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Old 03-13-2017, 11:43 AM   #121
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Originally Posted by Fedup View Post
I'm not tracking my spending but just recording the actual amount at the end of each year so I can have them in my records. I don't want to be too obsessive about it so I did build in a huge buffer before I retired as in not put everything in FIRECALC. As a former spendthrift and never LBYM person, I would hate to worry about running out of money, so there is a huge cash buffer in my checking account earning zero percent. I know what you are thinking but I sleep well at night and that's all it counts.
What I am thinking is "Fedup understands a lot better than she lets on".

I have attempted before (and unsuccessfully) to articulate my thoughts on the superiority of maximizing the utility of an asset over maximizing the asset's nominal value. Here is a good example of what I have tried to suggest.

Keeping a cash buffer in checking which earns no interest isn't maximizing the nominal value of that money. But it provides other benefits that may outweigh the forgone interest:

  • The reserve alleviates worry about bouncing checks on routine purchases;
  • It frees the owner from the repetitive, menial task of computing balances before/after every transaction;
  • Maintains a cushion against adverse market returns on invested capital;
  • Allows wide discretion over what one's short-term spending level can be;
  • Provides liquidity to allow spontaneous purchases.
All of these benefits have genuine utility, even if the utility can't be quantified. They save time, effort and anxiety. These can be worth a lot more than a few bucks worth of interest.

I hope I have explained myself better. If not, I'll try again next time.
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Old 03-13-2017, 12:06 PM   #122
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Quote:
Originally Posted by Mdlerth View Post
What I am thinking is "Fedup understands a lot better than she lets on".

I have attempted before (and unsuccessfully) to articulate my thoughts on the superiority of maximizing the utility of an asset over maximizing the asset's nominal value. Here is a good example of what I have tried to suggest.

Keeping a cash buffer in checking which earns no interest isn't maximizing the nominal value of that money. But it provides other benefits that may outweigh the forgone interest:

  • The reserve alleviates worry about bouncing checks on routine purchases;
  • It frees the owner from the repetitive, menial task of computing balances before/after every transaction;
  • Maintains a cushion against adverse market returns on invested capital;
  • Allows wide discretion over what one's short-term spending level can be;
  • Provides liquidity to allow spontaneous purchases.
All of these benefits have genuine utility, even if the utility can't be quantified. They save time, effort and anxiety. These can be worth a lot more than a few bucks worth of interest.

I hope I have explained myself better. If not, I'll try again next time.
I agree with your thinking but I wonder if you can at least try to get some financial benefit from the cash buffer. Why not open a checking and savings account at Ally Bank (just one example of an online bank paying reasonable interest)? Put your cash buffer in the savings account (earns 1% at the moment). You can tell Ally that if there are any shortages in checking, just go over to savings and grab it from there. Pretty much on auto-pilot. You can then have the same benefits you are mentioning above but have a little interest income flowing in. YMMV depending on the size of buffer we are talking about.
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Old 03-13-2017, 12:07 PM   #123
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That cash doesn't need to earn 0%. Put most of it in a high yield checking account, and it will earn 1% or slightly better. Still FDIC insured and all the other benefits of bank checking. At most it's two or three days to transfer it to checking if needed. My experience is funds are available the next day after I initiate transfer from the high yield savings account.
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Old 03-13-2017, 03:59 PM   #124
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Honestly, I'm lazy. Even if I manage to have the energy to open an account. Whatever I earn, I have to pay tax. All that for a bit of interest. Thanks but no thanks. The bank suggests for me to do it, I never got around to it. I finally moved some of the cash to my Scottrade account. They gave me some money for the cash. My biggest reason is that when I keep moving all these money around and forgot to accidentally not fill out any form of beneficiary or what not, I might get into more trouble. But I always keep large amount of cash, not only I sleep well, I get no stress, and don't get sick from it. It must work because I'm much more relaxed and laid back in general, heck comparing to a lot of people I know, I'm reasonably healthy. The strategy allows me to focus on my health which I think is a better focus.
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Old 03-13-2017, 04:56 PM   #125
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Sometimes when I read the replays I think we are often comparing "apples" to "oranges". To retire on $35,000/year must assume no taxes, funded health care, no significant gifting and no gifts to the kids/grandkids and very minimal travel. Tax free pensions( state taxes), free health care for life, etc is a whole different ballgame- No pension no Roth IRA, having to pay for medical and dental care and a few grandkids puts comfortable retiring under $100,000 hard( assume that is all taxed).
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Old 03-13-2017, 05:04 PM   #126
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Originally Posted by joeprintz View Post
Sometimes when I read the replays I think we are often comparing "apples" to "oranges". To retire on $35,000/year must assume no taxes, funded health care, no significant gifting and no gifts to the kids/grandkids and very minimal travel. Tax free pensions( state taxes), free health care for life, etc is a whole different ballgame- No pension no Roth IRA, having to pay for medical and dental care and a few grandkids puts comfortable retiring under $100,000 hard( assume that is all taxed).
You're correct that a $35k annual budget probably means that some common large costs have been eliminated or reduced.

My budget is $35k/year, but I have no mortgage or other debt, my pension is state tax free and I pay $100/month for low deductible healthcare. Once I take off allowances and deductions my Federal tax bill is also pretty small.

I travel most years, but it's usually on my bicycle......a couple of years ago I flew to Seattle with my bike and rode it back to the East Coast and that trip fit within my annual budget. I give some money to my nieces each year, but the big payout for them will be after I'm gone as they get the majority of my estate.
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Old 03-13-2017, 05:12 PM   #127
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It also depends on how much cash you hold in that buffer or cushion. I keep about $750 beyond the minimum balance requirements in my local bank's checking account. This covers me for small, unforeseen expenses which often arise from month to month. Larger, unforeseen expenses come from my second-tier emergency fund, something a rarely have to tap into. That money is in an intermediate-term, muni bond fund which earns just over 2% tax-free.


I don't like having to tie up money in an interest-free account, but I get many handy day-to-day services from my local bank, so not earning any interest on the rather small amount (about $2,000) I keep in there is okay.
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Old 03-15-2017, 11:58 AM   #128
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withdrawal rate

Very interesting thread - thank you to everyone who posted their #'s. My wife and I are on the FIRE path and will need our nest egg to last longer than the typical 30-year window as we're on track to be FI at a pretty young age and don't want to keep going in the rat race. The calculators aren't as useful because of the assumptions behind them, so it's helpful to see what you all are doing in the 'real world' so to speak.
-bigM
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