The “I want to retire soon” thread (10 Viewers)

[Judge Smails]

Always heard cash first

 

[-OZ-]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

 

[NutterButter]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

 

[-OZ-]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

Take a gander at the write ups.
The only real difference is these portfolios don’t separate buckets. Just consider the 3 years cash as 12% of the portfolio (assuming 4% annual).

One example:

Portfolio Policies: We will re-balance this portfolio annually. We will be distributing 4% annualized from this portfolio each month, which in practice will involve dividing the ending monthly balance by 300 and distributing that amount on the first trading day of the next month. If the portfolio falls below 80% of its starting value, we will reduce the withdrawal rate to 3% annualized until it returns to its starting value. We will sell a portion of the currently most productive fund as necessary to support the monthly withdrawals.​

Or

Portfolio Policies: We will re-balance this portfolio annually. We will be distributing 5% annualized from this portfolio each month, which in practice will involve dividing the ending monthly balance by 240 and distributing that amount on the first trading day of the next month. If the portfolio falls below 80% of its starting value, we will reduce the withdrawal rate to 4% until it returns to its starting value. We will sell the money market asset first and a portion of the most productive fund after that as necessary to support the withdrawals.​

 

[SFBayDuck]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

 

[NutterButter]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

 

[-OZ-]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

No
This can get complicated but let’s use an example.

In a plan where you pull annually, you have:
$12,000 cash
$88,000 VT
VT drops 10%, cash increases 5%
Now that’s $12,600 cash, $79,200
Your goal is to maintain 12% cash, 88% VT but now you’re at 86% VT. You want to pull $4,000. The way I understand it, in order to maintain the 88% VT, to pull $4,000 you would pull $1,936 from VT and $2064 cash. That gives you $91,800 - $4,000 = $87,800 left, now $77,264 VT, $10,536 cash.
The alternative, which I like better in theory but it makes one think too much would be to just pull $4000 cash, leaving you at $8600 cash, $79,200 VT but left with your original question of when to refill cash. In the end, this timing is actually more risky than simply following a plan. I think it brings a higher reward.

I think this works better with multiple, preferably uncorrelated holdings

 

[ConstruxBoy]

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

No
This can get complicated but let’s use an example.

In a plan where you pull annually, you have:
$12,000 cash
$88,000 VT
VT drops 10%, cash increases 5%
Now that’s $12,600 cash, $79,200
Your goal is to maintain 12% cash, 88% VT but now you’re at 86% VT. You want to pull $4,000. The way I understand it, in order to maintain the 88% VT, to pull $4,000 you would pull $1,936 from VT and $2064 cash. That gives you $91,800 - $4,000 = $87,800 left, now $77,264 VT, $10,536 cash.
The alternative, which I like better in theory but it makes one think too much would be to just pull $4000 cash, leaving you at $8600 cash, $79,200 VT but left with your original question of when to refill cash. In the end, this timing is actually more risky than simply following a plan. I think it brings a higher reward.

I think this works better with multiple, preferably uncorrelated holdings

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

 

[NutterButter]

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

No
This can get complicated but let’s use an example.

In a plan where you pull annually, you have:
$12,000 cash
$88,000 VT
VT drops 10%, cash increases 5%
Now that’s $12,600 cash, $79,200
Your goal is to maintain 12% cash, 88% VT but now you’re at 86% VT. You want to pull $4,000. The way I understand it, in order to maintain the 88% VT, to pull $4,000 you would pull $1,936 from VT and $2064 cash. That gives you $91,800 - $4,000 = $87,800 left, now $77,264 VT, $10,536 cash.
The alternative, which I like better in theory but it makes one think too much would be to just pull $4000 cash, leaving you at $8600 cash, $79,200 VT but left with your original question of when to refill cash. In the end, this timing is actually more risky than simply following a plan. I think it brings a higher reward.

I think this works better with multiple, preferably uncorrelated holdings

I got ya. So at least in this example where you're withdrawing annually, you're naturally rebalancing at the same time so you're just withdrawing from wherever gives you that desired balance. Is it common just to withdraw annually for the most part bc if you're doing it more frequently, are you still rebalancing those times as well?

 

[belljr]

I half asked before but how does it work if you have insurance then you have to apply for medicare?

DO I still pay premiums? DO they cover whatever medicare does not?

 

[NutterButter]

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

No
This can get complicated but let’s use an example.

In a plan where you pull annually, you have:
$12,000 cash
$88,000 VT
VT drops 10%, cash increases 5%
Now that’s $12,600 cash, $79,200
Your goal is to maintain 12% cash, 88% VT but now you’re at 86% VT. You want to pull $4,000. The way I understand it, in order to maintain the 88% VT, to pull $4,000 you would pull $1,936 from VT and $2064 cash. That gives you $91,800 - $4,000 = $87,800 left, now $77,264 VT, $10,536 cash.
The alternative, which I like better in theory but it makes one think too much would be to just pull $4000 cash, leaving you at $8600 cash, $79,200 VT but left with your original question of when to refill cash. In the end, this timing is actually more risky than simply following a plan. I think it brings a higher reward.

I think this works better with multiple, preferably uncorrelated holdings

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

That was my thought process as well. You keep going to cash until it's depleted and then it's to the other depressed assets. But then it's back to my original questions. Like if u deplete your cash at some point you'll get around to replenishing it but you might not want to do it all at one time bc that's going to involve a big tax hit.

 

[Sand]

I half asked before but how does it work if you have insurance then you have to apply for medicare?

DO I still pay premiums? DO they cover whatever medicare does not?

Retiree healthcare or something you just bought on your own? If through a company it all depends on what they offer. If an ACA plan to Medicare you'd stop the ACA plan and pickup Medicare + a supplement. I'd be leery of the advantage plans - know what you're getting into if you choose one of those.

 

[belljr]

I half asked before but how does it work if you have insurance then you have to apply for medicare?

DO I still pay premiums? DO they cover whatever medicare does not?

Retiree healthcare or something you just bought on your own? If through a company it all depends on what they offer. If an ACA plan to Medicare you'd stop the ACA plan and pickup Medicare + a supplement. I'd be leery of the advantage plans - know what you're getting into if you choose one of those.

I guess I should check with OPM. I thought it was standard for anyone with insurance. Mine are federal gov

 

[matttyl]

I half asked before but how does it work if you have insurance then you have to apply for medicare?

DO I still pay premiums? DO they cover whatever medicare does not?

Generally speaking you’re automatically enrolled in Medicare part A if you have the 40 credits required. You sign up for part B and it has a premium based on your income from two years prior.

Now, are you asking if you continue to work what happens? That depends on your situation. I can dive into more detail if you’d like.

 

[IvanKaramazov]

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

No
This can get complicated but let’s use an example.

In a plan where you pull annually, you have:
$12,000 cash
$88,000 VT
VT drops 10%, cash increases 5%
Now that’s $12,600 cash, $79,200
Your goal is to maintain 12% cash, 88% VT but now you’re at 86% VT. You want to pull $4,000. The way I understand it, in order to maintain the 88% VT, to pull $4,000 you would pull $1,936 from VT and $2064 cash. That gives you $91,800 - $4,000 = $87,800 left, now $77,264 VT, $10,536 cash.
The alternative, which I like better in theory but it makes one think too much would be to just pull $4000 cash, leaving you at $8600 cash, $79,200 VT but left with your original question of when to refill cash. In the end, this timing is actually more risky than simply following a plan. I think it brings a higher reward.

I think this works better with multiple, preferably uncorrelated holdings

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

This is pretty much exactly how I'm thinking about it too. I'm going to hold a certain amount of cash/cash-equivalents so that I don't have to sell stocks in a 2008-like environment. I'm not worried about a 10% correction or just a sideways market -- I'm worried about something that might be an extinction-level event in retirement. I look at that cash as an insurance policy, and the earnings I'm giving up by holding cash are the premium.

If I have, say, three years worth of cash, I'm just going to spend that down to zero and hope the market has sprung back by then. If not, oh well. You can't insure against everything. Those cash reserves just act as a buffer, not a panacea. If the market drops off steeply and it takes years and years to recover, we're all just sort of screwed no matter what we do.

 

[belljr]

I half asked before but how does it work if you have insurance then you have to apply for medicare?

DO I still pay premiums? DO they cover whatever medicare does not?

Generally speaking you’re automatically enrolled in Medicare part A if you have the 40 credits required. You sign up for part B and it has a premium based on your income from two years prior.

Now, are you asking if you continue to work what happens? That depends on your situation. I can dive into more detail if you’d like.

No, I'm asking when i retire. I pay my same premiums and I keep my BCBS (FEHB). When I turn 65 and get medicare my BCBS becomes my secondary insurance.

Do I need B? Should I drop BCBS?

 

[SFBayDuck]

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

I hear ya, it really depends on why you're holding cash. Pretty much every study shows it's mathematically sub-optimal over long periods of time. It will lower your SWR, and that's especially true once you get above about 10%.

But studies also show that people feel more comfortable holding some cash. So if you're doing it for that reason, and now don't have any (after an extended bear market), how are you going to feel? I guess you'd feel pretty bad in any case during an extended bear market, regardless. But I'd posit that a lot of people who felt they needed that amount of cash to sleep at night would likely end up selling while the market is down to raise cash, defeating the whole purpose.

If you want to have 3-5 years in your cash buffer or pie cake you very well may sleep better, but it's going to reduce the amount you are able to spend in retirement, or require you to work longer/build up more savings. That's probably a good trade off for a lot of people, nothing wrong with that. One of the more fascinating parts in learning more about all of this is the importance of behavioral finance, emphasis on the behavioral. This ain't all spreadsheets and monte carlo sims and back testing.

I do think this overlaps a little with the bond tent or equity glidepath approach we were talking about in here. I can see an approach where you go into retirement with the highest allocation of cash/fixed income you will ever have, heavily relying on that in your early years, and letting equities do what they normally do over time you'd end up with your highest equity allocation later in retirement. I'd like to dig into combining like that with a broadly diversified portfolio with multiple asset classes to see if there is a way to get the best of all worlds. Maybe something like having 50% equities/15% short term bonds or cash/15% LT bonds/10% Gold/10% Managed Futures at retirement but working to have that end up at 70% equities/10% LT bonds/10% Gold/10% MFs 15 years in (@-OZ- , think I'll ask Uncle Frank about this.)

 

[ConstruxBoy]

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

That was my thought process as well. You keep going to cash until it's depleted and then it's to the other depressed assets. But then it's back to my original questions. Like if u deplete your cash at some point you'll get around to replenishing it but you might not want to do it all at one time bc that's going to involve a big tax hit.

Yes, sorry. My plan is that I am selling securities to replenish the cash bucket as the opportunities arise, or, failing that, just on a quarterly basis or so.

I'm hoping to move Cash to my checking account on a quarterly basis if I've planned it out as well as needed. So in simple terms, taking 4% a year, move 1% each quarter from Cash bucket to my checking account.
Of course if I have a big trip planned in the summer, maybe I take more in the 2nd or 3rd quarter that year. At the same time, be checking for Cash replenishment opportunities to sell securities.

But I don't want to force it. I think that's a mistake. It's a 2-3 year buffer. That's why I think it makes sense to check in on your accounts more often (if you can and want/like to) to see if there are other opportunities.

 

[matttyl]

I half asked before but how does it work if you have insurance then you have to apply for medicare?

DO I still pay premiums? DO they cover whatever medicare does not?

Generally speaking you’re automatically enrolled in Medicare part A if you have the 40 credits required. You sign up for part B and it has a premium based on your income from two years prior.

Now, are you asking if you continue to work what happens? That depends on your situation. I can dive into more detail if you’d like.

No, I'm asking when i retire. I pay my same premiums and I keep my BCBS (FEHB). When I turn 65 and get medicare my BCBS becomes my secondary insurance.

Do I need B? Should I drop BCBS?

All that would depend on cost. I’m not overly familiar with federal benefits, generally I guide folks into parts A+B with a supplement and call it a day.

 

[ConstruxBoy]

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

I hear ya, it really depends on why you're holding cash. Pretty much every study shows it's mathematically sub-optimal over long periods of time. It will lower your SWR, and that's especially true once you get above about 10%.

But studies also show that people feel more comfortable holding some cash. So if you're doing it for that reason, and now don't have any (after an extended bear market), how are you going to feel? I guess you'd feel pretty bad in any case during an extended bear market, regardless. But I'd posit that a lot of people who felt they needed that amount of cash to sleep at night would likely end up selling while the market is down to raise cash, defeating the whole purpose.

If you want to have 3-5 years in your cash buffer or pie cake you very well may sleep better, but it's going to reduce the amount you are able to spend in retirement, or require you to work longer/build up more savings. That's probably a good trade off for a lot of people, nothing wrong with that. One of the more fascinating parts in learning more about all of this is the importance of behavioral finance, emphasis on the behavioral. This ain't all spreadsheets and monte carlo sims and back testing.

I do think this overlaps a little with the bond tent or equity glidepath approach we were talking about in here. I can see an approach where you go into retirement with the highest allocation of cash/fixed income you will ever have, heavily relying on that in your early years, and letting equities do what they normally do over time you'd end up with your highest equity allocation later in retirement. I'd like to dig into combining like that with a broadly diversified portfolio with multiple asset classes to see if there is a way to get the best of all worlds. Maybe something like having 50% equities/15% short term bonds or cash/15% LT bonds/10% Gold/10% Managed Futures at retirement but working to have that end up at 70% equities/10% LT bonds/10% Gold/10% MFs 15 years in (@-OZ- , think I'll ask Uncle Frank about this.)

Yeah, 1000% this. I'm lucky to have a very high risk tolerance. It's just money. Most people don't think that way at all. So I'll maybe only have a 1-2 years in cash just because I also hate to take a loss when selling, lol.

 

[NutterButter]

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

I hear ya, it really depends on why you're holding cash. Pretty much every study shows it's mathematically sub-optimal over long periods of time. It will lower your SWR, and that's especially true once you get above about 10%.

This was gonna lead to my next question which originally got me thinking this morning (kind of unusual for me). If you intend to have this cash bucket would it be better to maybe have it in stocks instead with a stop loss order? This way your still being aggressive with it and taking advantage during a bull market where you'll be selling equities in your other account(s) but you're also guarding yourself again a drop where you're willing to lose a little but still provide enough of a desired cash safety net.

 

[Sand]

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

I hear ya, it really depends on why you're holding cash. Pretty much every study shows it's mathematically sub-optimal over long periods of time. It will lower your SWR, and that's especially true once you get above about 10%.

I'll happily hold 100% cash forever if I'm getting 4.9% on it like I am now.

 

[-OZ-]

Is it common just to withdraw annually for the most part bc if you're doing it more frequently, are you still rebalancing those times as well?

i think this varies a lot with different people. I’ve heard monthly, quarterly, and annually. Personally I think I’ll go quarterly but not really sure.

Fwiw, M1 finance makes this a lot easier than other brokerages. You maintain a set pie with withdrawals.

 

[-OZ-]

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

I hear ya, it really depends on why you're holding cash. Pretty much every study shows it's mathematically sub-optimal over long periods of time. It will lower your SWR, and that's especially true once you get above about 10%.

I'll happily hold 100% cash forever if I'm getting 4.9% on it like I am now.

Hard pass here. But I would go with more than 12%.
My pensions are basically cash / bonds with COLA.

 

[Sand]

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

I hear ya, it really depends on why you're holding cash. Pretty much every study shows it's mathematically sub-optimal over long periods of time. It will lower your SWR, and that's especially true once you get above about 10%.

This was gonna lead to my next question which originally got me thinking this morning (kind of unusual for me). If you intend to have this cash bucket would it be better to maybe have it in stocks instead with a stop loss order? This way your still being aggressive with it and taking advantage during a bull market where you'll be selling equities in your other account(s) but you're also guarding yourself again a drop where you're willing to lose a little but still provide enough of a desired cash safety net.

Interesting thought but I've always found the market to unerringly find my stop out price. Here I'd personally go for a bit of cash and a CD or treasury ladder to address the conservative portion/bucket.

 

[Sand]

Hard pass here. But I would go with more than 12%.

President Carter, please pick up the white courtesy phone...

 

[Peggy]

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

Have we talked about the strategy for when to tap into your more conservative buckets when the market takes a turn for the worse? Also after going through a period when you've been tapping into those more conservative buckets (say your average 18 month bear market), what's the desired approach for replenishing them? Let's say for simplicity sake, you have 3 years of expenses in an cash investments (money market, cds, treasuries, plain cash, etc) and rest in just a couple of equity index funds (large cap and small cap for instance).

If you’ve constructed your portfolio right, not everything will be down the same. https://www.riskparityradio.com/portfolios

Basically, keep your goal portfolio. Which means selling less of the assets which are down more. Sell more of the assets that grew the most or fell least.

Does that link answer my question or does it just talk about different types of portfolios? Let's do a hypothetical. I assume you're withdrawing from some combination of accounts once a month to pay for the next months expenses. In the most basic of examples where you have 3 years expenses in an mma and the rest in an s&p 500 index traditional ira and the s&p 500 just hit a high, are you pulling that's months income from your s&p 500 account.? now say the following month the s&p 500 is down a little from that previous high. are you immediately going to that cash account? is the idea just to pull from whatever is down the least? i understand the idea of rebalancing, but I don't think you'd want to rebalance on a yearly basis if it mean selling securities at a significant loss just to replenish your cash account. i would think the idea of keeping 3 years in cash is to postpone that rebalance until the market recovers. i think you or maybe it was duck mentioned not reinvesting dividends and instead using them to fund some form of conservative account so that would happen throughout the year.

At it's simplest, yes, those who are using a multi-year cash bucket would be taking disbursements from cash if the stock market is down. The issue then becomes, as I mentioned upthread, is when do you re-fill that cash bucket? If the market is still down as you go into year 2, are you really going to be cool being down to only a year of cash? Most "bear markets" historically don't last much longer than that, but I'm not clear on what the strategy is to decide when to start selling equities to get back to 3 years of cash. When it's back to ATHs? When it's within 10% of ATHs? Not until it's up 10%?

So what do you do if you retire in late 1972, when the S&P didn't get back to that level again until 1987? Or if you retired in 2000, and you didn't see the same levels again until the end of 2014? (both are eyeballed from this chart) Of course those are worst case scenarios, but that doesn't mean they can't happen again. I guess you didn't have to sell equities in the depths of the initial crash, and that's a good thing, but what then?

That's where you get back to a truly diversified and uncorrelated portfolio (which is what the link @-OZ- shared talks about). Some things will be up when others are down, and you sell what's up (or down the least) to maintain your desired allocations. Drawdowns are shallower and don't last as long.

I guess also that when we say the market is down don't we really mean its down more than what I'm getting on my cash investments. Like if the market is down 3% for the year, but cash is generating me 5% like it is now, I would think you'd still sell shares as you're still coming out ahead hanging onto that cash right?

No
This can get complicated but let’s use an example.

In a plan where you pull annually, you have:
$12,000 cash
$88,000 VT
VT drops 10%, cash increases 5%
Now that’s $12,600 cash, $79,200
Your goal is to maintain 12% cash, 88% VT but now you’re at 86% VT. You want to pull $4,000. The way I understand it, in order to maintain the 88% VT, to pull $4,000 you would pull $1,936 from VT and $2064 cash. That gives you $91,800 - $4,000 = $87,800 left, now $77,264 VT, $10,536 cash.
The alternative, which I like better in theory but it makes one think too much would be to just pull $4000 cash, leaving you at $8600 cash, $79,200 VT but left with your original question of when to refill cash. In the end, this timing is actually more risky than simply following a plan. I think it brings a higher reward.

I think this works better with multiple, preferably uncorrelated holdings

But what are you maintaining the Cash for? Isn't it to use if markets are down? Assuming you have a separate emergency fund, that's what it's there for.
You should be OK going to $0 in cash if the market is still down. Then you will have to start selling depressed securities after the cash is gone.
It doesn't make any sense to me to keep 3 years in Cash in case the market is down and then have to sell depressed securities after you drop to only having 2 years in case left. Just keep taking from cash until you can replenish the cash bucket when the market goes back up. And if it doesn't, then you just need to lock in those depressed market prices.

This is pretty much exactly how I'm thinking about it too. I'm going to hold a certain amount of cash/cash-equivalents so that I don't have to sell stocks in a 2008-like environment. I'm not worried about a 10% correction or just a sideways market -- I'm worried about something that might be an extinction-level event in retirement. I look at that cash as an insurance policy, and the earnings I'm giving up by holding cash are the premium.

If I have, say, three years worth of cash, I'm just going to spend that down to zero and hope the market has sprung back by then. If not, oh well. You can't insure against everything. Those cash reserves just act as a buffer, not a panacea. If the market drops off steeply and it takes years and years to recover, we're all just sort of screwed no matter what we do.

In both 2001 and 2008 the feds aggressively cut interest rates. Using the 2008 example, when the S&P crashed 35% bonds only went down 3%. The following year the S&P was still negative 10% while bonds shot up positive 20%. In @-OZ- 's example you can make out better by selling high and rebalancing. Theoretically you can still have your insurance policy by having it in ladders of bonds that expire every few months that you'd normally reinvest, but if 2008 happens you'd have it to live off of.

 

[-OZ-]

Hard pass here. But I would go with more than 12%.

President Carter, please pick up the white courtesy phone...

Did you ever play the “Alive or dead” game where you’d mention various celebrities, guess whether they’re alive or dead and drink if you’re wrong?

I may have just typed “RIP” as I could have sworn he had passed on.

 

[SFBayDuck]

I'll happily hold 100% cash forever if I'm getting 4.9% on it like I am now.

So like 1-2.5% real return is good for you? You must have a pension and/or be incredibly overfunded - congrats!

 

[Peggy]

Shout out to @matttyl for taking the time to discuss my personal insurance situation with me 1 on 1. Here is what I learned and am leaning towards:

Retiring in January. Since I'll have large capital gains that kick in when I retire and a high MAGI it makes sense to stay on Cobra for 2025. That's about $1,300/mo, ouch! But still about what different private insurance would cost the two of us and may not be as good as our current coverage which is really great.

In 2026 I can target a MAGI to take advantage of subsidies. Using 2025 numbers that would be between $28,208 and $81.760 (between 138% and 400% poverty level). Although I notice now it does quote me coverage above 400% at reduced rates. Here is what the VA website quoted us for 2024:

MAGI = $20,000: Coverage = Medicaid
MAGI = $30,000: Coverage Premium = $1499 Tax Credit = $1497 Monthly Premium = $2
MAGI = $80,000: Coverage Premium = $1499 Tax Credit = $933 Monthly Premium = $566

There are two available companies to choose from within 20 miles from me; Anthem Health Keepers and Sentra Health Plans. All the quotes are based off of the Silver (level 2?) $1499 but you can pick different levels between bronze, silver and gold. I'd move up to Gold $1520. That little amount reduces the copay from $40 to $10 and the deductible from $11,800 to $3,900.

The legislation that fixed "the cliff" expires after 2025 so unless fixed I don't think any subsidy will be available for a MAGI over 400% poverty which also means if you screw it up you'll owe all those subsidies back at tax time (did I get that right @matttyl ?)

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

 

[IvanKaramazov]

I do think this overlaps a little with the bond tent or equity glidepath approach we were talking about in here. I can see an approach where you go into retirement with the highest allocation of cash/fixed income you will ever have, heavily relying on that in your early years, and letting equities do what they normally do over time you'd end up with your highest equity allocation later in retirement. I'd like to dig into combining like that with a broadly diversified portfolio with multiple asset classes to see if there is a way to get the best of all worlds. Maybe something like having 50% equities/15% short term bonds or cash/15% LT bonds/10% Gold/10% Managed Futures at retirement but working to have that end up at 70% equities/10% LT bonds/10% Gold/10% MFs 15 years in (@-OZ- , think I'll ask Uncle Frank about this.)

That's the plan. Assuming things go decently, I don't expect to be too worried about normal market risk when I'm older. But I'll be a little exposed right out of the gate. I'm sure that's normal.

 

[Instinctive]

I'll happily hold 100% cash forever if I'm getting 4.9% on it like I am now.

So like 1-2.5% real return is good for you? You must have a pension and/or be incredibly overfunded - congrats!

Yeah I mean it depends on how much money you've got to start with.

 

[Sand]

I'll happily hold 100% cash forever if I'm getting 4.9% on it like I am now.

So like 1-2.5% real return is good for you? You must have a pension and/or be incredibly overfunded - congrats!

I'm funded, not overfunded. So no yachts in Monaco, sadly. But given the debt bomb we currently have in the horizon a certain pension like cash flow would be pretty comforting.

 

[matttyl]

Shout out to @matttyl for taking the time to discuss my personal insurance situation with me 1 on 1. Here is what I learned and am leaning towards:

Retiring in January. Since I'll have large capital gains that kick in when I retire and a high MAGI it makes sense to stay on Cobra for 2025. That's about $1,300/mo, ouch! But still about what different private insurance would cost the two of us and may not be as good as our current coverage which is really great.

In 2026 I can target a MAGI to take advantage of subsidies. Using 2025 numbers that would be between $28,208 and $81.760 (between 138% and 400% poverty level). Although I notice now it does quote me coverage above 400% at reduced rates. Here is what the VA website quoted us for 2024:

MAGI = $20,000: Coverage = Medicaid
MAGI = $30,000: Coverage Premium = $1499 Tax Credit = $1497 Monthly Premium = $2
MAGI = $80,000: Coverage Premium = $1499 Tax Credit = $933 Monthly Premium = $566

There are two available companies to choose from within 20 miles from me; Anthem Health Keepers and Sentra Health Plans. All the quotes are based off of the Silver (level 2?) $1499 but you can pick different levels between bronze, silver and gold. I'd move up to Gold $1520. That little amount reduces the copay from $40 to $10 and the deductible from $11,800 to $3,900.

The legislation that fixed "the cliff" expires after 2025 so unless fixed I don't think any subsidy will be available for a MAGI over 400% poverty which also means if you screw it up you'll owe all those subsidies back at tax time (did I get that right @matttyl ?)

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

Then I started to think about RMDs. Unless my gains just run away I should be able to get most all of our IRA/401K rolled over before RMDs kick in. Then again if you have RMDs that exceed the current subsidy limits at age 73 you're probably set for life even with more expensive health care.

Happy to help. On your ETA bit - RMDs don’t kick in till you’re already on Medicare, so no worries if you have them and they exceed subsidy limits. They may impact IRMAA, though, if that’s what you meant.

 

[Peggy]

Shout out to @matttyl for taking the time to discuss my personal insurance situation with me 1 on 1. Here is what I learned and am leaning towards:

Retiring in January. Since I'll have large capital gains that kick in when I retire and a high MAGI it makes sense to stay on Cobra for 2025. That's about $1,300/mo, ouch! But still about what different private insurance would cost the two of us and may not be as good as our current coverage which is really great.

In 2026 I can target a MAGI to take advantage of subsidies. Using 2025 numbers that would be between $28,208 and $81.760 (between 138% and 400% poverty level). Although I notice now it does quote me coverage above 400% at reduced rates. Here is what the VA website quoted us for 2024:

MAGI = $20,000: Coverage = Medicaid
MAGI = $30,000: Coverage Premium = $1499 Tax Credit = $1497 Monthly Premium = $2
MAGI = $80,000: Coverage Premium = $1499 Tax Credit = $933 Monthly Premium = $566

There are two available companies to choose from within 20 miles from me; Anthem Health Keepers and Sentra Health Plans. All the quotes are based off of the Silver (level 2?) $1499 but you can pick different levels between bronze, silver and gold. I'd move up to Gold $1520. That little amount reduces the copay from $40 to $10 and the deductible from $11,800 to $3,900.

The legislation that fixed "the cliff" expires after 2025 so unless fixed I don't think any subsidy will be available for a MAGI over 400% poverty which also means if you screw it up you'll owe all those subsidies back at tax time (did I get that right @matttyl ?)

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

Then I started to think about RMDs. Unless my gains just run away I should be able to get most all of our IRA/401K rolled over before RMDs kick in. Then again if you have RMDs that exceed the current subsidy limits at age 73 you're probably set for life even with more expensive health care.

Happy to help. On your ETA bit - RMDs don’t kick in till you’re already on Medicare, so no worries if you have them and they exceed subsidy limits. They may impact IRMAA, though, if that’s what you meant.

lol, yeah, what was I thinking

 

[Peggy]

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

My brain is fried thinking about this stuff. It wouldn't turn off last night and I couldn't sleep. Can someone help me insert social security into the above scenario?

My wife is several years older than I so the plan was for her to start taking SS as soon as possible at 62 so she can collect for many years before the day I finally decide to take SS and then she'd jump onto half of mine. I need to be able to keep doing 401k roll overs after she's turned 62. My gut tells me to stick with the plan above and just know that 85% of her SS will be subject to tax, but, I can't see the math right now.

 

[matttyl]

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

My brain is fried thinking about this stuff. It wouldn't turn off last night and I couldn't sleep. Can someone help me insert social security into the above scenario?

My wife is several years older than I so the plan was for her to start taking SS as soon as possible at 62 so she can collect for many years before the day I finally decide to take SS and then she'd jump onto half of mine. I need to be able to keep doing 401k roll overs after she's turned 62. My gut tells me to stick with the plan above and just know that 85% of her SS will be subject to tax, but, I can't see the math right now.

My advice would be to just take things one year at a time, especially if dealing with subsidies. Rules change (as may be the case with the subsidy cliff), laws change, tax rates change.

Most people have no idea what their 2024 MAGI will be, much less what they should target it to be in two years. $80k seems decent enough to allow room for ROTH conversions and to qualify for subsidies, but those limits have t even been finalized for 2025 much less 2026. No point in losing sleep over it now!

 

[Nugget]

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

My brain is fried thinking about this stuff. It wouldn't turn off last night and I couldn't sleep. Can someone help me insert social security into the above scenario?

My wife is several years older than I so the plan was for her to start taking SS as soon as possible at 62 so she can collect for many years before the day I finally decide to take SS and then she'd jump onto half of mine. I need to be able to keep doing 401k roll overs after she's turned 62. My gut tells me to stick with the plan above and just know that 85% of her SS will be subject to tax, but, I can't see the math right now.

My initial thought is to delay SS payments until your are done with your conversions, depending on how much money you are trying to convert. Delaying the payments shouldn't lower the overall amount recieved (fingers crossed), but could have a big impact on your total tax bill.

 

[nirad3]

I went ahead and downloaded the Redfin app and put in a couple of saved searches for properties in a few cities outside Austin. I will never really "officially" retire, but I plan on moving out there once my kids are off to college and my divorce is finalized. It makes me feel hopeful for the future. I will certainly miss my kids but I'm really looking forward to this chapter of my life.

 

[Peggy]

When 2026 comes while living mostly off of cash I think I'll target a MAGI around $80,000 to get a monthly premium around $500 - $600. That works with my current spending plan and still allows me to rollover a good chuck of 401k to Roth each year.

ETA:
The $80,000 per year works pretty well with the current 12% tax bracket too. Roll overs are no brainers for 12% tax because that tax should be completely offset by the gains in under two years.

My brain is fried thinking about this stuff. It wouldn't turn off last night and I couldn't sleep. Can someone help me insert social security into the above scenario?

My wife is several years older than I so the plan was for her to start taking SS as soon as possible at 62 so she can collect for many years before the day I finally decide to take SS and then she'd jump onto half of mine. I need to be able to keep doing 401k roll overs after she's turned 62. My gut tells me to stick with the plan above and just know that 85% of her SS will be subject to tax, but, I can't see the math right now.

My initial thought is to delay SS payments until your are done with your conversions, depending on how much money you are trying to convert. Delaying the payments shouldn't lower the overall amount recieved (fingers crossed), but could have a big impact on your total tax bill.

Thanks. I started typing on why not to delay and think I answered my own question. I can't get all my 401k rolled over staying under the 12% tax bracket done even before I reach full SS age. We're going to get taxed on SS no matter what so I'm back to her taking hers as soon as she can.

 

[Dragons]

Great thread! I need to Hipple this thing to pick up a lot of detail and insight, but based on the last couple pages I am curious if those of you looking at the ability for full income replacement are modifying your target starting number based on the 'windfalls' that will come later.

For example, my initial hope is to be ready to retire between 55-60 with full income replacement. Based on the large disparity in my lifetime income compared to my wife's, I am planning for her to take SS at 62 and I will wait until 70. That way (IIUC), she can replace her payment with mine in the likely event I expire before her. If we aren't able to pay it off first, we have a Home Equity loan that will expire around the same time as her SS kicks in. Switching from Obamacare to Medicare, paying off the first mortgage and finally taking my SS payment will reduce our outflows over the first 5-15 years by over 50%.

So in theory, I assume I don't need as large of a nest egg and can spend down over the first 15 years instead of planning to maintain it.

 

[IvanKaramazov]

Great thread! I need to Hipple this thing to pick up a lot of detail and insight, but based on the last couple pages I am curious if those of you looking at the ability for full income replacement are modifying your target starting number based on the 'windfalls' that will come later.

For example, my initial hope is to be ready to retire between 55-60 with full income replacement. Based on the large disparity in my lifetime income compared to my wife's, I am planning for her to take SS at 62 and I will wait until 70. That way (IIUC), she can replace her payment with mine in the likely event I expire before her. If we aren't able to pay it off first, we have a Home Equity loan that will expire around the same time as her SS kicks in. Switching from Obamacare to Medicare, paying off the first mortgage and finally taking my SS payment will reduce our outflows over the first 5-15 years by over 50%.

So in theory, I assume I don't need as large of a nest egg and can spend down over the first 15 years instead of planning to maintain it.

Good question. In addition to making the math more interesting than just "multiply everything by 25," this sort of thing gets at how people look at risk.

For me personally, I am trying very hard to stick to a retirement plan that does not involve anything especially good happening down the road. Specifically, I'm talking about inheritances. I want my retirement plan to be robust to the possibility that each of our parents spends their estate all the way down the felt, with not a single dollar left over. Realistically, even a fairly small estate -- like the sale of a house -- would make an impact for us, but we don't want to be in a position where we based our plans on a windfall that never comes. We'd rather just have it be a windfall. To be honest, that's also sort of a lifestyle choice. Mrs. K and I both put a high value on being self-reliant to the degree that such a thing is possible.

So, no. My "number" is based on a plan that should allow us to maintain our current income in perpetuity (including a state pension and eventually SS). I've intentionally ignored stuff like having a reduced exposure to income taxes, so that my plan is a little downward-biased, giving me some degrees of freedom. I'd rather be a little pessimistic and be pleasantly surprised than the other way around.

 

[Peggy]

Great thread! I need to Hipple this thing to pick up a lot of detail and insight, but based on the last couple pages I am curious if those of you looking at the ability for full income replacement are modifying your target starting number based on the 'windfalls' that will come later.

For example, my initial hope is to be ready to retire between 55-60 with full income replacement. Based on the large disparity in my lifetime income compared to my wife's, I am planning for her to take SS at 62 and I will wait until 70. That way (IIUC), she can replace her payment with mine in the likely event I expire before her. If we aren't able to pay it off first, we have a Home Equity loan that will expire around the same time as her SS kicks in. Switching from Obamacare to Medicare, paying off the first mortgage and finally taking my SS payment will reduce our outflows over the first 5-15 years by over 50%.

So in theory, I assume I don't need as large of a nest egg and can spend down over the first 15 years instead of planning to maintain it.

Good question. In addition to making the math more interesting than just "multiply everything by 25," this sort of thing gets at how people look at risk.

For me personally, I am trying very hard to stick to a retirement plan that does not involve anything especially good happening down the road. Specifically, I'm talking about inheritances. I want my retirement plan to be robust to the possibility that each of our parents spends their estate all the way down the felt, with not a single dollar left over. Realistically, even a fairly small estate -- like the sale of a house -- would make an impact for us, but we don't want to be in a position where we based our plans on a windfall that never comes. We'd rather just have it be a windfall. To be honest, that's also sort of a lifestyle choice. Mrs. K and I both put a high value on being self-reliant to the degree that such a thing is possible.

So, no. My "number" is based on a plan that should allow us to maintain our current income in perpetuity (including a state pension and eventually SS). I've intentionally ignored stuff like having a reduced exposure to income taxes, so that my plan is a little downward-biased, giving me some degrees of freedom. I'd rather be a little pessimistic and be pleasantly surprised than the other way around.

We've always maintained our current income spending in perpetuity too. The only windfall that we've ever considered is SS, but, our current plan has that as insurance/extra. We've done several analysis with just the opposite like what if we needed an extra 400K to get the perfect retirement home we wanted (which luckily didn't happen). Super conservative probably.

 

[jamny]

Great thread! I need to Hipple this thing to pick up a lot of detail and insight, but based on the last couple pages I am curious if those of you looking at the ability for full income replacement are modifying your target starting number based on the 'windfalls' that will come later.

For example, my initial hope is to be ready to retire between 55-60 with full income replacement. Based on the large disparity in my lifetime income compared to my wife's, I am planning for her to take SS at 62 and I will wait until 70. That way (IIUC), she can replace her payment with mine in the likely event I expire before her. If we aren't able to pay it off first, we have a Home Equity loan that will expire around the same time as her SS kicks in. Switching from Obamacare to Medicare, paying off the first mortgage and finally taking my SS payment will reduce our outflows over the first 5-15 years by over 50%.

So in theory, I assume I don't need as large of a nest egg and can spend down over the first 15 years instead of planning to maintain it.

Good question. In addition to making the math more interesting than just "multiply everything by 25," this sort of thing gets at how people look at risk.

For me personally, I am trying very hard to stick to a retirement plan that does not involve anything especially good happening down the road. Specifically, I'm talking about inheritances. I want my retirement plan to be robust to the possibility that each of our parents spends their estate all the way down the felt, with not a single dollar left over. Realistically, even a fairly small estate -- like the sale of a house -- would make an impact for us, but we don't want to be in a position where we based our plans on a windfall that never comes. We'd rather just have it be a windfall. To be honest, that's also sort of a lifestyle choice. Mrs. K and I both put a high value on being self-reliant to the degree that such a thing is possible.

So, no. My "number" is based on a plan that should allow us to maintain our current income in perpetuity (including a state pension and eventually SS). I've intentionally ignored stuff like having a reduced exposure to income taxes, so that my plan is a little downward-biased, giving me some degrees of freedom. I'd rather be a little pessimistic and be pleasantly surprised than the other way around.

I'm approaching it the same way. There's a chance at a large sum coming from my MiL's house in the future, but nothing is certain so we'll just take it if it happens.

 

[-OZ-]

I am trying very hard to stick to a retirement plan that does not involve anything especially good happening down the road. Specifically, I'm talking about inheritances. I want my retirement plan to be robust to the possibility that each of our parents spends their estate all the way down the felt, with not a single dollar left over.

I suppose it helps that my parents sold their house and are mostly living on a pension (Michigan used to have a great pension for teachers) and SS. I’d be shocked if there was anything leftover when they both pass.

Pretty much the same for her parents except they have their house (paid off) and they’re still in good health. We’d be lucky if they passed more than a nice vacation.

And that is absolutely good with us, we want them all to spend what they’ve earned. We appreciate that they’re able to get by without us paying for them.

 

[Judge Smails]

My inheritance is like Spaulding's lunch at the turn "You'll get nothing and like it". Easy to plan for.

 

[BrutalPenguin]

My inheritance is like Spaulding's lunch at the turn "You'll get nothing and like it". Easy to plan for.

I swear I thought you were going to say "a booger"

 

[bcat01]

My inheritance is like Spaulding's lunch at the turn "You'll get nothing and like it". Easy to plan for.

Mine could be $25K to $500K or more. Planning for $0.

 

[fruity pebbles]

My inheritance is like Spaulding's lunch at the turn "You'll get nothing and like it". Easy to plan for.

My parents had me in their early 20s. My inheritance will be a house in an undesirable location. Probably worth 150-200k. Since I may be in my 70s myself by the time both pass, I told them to just will it to my kids and skip the middle man.

 

[dgreen]

Same as everyone else, I'm not considering any potential inheritance in my retirement planning. Are there people who do that?

I have two siblings, so whatever my dad leaves will be split three ways. The man value is his house which I'd estimate at over $600K in equity. He has the old CSRS federal pension, so he has a solid, steady income for the rest of his life. He doesn't have much of a need for more than that and he's fairly frugal. So, I assume we'll get something in the multiple six figure range, but you never know what might happen, how long someone will live, and how much they'll end up needing.

My wife also has two siblings. Her parents were never in a good financial situation, so our assumption has always been that there will be nothing left but bills and debt. However, her dad died earlier this year and her mom got a fairly large life insurance payment (no idea how much, I was just told she should be very comfortable now, financially). She's collecting survivor's benefits on his federal pension (although likely a significantly smaller pension than my dad's because he retired early because of health issues) and has social security. I'm guessing she can live fairly well just off pension and SS, but she has that life insurance for anything else she might need. I'm glad she's financially stable, although it sucks it had to happen through her husband's death. My guess is she's going to live a long time, so I wouldn't be surprised if she spends down that life insurance quite a bit. However, if she does unfortunately pass in the next few years (I think she's 80ish?), I guess there could be a decent-sized inheritance there. But, again, I don't know how much this "large" life insurance payment was.