mountainsoft
Thinks s/he gets paid by the post
I'm sure this is a dumb question, but what should be a simple idea has me a bit confused lately.
I often hear we should have 2-3 years of cash reserves on hand once we retire to "ride out" downturns in the market. If I understand this correctly, if our annual spending is 40K and a pension and SS covers 30K of that, we should have 30K in cash reserves (10K balance * 3 years). Is that right?
So what is the best way to establish that reserve in the first place? Would I simply withdraw that 30K chunk from my IRA at the start of retirement and transfer it to a savings account? With only five years till retirement, all of our savings is going into my IRA, and we don't have any extra to set aside for a separate "reserve" cash account.
Once the reserve is set up, how do you maintain it? Do you set it up and never touch it until disaster strikes? Or do you take your daily expenses from the reserve and top it off annually from the IRA? If it's the latter, how is topping off the reserve any different than just making regular periodic withdrawals from the IRA? For example, if I needed to add 10K to my reserve right now, do I wait till the market comes back up, or withdraw now before it drops lower. I have no way of knowing which way the market is going to go, so I don't know how I would decide the "right" time to top off the cash reserve.
Just as I make regular contributions to my IRA regardless of what the market is doing, it seems like regular withdrawals from the IRA regardless of the market trend would offer a similar result.
I'm probably over thinking this and making it more difficult than it needs to be.
I often hear we should have 2-3 years of cash reserves on hand once we retire to "ride out" downturns in the market. If I understand this correctly, if our annual spending is 40K and a pension and SS covers 30K of that, we should have 30K in cash reserves (10K balance * 3 years). Is that right?
So what is the best way to establish that reserve in the first place? Would I simply withdraw that 30K chunk from my IRA at the start of retirement and transfer it to a savings account? With only five years till retirement, all of our savings is going into my IRA, and we don't have any extra to set aside for a separate "reserve" cash account.
Once the reserve is set up, how do you maintain it? Do you set it up and never touch it until disaster strikes? Or do you take your daily expenses from the reserve and top it off annually from the IRA? If it's the latter, how is topping off the reserve any different than just making regular periodic withdrawals from the IRA? For example, if I needed to add 10K to my reserve right now, do I wait till the market comes back up, or withdraw now before it drops lower. I have no way of knowing which way the market is going to go, so I don't know how I would decide the "right" time to top off the cash reserve.
Just as I make regular contributions to my IRA regardless of what the market is doing, it seems like regular withdrawals from the IRA regardless of the market trend would offer a similar result.
I'm probably over thinking this and making it more difficult than it needs to be.