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Old 11-18-2011, 12:40 PM   #21
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Which only makes sense once the ins. tables begin paying reasonable rates (75 - 80+)?
That's not a return "rate", but rather a higher payout/return of your own money, not tied to interest rates, as a major factor - since there are less years to pay out.

You can take a lower payout at an earlier date (somewhat like SS), or you can delay with a higher monthly income, by just returning your own money to you over a shorter period of remaining expected lifetime.

It may make sense to use a (SPIA) annuity at an earlier age (as I did, at age 59). It depends on your own (and DW/DH's) situation, and your own goals for overall retirement income. It's certainly not for everybody/every situation, but it is an option depending what your overall retirement income goals are.

For me, it was the opportunity to reduce future RMD's, maxing out my SS at age 70 (primarily for the benefit of DW, assuming I pass first), along with not having a pension when I retired.

As for the original question? I would rather die with money, than live without it (as any "die broke" scheme is a major risk, IMHO).

Additionally, money is for the living, not the dead. If you "pass with a stash", I'm pertty sure you won't worry about it the second after you have died ...
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Old 11-18-2011, 12:48 PM   #22
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It's my understanding that people tend to spend more, on average, if they are using a credit card regularly. So if you end up spending 3% more because of the convenience of the credit card, you aren't really coming out ahead. My point is, if I pull out my weekly lunch money in cash at the start of the week, and by Friday I've spend almost all of it, I'm much less likely to have that $18 sushi lunch than if I can just whip out my credit (or debit) card.
That is true for you, Golden Mean, but apparently not for many posters here. Another example is that most Americans are not saving enough for retirement, but, again, that's not true for most posters here.

You might try thinking about what personality traits you have that make you use the crutch of a "currency" only spending regime to control yourself. Many of us use credit cards, ATM cards, etc., without any propensity to spend more because of it. I bet you could too if you worked to understand yourself and why you behave the way you do.
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Old 11-18-2011, 12:49 PM   #23
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he made that response to my comment on that thread.

That little writeup on AMZN (IMO) is very inaccurate.

The author has written many books (labeled Die Broke with other words following it in the title pertinent to the topic at hand). In that book that was cited in the other thread... That item (maybe a paragraph) is in the introduction of the book which is really a backgrounder about the author and his philosophy. The book has little to nothing to do with that type of life decision... continue to work.

But even that little statement has some sound reasoning behind it if you read it. Although it is not my choice.
I did forget about the "work forever" part, but you know I don't think Pollan's "work forever" is all that different from Joe and Vicki's Your Money or Your Life idea about how, once you're FI, you are free to volunteer or work part time in something you want to do.

Pollan's deal is actually "quit now, work forever". He talks at length about how you want to become "free agent" of sorts where you are always networking and always trying to get yourself into more money for the same (or less) time. I take that not as trying to "get over" on your employer, but making yourself more valuable, more concentrated.

He does have IMHO a lot of good advice, such you are much more likely to become disabled than die. So insure accordingly.

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Old 11-18-2011, 12:52 PM   #24
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I do not agree that giving up 2% rewards on almost everything I buy (and 3% at Amazon) is LBYM. Add in extra trips to the ATM and carrying cash that isn't working for you. No, it does not make sense. (edit/add: and a month of float).
It's my understanding that people tend to spend more, on average, if they are using a credit card regularly. So if you end up spending 3% more because of the convenience of the credit card, you aren't really coming out ahead. My point is, if I pull out my weekly lunch money in cash at the start of the week, and by Friday I've spend almost all of it, I'm much less likely to have that $18 sushi lunch than if I can just whip out my credit (or debit) card.
But what 'most people do' is irrelevant. If you are going LBYM and aggressively saving for ER, you are not trying to emulate 'most people'. Ignore them.

That $18 sushi lunch is something you put a value on and is either within your budget or it isn't. The method of payment (cash or credit paid off in full when due) should not affect the decision. If it does, then in my mind, you have not really embraced LBYM.

Putting every purchase I can on a 2% rewards CC saves me hundreds of $ per year. DD college accepts the card for tuition/room/board - that's hundreds in rewards right there. I'm not going to give that up because of what some other people might do - no way!


ooops - I see I'm cross-posting with youbet (great minds think alike? )!


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Old 11-18-2011, 12:58 PM   #25
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As for the original question? I would rather die with money, than live wihout it (as any "die broke" scheme is a major risk, IMHO).

Additionally, money is for the living, not the dead. If you "pass with a stash", I'm pertty sure you won't worry about it after you have died ...
I would also rather die with money than live without, but that's not really what I'm proposing. It's more, would you rather die with money having worked some (many?) additional years, or have worked less years and have less capital to work with in retirement. This less capital would of course necessitate a plan somewhat different than a 4% SWR one.

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Old 11-18-2011, 01:04 PM   #26
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I would also rather die with money than live without, but that's not really what I'm proposing. It's more, would you rather die with money having worked some (many?) additional years, or have worked less years and have less capital to work with in retirement. This less capital would of course necessitate a plan somewhat different than a 4% SWR one.

GM
That's a harder question to answer for "the masses". I consider myself lucky to retire seven years before I expected to. For most on this forum, it would not be considered "ER". However for me, it was.

Could I have retired in my 40's considering my assets, income, future income, and retirement expenses based upon what I know, and is actual fact, today?

Sure, but that was not a risk I was willing to take at the time. I'm ahead of my personal retirement goal/plan. Good enough - for me.

And yes, you could say I wor*ed "longer than required". So what (speaking only for myself). I exceeded my personal goal. If I could/should have retired earlier, it didn't make any difference to me.

I'm happy for my current time in life, regardless of the "what if's". To me, that's all that counts.
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Old 11-18-2011, 01:08 PM   #27
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But we can expect some wild rides along the way (historically), with our buying power dropping in half along the way, and often still recovering.
Yep. Being relatively savvy with statistics, I'm all too aware that my net worth during retirement is likely to be a roller coaster along the way and at the end be some value between zero and a eye-popping multiple of the starting value. Ya just gotta suck it up and live with it.

What scares me more than the idea of FIRE portfolio value variation or of running out of money altogether is the idea of canceling planned events and realizing later you could have done them. As the recent recession stomped on our portfolio, DW and I talked about canceling some trips and purchases. In retrospect, what a mistake that would have been! Those opportunities would have been gone forever, a real loss. But we gritted our teeth, spent the money and had one hell of a good time. And our FIRE portfolio has recovered to comfortable levels despite making the planned withdrawals during a downturn.
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Old 11-18-2011, 01:09 PM   #28
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That is true for you, Golden Mean, but apparently not for many posters here. Another example is that most Americans are not saving enough for retirement, but, again, that's not true for most posters here.
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But what 'most people do' is irrelevant. If you are going LBYM and aggressively saving for ER, you are not trying to emulate 'most people'. Ignore them.

ooops - I see I'm cross-posting with youbet (great minds think alike? )!
-ERD50
I understand what you are saying and it is not my intention to show disrespect to anyone on the board, especially being such a new poster. But I think we will have to agree to disagree that using a credit card regularly increases your changes of purchasing something against your budget/savings plan. While I do follow LYBM, I know there are people smarter than me out there that are dedicated to trying to separate me from my money. I think setting a budget for the week, pulling it out in cash and spending no more is a good tool in that battle.

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Old 11-18-2011, 01:15 PM   #29
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But I think we will have to agree to disagree that using a credit card regularly increases your changes of purchasing something against your budget/savings plan.
No, I can't agree. It might increase YOUR chances, but not mine.
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Old 11-18-2011, 01:18 PM   #30
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I would also rather die with money than live without, but that's not really what I'm proposing. It's more, would you rather die with money having worked some (many?) additional years, or have worked less years and have less capital to work with in retirement. This less capital would of course necessitate a plan somewhat different than a 4% SWR one.

GM
The less capital/fewer years approach does not in itself necessitate 'a plan somewhat different than a 4% SWR' - but it would provide less annual income in retirement. Die Broke, using an annuity as you described is a potential way to better ensure more annual income than blindly applying the 4% SWR methodology. If your annuity provider remains solvent and you don't get taken on expenses, you could have more $/yr and never run out. If your life span is long, you win - if your longevity is below average, you "lose" but you won't care at that point.

Again, I am not for or against annuities in general.
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Old 11-18-2011, 01:24 PM   #31
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One thing I dislike about using credit cards in this way is that it ends up increasing the costs of goods long term. As a group, we would be better off if everyone who could pay cash did so, since the fees that the card providers charge merchants are larger than the cash back deals we get.

But the way it is set up, we all individually have a financial incentive to use the cards instead of cash. People use credit cards to buy their morning coffee, which for the merchant is a pretty bad deal.

I recently set up automatic withdrawl for my child's daycare. There was an option to do it via credit card, but I hate the idea of costing them $3 to get a $1 in cashback bonus.

I think things would work better if merchants were allowed to pass on the credit card fees to customers directly, so that the cost of the transaction was factored into the payment decision.

Credit cards are a great tool, but they are sucking more money than they really should be out of the system, IMO.

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But what 'most people do' is irrelevant. If you are going LBYM and aggressively saving for ER, you are not trying to emulate 'most people'. Ignore them.

That $18 sushi lunch is something you put a value on and is either within your budget or it isn't. The method of payment (cash or credit paid off in full when due) should not affect the decision. If it does, then in my mind, you have not really embraced LBYM.

Putting every purchase I can on a 2% rewards CC saves me hundreds of $ per year. DD college accepts the card for tuition/room/board - that's hundreds in rewards right there. I'm not going to give that up because of what some other people might do - no way!


ooops - I see I'm cross-posting with youbet (great minds think alike? )!


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Old 11-18-2011, 01:24 PM   #32
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I understand what you are saying and it is not my intention to show disrespect to anyone on the board, especially being such a new poster. But I think we will have to agree to disagree that using a credit card regularly increases your changes of purchasing something against your budget/savings plan.
No disrepect taken Golden Mean. It's just that you're generalizing a personal issue you have to people you don't know. Many people on this board are FIRE'd or on the road to being FIRE'd because they're able to swim against the current and seize opportunities not even seen by those only going with the flow. Harvesting reward dollars and utilizing the other advantages of a CC, while making zero purchases you wouldn't have made with currency, is only one.
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Old 11-18-2011, 01:56 PM   #33
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I think things would work better if merchants were allowed to pass on the credit card fees to customers directly, so that the cost of the transaction was factored into the payment decision.
I assume that they are already passing on the fees in terms of higher prices. Or did you mean a specific separate line item, somewhat like tax?

Didn't Shell try cheaper gas for cash once upon a time? Didn't work out so well I guess.

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Old 11-18-2011, 02:11 PM   #34
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But I think we will have to agree to disagree that using a credit card regularly increases your changes of purchasing something against your budget/savings plan.
No, I can't agree. It might increase YOUR chances, but not mine.
Exactly. Plus 1 to youbet's response also.



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One thing I dislike about using credit cards in this way is that it ends up increasing the costs of goods long term. As a group, we would be better off if everyone who could pay cash did so, since the fees that the card providers charge merchants are larger than the cash back deals we get.

But the way it is set up, we all individually have a financial incentive to use the cards instead of cash. ...
It is true that the cost is added to the average prices we pay. But since we, as individuals are unlikely to change that, I will continue to get my 1-2-3% rewards whenever I can. You have to play the cards that are dealt. If you can't beat 'em, join 'em.

Let's say a store is charged 3% per transaction, and half their sales are through cards. Since they charge a fixed price, that means they need to raise prices an average 1.5%, and then I get 2% back. It is still a win for me.

I think that if there were enough competition for these transactions, the % per transaction could be less. The card cos could still make money from fees/interest. But they do have to cover their float.

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Old 11-18-2011, 03:11 PM   #35
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I assume that they are already passing on the fees in terms of higher prices. Or did you mean a specific separate line item, somewhat like tax?

Didn't Shell try cheaper gas for cash once upon a time? Didn't work out so well I guess.

GM
ARCO still does this, at least in this market, and their pumps are always busy. Cash or debit card customers get the price seen on the pump, CC purchasers pay a premium.

Lots of ragged looking people feeding their dollar bills into the kiosk. The cash or debit price is always low for the neighborhood.

Ha
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Old 11-18-2011, 03:36 PM   #36
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Exactly. Plus 1 to youbet's response also.

It is true that the cost is added to the average prices we pay. But since we, as individuals are unlikely to change that, I will continue to get my 1-2-3% rewards whenever I can. You have to play the cards that are dealt. If you can't beat 'em, join 'em.

Let's say a store is charged 3% per transaction, and half their sales are through cards. Since they charge a fixed price, that means they need to raise prices an average 1.5%, and then I get 2% back. It is still a win for me.

I think that if there were enough competition for these transactions, the % per transaction could be less. The card cos could still make money from fees/interest. But they do have to cover their float.

-ERD50
I was always a "cash guy", until I gave into the intrigue of getting $ back for things I buy anyway. I only use it at the grocery store and pump. If Im out on the town, I always use cash to make sure I dont go overboard. A year later, it went perfect, getting $300. Not a life changer, but its money I wouldnt have had. I would like to ramp it up and put my monthly bills like cable,etc. on CC, but I have this ridiculous fear they will keep charging me the bill after I discontinue their service.
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Old 11-18-2011, 04:07 PM   #37
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So I searched the forum. This book (and idea) didn't appear to be discussed at any length.

The core of the book is dying broke though. How? Well, spending capital (at a reasonable rate) and then annutizing yourself late in life.

Now, I know how most of the board members feel about annuties, especially fancy ones. Pollan recommends only the plain vanilla single premium immediate lifetime annuities.

This is attractive to me because the (approx) 4% withdrawal rate seems so inefficient to me. Typically in the end, you'll die with a huge amount of unspent capital, correct?

So I guess the idea is:
Start with a wad of capital that you partially dig into. You don't seek to preserve all of it.
At some point, the interest/dividends/etc plus capital withdrawals will no longer be enough (because your capital has been shrinking)
You begin laddering into SPIA (from well researched ins. co.) at 70~80?
At some point you are fully annuitized, but are getting a reasonable income because the ins. co. tables are betting you'll drop dead sooner than later.

Any insight on the fatal flaws (or brilliance) in Pollans (and my) thinking?
These threads mention Wade Pfau's research on "maximizing utility" of a retirement portfolio:
4% is now considered too high
4% SWR - revisited
New article: 4 Percent Withdrawal Rate May Be Too High for Today's Retirees
Predicting SWR based on current market

Milevsky's been a fan of annuitizing a portion of a portfolio, especially in his "Are You A Stock or A Bond?" book.

Here's a four-year-old paper:
New thoughts on the draw down phase

And Otar's retirement analyzer is a strong proponent of annuities for those whose portfolios are subject to market risk.

The trick is that after portfolios got savaged by the 2008-09 bear market, anyone declaring "Game Over" and shopping for a SPIA found out that interest rates were at record lows too. Someone favoring this method would have to keep a sharp eye on pricing as soon as the bear market took hold.
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Old 11-18-2011, 05:14 PM   #38
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It's a violation of the merchant's agreement with the credit card companies to have different prices for cash versus credit. Sometimes places try to get away with giving a "discount" for cash, but I think they are technically violating their agreement.

So the cash customers end up paying higher prices than they would have if they weren't forced to subsidize the credit customers.

It's a tragedy of the commons issue, albeit a small tragedy.


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I assume that they are already passing on the fees in terms of higher prices. Or did you mean a specific separate line item, somewhat like tax?

Didn't Shell try cheaper gas for cash once upon a time? Didn't work out so well I guess.

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Old 11-18-2011, 05:41 PM   #39
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It's a violation of the merchant's agreement with the credit card companies to have different prices for cash versus credit.
If that is true, how do you explain this?


Hello Credit Cards
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Old 11-18-2011, 06:06 PM   #40
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It may be a violation for the merchant to add a surcharge for the card but there is no problem with giving cash discounts. The tax collectors add charges when credit cards are used and that does not seem to cause any problems.
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