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"YMOYL Chapter 9, Part 3: Capital, Cushion and Cache"

4 Comments -

1 – 4 of 4
Blogger Unknown said...

I do struggle with some of the concepts presented.

I think there is a lack of emphasis on inflation, as well as an over-emphasis on how much income can be produced.

You mention "it's highly plausible" to earn side income to protect against inflation. In reality, this approach would require it, and in large amounts.

Say your annual expenses are $30k. After just 10 years of 2% inflation, that $30k has a current dollar purchasing power of $24.5K. After 20 years, $20k. That's massive.

So part of the issue is that. Another part is that there is an underlying assumption that you will leave your entire savings as a legacy.

This also ties in to my disagreement with a previous post re: not caring if a dividend paying stock price goes up or down. You will likely need to consume principal.

Last, the comment re: "you may very well reach your Crossover Point years before you can enjoy penalty-free access to assets sitting in these standard retirement accounts" is not wholly accurate given IRS Code 72(t) for those 35 years of age or older.

1/30/2017 6:56 AM

Blogger Daniel said...

Thanks NGN for another excellent comment.

I think it's worth considering inflation as a risk, so it's excellent that you're doing so. If you consider it a major concern there are additional steps you can take before quitting full time work (e.g., wait until you have more margin for error between your expense line and your investment income for example, make sure you have extra-EXTRA cushion and cache, or make sure you have already budgeted a meaningful post retirement savings rate). At the end of the day, however, all of these solutions revolve around a simple primary solution: save more money. I wish I had something more palliative to say than that. :)

Finally, I didn't quite understand the thrust of your last comment about retirement accounts.

DK

1/30/2017 9:20 AM

Blogger Unknown said...

IRS Code 72(t) allows those over 35 but younger than 59 1/2 to withdraw from tax deferred accounts penalty free.

1/30/2017 9:30 PM

Blogger Daniel said...

Thank you for sharing your insights NGN!

DK

1/31/2017 5:42 AM

Thanks for sharing your thoughts here at Casual Kitchen! I welcome all compliments, constructive criticism, well-thought-out ideas and reasoned arguments. Thank you for not leaving any spam.
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