Friday Roundup 035R

035R | The 4% Rule | Friday Roundup

In today's podcast we discuss our takeaways from Episode 35 with Big Ern from Early Retirement Now, plus paying off mortgages and student loans early and frugal wins of the week from the community.

In Today’s Podcast we cover:

  • The Friday Roundup after Episode 35 with Big Ern from Early Retirement Now
  • This episode was long awaited, but was necessary to wait for until we provided the background of FI for the audience
  • Ern’s information made us both feel more hopeful for the future of FI and sequence of returns risk
  • Both ‘savers’ and ‘early retirees’ can’t both simultaneously win with the sequence of returns risk
  • Savings rate is the most important part of living a FI lifestyle and succeeding with long-term savings
  • The concern with sequence of returns risk is only when you see a prolonged and significant drop in the markets. To the tune of 5+ years and 20%+ drop
  • Question from the audience to Big Ern about inflation being included in the safe withdrawal rate and Ern’s response
  • Ern does indeed take inflation into account when he performs his calculations
  • How does preserving your capital factor into “success” when looking at your FI plan? How does inflation factor into it?
  • Your personal look at what constitutes success – it always depends on “facts on the ground” for your personal situation
  • Should you pay off your mortgage early? How sequence of return risk factors into this decision
  • The math suggests you should always invest the money and not pay off your mortgage early
  • However, there is a great psychological allure to paying off your mortgage
  • What would have happened if Jonathan had invested his money in VTSAX instead of paying off his student loans?
  • Dollar cost averaging versus lump sum investing
  • Input from Danny from our Facebook group on flexibility and early retirement
  • The value of mentally rehearsing what would happen in a downturn to avoid selling at the bottom
  • How are people taking action in our ChooseFI Facebook community this week to improve their lives in one simple way
  • Travel Rewards voicemail from Andrew about his successful trip to Argentina
  • How to win with travel rewards: flexibility with your dates of travel, plus planning far enough in advance, being ready to pull the trigger when you find availability and then looking at all your options when booking with UR points
  • Frugal win of the week from Ashley: 300,000 miles on her Toyota in 18 years!
  • The value of finding a trustworthy mechanic
  • ChooseFI meetups are popping up across the country
  • Itunes reviews of the week

Links from the show:

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3 thoughts on “035R | The 4% Rule | Friday Roundup”

  1. Jonathan and Brad:
    Loved the Roundup! I can definitely record something about mitigating Sequence Risk with a declining bond weight. I’ll do that over the weekend. Stay tuned!
    Regarding the debt pay down vs. investments, it all depends on the parameters. When you are still young and you have less than a few $100k invested in equities, you definitely don’t want to pay down the mortgage. Student loan at 6%? Well, a 6% “safe return” from paying down the loan is a very solid investment. I probably would have still maxed out the 401k pre-tax portion, but I can see that Jonathan skipped the taxable savings in favor of paying down the student loan. It may not have been the ex-post optimal decision considering the strong equity returns recently but nobody could have known that ahead of time.
    One other thing about the mortgage: If you do keep the mortgage and invest aggressively, make sure you invest 100% in stocks. Why would anyone keep a 60/40 or 80/20 portfolio (i.e., 40% or 20% bonds) and a mortgage at the same time? See this post from long time ago:
    Either you have the guts to go 100% equities or you should use the bond portfolio to pay down the mortgage! Leverage only works when the asset earns more than the mortgage interest! 🙂
    Big ERN

  2. Hey guys,

    Loved the conversation about whether it’s best to knock out student loans/mortgage as fast as possible, or slow down a little and start investing some instead. I feel that the “get out of debt now” folks sometimes miss this important concept…while you’re busy paying off the 4% loans, you’re missing out on the 8% returns!

  3. Here are my thoughts. I’d love your feedback….

    I got started late on the whole FI thing, but that’s a story for another time. I have a government pension with SS shortly on the horizon. If I never invested another penny in the market, and my current level of dividend payout stayed the same, I’d make about $34,000 per annum. For me that’s more than enough.

    I think in terms of cash flow, the safety of my dividends, and dividend growth. I don’t ever plan on selling the stocks. I plan on living off my pension/SS and having the dividends as a safety valve. I’d prefer to just keep reinvesting them, but it’s nice to have that extra cash flow in case I needed it.

    I haven’t invested anything in bonds, outside of what my financial advisor bought for me in my IRA.

    For me, as long as the dividends are secure I don’t need a bond. If I choose good sound companies (and monitor them) I’ll get at least some cap appreciation and dividend growth. Unless you get one of those inflation-adjusted bonds your payments are fixed. While nobody likes to see the value of their portfolio drop, if the total dividend payout remains constant, I can live with it.

    Am I wrong in my thinking?

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