Practical Questions about Withdrawals from a pending FIREr

[mathjak107]

typically rising bond rates go hand in hand with higher inflation expectations so:

TIPS

real estate income

floating rate funds

commodity linked bond funds

fidelity strategic income already started revamping trading some interest rate sensitive gov't debt for floating rate debt.

emerging market bonds have become less risky over the years and so yields have fallen. some of that is being replaced as well with other forms of floating rate debt.


all in all it fell about 1/2 of what fidelity corporate bond did yesterday in the bond sell off..

 

[pb4uski]

I never read anyone claiming that holding cash was a miracle approach that created money from nowhere. Was that some bucket approach claim?

The way I figure it, having 6% cash costs me about 21 bps a year.

The historical average return for bonds is 5.5% vs 0.9% that I get in the online savings account so the expected difference in return is 4.6%.

Assuming I rebalance annually, I would have 6% in cash at the beginning of the year and ~3% at the end of the year, so 4.5% on average during the year.

4.6% * 4.5% ~.207% or 21 bps. For me it is worth the peace of mind but YMMV.

 

[mathjak107]

the only question is will we be solvent enough or live long enough to aee those average interest rates of 6% .

 

[ERD50]

I never read anyone claiming that holding cash was a miracle approach that created money from nowhere. Was that some bucket approach claim?

Sorry, a bit of hyperbole and twisted humor attempt on my part. Yes, it was more directed at the bucket approach, but I see some things in common with holding cash, though to a far lesser degree.

-ERD50

 

[audreyh1]

The way I figure it, having 6% cash costs me about 21 bps a year.

The historical average return for bonds is 5.5% vs 0.9% that I get in the online savings account so the expected difference in return is 4.6%.

Assuming I rebalance annually, I would have 6% in cash at the beginning of the year and ~3% at the end of the year, so 4.5% on average during the year.

4.6% * 4.5% ~.207% or 21 bps. For me it is worth the peace of mind but YMMV.

I think using 2.5% for bonds would be more appropriate if you are using today's rate of 0.9% for cash in your calc.

When I could get 5.5% for bonds, I was getting 3% on my cash. Looks like the spread was a teeny bit wider back then.

 

[pb4uski]

I think using 2.5% for bonds would be more appropriate if you are using today's rate of 0.9% for cash in your calc.

When I could get 5.5% for bonds, I was getting 3% on my cash. Looks like the spread was a teeny bit wider back then.

Fair point. Viewed that way it is totally inconsequential.

 

[dallas27]

The historical average return for bonds is 5.5% vs 0.9% that I get in the online savings account so the expected difference in return

You do get that you are talking nominal numbers right. Cash is negative real return, and bonds are, long-term, only slightly positive. 0-2%



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[petershk]

Petershk, do you have that $300k in a CD ladder or just straight cash in a money market?

Right now it's straight cash (Ally account). I was thinking about a CD ladder... but man rates are so crappy

 

[pb4uski]

Of course I undetstand those are nominal returns and not real returns. So what?

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[Trooper]

Right now it's straight cash (Ally account). I was thinking about a CD ladder... but man rates are so crappy

Same here. Not much incentive to lock up $ in a CD is there?

 

[audreyh1]

Synchrony just added 1.2% 12 month CDs.

 

[petershk]

Synchrony just added 1.2% 12 month CDs.

Really?! Cool, I'll check that out!

 

[phil1ben]

Thank you all. I have not retired yet (Age 55 - hopefully this year or next) but I was wondering what others did to segregate cash flow and annual spending.

I think the easiest thing for me to do will be to place 1 year of estimated spending in a segregated account from which all expenses will be paid and check my progress periodically.

Excellent question OP.

 

[jfn111]

DW and I retired 3 years ago at age 55. My pension pretty much covers all the basic necessities. I planned on a 3% withdrawal rate to cover all the extras.
So far my highest withdrawal was 2 years ago at 2.7%. I withdraw as needed from the fixed income portion of the portfolio. I currently get a little over 2% in my 401K's Interest Income Fund so I would rather have the money sitting there then in my savings account.