Announcement

Collapse
No announcement yet.

Cash bucket options (short term needs). CD tents, Bond tents etc. dynamic situation.

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • #76
    Originally posted by Tangler View Post

    Thanks for the input!

    My thoughts are as follows:

    1. High risk tolerance. Ok with AA of 90-95% stocks, even in retirement. Not going to panic sell.

    2. My plan to de-risk (eliminate SORR) is to keep 300-500k in cash / short term CDs / short term bonds / I-bonds in taxable. This is money I can spend if needed.

    I might increase bond allocation (short and intermediate term) soon but I am waiting for interest rates to stabilize a little. Even so, I am not going to increase my bond allocation to more than 20%.

    I know stock index funds are volatile. I accept it.
    I will retire at an age between 50-55 and I need stocks to keep up with inflation.

    When I retire early i will do as follows prior to RMDs and SS (prior to 70):

    1. Bear market —> live off cash, avoid selling stocks

    2. Bull market —> convert some stocks to cash to replenish cash spent during bear market

    3. Strategic Roth conversions and use dividends to live off or buy more stocks or replenish cash

    Market timing? Sure, kinda, but not market predictions. More market reaction & planning.

    Prediction = fools errand

    Reaction to changes & flexibility = intelligent behavior.

    Thoughts? I do value your insight.
    Sounds like you have plenty of time. I would read as much of the ERN SWR series as you can. Personally I am following one of his CAPE-based withdrawal strategies. I am not in the drawdown phase but this is something I use to figure out how much is “okay” to spend every month, since I do not think the 20% ROT is a good guideline for me (since almost all of my income goes into retirement accounts). The CAPE rules are described in this post:

    https://www.google.com/amp/s/earlyre...-criteria/amp/

    Using a = 1.5, and b = 0.5, the current withdrawal rate I try to target is 3.19%, or 0.27% per month. It fluctuates based on current valuations.

    Comment


    • #77
      If Shiller doesn’t use CAPE for investing, why should you?

      Comment


      • #78
        FWIW Ally is at 1.25% now as well so there's little point to switching accounts.

        I think you may be making it more complicated than it needs to be, but I can do that sometimes too. What I would do though is make an annual plan for how to get your cash bucket to where you want it to be on the date you retire. I think you may already be ahead of schedule, so you're losing out on returns by putting more into cash rather than equities.

        My plan had been to be a 60/30/10 AA but now my thinking is instead of looking at the portfolio, look at annual expenses. I plan to have 2-4 years cash in annual expenses, 6-8 years annual expenses in bonds, and the leftovers are in stocks. I don't know what that AA will end up being but if I retire early and decide my safe withdrawal rate will be 3.5% and my spending is $150k then my total portfolio is ~$4.3m with about $450k in cash, $1m in bonds, and $2.85 in equities for an AA of 66/23/11. I think by doing it this way and using your expenses as your guide rather than AA, you'll end up tilting towards equities and growing the pot more than you would otherwise. I'm still 15-20 years away and could well change my plan again

        Comment


        • #79
          Originally posted by JBME View Post
          FWIW Ally is at 1.25% now as well so there's little point to switching accounts.

          I think you may be making it more complicated than it needs to be, but I can do that sometimes too. What I would do though is make an annual plan for how to get your cash bucket to where you want it to be on the date you retire. I think you may already be ahead of schedule, so you're losing out on returns by putting more into cash rather than equities.

          My plan had been to be a 60/30/10 AA but now my thinking is instead of looking at the portfolio, look at annual expenses. I plan to have 2-4 years cash in annual expenses, 6-8 years annual expenses in bonds, and the leftovers are in stocks. I don't know what that AA will end up being but if I retire early and decide my safe withdrawal rate will be 3.5% and my spending is $150k then my total portfolio is ~$4.3m with about $450k in cash, $1m in bonds, and $2.85 in equities for an AA of 66/23/11. I think by doing it this way and using your expenses as your guide rather than AA, you'll end up tilting towards equities and growing the pot more than you would otherwise. I'm still 15-20 years away and could well change my plan again
          Just a question for anyone. SORR is commonly referred to as the first 5 yrs preceding retirement and post retirement. At what point does one reduce the cash and bonds? Ever or is SORR actually forever? Some advocate increasing stocks as well after retirement. All of this is up to retirement, not the 20-30 yrs after.

          Comment


          • #80
            Originally posted by Tim View Post

            Just a question for anyone. SORR is commonly referred to as the first 5 yrs preceding retirement and post retirement. At what point does one reduce the cash and bonds? Ever or is SORR actually forever? Some advocate increasing stocks as well after retirement. All of this is up to retirement, not the 20-30 yrs after.
            I've thought some about this and if I went the AA route I might consider slowly getting more aggressive 5 years after official retirement, from roughly 60-70/40-30 to 80/20. I don't think I'd ever get more aggressive than 80/20. Who knows how I'll be in 30-40 years though. Old people don't like volatility and I would fit that mold so I could just stick with my plan of 2-4 years cash, 6-8 years bonds, and rest in equities. As my equities grow over time using this strategy, I could have an AA of 70-80% in equities anyway

            Comment


            • #81
              Originally posted by JBME View Post

              I've thought some about this and if I went the AA route I might consider slowly getting more aggressive 5 years after official retirement, from roughly 60-70/40-30 to 80/20. I don't think I'd ever get more aggressive than 80/20. Who knows how I'll be in 30-40 years though. Old people don't like volatility and I would fit that mold so I could just stick with my plan of 2-4 years cash, 6-8 years bonds, and rest in equities. As my equities grow over time using this strategy, I could have an AA of 70-80% in equities anyway
              This is on the assumption that actually growth outruns your withdrawals. Probably true. However, if anyone ends up with a drawdown strategy that ACTUALLY draws down, cash out to live on needs to be replenished. That means selling stock to keep the targeted balance. Basically, you would be withdrawing and selling stocks for living expenses. Impact is lower stocks and higher cash and bonds due to the fixed amounts for the SORR risk. Instead of increasing 20 points, stocks go down, down, down. BTW, it is so comfortable thinking that gains are greater than withdrawals and you have up to 12 years cash/bonds. Depending on your desire for your heirs, I would think the heirs would think, "When the pandemic hit, Dad when to cash and bonds which is what we got. He sold all the index stuff that recovered. Typical old folks, afraid to invest. Never when back in to a reasonable AA. Scared the crap out of them. We inherited bonds and cash. 20-30 years of lost opportunity".
              Point: at some point you are investing for your heirs, their AA not yours.

              Comment


              • #82
                Originally posted by Tim View Post

                This is on the assumption that actually growth outruns your withdrawals. Probably true. However, if anyone ends up with a drawdown strategy that ACTUALLY draws down, cash out to live on needs to be replenished. That means selling stock to keep the targeted balance. Basically, you would be withdrawing and selling stocks for living expenses. Impact is lower stocks and higher cash and bonds due to the fixed amounts for the SORR risk. Instead of increasing 20 points, stocks go down, down, down. BTW, it is so comfortable thinking that gains are greater than withdrawals and you have up to 12 years cash/bonds. Depending on your desire for your heirs, I would think the heirs would think, "When the pandemic hit, Dad when to cash and bonds which is what we got. He sold all the index stuff that recovered. Typical old folks, afraid to invest. Never when back in to a reasonable AA. Scared the crap out of them. We inherited bonds and cash. 20-30 years of lost opportunity".
                Point: at some point you are investing for your heirs, their AA not yours.
                totally agree with this. I intend to spend down the portfolio. I won't die with zero but I don't want to die with $5m+ (heck, even $3m+ going to heirs might be too much). I will fly first class so that my heirs have to fly coach, unless they saved enough up as well to fly first class.

                As far as investing for your heirs and it being their AA rather than yours, that is true at some point but I think of it differently. Instead of thinking of my portfolio as theirs rather than mine, I'll want them to get any money to them in a tax efficient way. This means spending down any tax-deferred accounts first preferably. While doing this, keeping the Roth and taxable buckets perhaps at a more aggressive AA (so I guess I am investing in the heir's AA) since my intention is to give as much of those buckets to them. If tax-deferred goes to $0 then I'll have to decide where I dip my hand....taxable? Roth? HELOC? reverse mortgage? (probably not the latter two). And if I'm dipping there I might want to reconsider the AA in those accounts now

                Comment


                • #83
                  Originally posted by JBME View Post

                  totally agree with this. I intend to spend down the portfolio. I won't die with zero but I don't want to die with $5m+ (heck, even $3m+ going to heirs might be too much). I will fly first class so that my heirs have to fly coach, unless they saved enough up as well to fly first class.

                  As far as investing for your heirs and it being their AA rather than yours, that is true at some point but I think of it differently. Instead of thinking of my portfolio as theirs rather than mine, I'll want them to get any money to them in a tax efficient way. This means spending down any tax-deferred accounts first preferably. While doing this, keeping the Roth and taxable buckets perhaps at a more aggressive AA (so I guess I am investing in the heir's AA) since my intention is to give as much of those buckets to them. If tax-deferred goes to $0 then I'll have to decide where I dip my hand....taxable? Roth? HELOC? reverse mortgage? (probably not the latter two). And if I'm dipping there I might want to reconsider the AA in those accounts now
                  But, you will still have a pile of cash and bonds, 20 years worth! I am not criticizing, I am searching for a way to scale back the specific cash/bonds, the safety factor can't be fixed at 20 years. It needs to be scaled back in some fashion, probably life expectancy.

                  Comment


                  • #84
                    perhaps I miswrote somewhere but we're talking 10 years of cash and bonds, not 20. 2-4 years in cash, 6-8 in bonds, rest in equities. But even if it's 10 rather than 20 I get your point and yes taking life expectancy into account is reasonable. If markets have always recovered after 10 years but you're an 85 year old man you may believe your money won't recover before you die. So at that point you are investing for your heirs. Or, you don't expect to live another 10 years so no point in carrying 10 years' worth of spending in cash/bonds. Then again, you're 85 and maybe due to frugality you are ultra rich so you just make an AA of 100% equities and live it up until you die come ************************ or high water because you no longer care.

                    Comment


                    • #85
                      Originally posted by Tangler View Post

                      Update on this thread for me:

                      1. Sofi bank now paying 1.25% with direct deposit (this is my HY savings account for liquid cash) 70k here. Adding to this.

                      2. Wife has cash in a savings account: roughly 70k in here. (she likes having total control over this, and I don't really care)

                      3. Short term CDs & treasury bonds Yielding roughly 2-3%; total 96k

                      4. I-bonds (not totally liquid, but safe) Yielding roughly 7-9%; total 70k

                      This gives a total of 70 + 70 + 96 +70 = 306k in "safe" taxable assets. 140k of which is cash available for spending immediately if needed.

                      This is my cash bucket. i am slowly growing it and plan on have roughly 300-500k when fully retired to combat SORR.

                      My "plan" is to have most of my investments in stocks (currently wife and I have 3 types of investments: Roth IRA money, Non-Roth IRA money, and taxable.

                      All have a decent amount and the total is over 5M, mostly in stock index funds. (High risk tolerance, hence the relatively large cash bucket for SORR)

                      Current spending is 80-120k per year. (paid for house and cars, no debt)

                      Given that 3.5% of 5M is 175k per year of spending I think we are getting very close to bullet proof financially and could stop working almost any time.

                      (also have some checking accounts but these are not counted in my plan, but they contain a total of 30-60k)

                      Currently working extra to add money to taxable stock index funds + cash bucket.

                      Anyone see any holes in my logic? Anyone else have a plan for SORR they would like to share?
                      Love it. You’re set. Well done.

                      Similar plan here for when the time comes, but going to try to keep it even simpler.

                      Five years’ worth of expenses in straight cash + intermediate munis (maybe half and half, not really concerned about the exact breakdown), and the rest in the same allocation as during accumulation.

                      Just a completely separate five-year bucket for SORR, and the rest stays unchanged and aggressive as always.

                      Comment


                      • #86
                        Originally posted by Lithium View Post
                        Sounds like you have plenty of time. I would read as much of the ERN SWR series as you can. Personally I am following one of his CAPE-based withdrawal strategies. I am not in the drawdown phase but this is something I use to figure out how much is “okay” to spend every month, since I do not think the 20% ROT is a good guideline for me (since almost all of my income goes into retirement accounts). The CAPE rules are described in this post:

                        https://www.google.com/amp/s/earlyre...-criteria/amp/

                        Using a = 1.5, and b = 0.5, the current withdrawal rate I try to target is 3.19%, or 0.27% per month. It fluctuates based on current valuations.
                        very cool! Thanks!

                        I will need to check it out!

                        In an interesting way to look at things and seems similar to when you use value averaging during the accumulation stage.

                        With value averaging you buy more after drops and less after market increases during your accumulation phase based on a value path.

                        Great book on this by Michael Edelson.

                        I will need to look at it but sounds like BIG ERN has something similar for withdrawls:

                        With this you are in de-accumulation. During this drawdown you pull out more when markets have increased and less when they have declined (I think; need to look at it closely).
                        Last edited by Tangler; 07-26-2022, 01:58 AM.

                        Comment


                        • #87
                          Originally posted by Tim View Post

                          Just a question for anyone. SORR is commonly referred to as the first 5 yrs preceding retirement and post retirement. At what point does one reduce the cash and bonds? Ever or is SORR actually forever? Some advocate increasing stocks as well after retirement. All of this is up to retirement, not the 20-30 yrs after.
                          I think if you reach SS and RMD and you were able to avoid spending stocks during downturns (by utilizing cash or safe assets during bear markets) you are going to be fine.

                          SS is like a huge annuity that will (almost certainly) be able to provide for a lot of living expenses when combined with RMD and with dividends from taxable investments.

                          At what point to you have no concern regarding SORR?

                          I don't really know the answer. I am currently 49. Plan on retirement between 50-55. From 55-70 is when I want protection from SORR. Really from 55-60. IF you over-save and avoid panic selling then you should have a lot at age 60, more at 65, and even more at 70.

                          I think freedom is more important to me that stuff. I will buy a boat more than likely and will need to replace cars and will change homes but with a paid for 1.5M house (which will be sold) and a lot of savings and few large expenses, I think freedom is inevitable.

                          I think things will be ok.

                          Comment


                          • #88
                            Originally posted by Tim View Post

                            Just a question for anyone. SORR is commonly referred to as the first 5 yrs preceding retirement and post retirement. At what point does one reduce the cash and bonds? Ever or is SORR actually forever? Some advocate increasing stocks as well after retirement. All of this is up to retirement, not the 20-30 yrs after.
                            I think it depends on if you’re shooting for a specific allocation, or if you’re shooting for a certain time period worth of spending.

                            If a specific allocation—e.g., 60/40—then I would absolutely reduce cash and bonds beginning ~10 years after retirement, and by default as a corollary, increase stocks. Even earlier if stock returns have been high. Otherwise you will have an enormous amount of money essentially earning nothing at that point.

                            The reason being, if there hasn’t been a bear for 10 years after retirement, your accounts are likely much higher than when you retired and your time horizon much shorter. The SORR is basically gone.

                            If a certain time period worth of spending is the goal—e.g., five years—then I would just keep this bucket in perpetuity. It would be drawn down during a bear, replenished during a bull, and over time would come to represent a smaller and smaller portion of net worth.

                            Comment


                            • #89
                              Originally posted by bovie View Post

                              I think it depends on if you’re shooting for a specific allocation, or if you’re shooting for a certain time period worth of spending.

                              If a specific allocation—e.g., 60/40—then I would absolutely reduce cash and bonds beginning ~10 years after retirement, and by default as a corollary, increase stocks. Even earlier if stock returns have been high. Otherwise you will have an enormous amount of money essentially earning nothing at that point.

                              The reason being, if there hasn’t been a bear for 10 years after retirement, your accounts are likely much higher than when you retired and your time horizon much shorter. The SORR is basically gone.

                              If a certain time period worth of spending is the goal—e.g., five years—then I would just keep this bucket in perpetuity. It would be drawn down during a bear, replenished during a bull, and over time would come to represent a smaller and smaller portion of net worth.
                              I agree with everything you say. In both or your scenario's, no chance of running out of money. Easy choices. Everything I have read is the older you get the more risk is appropriate for putting capital to work. 4%, 60/40 cash buckets, SORR, I get the choice is flexibility and risk tolerance and capacity. The draw down stage is more complex than the building stage.
                              10 years after retirement impact personal capital..
                              Financial capital is actually independent of that. SORR actually covers the loss of personal capital and its impact on risk capacity. I think at some point I'll use 60/40 with keeping 3 yrs cash separate.

                              Comment


                              • #90
                                T Bills (1 month) around 2.8% right now... comes with tax advantages. Am i missing something? Seems way better than a CD right now

                                Comment

                                Working...
                                X