The fine art of buffer juggling

[PhilB]

Hats off to those outrageous optimists out there who will Lean FIRE and rely on finding a solution if they run into problems, but I'm sure that I'm not alone in working that little bit longer in order to build a decent buffer in case the SHTF in some way.  I've been giving a lot of thought lately to how to treat that buffer in my planning and have found it to be a fascinating psychological puzzle.  I'd be interested to see if others have come to a similar conclusion or found a different answer that works for them.
The key question is do you treat the buffer as a capital sum to cover one off costs or bad returns over the course of your retirement, or do you treat it as giving you extra income at your SWR that gives you built in headroom as you go along?  DW leans strongly to the capital route, but I know that would give me real difficulties as I would be scared to ever spend any of it as then it wouldn't be there for future emergencies.  The extra income route makes me feel richer and happier and less likely to be too cheap day to day, but I'd then struggle making really big purchases as I'd feel I needed to save up for them first from my 'excess' income.
The solution we've ended up with (helped by having a very big buffer, I will admit) is somewhere in between.  I will have a reasonable capital buffer, but most will be income buffer.  That way I should be able to manage a saw tooth graph on the capital buffer - the sudden drops when I spend on something big like a new kitchen being made up for by the steady inflow of 'savings' from my excess monthly income.
Has anyone else struggled with this, or is it just me being weird?

[Bicycle_B]

Makes sense to me!

In your shoes, I too would go with a mixed plan.

IRL, I most often reduce everything to a long term income, seeking to have an income buffer.  I myself don't care when bump comes - I'm happy to let the stash grow in years that are quiet expense wise. No internal pressure to spend more. But I feel your pain/uncertainty, so to speak...I repeat the calculations periodically to reassure myself.  Results are the same whether I use the income or capital method, so at this point either one is calming.  Four years or more past my last real job at this point.

[Monkey Uncle]

We go the income route.  We built in a 12.5% buffer above our base annual spending.  Generally any irregular or unexpected expenses above $1,000 get charged toward the buffer (e.g., vacation, major home or vehicle repair).  Irregular expenses less than $1,000 get absorbed in our base spending, because those things are just an expected part of everyday life.  In most years we should leave most of the buffer on the table, which, theoretically, should make up for the occasional year when we might need more than the total buffer (e.g., new roof, car replacement, major healthcare expenses).

Given where we are in the market cycle, I also targeted a 100% success rate for cFiresim runs.  If I had been FIREing in, say, 2010, I probably would have been happy with a 90% success rate (easy to say in hindsight, I know).

[sailor-bob]

PhilB, to understand your situation better: would you be willing to go back to work if you need some more money? Have you ever considered preparing that somehow? (Anything from networking to keeping your resume and skills in shape...) Or are you considering that one of the many new hobbies you'll probably have to start when not working any more (especially if you are a hard-code TV-less Mustachian) might accidentally roll-in any money?

My short answer is +1 for the income buffer because it is super badass to become richer every day with only the estate working and not me. :-DD

[PhilB]

My situation is that I'm a very nervous mustachian and so, even though I have recently decided to OLY, I have built in a very significant buffer indeed so it would be total collapse of the world economy territory before I needed to look at going back to work.   Our numbers are something in the region of £35k pa budgeted spending (family of 4), £10k pa income buffer and £100k+ capital buffer.  That core spending will be completely covered by DB and state pensions by 2033.  Plus I have ignored recent stock market gains above what I budgeted to the tune of around 2 years spending.
My worries aren't around the buffer being sufficient so much as they are around convincing myself it's safe to spend it!

[Brother Esau]

I used to worry SO MUCH about saving enough before retiring, now I literally don’t worry about it.

This is the best feeling!!

[nereo]

...
My worries aren't around the buffer being sufficient so much as they are around convincing myself it's safe to spend it!

Part of being a disciplined investor is having a well thought out plan, and then sticking to that plan.  At some point you have to take that leap and assume that markets will recover, your cash and home will be worth something and aliens/hostile nations won't abduct or kill you. If those events turn out not to be true all bets are off anyway.

Specifically regarding the "buffer" issue, here's our plan:
We'll carry ~12 months in cash equivalents into ER
Whenever the market has dropped >10% from the previous year we'll first use the cash buffer
Whenever the market gains >10% we'll use proceeds to replenish the buffer (up to 12 months).

This should tamper down some volatility while giving us a psychological boost.  It should limit how many index shares we sell during a recession while giving us a pre-determined way of replenishing this buffer. It's a cash drag we are comfortable with (1x expenses) and knowing ourselves we'd cut back and seek out income anyway which would probably stretch that to 18mo+.

That's our plan and it might not even be the 'best' plan, but having a plan is what's really important.