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Cash going into RE
Old 05-28-2020, 07:41 AM   #1
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Cash going into RE

It looks like we are on track to RE Mar 2021. We just moved and sold our house in TX. $450k proceeds is sitting in cash. I was all set to invest it according to my 60/40 AA into index funds (total US, total bond and total international). Then I paused because none of those are cash. Bonds are cash like, but they can drop just like stocks. Then I realized I never thought through my retirement withdrawal plan.

As I am typing all of this, I realize that I am now way behind the 8 ball and need to start transitioning from a savings mindset to a withdrawal mindset. Now I am spazzing as I think about withdrawing. Now I am panicking and I want to work OMY so I don't have to start withdrawing.

Let me get back to you in a bit.
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Old 05-28-2020, 07:56 AM   #2
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Plan in phases.

Retirement age to 59.5
59.5 to 62 (if married, lesser earner takes SS)
62 to 65 (Medicare)
65 to 70 (top earner SS, other 50% benefit if more)

If you have a large pre-tax amount, consider Roth Conversions between retirement and 62 to lessen RMD.

If you are renting or re-buying a house, keeping some safe cash is a good plan.

Know your spending (smooth and lumpy) well.
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Old 05-28-2020, 08:00 AM   #3
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Quote:
Originally Posted by bloom2708 View Post
Plan in phases.

Retirement age to 59.5
59.5 to 62 (if married, lesser earner takes SS)
62 to 65 (Medicare)
65 to 70 (top earner SS, other 50% benefit if more)

If you have a large pre-tax amount, consider Roth Conversions between retirement and 62 to lessen RMD.

If you are renting or re-buying a house, keeping some safe cash is a good plan.

Know your spending (smooth and lumpy) well.
The only one I know is the spending part. We have been living within our retirement budget for 2 years now.

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Old 05-28-2020, 08:23 AM   #4
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My approach may or may not be suitable for you. When I went into retirement (age 60) I had 5 years of planned withdrawals (over $400K) in cash. I was willing to give up potential gains to ensure that during downturns (like this year) I would not be forced to sell stocks or bonds. I am happy with the results.
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Old 05-28-2020, 08:28 AM   #5
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Well, it’s certainly a good idea to figure out how your cash flow is going to work before retiring. Managing the cash flow is an important part of staying comfortably retired.

We retired with at least two years of spending in cash. Some of that was for funding extra travel during the first two years. We have basically maintained that buffer since. It gave us considerable insulation from day to day market gyrations, and that’s always been appreciated.

We also set up a monthly “paycheck” - simply an automatic transfer of funds that mimicked the paycheck we got from work, occasionally adjusted as needed.

We understood our spending very well and did a good job of projecting how our spending might change in those early years.

Currently we do an annual fixed % withdrawal from our retirement investments in Jan to high yield savings, set aside funds for anticipated taxes, and other than occasional rebalancing or tax loss harvesting, we leave the retirement assets alone for another year.
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Old 05-28-2020, 08:44 AM   #6
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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?
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Old 05-28-2020, 09:17 AM   #7
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The cash I have for living expenses for the next year or two is not counted in my AA for doing rebalancing. I only do that calculation on my retirement investments which are long term. Once withdrawn for spending, cash is put in short term accounts available for immediate use as needed.

Some people take a year’s worth of spending money to set aside in checking/savings, and any additional buffer is a % of their AA.

Other people may have a year or two set aside inside their retirement AA cash%.

Others just figure that as long as their fixed income portion covers X years of spending, they are golden.

Otherwise just take whatever they need from their retirement assets as needed throughout the year, and at the end of the year calculate the total withdrawn amount/retirement assets, and as long as it doesn’t exceed some predetermined x%, they are golden.

So you can see there are numerous ways of doing this, and all over the map. You just have to figure out which approach might work best for you.
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Old 05-28-2020, 10:03 AM   #8
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Any cash in long term savings is included in my AA since I am retired. Income from SS, dividends, interest, etc is not counted in my AA unless I turn it into long term money (CD's, Bonds)

We pretty much live of SS and RMD's and that's short term money.
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Old 05-28-2020, 11:26 AM   #9
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I count cash as part of my AA. I have enough cash to supplement my predicted dividend distributions so I won't have to sell any equities before 65 (another 6.5 years now), giving me a much better chance of getting an ACA subsidy each year. My dividends may take a hit this year but if I have to, I can withdraw from my Roth or HSA.
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Old 05-28-2020, 01:22 PM   #10
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I focus less on cash as a percentage of my AA and more on cash in terms of the time frame it can cover my planned withdrawal needs.
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Old 05-28-2020, 03:01 PM   #11
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A high quality bond fund with low-medium duration will not fall the same way an equity fund will. I retired in December 2007 with no cash, no pension, no social security. If your portfolio is constructed well, it should weather the ups and downs of the market.
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Old 05-28-2020, 03:33 PM   #12
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I have couple sub categories in my AA. For stocks I have large cap, small or medium cap, and international allocations. For fixed income, I have US bonds, international bonds, and cash allocation. So yes, cash is part of my AA to cover 2-3 years of draws.

Just one way to do it, seems to work for us.
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Old 05-28-2020, 03:42 PM   #13
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Quote:
Originally Posted by bloom2708 View Post
Plan in phases.

Retirement age to 59.5
59.5 to 62 (if married, lesser earner takes SS)
62 to 65 (Medicare)
65 to 70 (top earner SS, other 50% benefit if more)

If you have a large pre-tax amount, consider Roth Conversions between retirement and 62 to lessen RMD.

If you are renting or re-buying a house, keeping some safe cash is a good plan.

Know your spending (smooth and lumpy) well.
+1
That's is what I found myself doing. My plan was very loose, this is what I implemented out of necessity.
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Old 05-28-2020, 07:16 PM   #14
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Funny how everyone does it a bit different and everyone takes comfort in their system. Itís great!

For me I donít include current year expenses in AA Two years spending in safe accounts is not enough for me to SWAN. If I was Zok with only 2 yrs, I would actually have 2 + the current year and if my WR was 4% my AA for 60/40 would actually be 60/32/8 stocks/bond/cash. The 40% is FIXED INCOME (bonds+cash). Bonds are not cash. I hardly have any bonds except for munis. I use long term CDs in lieu of Bonds.
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Old 05-29-2020, 09:10 AM   #15
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For now, I decided to keep 3 years cash that will not be part of my AA. The remaining portfolio will be set to 60/40. We'll start with that and change our minds at least 3,142 times between now and next March.
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Old 05-29-2020, 09:21 AM   #16
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For now, I decided to keep 3 years cash that will not be part of my AA. The remaining portfolio will be set to 60/40. We'll start with that and change our minds at least 3,142 times between now and next March.
Like that decision.
Similar to @Audrey and yourself, we keep some cash outside our AA, although it is more of an emergency type monies for us.
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Old 05-29-2020, 10:16 AM   #17
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Mentally, I have a plan to bridge from 55 to SS @ 70. Basically, my COLA military pension + SS @ 70 cover 100% of my base expenses. So I need 15 years of bridge income. That comes out to about $700k. Well, I currently have $700k in cash + bonds. Coolio. Bridge is funded.

The equities are my blow that dough money. Kindof a weird way to look at it. Fixed income = bridge to SS. Equities are my BTD money. My mental plan has been to VPW the equities for BTD. VPW says I can start at about 5.8%, so about $40k of BTD a year. If the market it bad, that goes down, if it's good it goes up.

I don't think I will actually execute my withdrawals this way, but it is the milestone I have been trying to achieve.
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Old 05-29-2020, 10:16 AM   #18
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For now, I decided to keep 3 years cash that will not be part of my AA. The remaining portfolio will be set to 60/40. We'll start with that and change our minds at least 3,142 times between now and next March.
I did something similar for a number of years... I just framed it as 60/35/5.
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Old 05-29-2020, 11:09 AM   #19
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I have about 9 years until SS and 12 years until pension. So recently decided to keep a cash bridge of 28% of portfolio.

So now my actual AA is 63/9/28 but excluding the cash bridge it is 88/12/0.

I guess the 88/12/0 is more accurate for long-term planning (firecalc, etc) since the cash will be gone in 9 years or so.
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Old 05-29-2020, 12:10 PM   #20
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We have two pension annuities plus some rental income and dividends from our taxable account, which cover all non-discretionary spending. When SS starts, those inflows should cover all spending. Until then, we sell stocks in taxable as needed to cover discretionary spend, which is typically about one-third of total spend.

Discretionary spend is extremely low this year with no travel. And if you think about it... any year I'm *really* uncomfortable selling equities is probably a year we'll cut back on discretionary spend to some extent anyway. This year is just an exaggerated example.

So we don't carry much cash at all. We have a small cash reserve that fluctuates between 1% and 3% of the total portfolio. We sell stock as needed (typically once or twice per year) to cover discretionary and replenish the small cash reserve. We then rebalance if needed. If stocks are down when we sell, then we get a good price when we rebalance afterward.

Also, the amount we sell in taxable every year is only slightly more than the reinvested dividends in our tax-deferred and Roth accounts. Meaning the overall WR is just slightly higher than the dividend rate for the entire portfolio. So we have room to safely take spending higher if the need/desire arises. Right now, we are very comfortable at this level. And we plan to downsize the house at some point, which will reduce expenses significantly.
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