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18mos out - investing question
Old 11-03-2018, 09:23 AM   #1
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18mos out - investing question

I am 18 months (or less - could be tomorrow) out from pulling the plug. I put $$ into our aftertax index funds every month. I am wondering if instead I should be directing those $$ into the bucket for the first year spending requirements (currently held in Vanguard money market fund), rather then into the market.

Any insight? My thought is that if I don't have the short term spending bucket full, I will have to start selling off equities to fund it and the market may be down at that time.
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Old 11-03-2018, 09:36 AM   #2
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Originally Posted by tominboise View Post
I am 18 months (or less - could be tomorrow) out from pulling the plug. I put $$ into our aftertax index funds every month. I am wondering if instead I should be directing those $$ into the bucket for the first year spending requirements (currently held in Vanguard money market fund), rather then into the market.

Any insight? My thought is that if I don't have the short term spending bucket full, I will have to start selling off equities to fund it and the market may be down at that time.
You'll find a number of different opinions on how much "cash" to have available for your expenses. Many of us have the risk of our portfolio going down as we draw needed money.

If you take too much out of the game you're losing out on some potential gains. However if your risk tolerance is low and anxiety high then there's nothing wrong with having a portion in a money market account. With six month T Bills around 2.5% it's not a bad play.

Some believe in bucket strategies, some don't. You should be able to get some decent feedback here. I know there are a number of past threads you can look up and read.

I personally take a year's expenses out and put them in cash. Otherwise all of my taxable money is in play.
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Old 11-03-2018, 10:02 AM   #3
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First step, if not already done, is to have all divs and cap gains distributions paid to you in cash, not reinvested.

I don't believe in 'buckets', but you are going to need to meet your cash flow requirements. I'd just look at the most convenient and tax efficient means. We can't predict the market, but we can control tax and convenience to some degree.


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Old 11-03-2018, 11:43 AM   #4
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I have three major elements of assets that I call buckets. One is our 401k & IRA funds, one is our after tax investments (mutual funds and stocks), and one is our short term ready cash. I suppose a fourth could be the land and real estate but I don't really count those in our retirement funding.

I will pull money out of the before and after tax funds to minimize taxes ( I hope) after we retire.
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Old 11-04-2018, 10:28 AM   #5
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I think this depends on your risk tolerance. I like to have at least a couple of years of expenses that are in excess of our dividend and interest income in cash. So for example, if you expect to spend $100K/year including taxes, and your dividend/interest income is $40K, you need another $60K from somewhere. I personally prefer keeping 2-3 times that amount in some combination of cash and high quality fixed income so that I am unlikely to have to sell equities at a loss. This may not be the best return maximization strategy, but it does allow me to have an aggressive asset allocation with our remaining portfolio.
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Old 11-04-2018, 10:40 AM   #6
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Originally Posted by tominboise View Post
I have three major elements of assets that I call buckets. One is our 401k & IRA funds, one is our after tax investments (mutual funds and stocks), and one is our short term ready cash. I suppose a fourth could be the land and real estate but I don't really count those in our retirement funding.

I will pull money out of the before and after tax funds to minimize taxes ( I hope) after we retire.
Wow, very interesting. I absolutely do not allow any "buckets" in my financial planning or execution. Not once, not ever, never! Yet, I also balance withdrawals between tax deferred and not tax deferred accounts to maximize tax efficiency for my circumstances.

Very mysterious if you ask me.
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Old 11-04-2018, 04:24 PM   #7
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Wow, very interesting. I absolutely do not allow any "buckets" in my financial planning or execution. Not once, not ever, never! Very mysterious if you ask me.

That's an interesting position to stake out. What do you have against a bucket of cash for the next year's spending, especially if held in a high yield savings (or similar) account.


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Old 11-04-2018, 08:32 PM   #8
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Originally Posted by tominboise View Post
I have three major elements of assets that I call buckets. One is our 401k & IRA funds, one is our after tax investments (mutual funds and stocks), and one is our short term ready cash. I suppose a fourth could be the land and real estate but I don't really count those in our retirement funding.

I will pull money out of the before and after tax funds to minimize taxes ( I hope) after we retire.
I'm not sure your buckets are the standard bucket strategy, but sounds more like tax diversification "bucket". But I can't tell if you have any roth (never taxed again) assets.

Really you need to have a spending plan for RE, instead of do I need a cash account (likely you need at least a small one).

How much do you get in distributions from you after tax accounts? Are these LTCG and Q-divy? How does this compare with what you need for living on?

Are you old enough to take $ from IRAs, 401ks and roths(may not be age alone)?
any pensions or SS? When and what part of you income will these provide.

The you can work how to create an income plan.

You may want a cash account to collect distributions for spending. Some people like to have a cash/CD account to cover a year or more. This is more a matter of choice.
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Old 11-05-2018, 05:18 AM   #9
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First step, if not already done, is to have all divs and cap gains distributions paid to you in cash, not reinvested.
I my late, pre-RE savings in cash for spending and also did the above.
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Old 11-05-2018, 08:31 AM   #10
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Originally Posted by tominboise View Post
I have three major elements of assets that I call buckets. One is our 401k & IRA funds, one is our after tax investments (mutual funds and stocks), and one is our short term ready cash. I suppose a fourth could be the land and real estate but I don't really count those in our retirement funding.

I will pull money out of the before and after tax funds to minimize taxes ( I hope) after we retire.
Intelligent tax planning is a big part of retirement. It sounds like you have done some planning with multiple sources for your income. Good planing!!

You don't have to call them buckets, but having X number of years in cash/fixed income can make the market drops seem less intimidating.

Cash is paying over 2% in money markets and bonds are in the 3.5% range for short term corporate. These are not a huge drag on returns at those rates.

You might look at converting some of your IRA/401K to Roth in the early years of Retirement while your taxable income is low with the current 12% lower tax brkt.

Best to you,

VW
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Old 11-05-2018, 12:14 PM   #11
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You might look at converting some of your IRA/401K to Roth in the early years of Retirement while your taxable income is low with the current 12% lower tax brkt.

Best to you,

VW
My plan exactly. We are sitting in a high tax bracket at the moment, so this action is waiting until after retirement.
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Old 11-05-2018, 05:18 PM   #12
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If one has enough assets and income (say, a SWR of 1-2%), you may not need buckets. If one's planning to withdraw 4-5%, I'd say you do. Waiting for the next major market correction. I'll sleep well with my 2-3 years of cash, without worrying about how low the markets going, or whether I have to sell equities at a loss to fund the year. JMHO.
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