Die Broke

[rescueme]

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.

 

[youbet]

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.

 

[Golden Mean]

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.

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.

GM

 

[REWahoo]

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.

 

[Midpack]

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.

 

[Hamlet]

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.

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? )!


-ERD50

 

[youbet]

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.

 

[Golden Mean]

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.

GM

 

[ERD50]

Originally Posted by Golden Mean
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.

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.

-ERD50

 

[haha]

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

 

[Mulligan]

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.

 

[Nords]

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:
http://www.early-retirement.org/forums/f28/4-is-now-considered-too-high-53425.html
http://www.early-retirement.org/forums/f28/4-swr-revisited-58357.html
http://www.early-retirement.org/for...ay-be-too-high-for-todays-retirees-58220.html
http://www.early-retirement.org/forums/f28/predicting-swr-based-on-current-market-57268.html

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:
http://www.early-retirement.org/forums/f28/new-thoughts-on-the-draw-down-phase-29273.html

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.

 

[Hamlet]

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.

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

 

[haha]

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

 

[MichaelB]

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.

 

[Golden Mean]

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:
http://www.early-retirement.org/forums/f28/new-thoughts-on-the-draw-down-phase-29273.html

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.

Oh very cool. Read the post and pulled the pdf down to read soon.

Thanks Nords! Guess I needed to search for SPIA instead of die broke.

 

[ERD50]

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

I'm not following you, haha. That link says:

Pay with cash or debit card and it’s the same price.And if you think that’s good, there’s more! You’ll also have the option to pay by credit card.

... pay however you want. Cash one time, debit card the next—or even use your credit card if you want.

* The 45¢ fee refers to the convenience fee currently charged for debit card transactions at most ARCO and ampm locations.

OK, they don't specifically say that credit cards are a different price than debit/cash. But the only fee they refer to is the debit card fee.

It may be a violation for the merchant to add a surcharge for the card but there is no problem with giving cash discounts.

I'm pretty sure the merchant agreement from the CC places restrict cash discounts too, as it would be the same effect. I'm pretty sure their lawyers are more clever than that.

edit/add: I stand corrected - a few google hits show that , with some stipulations, cash discounts are allowed:

http://www.merchantcouncil.org/merchant-account/operation/pass-fee-customer.php



-ERD50

 

[meierlde]

As for annuities, I won't even think of one until I am in my 80's. At that point, I can re-assess. If I am in good health and interest rates are more favorable, I might consider one but if not, then that idea is out of the question for me.

Btw at the age of 80 if you do a charitable gift annunity you get 6.5% of the balance back each year. Plus the excess of the gift over the NPV of the annuity is deductible. So in addition to looking at an insurance company one could consider this route, which also helps your favorite charity in the process.

 

[haha]

I'm not following you, haha. That link says:



OK, they don't specifically say that credit cards are a different price than debit/cash. But the only fee they refer to is the debit card fee.



I'm pretty sure the merchant agreement from the CC places restrict cash discounts too, as it would be the same effect. I'm pretty sure their lawyers are more clever than that.

edit/add: I stand corrected - a few google hits show that , with some stipulations, cash discounts are allowed:

Charging Customers a Fee to Pay with a Credit Card



-ERD50

Well, at at least some stations in WA, they are different. It says so in the small print on the pump at the ARCO where I sometimes buy gas. Their website is conveniently not telling the whole story. They emphasize that they no longer have a debit card fee, and say nothing about the fact that they do have a credit card fee. Should I believe a careful bit of their corporate speak, or my lying eyes?

As I remember, before this change they had a debit card fee, and did not take credit cards at all.

Ha

 

[meierlde]

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.

.

Its not clear that the fees execeed the costs of handling cash for a small business. It starts with the banks charging .1% on cash deposits of over some amount like 10k/month. Then you have the costs of counting the cash several times (and the machines to help do it). Add then the security costs of added surveillance equipment, time safes, and added insurance costs for the workmans comp for staff etc. In particular I suspect most convenience stores (often called stop and rob) would be happier if they did not accept any cash and were credit/debit only.
I recall hearing that when the navy went cashless on some ships 5 fte's were freed up in the process to do other things, suggesting the high cost of cash that is not well documented.

 

[Chuckanut]

i seem to recall that on of the initial arguments for debit cards was the lower transaction costs. Clerks, salespeople, tellers, etc. spent less time counting cash and returning change. Also, there would be less need to hire those the back office people who count the cash at the end of the day. And, of course, there is less chance of tapping-the-til if all it contains is a paper trail of debit card transactions. Supposedly, this would save stores a bundle!!

 

[Animorph]

Well, at at least some stations in WA, they are different. It says so in the small print on the pump at the ARCO where I sometimes buy gas. Their website is conveniently not telling the whole story. They emphasize that they no longer have a debit card fee, and say nothing about the fact that they do have a credit card fee. Should I believe a careful bit of their corporate speak, or my lying eyes?

As I remember, before this change they had a debit card fee, and did not take credit cards at all.

Ha

Hope that makes it here. I bought gas about a week ago at ARCO and they charged me a $0.35 debit card fee. That was down from the usual $0.45 it had been. I don't think they take credit cards yet. Maybe they're testing out a new scheme in a few locations?

 

[Chuckanut]

Alas, way to many of are already living very near the 'broke' point. I know several people, fired in their late 50's, unable to get a decent paying job, and rapidly going through their retirement savings. Not so good.

 

[Chuckanut]

I also know of a number of people in their 50's and 60's who still rent an apartment, often sharing it with somebody else. They work semi-skilled jobs that pay in the area of 15-20 dollars an hour. Enough to live on but not enough to save much. Often they are financially ignorant and never realized what they were giving up when they decided not to fund an IRA in their 30's, even if just a few hundred dollars a year. (Why do people think an IRA must be fully funded or not at all?) Often if the had a home they borrowed on it for vacations, cars, or to add-on to the home. Now they are down the tubes - the home lost. Had they simply not borrowed more on the home, and paid off the mortgage, their situation would be much better today.

Very sad.

 

[kyounge1956]

(snip) I looked up Die Broke on Amazon and the review includes the following:

Die Broke is organized into two sections: the first lays out the principles for dying broke. Pollan bases his whole argument on these four maxims: quit today and work for yourself, not your company; pay cash, melt your credit cards, and don't even think about using your ATM card; don't retire, retirement is a relatively new concept created during the Depression, instead plan to work all your life, and; die broke, after all, you can't take it with you. (snip)

Anyway. That statement from Don, that he got from the AMZN description is misleading. I thought about posting an update on that old thread to clear that up... but didn't do it.

But.... since it seems that others took it to be fact... here goes.

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.

Is the book a good book? I thought it was pretty good. Covered many topics (brief educational descriptions with some insight and advice). (snip) But, if one has deep knowledge in some of those topics, the advice would seem to be very basic.

I recently read Die Broke and I don't think Don's quote from the Amazon review is misleading at all. IMO, it's a pretty good summary of the first third or so of the book, in which the author explains and promotes his philosophy based on those four maxims as an alternative to retirement based on reaching a particular age or amount of financial resources. (The other 2/3 is the short explanatory articles.) He devotes a whole chapter to each maxim, explaining what he means by it and why in his opinion it is better than some other way of looking at the matter. For full disclosure, I should say I read the entire first section but only skimmed the second part.

That first section has everything to do with life decisions like continuing to work. When he says "don't retire" it appears to me that he means it quite literally: keep working until nobody will hire you. That is the maxim I found myself disagreeing with the most. The idea of working until you have enough to support yourself indefinitely and then leaving the workforce to volunteer, or pursue an avocation, or just to live a life of leisure, does not seem to enter his thinking at all. Based on his description of his clients, that he's writing for an audience with much stronger "type A" tendencies than I've ever had, and that's why it rubs me the wrong way. He seems to be saying "Don't leave the workforce when you decide you are psychologically and financially ready to go, stick around until you are forced out!" Frankly, I don't find that an attractive prospect, and, ISTM, it's also contrary to his repeated statements that you shouldn't base your identity on your work. If you aren't identifying with your work and ability to earn, why cling so hard?