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Old 03-07-2015, 10:24 PM   #21
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Do you have any interest in adopting a 60 year-old?
Nah, I think I'm going to adopt some version of my "dream house" instead, if I can just find it. I have been looking and looking, but nothing has come on the market in my target neighborhood since the holidays. Weird.
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Old 03-07-2015, 10:56 PM   #22
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Backing in to your numbers, your WR is ~ 5%/3 to 5%/2, so ~ 1.7% to 2.5%. In a downturn, you won't have much, if any, selling to do, as the dividends on your portfolio are about in that range.
There's still a cashflow gap after dividends because they mainly hit the tax-deferred account, which is not spendable at the moment. The taxable account is smaller and mostly growth-oriented equities. But yeah, any selling will be relatively small, and mainly to cover large discretionary expenses. Even more reason to stop sitting on cash, or at least reduce it.

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I agree that cash is just a drag, but people need to do what feels right to them (but just accept it for what it is, don't try to 'sell' it to me as some miraculous approach that will create money from nowhere ).
Agreed. I think it was something LOL! posted a while back that finally motivated me to read up and think this through. I may or may not continue holding cash at this level, but at least I can now approach the question more intelligently.
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Old 03-07-2015, 11:08 PM   #23
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I never read anyone claiming that holding cash was a miracle approach that created money from nowhere. Was that some bucket approach claim?
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Old 03-08-2015, 06:20 AM   #24
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It took me a couple years to get to a process that is comfortable for me. After I retired, I changed our target AA from 60/40/0 stock/fixed income/cash to 60/34/6. The cash is in an on-line savings account. My monthly "paycheck" is a transfer from the on-line savings account to my local bank account from which I pay my bills. In addition, I changed our taxable account investments from reinvesting dividends to sending dividends to my cash account. The cash account gets replenished from investments as part of my annual rebalancing, usually in December to mesh with my tax planning.

I retired 3 years ago and investment performance has been really good so its not clear how I would respond to a severe downturn, but I am pretty seasoned equity investor and would probably stay the course. I was still working during 2008/9 and while my AA was screaming at me to sell bonds and buy more equities, I lacked the courage, but I didn't sell and just stayed the course. If I had the courage to sell bonds and buy equities back then rather than just stay pat, I would be much richer today.

I haven't given us a raise since we retired because the amount that I have designated as a paycheck seems to be sufficient to cover our normal spending. We do occasionally have special expenses (loan to DD, garage we built, etc.) that we do transfers for above and beyond our "paycheck" just like we would have used savings to pay for special items when I was working.

Of course, YMMV.

i am first going into retirement in july but my plan is pretty much doing what you are.

50/44/6 allocation , channel all interest and distributions into cash and keep our fingers crossed the ride isn't to bumpy.

aince i follow a newsletter for my allocations my funds change from time to time to better fit wht is happening in the world .

if bonds falter there are plenty of more appropriate types of income funds to change too but that will play out as it unfolds.

boy, if fridays bond action was any sign of whats to come that drop was very scarey.

longer tem bond funds like TLT saw the equal to a 360 point drop in the dow while corporate bond funds fell 3/4's of a point or the equal of 135 points on the dow just in one session with that strong jobs report. .
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Old 03-08-2015, 09:56 AM   #25
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if bonds falter there are plenty of more appropriate types of income funds to change too but that will play out as it unfolds.

boy, if fridays bond action was any sign of whats to come that drop was very scarey.
I'm reading the forecasts for the next 10 years of the bond market and it look rocky......what are these "more appropriate types of income funds" you mention?
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Old 03-08-2015, 10:17 AM   #26
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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..
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Old 03-08-2015, 01:45 PM   #27
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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.
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Old 03-08-2015, 01:52 PM   #28
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the only question is will we be solvent enough or live long enough to aee those average interest rates of 6% .
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Old 03-08-2015, 01:53 PM   #29
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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.

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Old 03-08-2015, 03:39 PM   #30
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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.
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Old 03-08-2015, 09:12 PM   #31
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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.
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Old 03-09-2015, 12:47 AM   #32
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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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Old 03-09-2015, 08:37 PM   #33
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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
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Old 03-09-2015, 08:44 PM   #34
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Of course I undetstand those are nominal returns and not real returns. So what?

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Old 03-10-2015, 12:50 AM   #35
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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?
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Old 03-10-2015, 01:00 AM   #36
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Synchrony just added 1.2% 12 month CDs.
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Old 03-10-2015, 04:52 AM   #37
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Synchrony just added 1.2% 12 month CDs.
Really?! Cool, I'll check that out!
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Old 03-10-2015, 07:08 AM   #38
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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.
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Old 03-10-2015, 08:13 AM   #39
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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.
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