Hi thejusticier,
“in your hydraulic analogy, the balloon has to have enough pressure to push out some money to your passbook.”
It is a magic balloon (not like the one in the 1956 short film “The Red Balloon”). This balloon puts out a steady 45 psi from full to empty. So 5 gallons or 1 ounce in the balloon, 45 psi.
“When do you decide your reservoir (portfolio) is full to open the valve?”
Purely mechanical. If our last all time high was $563,701 and our close today is $571,332, a new high was set by $7,631 and I look through:
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Condition of cash cushion, percent of target amount.
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Available cash in the portfolio, percent of target amount.
If I believe I want to top off the cushion and I have cash available, I transfer cash to our savings account and log it as a withdrawal.
If I don’t have enough cash, I look at sale candidates for possible trimming.
It still boils down to a judgement call. I may not top it off. I might just send $20,000 instead of the $50,000 it is down and wait for the next all time high.
I balance the value of cash in the portfolio vs the need for the cash in the cushion.
If the cushion is low, like below 50%, I place more emphasis on getting more into it. If the cushion is at 90%, I might let it ride for a bit.
“do you ever pass money from your cash cushion to your portfolio?”
No.
When I get money, I usually use it to top off the cushion first. Depending on how much money remains after that, I may just add the remainder to the cushion, particularly if I have larger payments approaching like property taxes since it would be used shortly.
IIRC, over the last 10 years, our only larger cash income was 3 pipeline easements and 4 drilling/production 3 year leases and some 2 year extensions. In those cases, I topped off our cushion and put the remainder into our portfolio, logged as deposits.
“On converting IRA to Roth, wouldn’t you have to pay taxes on your capital gains incurred when in the IRA, right?”
There is no such thing as capital gains inside of a retirement account for taxes.
From traditional retirement accounts, all withdrawals are taxed as ordinary income. If the “account” has basis, tax paid contributions, then the withdrawals are partly tax free.
I say “account” above since each 401K/403B account is a separate entity, while every IRA account in your name is actually grouped as a single IRA. That is whole different discussion.
Retirement accounts are “black boxes” for taxes. Only one taxable event can occur inside a retirement account, UBIT, and it is rare since most people do not have sufficient assets to trigger it past the $1,000 threshold.
“when you left on this journey in 2005, did you use as you portfolio target to reach min 25X the revenue you thought you needed each year? and you left your job when you reached it?”
Kind of …
Using Quicken planner and a few online planners, I knew I had enough about 2 years before. I chose to wait a bit to pass the 55 threshold and get my little pension. And in 2004, DW had an all-expenses paid vacation to the garden spot of southern Iraq. When she got home, I was ready to leave …
Does that help you?
Gene
All holdings and some statistics on my Fool profile page
http://my.fool.com/profile/gdett2/info.aspx