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Wednesday, July 30, 2014

Black Swan Events

Posted by Tim Stobbs on July 21, 2014

Three doors door down from my parents cabin a natural disaster has struck, the slope that nine cabins sit on is unstable and now slowly falling into the lake. This isn’t anyone’s fault and in fact the entire event would have been impossible to predict as a perfect storm of conditions occurred to cause it to happen.  In short the flood of 2011 cut the toe of the slope, then the recent heavy rains saturated the soil and raised the water table which lubricated a shale seam and presto you get a slow moving landslide on a slope that hasn’t moved in 60 years prior.

Now losing your cabin at the start of the season sucks, but the real shit hit the fan for the cabin owners when they started to look at their insurance coverage.  This is apparently classified as an “Act of God” thus in all likely hood their insurance on their properties are nil and void.  Ugh, but you may think they could get something from disaster relief from the government.  Well so did I until it was pointed out that only covers primary residences, not second homes like cabins.  So in the end, they have no cabin and also no means of getting a dime of compensation from anyone.

If that isn’t a black swan event for those people, I don’t know what is.  So the owners of these cabins are getting out what they can and trying to accept that rebuilding isn’t an option unless you happen to be sitting on a far bit of cash.  Needless to say this has also freaked out my parents who are just down the road from this.  It also likely means that my father’s retirement project to rebuild the cabin (which is almost at the drywall stage) could end up falling into a lake or not (so far their property is stable).  They just don’t know what will occur in the long term (at least in their case the cabin is their primary residence so they could get some money).

The point is tale is you can’t plan for everything.  With retirement planning we tend to pretend we can cover all our bases when in fact they are very real situations that can occur that you can not predict, defend against or even do anything about when they occur.  In short, shit happens.  So what can you do?  Really not much other than have a robust plan with some slack in it.

The other lesson I learned on this entire disaster is you can’t depend on your equity of your vacation property in your retirement plan.  Actually in fact, any house equity isn’t a stable long term investment as you local market can go to hell just when you need to sell.  So I would suggest never being at a point to depend on it, which makes me feel good about my choice not to include the house equity in our retirement plan.

So have you ever seen a black swan event?  What happened and how did the people cope with it?

A Change in Finances

Posted by Dave on July 2, 2014

My wife and I currently have almost completely separate finances. We each have our own share of bills that we pay every month, and our own share of savings that we’re “expected” to contribute, but beyond that, we don’t really have any other financial expectations about each other.

We’ve been together for about 8 years now, and this is how our financial situation has worked, and will probably work for the foreseeable future. We don’t really have any shared expenses – I think if we had kids or a dog, or something shared beyond actual bills, it would be more useful to have something like shared accounts or pooled finances.

Retirement will necessarily force a change our finances, moving from our almost completely separate financial lives, to almost fully integrated in about 10 years when we’ll start tapping into our savings and investments. This shift will change things significantly.

At this point, I’m not all that sure how our accounts will look when we retire, but there will be a bit of a change in the way that our finances are run. Right now, we have an “allowance” for ourselves, which I tend to spend on beer and golf (paying to walk around and get frustrated), and my wife spends on wine and semi-disposable “girl clothes”.

From discussions with friends, my wife and I will be about 20 or so years behind mixing our finances together. I’m not too sure how much of a shift this will actually cause, as the combined finances will mainly be used to pay bills, which will happen automatically. It will be how we equitably deal with the remaining funds that will be the major shift in our financial life. I’ll have to get used to “our” money being used for what I would think is a frivolous purchase, while my wife will probably roll her eyes at me paying to wander around and sweat for an afternoon.

This kind of thing is what we’ll have to discuss quite a bit before our salaries stop and start drawing on our combined savings. A “wait and see” approach seems like it wouldn’t be a good idea – we might have different ideas on how our end retirement would work, which would cause some issues in our early retirement years.

How significantly do you think your financial relationship would change with your partner on retirement?

Just Easier

Posted by Dave on June 17, 2014

I wake up most mornings, weekend or not at around 6:30, usually with an alarm. Most of the time I’ll lay there for 20 minutes, reading my phone – psyching myself up for the coming day. I took this past Friday off to play 18 holes of golf, do a bit of housework and go to watch some horse races (pretty good day, right?). Knowing I had the day off, and my tee-time wasn’t until 9:30 the next morning, I had stayed up late reading a book I wanted to finish (I am working my way through the Dresden Files).

Having almost nothing to do the next day, my morning played out as it normally does, with me being wide awake at 6:00 in the morning with no alarm and ready to go for the day. I normally don’t take a random Friday off, to do something locally with no real schedule (beyond the tee time for a course that was 20 minutes away). The weird sort of energy I got on waking up with about an hour and half less sleep than I was planning on was nice.

The main question I get when I tell people what my financial plans are is “What will you do?”. My father, who retired at age 60 last year, but has a similar personality as I do is having trouble finding free time with his day – he’s so busy with various projects around the house. He wonders where he found the time to get done as much as he did when he was working, which was taking up close to 11 hours a day with commuting included in his day.

My current retirement countdown (to my 45th birthday) stands at 3,831 days. While there are many things I would like to do and learn in the next decade, I look forward to 3,832 days when I can wake up and do whatever I want that day, much like my golf “hooky” day I had on Friday. The number of “prime-time” hours given to work is significant – working for 8.5 – 9 hours (factoring in the odd extra bit of time worked or commuting time) per day is usually when I would be most able to do the things that I like to do.

I’m hoping that in a decade, I will have the kind of energy like I had on Friday – seemingly boundless, mainly due to the fact that what I was going to do that day was 100% up to me.

Do you have those kind of days? If you’re retired, do they still exist?