]

I appreciate all the comments on “emergency funds” but does everybody understand that the actual original question was referring to the cash balance you sit on when you are retired - presumably early given the purpose of this thread (ie 45 years old with no regular income and possibly kids still living in your house)...

Here’s an excerpt from Root of Good on what they did there: (Justin and his wife retired in their 30s with somewhere under $2MM in assets).

During 2017 we moved to a slightly more conservative asset allocation that now includes about $125,000 of bonds and $50,000 of money market and CDs. The remaining 90% of our assets are fully invested in the stock market which means we do really well when when the market goes up but we suffer quite a beating when the market drops.​

So 10% of their total assets at the time were bonds/money market/CDs and the $50,000 in actual cash represented almost 2 years (24 months) living expenses or “emergency fund”.

Here’s a non FIRE article by Kiplinger advocating for regular retirees to maintain 3 years in cash to “ride out a bear market”:

https://www.kiplinger.com/article/retirement/T047-C032-S014-how-much-cash-should-retirees-hold.html​

3 years may be extreme but the concept holds value in theory. The worst thing you can do while in the midst of a significant market downturn as an early retiree is liquidate a portion of your portfolio - it can really mess with your SWR for years to follow. I think to answer the actual question, for the early retiree I’d say a minimum of 12 months in cash and preferably 18-24 months. Most early retirees achieve that through lower than average expenses so that number may only be $25k or $50k.

Even if 3 months was the right answer - for a frugal early retiree (assuming $36k annual expenses), would anybody say that $9k is a large enough emergency fund? This person’s sole source of income is potentially dividends from and sale of stocks...Just food for thought for my FIRE chasing friends here

Thanks for the link. Even though I'm not in the RE camp, except for social security, our retirement income will be from sales of stocks so the points made in the Kiplinger's article make sense to me. I especially like #3, as I was wondering about the loss having such a large "cash" amount, but it would be a lot easier to take more risk with stocks if you have that cushion. It will have to be something that I look into as retirement gets closer. For now..just keeping saving

 

[alryan]

That seems like a pretty aggressive allocation for retirement for Justin and his wife. Maybe for folks in their 30's it works cause theoretically they could go back to work if necessary. I'm not sure I'd be comfortable with 90% stocks at retirement given that we're in our 50's and less marketable.

90 does seem high, but if you are looking at a 40-60 year retirement you may need it that high. That Kiplinger's article has 60-70% in stocks for a more normal retiree, which I would think is still going to feel like a lot if a recession happens. Which is why that 3 year "cash" cushion seems to make a lot of sense to me.

 

[SouthFayetteFan]

I think one of the big considerations for the PP who asked about this is, she's in the UK. That means she's not going to get slammed with a huge, unexpected medical expense. I suspect that unexpected medical expenses are high on the list of financial emergencies.

I completely agree that the idea is to ride out a bear market, and people should think carefully about their individual circumstances--if you drive a 20yo beater car, you need to have $$ available for a newer one. You know that, eventually, you'll need it. Ditto for home repairs. I know if I didn't have to worry about college, health care, cars, and major home repairs, I would look at my investments differently. Even with home repairs, we're talking about the unexpected (furnace goes, tree limbs go through the roof) versus remodeling that could be put off for a year or three if necessary (which you could plan for).

But keep in mind, the cash cushion here is not for unexpected expenses. This isn’t an emergency fund. We’re not looking to cover unexpected medical expenses, car replacements or home repairs. Your comment speaks to emergency fund considerations (which are not remotely a concern IMO for the early retiree).

This discussion speaks to a cash cushion which is used to cover your normal everyday living expenses (groceries, utilities, property taxes, etc.) during a market downturn. Since you don’t want to liquidate your stocks when they’re down (ie don’t “sell low”) this cash can be very useful - and a downturn could last for months or even a couple years. An approach I’ve seen advocated is laddered CDs that you continually renew unless you need to access the cash (due to the aforementioned market downturn). That’s why you’ll often see 12-24 months recommended.

 

[pillow]

But keep in mind, the cash cushion here is not for unexpected expenses. This isn’t an emergency fund. We’re not looking to cover unexpected medical expenses, car replacements or home repairs. Your comment speaks to emergency fund considerations (which are not remotely a concern IMO for the early retiree).

This discussion speaks to a cash cushion which is used to cover your normal everyday living expenses (groceries, utilities, property taxes, etc.) during a market downturn. Since you don’t want to liquidate your stocks when they’re down (ie don’t “sell low”) this cash can be very useful - and a downturn could last for months or even a couple years. An approach I’ve seen advocated is laddered CDs that you continually renew unless you need to access the cash (due to the aforementioned market downturn). That’s why you’ll often see 12-24 months recommended.

In practice, I wonder how well this would work. I could see myself spending way too much mental energy on whether to use my cash on hand or whether to sell stock. The question is what constitutes a market "downturn." Even the experts debate whether we are in a normal pullback mode or whether a decline is long term. Its easy to see in hindsight, but almost impossible when you're in the thick of things.

 

[SouthFayetteFan]

In practice, I wonder how well this would work. I could see myself spending way too much mental energy on whether to use my cash on hand or whether to sell stock. The question is what constitutes a market "downturn." Even the experts debate whether we are in a normal pullback mode or whether a decline is long term. Its easy to see in hindsight, but almost impossible when you're in the thick of things.

It’s certainly a judgment call. The basic strategy is you continue to sell stocks regularly to keep your cash position flat. If your timing of a stock liquidation appears to coincide with poor market timing then you’d potentially delay the sale until markets recover. It definitely is a delicate situation and requires some level of “guessing”.

 

[Disneefun]

Another way to protect yourself is to invest at least some of your money into a taxable account that consists of dividend paying stocks/ETF's/mutual funds. During the accumulation phase, you set those dividends to reinvest in the account to keep buying shares, but when you retire you set it so that those dividends are paid out to you, into the cash balance portion of your account. This way, you get some money coming in without having to sell the base shares. You can do this with deferred accounts, as well, as part of your strategy for once you're past 59 1/2.

 

[platamama]

I appreciate all the comments on “emergency funds” but does everybody understand that the actual original question was referring to the cash balance you sit on when you are retired - presumably early given the purpose of this thread (ie 45 years old with no regular income and possibly kids still living in your house)...

Here’s an excerpt from Root of Good on what they did there: (Justin and his wife retired in their 30s with somewhere under $2MM in assets).

During 2017 we moved to a slightly more conservative asset allocation that now includes about $125,000 of bonds and $50,000 of money market and CDs. The remaining 90% of our assets are fully invested in the stock market which means we do really well when when the market goes up but we suffer quite a beating when the market drops.​

So 10% of their total assets at the time were bonds/money market/CDs and the $50,000 in actual cash represented almost 2 years (24 months) living expenses or “emergency fund”.

Here’s a non FIRE article by Kiplinger advocating for regular retirees to maintain 3 years in cash to “ride out a bear market”:

https://www.kiplinger.com/article/retirement/T047-C032-S014-how-much-cash-should-retirees-hold.html​

3 years may be extreme but the concept holds value in theory. The worst thing you can do while in the midst of a significant market downturn as an early retiree is liquidate a portion of your portfolio - it can really mess with your SWR for years to follow. I think to answer the actual question, for the early retiree I’d say a minimum of 12 months in cash and preferably 18-24 months. Most early retirees achieve that through lower than average expenses so that number may only be $25k or $50k.

Even if 3 months was the right answer - for a frugal early retiree (assuming $36k annual expenses), would anybody say that $9k is a large enough emergency fund? This person’s sole source of income is potentially dividends from and sale of stocks...Just food for thought for my FIRE chasing friends here

I went to a retirement planning talk last year, and one thing I thought was really illustrative was how the planner talked about "buckets" in retirement.

Imagine a cascade of buckets where the contents flow downhill into the next bucket. The one at the bottom of the hill is the one you need for living expenses for 2-3 years, safe no-chance-of-decreased-value money (except inflation). That money should be in FDIC/NCUA/SIPC insured funds. It could be a CD ladder or a savings account, just something that you can liquidate as needed.

The bucket above that holds money for 3-7 years out, the next one 8-12 years out, etc. The number of years isn't exact, just a time frame reference. The bucket farthest out should be in stocks where you don't feel the fluctuations in your day to day living. He pointed out that even if you retire in your 60's, you could still have 20-40 years ahead of you and anything 20-40 years out should be invested in the stock market where it still has time to grow. Then as the years go by, you pour the contents of one bucket into the next (asset allocation) and keep cycling that way.

The big unknown in the US is healthcare expenses, which makes planning just that much more difficult.

 

[Killer Fish]

Not sure how I have never noticed/clicked on this thread while following along the CC thread.

Interesting stuff in here and I will continue to follow....I would say my wife and I are on our way....I max 401k every year and she comes close. Also did as much as we were allowed to contribute to Roth 401k this past year and some contributions the last few years. Started a 529 for the little one this year as well. We just like to have a balance of fun/savings. It helps that we are OK at the churning game and work for a Hotel company that does comp nights so a great travel benefit. Moving from California to Florida in 2016 was a huge help as cost of living was vastly improved. I would like to retire around 55 (18 more years!).

 

[piccolopat]

In today's installment of balancing FIRE and children: The Birthday Party (lol!)

So my oldest wanted a bday party this year with friends. We don't do parties every year - I actually try to downplay birthdays in general in our family. We celebrate with a special dinner with grandparents and a few small meaningful and/or practical gifts. So we were looking at the various options (swimming party, bowling, etc.) and they all cost so much just for venue, and then food and such on top of that...

So we had Pajama Movie Night party at our house. 70" TV in our nice finished basement...blow up an air mattress...Order some pizza, put on Wreck It Ralph 2 and invite all the girls from her class. For under $100 (including food, decorations, favors, etc.) we had a great party. My daughter when it was over: "This was the best party I ever could have dreamed of." She didn't need a $750-$1,000 party to know we loved her. And this party gave her a chance to see and talk with her friends vs. the hyper organized affairs we've seen elsewhere. It's nice to see that you can be frugal and balance FIRE and the children's needs/wants!

We did similar parties for DD when she was in MS and HS. Kids generally watched movies or played video games. some slept over but others didn't. They loved having pizza but the biggest thanks came for the all you can eat ice cream sundae bar that had as many toppings as I could think of. So much better than paying any of those party places! Of course there was one year when DD and a few of her closest friends wanted to go out for dinner. I took them to a favorite local place and told them they could order whatever they wanted. I had no idea they would love the Alaska King Crab legs!

 

[piccolopat]

I have a question for those of you further along in your FIRE journey. So, I sometimes hear advice that you should have money, maybe a year or two of income, not invested in the stock market so that if the market is in a severe downturn you don't have to take money out. First, is this something that any of you are doing? And if you are, where does this money come from? Do you just change where your savings goes for a few years before you plan to retire? I think it sounds like a good idea, but wondering how it works in practice.

I retired at 60 last year so early but not really early. I waited until I had saved 2 years of income just in case and as fate had it the market went down right after I retired. I've used a part of those savings since then and am only now getting ready to tap my retirement savings. I'll use some of that to restore my 2 year savings but looking into some safe but higher interest rate places to store it. The savings gave me a peace of mind that was so nice to have after I stopped working.

 

[SouthFayetteFan]

I went to a retirement planning talk last year, and one thing I thought was really illustrative was how the planner talked about "buckets" in retirement.

Imagine a cascade of buckets where the contents flow downhill into the next bucket. The one at the bottom of the hill is the one you need for living expenses for 2-3 years, safe no-chance-of-decreased-value money (except inflation). That money should be in FDIC/NCUA/SIPC insured funds. It could be a CD ladder or a savings account, just something that you can liquidate as needed.

The bucket above that holds money for 3-7 years out, the next one 8-12 years out, etc. The number of years isn't exact, just a time frame reference. The bucket farthest out should be in stocks where you don't feel the fluctuations in your day to day living. He pointed out that even if you retire in your 60's, you could still have 20-40 years ahead of you and anything 20-40 years out should be invested in the stock market where it still has time to grow. Then as the years go by, you pour the contents of one bucket into the next (asset allocation) and keep cycling that way.

The big unknown in the US is healthcare expenses, which makes planning just that much more difficult.

I LOVE this buckets analogy. What a great illustration!

 

[QueenIsabella]

But keep in mind, the cash cushion here is not for unexpected expenses. This isn’t an emergency fund. We’re not looking to cover unexpected medical expenses, car replacements or home repairs. Your comment speaks to emergency fund considerations (which are not remotely a concern IMO for the early retiree).

This discussion speaks to a cash cushion which is used to cover your normal everyday living expenses (groceries, utilities, property taxes, etc.) during a market downturn. Since you don’t want to liquidate your stocks when they’re down (ie don’t “sell low”) this cash can be very useful - and a downturn could last for months or even a couple years. An approach I’ve seen advocated is laddered CDs that you continually renew unless you need to access the cash (due to the aforementioned market downturn). That’s why you’ll often see 12-24 months recommended.

I guess where I'm coming from is, we're FI, but have no plans to RE. So, I'm not worried about income streams from our investments, which is what you're referring to. We're actually a little scared of our post-retirement income streams--we already have RMDs coming in from inherited IRAs. Once DH and I are over 70, there will be our existing RMDs, mine, his, and Social Security, plus a teeny tiny pension. It's going to be a regular firehose, and no "lower tax bracket" for us. While this is a problem that's nice to have, we're really going to have to change our saving/spending mindset when the time comes.

 

[pillow]

I guess where I'm coming from is, we're FI, but have no plans to RE. So, I'm not worried about income streams from our investments, which is what you're referring to. We're actually a little scared of our post-retirement income streams--we already have RMDs coming in from inherited IRAs. Once DH and I are over 70, there will be our existing RMDs, mine, his, and Social Security, plus a teeny tiny pension. It's going to be a regular firehose, and no "lower tax bracket" for us. While this is a problem that's nice to have, we're really going to have to change our saving/spending mindset when the time comes.

Would it make sense for you to do Roth conversions now since Roth balances don't factor into RMD?

 

[SouthFayetteFan]

I guess where I'm coming from is, we're FI, but have no plans to RE. So, I'm not worried about income streams from our investments, which is what you're referring to. We're actually a little scared of our post-retirement income streams--we already have RMDs coming in from inherited IRAs. Once DH and I are over 70, there will be our existing RMDs, mine, his, and Social Security, plus a teeny tiny pension. It's going to be a regular firehose, and no "lower tax bracket" for us. While this is a problem that's nice to have, we're really going to have to change our saving/spending mindset when the time comes.

Yeah - that discussion is more pertinent to the RE part. Until you’re RE what @alryan is discussing doesn’t really come into play.

 

[platamama]

I guess where I'm coming from is, we're FI, but have no plans to RE. So, I'm not worried about income streams from our investments, which is what you're referring to. We're actually a little scared of our post-retirement income streams--we already have RMDs coming in from inherited IRAs. Once DH and I are over 70, there will be our existing RMDs, mine, his, and Social Security, plus a teeny tiny pension. It's going to be a regular firehose, and no "lower tax bracket" for us. While this is a problem that's nice to have, we're really going to have to change our saving/spending mindset when the time comes.

I tried out a retirement calculator and was astonished at the monthly income number it gave me. Like you say, with the RMDs and SocSec (well, who knows about that one), I was thinking, wait, DH could RE now with our lifestyle? But like I mentioned before, healthcare is the greatest unknown and one big bad health problem (accident, cancer, stroke, etc. you hear about this happening to friends and family members all the time) and a great amount of our net worth could go up in smoke. And I feel you pretty much have to be working to get affordable health insurance if you or your dependents have a pre-existing condition. I'm jealous of countries where you don't have to worry about how much it will cost you to take care of your health issues.

 

[1st*toright]

Alternate view on birthday parties - I managed to have both of my kids in the dead of winter during one of the busiest times of my work year. Paying some place a few hundred dollars to prepare for, host and clean up after a whole passel of 5 year olds is sooooooooo worth it! I actually love party planning (and we did do some parties at home when my now-teenager was an older elementary schooler and only inviting a few friends over), but my little one loves everyone and doesn't want to leave anyone out, so she still invites the whole class. I'm happy to make the cake, and do the goodie bags, but I love having party hosts to keep the kids entertained. Also, its winter, so doing some activity where the kids can racket around and be super active is also a nice thing for everyone. We have not, however, rented out the Central Park Zoo or anything like it!

I am far away from needing to worry about my cash position in retirement, but even now I prefer keeping any funds I foresee needing in the next 2-3 years in cash. So college savings for my teen? Mostly in CDs. The time horizon is just too short for me to be willing to risk a downturn. I'm fine with taking risks with college savings for the little one - we have more that 10 years before we need that money. I could see doing a CD ladder for regular living expenses so that you wouldn't have to realize losses in a downturn - the concept of having no paycheck for routine expenses would be hard to adjust to.

 

[pillow]

I tried out a retirement calculator and was astonished at the monthly income number it gave me. Like you say, with the RMDs and SocSec (well, who knows about that one), I was thinking, wait, DH could RE now with our lifestyle? But like I mentioned before, healthcare is the greatest unknown and one big bad health problem (accident, cancer, stroke, etc. you hear about this happening to friends and family members all the time) and a great amount of our net worth could go up in smoke. And I feel you pretty much have to be working to get affordable health insurance if you or your dependents have a pre-existing condition. I'm jealous of countries where you don't have to worry about how much it will cost you to take care of your health issues.

Of course, the future of the ACA is unknown . . . however, a few months ago I went to the healthcare.gov site and entered my info as if I was pulling a 40k income in retirement. The premiums were tiny! I was looking at high deductible plans, so you'd have to have funds to cover deductibles, but I think the monthly premium was $200 or so. My memory is fuzzy, but I was somewhat encouraged. Of course, that can change with the political climate, but at least its possible for now . . .

 

[speedyfishy]

Just realized SO and I have reached our coast fire number. (a little over a year of SO working his first real job) Assuming no additional contributions we will have about 2.5million in 40 years. That would put us at 64. I don't really have a FIRE number yet but 2.5 million at a 4% withdrawal rate is over double what we spend now.

 

[SouthFayetteFan]

Just realized SO and I have reached our coast fire number. (a little over a year of SO working his first real job) Assuming no additional contributions we will have about 2.5million in 40 years. That would put us at 64. I don't really have a FIRE number yet but 2.5 million at a 4% withdrawal rate is over double what we spend now.

Ahh the beauty of being young and saving even a small amount of money!! If only everybody at your age could understand this concept!!! CONGRATS!!

 

[platamama]

As soon as DD earns income, this is what we'll be doing for her.

https://www.nerdwallet.com/blog/investing/why-your-kid-needs-a-roth-ira/