Step 1.....Check

[TNBigfoot]

OK....made my first step in putting a cash flow plan in place. Since I don't want sequence of returns risk to bite me right after FIRE, my plan is to build a rolling 5 yr CD Ladder in place. So I've moved enough from portfolio to fund the ladder. Yield is ~1.9% so not the greatest but safer than in equities/bonds. So the rest of the portfolio I'll allocate 60/40 and be a bit more aggressive than my previous 50/50 since I have the 5 yr CD backstop. The ladder should fund ~80% of my expected expenses so I may move some additional $into a second ladder in a few months

Some about me...
Turning 60 in 3 months...38 yrs with Wannabe MegaCorp. $1.1M in portfolo...no debt. Wanting to FIRE at 61. Small pension to generate $12k/yr. some part time work + wife's income to generate ~$15k per yr. delay SS to 68. Will Cobra on healthcare.

Good luck to all on this journey

 

[Pilot2013]

Good luck! I like the agressive approach. It's likely where I will be in 3 years and will have to make a decision (about 58).

I'm tired of running on the wheel....

 

[walkinwood]

what's your AA (stock/bond/cash) if you include the CD ladder as cash? And what is your plan to fund each new CD?
Just curious.

 

[TNBigfoot]

Overall AA will be around 45/35/20 and each new purchase would involve a withdrawal/rebalance to the same AA.

 

[Blue Collar Guy]

If this strategy is going to make you sleep better at night,then I think its a great move.

 

[Shanky]

Cobra is 18 months. Have a plan for when that is done. Figure 18K - 24K a year for a couple in their 60's. YMMV

 

[TNBigfoot]

Misspoke on COBRA. It is actually a retiree plan at ~$650 premium for both of us. Budgeting $1100 per month including g dental and OOP. Also slamming my HSA to the max while I can

 

[ERD50]

what's your AA (stock/bond/cash) if you include the CD ladder as cash? And what is your plan to fund each new CD?
Just curious.

Overall AA will be around 45/35/20 and each new purchase would involve a withdrawal/rebalance to the same AA.

So are you saying that 20% of your portfolio in CDs @ ~ 1.9% yield funds 80% of your expenses? Not sure how the part time work and SS fit into this, but it sounds like you have such a large buffer that you really don't need to worry about any sort of CD ladder strategy. Just invest the portfolio 50/50 or 60/40 or whatever, and the divs should be 2% ~ 3% on the full 100% of your portfolio.

Am I missing something?

-ERD50

 

[Koolau]

OK....made my first step in putting a cash flow plan in place. Since I don't want sequence of returns risk to bite me right after FIRE, my plan is to build a rolling 5 yr CD Ladder in place. So I've moved enough from portfolio to fund the ladder. Yield is ~1.9% so not the greatest but safer than in equities/bonds. So the rest of the portfolio I'll allocate 60/40 and be a bit more aggressive than my previous 50/50 since I have the 5 yr CD backstop. The ladder should fund ~80% of my expected expenses so I may move some additional $into a second ladder in a few months

Some about me...
Turning 60 in 3 months...38 yrs with Wannabe MegaCorp. $1.1M in portfolo...no debt. Wanting to FIRE at 61. Small pension to generate $12k/yr. some part time work + wife's income to generate ~$15k per yr. delay SS to 68. Will Cobra on healthcare.

Good luck to all on this journey

Does the total monthly cover your expected expenses? What happens when wife decides to retire?

Have you explored your part time opportunities, or better yet, found the position already?

Overall it sounds like you have thought this out. It just seems there may still be some "ifs" in your plan which is why I asked so many questions. Good luck and keep us posted on your progress.

 

[TNBigfoot]

The ladder will cover only 45% of expenses. The pensions and part time work another 40%. So ther will still be a bit of gap remaining. Will either add some another small ladder or just pull from portfolio.

 

[pb4uski]

OK....made my first step in putting a cash flow plan in place. Since I don't want sequence of returns risk to bite me right after FIRE, my plan is to build a rolling 5 yr CD Ladder in place. So I've moved enough from portfolio to fund the ladder. Yield is ~1.9% so not the greatest but safer than in equities/bonds. So the rest of the portfolio I'll allocate 60/40 and be a bit more aggressive than my previous 50/50 since I have the 5 yr CD backstop. The ladder should fund ~80% of my expected expenses so I may move some additional $into a second ladder in a few months

Some about me...
Turning 60 in 3 months...38 yrs with Wannabe MegaCorp. $1.1M in portfolo...no debt. Wanting to FIRE at 61. Small pension to generate $12k/yr. some part time work + wife's income to generate ~$15k per yr. delay SS to 68. Will Cobra on healthcare.

Good luck to all on this journey

What you're describing is similar to a bucket strategy. Your CD ladder is a bucket for 80% of the first 5 years.

When I first retired I did a bucket analysis and concluded that it was substantially the same as just sticking with my 60/40 AA. If the SHTF at a ~3% WR I could tap into the 40% of fixed income for ~15years without having to tap equities if I chose to do that.

 

[TNBigfoot]

That is my intent to build a bucket strategy and using the CD Ladder for short term expenses rather than an annuity

 

[rayvt]

As pb4uski said, the bucket strategy is just a mirage. Kitces wrote a more comprehensive article on it not too long ago -- worth a read.

That is my intent to build a bucket strategy and using the CD Ladder for short term expenses rather than an annuity

Then what? What do you do after you've spent your CD ladder on short term expenses?

Leave it go? Then all you've done is spend cash first and delayed withdrawing from your AA for a few years. But that cash is part of your portfolio and reduces your total return.

Refill the ladder? Then you are just withdrawing from your AA with a side-trip through the cash (CD) account.

Ah, here it is: https://www.kitces.com/blog/are-retirement-bucket-strategies-an-asset-allocation-mirage/ He's actually written a number of articles on cash buckets.

 

[pb4uski]

I guess to be clear I didn't say it was a mirage.... just that my analysis was that it was substantially the same as my 60/40 AA.

But ray's questions point out the issues in using the bucket strategy and maintaining it... though I guess that if you just use the buckets as initially defined that you end up with the strategy of starting retirement with a low equity allocation and increasing it during retirement as you spend from the cash adn bond buckets and let the stock bucket grow (apbeit perhaps with some volatility).

For me, I just find it easier to use a total return strategy and rebalance regularly. If the SHTF I can always shift to buckets if needed.

 

[TNBigfoot]

Glancing quickly at the Kitces article, he basically said the bucket approach yielded roughly the same as a 60/40 total return as pb4uski stated. One thing I noticed is he assumes the ST bucket is all in cash at zero return. It isn't the best but myCD ladder yields 1.8%. For future funding, I expect a yearly rebalance of the 60/40 portfolio and pulling enough equity out to fund a new CD for 5 yrs out.

This is a cautious approach against the SHTF scenario

 

[GravitySucks]

I like using a bond ladder to cover essential expenses. The first wrung in that ladder is CDs that actually paid better than short term bonds. The rest of the wrungs are target date bond funds.
When I rebalance I plan to either reinvest in another bond wrung if equities are up, or use the money to live on if equities are down. I only need to purchase a few more wrungs then SS at 70 covers all essential expenses. So I'm betting on three good equity market years out of the next seven years.
Not a cash bucket plan, but a way to invest at my comfortable AA.