Cash going into RE

[Animorph]

I used 2% cash as part of my AA during accumulation to allow simultaneous buys/sells of funds when rebalancing or otherwise changing funds. Now that I've simplified my portfolio I'm just keeping a little cash in my taxable account in case my checking account runs unexpectedly low.

I take one year's worth of expenses out of the portfolio when it reaches values that match my simple (X% growth per year) retirement forecast/plan. That could result in taking out a couple of year's worth relatively quickly, or I might go month to month if I'm otherwise out of cash. I figure if the stock market is at the level I planned for 10 years in the future I'm taking 10 years of cash out before it goes down again. The cash is outside the AA.

So far it's actually worked pretty normally, withdrawals about once a year. No big windfalls yet. We did go month to month during the Great Recession, but I was just trying to stay fully invested to ride the market back up.

[Clover5]

I am just starting to withdraw. I have about 2 years worth of withdrawals set aside of which 30% is in Fido cash management acct I call Savings and another 70% is in a short term treasuries fund in same accounts. I also park dividend and interest into same. I then automatically move 5k on the 1st of the month into my day to day cash management, this is a pseudo pay day if you will. So far I am happy with the plan.

[Montecfo]

Quote:

Originally Posted by corn18 I really like the idea of having 2 years of cash going into retirement. How do I treat that when balancing my portfolio with my 60/40 AA? Here's why I am asking: Today, I have a boatload of cash sitting outside my retirement accounts. This is for a house downpayment and taxes. I do not include this cash in my AA because it will be consumed soon. So my retirement account sits @ 60/40 but if I include all that cash I am at 41/35/24. I certainly don't go in and make huge changes to my retirement accounts based on short term cash flow. For those who hold 2 years cash, do you consider that as part of your AA? Or do you keep your non cash accounts @ 60/40 and the cash is truly cash?

I have a cash moat of about 4 years in bank savings/CDs. I consider it part of my bond allocation. I have never understood why people have investments that they consider to somehow be outside of their AA.

Until it is spent it is part of my AA.

[corn18]

Quote:

Originally Posted by Montecfo I have a cash moat of about 4 years in bank savings/CDs. I consider it part of my bond allocation. I have never understood why people have investments that they consider to somehow be outside of their AA. Until it is spent it is part of my AA.

I picked an AA for my long term savings. I am comfortable with 60/40 for long term savings. But I am not comfortable with putting my short term cash needs into my long term AA. If I were to pick an AA that I was comfortable with that includes all my savings, it would be 50/50. Interestingly enough, if I include my current cash savings, I am at 50/50.

For now, I am going to keep 3 years cash outside my AA. That is how I have always viewed short term needs during my accumulation phase. I have a boatload of money sitting in cash right now for short term needs: taxes, home down payment, college, new RV. That would never go into my AA. If it did, I would be at 40/60 right now. No way in hades any of that cash is going into my 60/40 AA.

[Winemaker]

I keep a 3 year cash stash; withdrawing current years stash first week in January. Current years cash not counted as part of new portfolio. Interest and divvies in pretax accounts go to stable value account. During the course of the year, I sell between small, med, high, international at my leisure, quarterly, to sort of dollar cost average sales, to refill cash stash. After 6 years, so far so good. When I was in accumulation phase, I purchased the lowest quarterly performers, in the withdrawal phase, I sell the highest quarterly performers. DW and I both have pensions, and rental income, in addition to our 4% withdrawal.

[audreyh1]

Quote:

Originally Posted by Montecfo I have a cash moat of about 4 years in bank savings/CDs. I consider it part of my bond allocation. I have never understood why people have investments that they consider to somehow be outside of their AA. Until it is spent it is part of my AA.

For rebalancing purposes. Most people don’t include what’s in their checking or the funds withdrawn from investment accounts for current year spending when they rebalance.

Personally it works cleanly for me, because I only rebalance and withdraw a fixed % from my retirement accounts only regardless of what happens to the funds afterwards.

[Montecfo]

Quote:

Originally Posted by audreyh1 For rebalancing purposes. Most people don’t include what’s in their checking or the funds withdrawn from investment accounts for current year spending when they rebalance.

I understand people do it. If it is a small amount then I guess it doesn't matter. I consider cash part of my AA because it represents assets I have allocated to cash.

[audreyh1]

It all comes down to what you use your AA computation for.

[LA_Newsboy]

I second the idea of short- and medium-duration bond funds. I have VCSH and VCIT, Vanguard ETFs, in several Fidelity accounts. VCSH pays 2.76% monthly; VCIT pays 3.14% monthly. Money can be moved with a click.


As with all investments, keep an eye on them. I'm not a fan of setting and forgetting.

[gooddog]

Schwab now has 'retirement income funds' that pay monthly, and are based on your risk tolerance and how much is in the account. These accounts are quite good, and prevent a lot of anxiety - at least for me they do. Worth a look if nothing else.

[Finance Dave]

I would count bank cash as part of AA. If that bothers you...just realize you may want to adjust your target AA to something different than your 60/40.

For us, we have rental properties that provide about 40% of our annual spending. The rest we are covering for the time being with bank account and some minor handyman income I'm making. We have plenty in TIRAs, but we don't want to take out too much to lose the ACA subsidy for now...so we are "working the plan" to try to keep AGI low.

You seem to be thoughtful and are just having the typical jitters many have when going from building wealth to depleting it...hang in there and you'll be fine.

Another option if you're still worried...determine how much of your spending is truly discretionary (travel, hobbies, etc.) and then if you have a bad year...cut some of that budget for the next year. That's what we are doing...if we have a bad year, we skip the $12k international vacation the next year.

So far we've only had one bad year...this COVID year. No one wants a handyman in their house during this and some of our tenants have been unable to pay or pay very late. But, we've been lucky in that our spending has gone WAY down due to the pandemic. We cancelled our Carribean cruise ($7k), have saved a ton on not eating out (we averaged $1,200/mo on meals out...and are now only spending $400 more on groceries...so $800/mo savings). As a result, we're still taking the international trip next year!

Where's that "blow that dough" thread lol.

[kcowan]

Our financial plan has a special line for capital expenses. New cars in 2012 and 2016. House expenses in 2007 and 2019 (snowbird property and upgrade). In each case, we can quickly assess the long term impact of the expenditures and decide if it is worth it.

The property expenses have proven fortuitous by forcing sale of equities in a timely fashion.

[meleana]

What is AA? I wish people wouldn't use abbreviations,

[MichaelB]

Quote:

Originally Posted by meleana What is AA? I wish people wouldn't use abbreviations,

AA is shorthand for asset allocation.

[braumeister]

For anyone else who may be new, this can be a useful reference:
Acronyms and Slang Frequently Used on the Forum

And digging even farther in, we have a whole forum full of this kind of thing:Early Retirement FAQs

[ecowtent]

I tried searching for a link for asset allocation information and could not find. Can anyone point me to one?

[corn18]

This is a good discussion on Asset Allocation (AA) from the bogleheads.org wiki:

https://www.bogleheads.org/wiki/Asset_allocation

Also, someone over on BH recommended this site for withdrawal stuff and it has been fantastic. Great discussions on all manner of things drawdown.

https://earlyretirementnow.com/safe-...l-rate-series/

[ecowtent]

Thank you so much. That is exactly what I needed!

[teetee]

Convert balances in accounts that force you to take RMD into ROTH and keep the investing mindset. I don't think you have to change your mindset to start withdraw just because you retire. You have been doing well all these years so it worked for you. If you wish to start doing something different (road trip for a year, check out Iceland, etc.) in order to fulfill your dream or promises that can be costly, then plan ahead.

Maybe look into expanding the cash percentage of the portfolio so you have a bigger emergency fund if that allows you to sleep better.

People in panic (or angry) mode tend to make poor decisions and losing money is one of the effects.