Kitces article: A cash bucket in retirement? Nope

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JCE66
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Kitces article: A cash bucket in retirement? Nope

Post by JCE66 » Tue Jan 23, 2018 7:11 am

Bogleheads:

https://www.kitces.com/blog/weekend-rea ... ary-20-21/

The article in the weekend reading was a real eye-opener. I also read Christine Benz (Mstar), a big proponent of the bucket strategy. Intuitively, the bucket strategy seems to make sense, right? You have money for a couple of years of expenses, and you have less of a reason to make foolish moves in reaction to the market. Not so fast, according to Kitces. The chief takeaway I had is that having a cash bucket with a couple of years of expenses may not be the 'behavioral brake' that people think it is. And that cash is a drag on returns (I know, really basic, but still, a helpful reminder), and may actually lessen the probability of portfolio success (defined as not running out of money in 30 years).

Do you (Fellow Bogleheads) use the bucket strategy?
Has it been a 'behavioral brake' (Example: not selling equities in reaction to a sudden Market decline)?
Does having that cash make you feel more secure?

livesoft
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Re: Kitces article: A cash bucket in retirement? Nope

Post by livesoft » Tue Jan 23, 2018 7:29 am

Kitces points to another article on the cash story. That article is similar to one at EarlyRetiremenNow:
https://earlyretirementnow.com/2017/03/ ... h-cushion/

I do not use a bucket strategy. I hate cash and try not to have more than a few weeks of expenses in my checking account. I do not have a savings account. I do not have any CDs. I do not use Ally nor any other high-yield savings. I do have some money in TIAA Traditional Annuity which I treat as a bond fund, but I suppose I could access it reasonably quickly, but not as quickly as I can access the bond and equity ETFs I own.

On a sudden market decline, my IPS says I must buy equities, so there is definitely no selling of equities due to a sudden market decline. As for other behavioral errors, I find that reading books on behavioral errors and behavioral finance helps me avoid many of them.

Having cash makes me feel bad. If I get cash from dividends, I want to use it as quickly as possible to buy more shares of stock ETFs and bond ETFs. I have no regrets when I sell any investment at a loss. Indeed, I sometimes enjoy selling shares at a loss.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by in_reality » Tue Jan 23, 2018 7:36 am

JCE66 wrote:
Tue Jan 23, 2018 7:11 am
Bogleheads:

https://www.kitces.com/blog/weekend-rea ... ary-20-21/

The article in the weekend reading was a real eye-opener. I also read Christine Benz (Mstar), a big proponent of the bucket strategy. Intuitively, the bucket strategy seems to make sense, right? You have money for a couple of years of expenses, and you have less of a reason to make foolish moves in reaction to the market. Not so fast, according to Kitces. The chief takeaway I had is that having a cash bucket with a couple of years of expenses may not be the 'behavioral brake' that people think it is. And that cash is a drag on returns (I know, really basic, but still, a helpful reminder), and may actually lessen the probability of portfolio success (defined as not running out of money in 30 years).

Do you (Fellow Bogleheads) use the bucket strategy?
Has it been a 'behavioral brake' (Example: not selling equities in reaction to a sudden Market decline)?
Does having that cash make you feel more secure?
I pretty much disagree with your interpretation of the article and conclusion.

First, the test porfolio went from 50%-50% stock bonds to 40%-50%-10% stock bonds cash. Um, what do you expect? I'd expect lower returns for sure.

When they use 50%-40%-10% stock bonds cash, they concluded:
Replacing bonds with cash appears to improve the portfolio longevity in the worst-case scenarios. There is hardly any difference in the success rate compared to a fully invested portfolio. There is a price to pay regarding legacy in the non-failure scenarios, but I’ll wager this price is worth paying.
So no, some cash replacing bonds can improve portfolio longevity in the worst-case scenarios. That is what the research in the article showed anyway.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by jhfenton » Tue Jan 23, 2018 7:42 am

To me the issue of using a bucket strategy and having a large cash bucket are two separate issues.

Like livesoft, I hate cash. So if I were to use buckets in my mental accounting, I would simply have a diversified fixed income bucket and an equities bucket. I wouldn't keep any more than short-term expenses in cash.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Dottie57 » Tue Jan 23, 2018 7:44 am

in_reality wrote:
Tue Jan 23, 2018 7:36 am
JCE66 wrote:
Tue Jan 23, 2018 7:11 am
Bogleheads:

https://www.kitces.com/blog/weekend-rea ... ary-20-21/

The article in the weekend reading was a real eye-opener. I also read Christine Benz (Mstar), a big proponent of the bucket strategy. Intuitively, the bucket strategy seems to make sense, right? You have money for a couple of years of expenses, and you have less of a reason to make foolish moves in reaction to the market. Not so fast, according to Kitces. The chief takeaway I had is that having a cash bucket with a couple of years of expenses may not be the 'behavioral brake' that people think it is. And that cash is a drag on returns (I know, really basic, but still, a helpful reminder), and may actually lessen the probability of portfolio success (defined as not running out of money in 30 years).

Do you (Fellow Bogleheads) use the bucket strategy?
Has it been a 'behavioral brake' (Example: not selling equities in reaction to a sudden Market decline)?
Does having that cash make you feel more secure?
I pretty much disagree with your interpretation of the article and conclusion.

First, the test porfolio went from 50%-50% stock bonds to 40%-50%-10% stock bonds cash. Um, what do you expect? I'd expect lower returns for sure.

When they use 50%-40%-10% stock bonds cash, they concluded:
Replacing bonds with cash appears to improve the portfolio longevity in the worst-case scenarios. There is hardly any difference in the success rate compared to a fully invested portfolio. There is a price to pay regarding legacy in the non-failure scenarios, but I’ll wager this price is worth paying.
So no, some cash replacing bonds can improve portfolio longevity in the worst-case scenarios. That is what the research in the article showed anyway.
+1. My bucket of cash and other FI will get me to SS in a bad market and also help pay for roth conversions.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by vested1 » Tue Jan 23, 2018 8:13 am

Dottie57 wrote:
Tue Jan 23, 2018 7:44 am
in_reality wrote:
Tue Jan 23, 2018 7:36 am
JCE66 wrote:
Tue Jan 23, 2018 7:11 am
Bogleheads:

https://www.kitces.com/blog/weekend-rea ... ary-20-21/

The article in the weekend reading was a real eye-opener. I also read Christine Benz (Mstar), a big proponent of the bucket strategy. Intuitively, the bucket strategy seems to make sense, right? You have money for a couple of years of expenses, and you have less of a reason to make foolish moves in reaction to the market. Not so fast, according to Kitces. The chief takeaway I had is that having a cash bucket with a couple of years of expenses may not be the 'behavioral brake' that people think it is. And that cash is a drag on returns (I know, really basic, but still, a helpful reminder), and may actually lessen the probability of portfolio success (defined as not running out of money in 30 years).

Do you (Fellow Bogleheads) use the bucket strategy?
Has it been a 'behavioral brake' (Example: not selling equities in reaction to a sudden Market decline)?
Does having that cash make you feel more secure?
I pretty much disagree with your interpretation of the article and conclusion.

First, the test porfolio went from 50%-50% stock bonds to 40%-50%-10% stock bonds cash. Um, what do you expect? I'd expect lower returns for sure.

When they use 50%-40%-10% stock bonds cash, they concluded:
Replacing bonds with cash appears to improve the portfolio longevity in the worst-case scenarios. There is hardly any difference in the success rate compared to a fully invested portfolio. There is a price to pay regarding legacy in the non-failure scenarios, but I’ll wager this price is worth paying.
So no, some cash replacing bonds can improve portfolio longevity in the worst-case scenarios. That is what the research in the article showed anyway.
+1. My bucket of cash and other FI will get me to SS in a bad market and also help pay for roth conversions.
+2 My thoughts exactly. As long as it is a relatively short term bucket with a pre-determined short term strategy I see it as a positive. Most disagree, but "most" don't delay filing for SS until age 70. I would never hold a large cash bucket as a long term strategy simply out of fear. The mental gymnastics that helps me justify this dwindling bucket keeps me in shape. The sub 2% interest on this bucket is inconsequential, it's the goal that is meaningful. Refilling that bucket with dividends in that same short term time frame keeps the money invested until needed.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by B. Wellington » Tue Jan 23, 2018 8:22 am

Like many others quickly approaching "retirement", I have been reading A LOT of papers and studies on this topic. In particular, Christine Benz and Jane Bryant Quinn, who both make good points concerning a cash "bucket" and how to replenish that spending fund. I am not a big fan of holding cash as well, however we are talking about retirement spending for day to day living expenses.

Having 6 months to 1 year in a "spending fund" seems wise. ( We have had many threads on cash holdings recently.) I personally would hate to sell some stock (or bonds) in a SHORT TERM situation to pay bills. Again, 3-6 months etc. YMMV.

That said, you could take bond interest (monthly) and dividends (ie: quarterly) to fund your checking account spending fund during the year. (Only selling to make up any shortfall that you may have.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by tibbitts » Tue Jan 23, 2018 8:28 am

I think if we saw the kinds of high real returns on cash we experienced not that long ago, you'd suddenly find a lot of cash fans out there.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Dandy » Tue Jan 23, 2018 8:47 am

Poor cash, so unloved by many. I feel cash and cash-like products have a niche for many if not most. Let's confine cash to Money Market Funds/deposit accounts, FDIC savings and CDs, and Stable Value Funds.

When interest rates rise all but brokerage CDs hold their value vs say short term bonds that take a hit, at least for a short time, like many are currently. On a lag most increase their yield when rates rise, as they are currently. Some are Government guaranteed which provides safety that most other fixed income products don't. So, they are well suited for emergency funds. The major qualities are that when/if you need the money - all of it will be there and likely more than you originally allocated. And they are usually extremely liquid. Sometimes cash-like products even out yield bonds. A few years back a 10 year brokerage CD was 3.3% and the 10 Year Treasury was at 2.3%.

If your goal for your fixed income allocation is stability so you can take the risk on the equity side - these products fit the bill. In a rising rate environment they might be a favored choice for re balancing vs using slightly depressed bond fund holdings.

There is some downside. They don't keep up with inflation, even modest inflation very well. When interest rates fall bond funds rise but not cash-like products. Like all but muni bonds they are fully taxable if held in a taxable account. Like all fixed income they are a drag on overall portfolio performance since, over time, equities outperform. Bonds have had a 30 bull market and cash-like products have had a drastic decline in yields e.g. money markets at one time yielded double digits and recently yielded 0.01% !! So some of our love of bonds and distaste for cash-like products may be due to a long term decline in interest rates which don't seem to be in our future (nor does another eight year equity bull market)

Many near or in retirement that have enough might do well to tilt a bit more to asset preservation vs growth. The loss of human capital coupled with withdrawals seems to warrant at least consideration of asset preservation. That is why some recommend keeping X years in cash-like products (and/or short term bond funds.)

I think for many, especially as they age and the portfolio grows, hey should consider having a modest allocation to cash-like products. In fact, model allocations for almost any age used to be quoted in stocks/bonds/cash with cash usually 5-10%.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by PhysicianOnFIRE » Tue Jan 23, 2018 8:50 am

livesoft wrote:
Tue Jan 23, 2018 7:29 am
Kitces points to another article on the cash story. That article is similar to one at EarlyRetiremenNow:
https://earlyretirementnow.com/2017/03/ ... h-cushion/
You beat me to it.

Just yesterday, I was talking about how the opportunity cost of holding cash in bull markets outweighs the benefits of it in a bear, citing the ERN article that demonstrates the math.

I hold bonds to help us get through a bear market in stocks. No need to stockpile cash.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by sperry8 » Tue Jan 23, 2018 8:58 am

Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash. I'm retired and got scared post 08/09 and wanted to have significant monies in cash so I could live for 10+ years in retirement without having to sell equities down. I've missed out on upside significantly due to this insurance. But I can sleep at night so there is a small benefit. Most of my cash comes from me not reinvesting dividends and capital gains spun off from my 70%.

Hard to recommend holding so much cash. I've made the mistake of setting portfolio allocations based on my fear of a low probability event, while ignoring the higher probability events. Still, I stay the course... it seems imprudent to switch now.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by livesoft » Tue Jan 23, 2018 9:01 am

vested1 wrote:
Tue Jan 23, 2018 8:13 am
+2 My thoughts exactly. As long as it is a relatively short term bucket with a pre-determined short term strategy I see it as a positive. Most disagree, but "most" don't delay filing for SS until age 70. I would never hold a large cash bucket as a long term strategy simply out of fear. The mental gymnastics that helps me justify this dwindling bucket keeps me in shape. The sub 2% interest on this bucket is inconsequential, it's the goal that is meaningful. Refilling that bucket with dividends in that same short term time frame keeps the money invested until needed.
So you are not using your cash for that goal at all if you keep filling it back up with dividends. If you were actually using your cash to reach age 70, then the value of that account should slowly go down to zero at age 70 as you spend it down.

My long term strategy is to delay filing for SS until age 70 as well. I am spending down my total portfolio of equities and fixed income to get to that age.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by metalworking » Tue Jan 23, 2018 9:04 am

It funny how people interpret this article differently than me. It seems to me he is saying it really doesn't hurt and may help to keep some cash as long as you keep it in your bond allocation. I think he even says it improves portfolio longevity in the worst case scenarios? Isn't that why people have a fixed income portion?

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Re: Kitces article: A cash bucket in retirement? Nope

Post by livesoft » Tue Jan 23, 2018 9:09 am

Dandy wrote:
Tue Jan 23, 2018 8:47 am
When interest rates rise all but brokerage CDs hold their value vs say short term bonds that take a hit, at least for a short time, like many are currently.
"... take a hit ..." is practically inflammatory. That's because short-term bond funds don't take a hit. They might get scratched, but their arm is not lopped off. When the equity side of one's portfolio drops by 0.5% in a day, the 0.5% drop of a short-term bond fund in 6 months or more should not be a big deal. And the 0.5% drop can be after a 2% rise in the previous 6 months.

So why is it a big deal for some folks? I just don't know.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by radiowave » Tue Jan 23, 2018 9:16 am

Another perspective of holding cash and cash instruments at time of retirement is to cover expenses if downsizing, moving to a LCOL retirement home, covering expenses while pension/SS kicks in, etc. This is a short-term cash holding compared to using cash over several years to push back start of SS to 70.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by JCE66 » Tue Jan 23, 2018 9:18 am

Poor cash, so unloved by many.
Dandy....Thanks for the moment of levity! I literally laughed out loud.

I probably should not be surprised that Bogleheads just aren't feeling the bucket strategy. :o
Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash. I'm retired and got scared post 08/09 and wanted to have significant monies in cash so I could live for 10+ years in retirement without having to sell equities down.
sperry8...Did your strategy work? We've had some corrections in the aftermath of 08-09. Did you feel any pressure to sell equities during those corrections? Did you just ignore the decline, knowing you had the cash to ride it out? I totally get the math, but am much more interested in the behavioral aspect of people who employ a bucket system, which it appears you sort of did.
Last edited by JCE66 on Tue Jan 23, 2018 9:23 am, edited 1 time in total.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by randomguy » Tue Jan 23, 2018 9:18 am

Portfolios are done in by a decade+ of poor returns not 2-3 year market crashes. Buckets do nothing to help with that. If you hold say a 60/40 portfolio, your selling bonds during the down turn not stocks anyway. The difference between keeping your money in bonds versus cash and if you rebalance or not are minimal.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by SGM » Tue Jan 23, 2018 9:30 am

I am up huge amounts in 2017 and up again huge amounts in the first 3 weeks of the year. I am now going to have a large amount in cash. We are embarking on a spending spree this year with all the cash we are accumulating. :D I never had much cash when accumulating as I had job security and decent income. Delayed SS will start rolling in before the end of 2018 too.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by jebmke » Tue Jan 23, 2018 9:31 am

metalworking wrote:
Tue Jan 23, 2018 9:04 am
It funny how people interpret this article differently than me. It seems to me he is saying it really doesn't hurt and may help to keep some cash as long as you keep it in your bond allocation. I think he even says it improves portfolio longevity in the worst case scenarios? Isn't that why people have a fixed income portion?
that's fine but the idea of comparing a 50/50 control portfolio with a 40/60 test portfolio is absurd and destroys the entire article IMO.

For the record, I'm not a fan of cash and rarely have much on hand.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by metalworking » Tue Jan 23, 2018 9:35 am

jebmke wrote:
Tue Jan 23, 2018 9:31 am
metalworking wrote:
Tue Jan 23, 2018 9:04 am
It funny how people interpret this article differently than me. It seems to me he is saying it really doesn't hurt and may help to keep some cash as long as you keep it in your bond allocation. I think he even says it improves portfolio longevity in the worst case scenarios? Isn't that why people have a fixed income portion?
that's fine but the idea of comparing a 50/50 control portfolio with a 40/60 test portfolio is absurd and destroys the entire article IMO.

For the record, I'm not a fan of cash and rarely have much on hand.
Agreed :D

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Re: Kitces article: A cash bucket in retirement? Nope

Post by sperry8 » Tue Jan 23, 2018 9:45 am

metalworking wrote:
Tue Jan 23, 2018 9:04 am
It funny how people interpret this article differently than me. It seems to me he is saying it really doesn't hurt and may help to keep some cash as long as you keep it in your bond allocation. I think he even says it improves portfolio longevity in the worst case scenarios? Isn't that why people have a fixed income portion?
Interestingly this quote from Kitces seems to say something similar: "Although ironically, Okusanya finds that if a substantial cash allocation will be held, it’s better to use the cash to replace bonds, which does result in slightly lower wealth accumulations in the good scenarios (given that bonds underperform cash on average), but can slightly mitigate some adverse scenarios (i.e., the longevity of the portfolio in some of the worst case [inflationary] scenarios)."

And that is what I did - I didn't lower my equity portion but held almost all cash instead of bonds.
JCE66 wrote:
Tue Jan 23, 2018 9:18 am
Poor cash, so unloved by many.
Dandy....Thanks for the moment of levity! I literally laughed out loud.

I probably should not be surprised that Bogleheads just aren't feeling the bucket strategy. :o
Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash. I'm retired and got scared post 08/09 and wanted to have significant monies in cash so I could live for 10+ years in retirement without having to sell equities down.
sperry8...Did your strategy work? We've had some corrections in the aftermath of 08-09. Did you feel any pressure to sell equities during those corrections? Did you just ignore the decline, knowing you had the cash to ride it out? I totally get the math, but am much more interested in the behavioral aspect of people who employ a bucket system, which it appears you sort of did.
Yes, it worked behaviorally. I was panicked and unable to sleep at night with a smaller cash allocation around 08/09. Ultimately I got the allocation to 70/30 where the 30 was 90% cash/10% bonds. And it worked from a behavioral perspective. I now don't care at all what happens with equities. Up/down it doesn't matter to me. I just stay the course with ease. I'm now having the opposite problem - which is I can (with hindsight) see that I lost money due to this strategy. Bonds were up more than cash since 09/10. Still, I suppose it's not material when compared with my sleep. And as much as I'd like to think I would've acted differently, I would not have placed that cash into equities. 70% is good enough for me.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by midareff » Tue Jan 23, 2018 9:52 am

I'm not a fan of cash either other than the incoming monthly cash flow. With $50K - $70K available on cash back credit cards why carry cash?

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Dandy » Tue Jan 23, 2018 10:06 am

So why is it a big deal for some folks? I just don't know.
Seems like it is for you? I just made a simple comparison - didn't talk of lopping off arms etc.which might qualify as a big deal since most can have is two. I guess scratch vs a temporary hit makes a big difference to you. I thought "temporary" was a decent modifier. :oops:

I own plenty of short term and intermediate bond funds and some cash-like products. With a possible 3 small interest rate hikes this year you might see short term bond funds get scratched for 1/2% and you can get a one year CD paying 2% or a Savings/money market paying 1.4% now and likely to rise rather than fall.

If we want to discuss a Boglehead favorite - Total bond fund is off 0.96% so far vs a vs 5 year VG brokerage CD of 2.65% or Goldman Sachs "Marcus" direct 5yr CD of 2.5%. A 5yr CD isn't an apples to apples compare to Total Bond Fund but in some cases the buyer won't care about the difference in liquidity or default risks. They will opt for a sure thing for a portion of their fixed income- who is to say they are wrong? Not me. Agreed we are not talking about making a huge difference in overall performance either way --what drives overall performance is equities.

I don't think all the disdain for cash-like products is justified-- it is often positioned that a person who opts for buying a cash-like product is always making a poor move - and that is not always the case. That is the point I was/am trying to make.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by jebmke » Tue Jan 23, 2018 10:23 am

Dandy wrote:
Tue Jan 23, 2018 10:06 am
I don't think all the disdain for cash-like products is justified-- it is often positioned that a person who opts for buying a cash-like product is always making a poor move - and that is not always the case. That is the point I was/am trying to make.
part of the problem with these discussions is that there is no commonly accepted definition of cash so it becomes a less productive discussion since people aren't writing about the same thing. For example, I don't consider a CD as "cash." Some people do. Thus, it becomes impossible to reconcile the various views.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by dbr » Tue Jan 23, 2018 10:34 am

jebmke wrote:
Tue Jan 23, 2018 10:23 am
Dandy wrote:
Tue Jan 23, 2018 10:06 am
I don't think all the disdain for cash-like products is justified-- it is often positioned that a person who opts for buying a cash-like product is always making a poor move - and that is not always the case. That is the point I was/am trying to make.
part of the problem with these discussions is that there is no commonly accepted definition of cash so it becomes a less productive discussion since people aren't writing about the same thing. For example, I don't consider a CD as "cash." Some people do. Thus, it becomes impossible to reconcile the various views.
"Cash" like "risk" is possibly a word that should be banned from the Forum in favor of being specific regarding what one is talking about.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Dandy » Tue Jan 23, 2018 11:17 am

Cash" like "risk" is possibly a word that should be banned from the Forum in favor of being specific regarding what one is talking about.
part of the problem with these discussions is that there is no commonly accepted definition of cash so it becomes a less productive discussion since people aren't writing about the same thing. For example, I don't consider a CD as "cash."
I "defined" what I meant by cash-like in my first response in this post. I realize that it is hard, especially in a long post for everyone to read and remember every response. Savings Accounts, Money Market accounts, CDs, Stable Value Funds. I agree that CDs are somewhat non cash-like but shorter, direct bank CDs seem to just make it to me since they hold their value, are very safe, interest can be reinvested, and you will get what you put in or more most of the time unless you redeem within 6 months of issue.

For my personal allocations I use the terms "safe principal" vs cash-like so all CDs fit into that category and also EE, and I bonds. I knew no one would understand my term and/or it would add more confusion.

Sorry if I added to the confusion about this issue. Whatever people define as cash or cash-like those products often have a role, albeit somewhat minor in most cases, in many people's portfolio and probably shouldn't be overlooked.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by FoolStreet » Tue Jan 23, 2018 11:18 am

sperry8 wrote:
Tue Jan 23, 2018 8:58 am
Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash. I'm retired and got scared post 08/09 and wanted to have significant monies in cash so I could live for 10+ years in retirement without having to sell equities down. I've missed out on upside significantly due to this insurance. But I can sleep at night so there is a small benefit. Most of my cash comes from me not reinvesting dividends and capital gains spun off from my 70%.

Hard to recommend holding so much cash. I've made the mistake of setting portfolio allocations based on my fear of a low probability event, while ignoring the higher probability events. Still, I stay the course... it seems imprudent to switch now.

Assuming bond returns are as nominal as bonds, you are effectively 70/30. Is that so bad? I hear it recommended here all the time. I am effectively 70/30 now while trying to figure out what to do with some extra cash. My cash is invested in 3 parts: ca municipalities prime, ca intermediate and national intermediate muni. I’m earning between 1-2% so effectively cash.

In this climate, practically speaking, is there really a difference between cash and bonds?

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Nate79 » Tue Jan 23, 2018 11:20 am

The drag on a portfolio from holding cash is way overblown. Online savings accounts, ibonds, CD's can perform almost as much as a short/intermediate bond fund but with less risk. Or call it a hefty emergency fund. Life happens and worrying about some small/negligible return difference between "bonds" and "cash" is a waste of time.

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p;[[[[[[[

Post by rj49 » Tue Jan 23, 2018 11:47 am

People treat bonds like cash until the NAV starts declining, especially if selling is needed for living expenses. I remember starting a ST bond fund in the 1980s, thinking it would be like a checking account, but then it started losing value, and it hurt. The same goes for those who think of Wellesley as some sort of supercharged income fund that will always grow and never lose money, discounting the possibility of the effect of a prolonged bond bear market.

As recently as 2007 I was able to buy 6.25% CDs, and when the stock market crashed, I really learned to love cash. Earning that much on 80% of my portfolio was definitely not a drag on returns, compared to a 40% drop in stocks.

With prolonged low yields, I've switched my taxable fixed income to riskier investments but ones that don't have a NAV--p2p lending, real estate crowdsourcing, and Streetwise veterans bonds paying 5%. I don't invest more in one company than I'm willing to lose completely, but so far my yields have been 4-10% and have seen me safely through early retirement with comfort in not having to worry about the stock market, but then I'm at 20% stocks anyway.

Instead of buckets, I like the floor concept much better for retirement, since the methodology of depleting and refilling buckets is so obtuse, plus the concept was cheapened by the huckster Ray Lucia. I like having a safe floor of TSP G fund, a military retirement, a house without a mortgage, and the aforementioned alternative fixed income that has no swings in NAV.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by garlandwhizzer » Tue Jan 23, 2018 11:55 am

Cash often gets a bad rap on the Forum. Personally I am in the withdrawal phase and I keep 2 -3 years MM fund for living expenses in my personal non-tax deferred account so that I am not forced to sell equity into a market collapse in order to make living expenses. I always keep an equity heavy portfolio and I count on equity, not fixed income, to provide portfolio growth. In the market crash of 2007-9, having that cash in MM saved me a bundle. I was able to avoid selling any stock at a huge discount. My portfolio at the time was about 80/20 so when the bull took off again I was fully on board.

The yield differential between cash and IT bonds is laughably low at present. Anyone who is counting on IT Treasuries to get rich is likely to be disappointed. What will in the long run make you rich is holding onto considerable equity through thick and thin and readily available cash in a non-tax deferred account was an excellent safety net in my case. I do not hold CDs because there are early withdrawal penalties and I want to be able to spend as much or as little as needed for living expenses exactly when I need it. I prefer Vanguard's Prime MM Fund in my non-tax deferred account for this purpose. MM funds have something that bond funds don't have--stable principal value--no tax issues with sales in non-tax deferred accounts and no loss of principal in a rising rate environment. I periodically sell equity into market strength, usually annually, but sometimes in bear markets less frequently to replenish my MM funds.

Each to his own but for me there are roles for equity, bonds, and cash in constructing a portfolio.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by willthrill81 » Tue Jan 23, 2018 12:00 pm

Tyler at Portfolio Charts had a great post on cash last year. He defined cash as T-bills.

As you can see, while there are certainly a few times when cash lost money to inflation it actually provided a small return above inflation the vast majority of the time. And lest you think this is an isolated phenomenon, it works this way in every country and currency and even holds up in times of very high inflation. Believe it or not, even as inflation in the US spiked well into double digits in the late 70s and early 80s, Tbills lagged inflation by more than 1% only once in that period! Completely counter to common belief, properly invested cash is perhaps the single most consistent inflation hedge available.



That consistent performance has its benefits, and here’s a real mind-bender for US-centric investors — in Canada since 1970, the safe withdrawal rates for all retirement lengths up to 40 years with a 100% cash portfolio have been equal or superior to one with 100% stocks!
He also provided the following chart, which shows that while there are certainly periods where T-bills have lagged inflation, the return of T-bills has historically been well above inflation.



Image



Using the withdrawal rates calculator from Portfolio Charts and data from 1970 forward, the safe withdrawal rate for a portfolio comprised of 30% TSM / 30% international /40% ITT (TBM) over 30 year periods was 4.7%, while substituting ITT for T-bills only dropped the SWR to about 4.6%, hardly a significant difference. In fact, the historic data seem to indicate that, from a SWR perspective in this AA, it doesn't really matter whether retirees' go with traditional bonds (of any duration) or T-bills.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by dbr » Tue Jan 23, 2018 12:07 pm

willthrill81 wrote:
Tue Jan 23, 2018 12:00 pm

Using the withdrawal rates calculator from Portfolio Charts and data from 1970 forward, the safe withdrawal rate for a portfolio comprised of 30% TSM / 30% international /40% ITT (TBM) over 30 year periods was 4.7%, while substituting ITT for T-bills only dropped the SWR to about 4.6%, hardly a significant difference. In fact, the historic data seem to indicate that, from a SWR perspective in this AA, it doesn't really matter whether retirees' go with traditional bonds (of any duration) or T-bills.
Asset allocation at the broadest level (stock/bond) has a relatively weak effect on SWR* Trying to find an optimum for distinctions between and among bonds just isn't in the cards. The same applies to buckets schemes and about any other attempt to engineer asset allocation. Withdrawal rate being a strong effect on SWR it is reasonable to suspect that adjusting withdrawals might have a meaningful effect on outcome.

*Maxima exist at different stock/bond allocations but the SWR data lacks error bands to show that those maxima are most likely well within the uncertainty in generating SWR numbers in the first place. The only notable real behavior is probably those cases where success at x withdrawal rate falls from 95% to under 50% when one has too much in bonds for certain withdrawal rates.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by willthrill81 » Tue Jan 23, 2018 12:11 pm

rj49 wrote:
Tue Jan 23, 2018 11:47 am
People treat bonds like cash until the NAV starts declining, especially if selling is needed for living expenses. I remember starting a ST bond fund in the 1980s, thinking it would be like a checking account, but then it started losing value, and it hurt. The same goes for those who think of Wellesley as some sort of supercharged income fund that will always grow and never lose money, discounting the possibility of the effect of a prolonged bond bear market.
Interest rates are not the bugaboo waiting in the closet to crush bond funds. That honor goes to unexpected inflation, particularly over the long-term. As interest rates go up, so do the yields on reinvested funds, which has historically been about a net wash for bond investors. Many place far too much emphasis on bond principal and ignore the impact of interest rates on a bond fund's yield over time.

Regarding Wellesley Income, even during periods of rising interest rates, the fund has fared very well. The Fed funds rate increased from 2003-2006, yet Wellesley returned almost 36% over that period with a max drawdown of -3.4%. While the Fed funds rate jumped in 1993, Wellesley returned 14.65% that year.

And yes, Wellesley has had drawdowns, the largest of which was in the financial crisis, where it had a max drawdown of about -19%, which it fully recovered in under one year.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by willthrill81 » Tue Jan 23, 2018 12:13 pm

dbr wrote:
Tue Jan 23, 2018 12:07 pm
willthrill81 wrote:
Tue Jan 23, 2018 12:00 pm

Using the withdrawal rates calculator from Portfolio Charts and data from 1970 forward, the safe withdrawal rate for a portfolio comprised of 30% TSM / 30% international /40% ITT (TBM) over 30 year periods was 4.7%, while substituting ITT for T-bills only dropped the SWR to about 4.6%, hardly a significant difference. In fact, the historic data seem to indicate that, from a SWR perspective in this AA, it doesn't really matter whether retirees' go with traditional bonds (of any duration) or T-bills.
Asset allocation at the broadest level (stock/bond) has a relatively weak effect on SWR* Trying to find an optimum for distinctions between and among bonds just isn't in the cards. The same applies to buckets schemes and about any other attempt to engineer asset allocation. Withdrawal rate being a strong effect on SWR it is reasonable to suspect that adjusting withdrawals might have a meaningful effect on outcome.

*Maxima exist at different stock/bond allocations but the SWR data lacks error bands to show that those maxima are most likely well within the uncertainty in generating SWR numbers in the first place. The only notable real behavior is probably those cases where success at x withdrawal rate falls from 95% to under 50% when one has too much in bonds for certain withdrawal rates.
Absolutely. Using historic data, the impact of adjusting withdrawals in response to market performance has had a FAR bigger impact on the outcome than the flavor of bond used in the portfolio.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Peter Foley » Tue Jan 23, 2018 12:30 pm

As with many financial conundrums there is a tendency to think in absolutes. So too with cash and buckets.

If you are well off and investing in part for your heirs, you do not need a cash bucket. However, having a one to two year cash bucket may be such a small percentage of your total assets that it does not represent much of a drag.

Many people, perhaps not the average or median poster here, are living much closer to the edge. For them a cash bucket may be a prudent approach financially and may let them sleep at night.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Call_Me_Op » Tue Jan 23, 2018 12:53 pm

sperry8 wrote:
Tue Jan 23, 2018 8:58 am
Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash..... But I can sleep at night so there is a small benefit.
That's a small benefit?
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Re: Kitces article: A cash bucket in retirement? Nope

Post by sperry8 » Tue Jan 23, 2018 12:56 pm

Call_Me_Op wrote:
Tue Jan 23, 2018 12:53 pm
sperry8 wrote:
Tue Jan 23, 2018 8:58 am
Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash..... But I can sleep at night so there is a small benefit.
That's a small benefit?
haha, good point! I recall vividly not being able to sleep at night during 08/09. So yes, when the chance came I took the mulligan and set my allocation where I could sleep. But truly the question isn't sleep v no sleep. It was cash v bonds. I chose cash and lost return. I could've chosen bonds and made more money. Cash or bonds, I would've slept. >70% equities is my personal threshold for sleep v no sleep.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by sperry8 » Tue Jan 23, 2018 12:59 pm

FoolStreet wrote:
Tue Jan 23, 2018 11:18 am
sperry8 wrote:
Tue Jan 23, 2018 8:58 am
Sadly, I've been on the wrong end of this. I have a 70/30 allocation, but the 30% is almost all cash. I'm retired and got scared post 08/09 and wanted to have significant monies in cash so I could live for 10+ years in retirement without having to sell equities down. I've missed out on upside significantly due to this insurance. But I can sleep at night so there is a small benefit. Most of my cash comes from me not reinvesting dividends and capital gains spun off from my 70%.

Hard to recommend holding so much cash. I've made the mistake of setting portfolio allocations based on my fear of a low probability event, while ignoring the higher probability events. Still, I stay the course... it seems imprudent to switch now.

Assuming bond returns are as nominal as bonds, you are effectively 70/30. Is that so bad? I hear it recommended here all the time. I am effectively 70/30 now while trying to figure out what to do with some extra cash. My cash is invested in 3 parts: ca municipalities prime, ca intermediate and national intermediate muni. I’m earning between 1-2% so effectively cash.

In this climate, practically speaking, is there really a difference between cash and bonds?
The small allocation I had to bonds was in VG Intermediate Term Investment Grade which over the past 10 years earned just over 5% annually. My cash probably earned 1/2 of that on average. Thus the difference in returns.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by TonyDAntonio » Tue Jan 23, 2018 1:00 pm

livesoft wrote:
Tue Jan 23, 2018 7:29 am
Kitces points to another article on the cash story. That article is similar to one at EarlyRetiremenNow:
https://earlyretirementnow.com/2017/03/ ... h-cushion/

I do not use a bucket strategy. I hate cash and try not to have more than a few weeks of expenses in my checking account. I do not have a savings account. I do not have any CDs. I do not use Ally nor any other high-yield savings. I do have some money in TIAA Traditional Annuity which I treat as a bond fund, but I suppose I could access it reasonably quickly, but not as quickly as I can access the bond and equity ETFs I own.

On a sudden market decline, my IPS says I must buy equities, so there is definitely no selling of equities due to a sudden market decline. As for other behavioral errors, I find that reading books on behavioral errors and behavioral finance helps me avoid many of them.

Having cash makes me feel bad. If I get cash from dividends, I want to use it as quickly as possible to buy more shares of stock ETFs and bond ETFs. I have no regrets when I sell any investment at a loss. Indeed, I sometimes enjoy selling shares at a loss.
Dammit, now you've gone and made me think about my cash reserves. Maybe if I characterize them as very short term bonds I'll feel better. Ibonds, savings bonds, Prime money mkt, guaranteed interest funds...do these sound better than cash? I hate having to sell equities or bonds funds at a loss and so that is driving my portfolio construction in retirement. As equities keep climbing I keep adding to the 'cash' pile. I know it's not a horrible problem to have I'm just intrigued by the idea of keeping it all invested and selling as needed. That sounds cool too.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by Dottie57 » Tue Jan 23, 2018 1:06 pm

TonyDAntonio wrote:
Tue Jan 23, 2018 1:00 pm
livesoft wrote:
Tue Jan 23, 2018 7:29 am
Kitces points to another article on the cash story. That article is similar to one at EarlyRetiremenNow:
https://earlyretirementnow.com/2017/03/ ... h-cushion/

I do not use a bucket strategy. I hate cash and try not to have more than a few weeks of expenses in my checking account. I do not have a savings account. I do not have any CDs. I do not use Ally nor any other high-yield savings. I do have some money in TIAA Traditional Annuity which I treat as a bond fund, but I suppose I could access it reasonably quickly, but not as quickly as I can access the bond and equity ETFs I own.

On a sudden market decline, my IPS says I must buy equities, so there is definitely no selling of equities due to a sudden market decline. As for other behavioral errors, I find that reading books on behavioral errors and behavioral finance helps me avoid many of them.

Having cash makes me feel bad. If I get cash from dividends, I want to use it as quickly as possible to buy more shares of stock ETFs and bond ETFs. I have no regrets when I sell any investment at a loss. Indeed, I sometimes enjoy selling shares at a loss.
Dammit, now you've gone and made me think about my cash reserves. Maybe if I characterize them as very short term bonds I'll feel better. Ibonds, savings bonds, Prime money mkt, guaranteed interest funds...do these sound better than cash? I hate having to sell equities or bonds funds at a loss and so that is driving my portfolio construction in retirement. As equities keep climbing I keep adding to the 'cash' pile. I know it's not a horrible problem to have I'm just intrigued by the idea of keeping it all invested and selling as needed. That sounds cool too.
It won't sound cool if you sell at a loss.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by rgs92 » Tue Jan 23, 2018 1:07 pm

I don't see why using cash for your fixed-income allocation is significantly different from using bonds for this.
A total bond market fund is pretty stable in the long term, maybe a little better than a money market fund or stable value fund or a CD ladder.
So why the particular hate of cash since you need cash equivalents anyway in your portfolio?
It's not like you can easily replace the cash with stocks in a rational allocation strategy.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by vested1 » Tue Jan 23, 2018 1:11 pm

Dandy wrote:
Tue Jan 23, 2018 8:47 am
Poor cash, so unloved by many.
Reminds me of yesterday when I apologized to the clerk at a small convenience store for having to give her a $100 bill. I mentioned that I hated them because not all stores will take them. She laughed and said she LOVED $100 bills, and would take any I wanted to give her.

:sharebeer

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Re: Kitces article: A cash bucket in retirement? Nope

Post by dbr » Tue Jan 23, 2018 1:16 pm

rgs92 wrote:
Tue Jan 23, 2018 1:07 pm
I don't see why using cash for your fixed-income allocation is significantly different from using bonds for this.
A total bond market fund is pretty stable in the long term, maybe a little better than a money market fund or stable value fund or a CD ladder.
So why the particular hate of cash since you need cash equivalents anyway in your portfolio?
It's not like you can easily replace the cash with stocks in a rational allocation strategy.
The "hatred" of cash is only directed at proposals that cash is something special. In truth cash is merely one end of a spectrum that doesn't vary a lot along most of its course except maybe when comparing the extreme ends.

I don't know what you mean by anyone needing cash equivalents, whatever that is. I also am not sure why you say you can't easily replace cash with stocks in a rational allocation strategy. It would be true that a credit card works better to buy things most places in the world than trying to exchange stocks for goods, but I don't think that is what you have in mind.

It is also true that most people can't avoid cash being around here and there, and it is no big deal.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by itstoomuch » Tue Jan 23, 2018 1:17 pm

No buckets.
We have Streams of Income. Some streams are better than other streams depending on the climate of the economy.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Kitces article: A cash bucket in retirement? Nope

Post by willthrill81 » Tue Jan 23, 2018 1:17 pm

rgs92 wrote:
Tue Jan 23, 2018 1:07 pm
I don't see why using cash for your fixed-income allocation is significantly different from using bonds for this.
A total bond market fund is pretty stable in the long term, maybe a little better than a money market fund or stable value fund or a CD ladder.
So why the particular hate of cash since you need cash equivalents anyway in your portfolio?
It's not like you can easily replace the cash with stocks in a rational allocation strategy.
It depends entirely on how you specifically define 'cash'. Above, you'll see analysis I posted which indicates that T-bills, if classified as a 'cash equivalent', have historically produced essentially the same result for retirees as any type of bonds.
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Re: Kitces article: A cash bucket in retirement? Nope

Post by dbr » Tue Jan 23, 2018 1:19 pm

vested1 wrote:
Tue Jan 23, 2018 1:11 pm
Dandy wrote:
Tue Jan 23, 2018 8:47 am
Poor cash, so unloved by many.
Reminds me of yesterday when I apologized to the clerk at a small convenience store for having to give her a $100 bill. I mentioned that I hated them because not all stores will take them. She laughed and said she LOVED $100 bills, and would take any I wanted to give her.

:sharebeer
It is true that at one point in time going to Argentina far and away the recommended cash strategy was to show up with unused $100 bills and change them on the blue market. It could be about double your money to do that. I got some $100 bills for my wife and she went to the bank and had them changed for $20's, $5's, and $1's.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by itstoomuch » Tue Jan 23, 2018 1:21 pm

Relative high cash, this week and probably thru Feb.
Recent sale of nonproductive property and need to do a 1031.
High cash in Discretionary. Equity market is very high, made big gains in 2017, don't need the risk, looking to buy 1031 property and want the assured cushion.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Kitces article: A cash bucket in retirement? Nope

Post by MathWizard » Tue Jan 23, 2018 1:28 pm

Approaching retirement.

I plan to have some cash (short-term spending money) in retirement in the same way I have
a first tier EF today. Somewhere in the range of 3-6 months of base expenses.

This will act as a buffer for larger yearly expenses (e.g. property tax, insurance bills),
and provide me enough cash to sleep at night.

SS will represent about 1/4 of my retirement, so my portfolio will fund the other 3/4,
so following 25x expenses, 6 months expenses would at most be about 2.3% of my portfolio.
Not much a drag there for sleeping at night.

Realistically, it is less than that, since I expect to have a portfolio that will more than cover base expenses,
and my 3-6 months will cash will be for base expenses, since in a down-turn, I could reduce expenses.

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Re: Kitces article: A cash bucket in retirement? Nope

Post by iceport » Tue Jan 23, 2018 1:28 pm

in_reality wrote:
Tue Jan 23, 2018 7:36 am
JCE66 wrote:
Tue Jan 23, 2018 7:11 am
Bogleheads:

https://www.kitces.com/blog/weekend-rea ... ary-20-21/

The article in the weekend reading was a real eye-opener. I also read Christine Benz (Mstar), a big proponent of the bucket strategy. Intuitively, the bucket strategy seems to make sense, right? You have money for a couple of years of expenses, and you have less of a reason to make foolish moves in reaction to the market. Not so fast, according to Kitces. The chief takeaway I had is that having a cash bucket with a couple of years of expenses may not be the 'behavioral brake' that people think it is. And that cash is a drag on returns (I know, really basic, but still, a helpful reminder), and may actually lessen the probability of portfolio success (defined as not running out of money in 30 years).

Do you (Fellow Bogleheads) use the bucket strategy?
Has it been a 'behavioral brake' (Example: not selling equities in reaction to a sudden Market decline)?
Does having that cash make you feel more secure?
I pretty much disagree with your interpretation of the article and conclusion.

First, the test porfolio went from 50%-50% stock bonds to 40%-50%-10% stock bonds cash. Um, what do you expect? I'd expect lower returns for sure.

When they use 50%-40%-10% stock bonds cash, they concluded:
Replacing bonds with cash appears to improve the portfolio longevity in the worst-case scenarios. There is hardly any difference in the success rate compared to a fully invested portfolio. There is a price to pay regarding legacy in the non-failure scenarios, but I’ll wager this price is worth paying.
So no, some cash replacing bonds can improve portfolio longevity in the worst-case scenarios. That is what the research in the article showed anyway.
Great points. Shifting an AA 10% away from equities is a poor test. Lots of number crunching to demonstrate what should be intuitively obvious to most.
dbr wrote:
Tue Jan 23, 2018 10:34 am
jebmke wrote:
Tue Jan 23, 2018 10:23 am
Dandy wrote:
Tue Jan 23, 2018 10:06 am
I don't think all the disdain for cash-like products is justified-- it is often positioned that a person who opts for buying a cash-like product is always making a poor move - and that is not always the case. That is the point I was/am trying to make.
part of the problem with these discussions is that there is no commonly accepted definition of cash so it becomes a less productive discussion since people aren't writing about the same thing. For example, I don't consider a CD as "cash." Some people do. Thus, it becomes impossible to reconcile the various views.
"Cash" like "risk" is possibly a word that should be banned from the Forum in favor of being specific regarding what one is talking about.
Another great point, the term needs to be defined. Amazingly, the article never defined the term, unless I missed it. I use a high "cash" allocation, but that "cash" consists of a government sponsored stable value fund. Even at the very bottom of this low interest rate period, the yield never dropped below something like 2.7%, and in a slow recovery it's up to 2.84% for the current quarter. For comparison, Vanguard's TBM is yielding 2.65% now. With options like this it seems foolish to talk about a "cash drag" unless the allocation comes from reducing the equity allocation.

If an investor elects to have a cash allocation but establishes their overall AA based primarily on the equity allocation, the substitution of cash for a portion of the fixed income allocation is a minor factor in overall success rates, as the article acknowledges. This is especially true if the cash allocation sports a very intermediate-term bond-like yield. And if this is all true, the line between mental accounting and simple accounting seems thin. (Yes, there are potential differences in withdrawal sequences and re-balancing. But in real life, folks maintain their portfolios so many different ways in retirement the distinction is blurred.)
"Discipline matters more than allocation.” ─William Bernstein

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Re: Kitces article: A cash bucket in retirement? Nope

Post by JCE66 » Tue Jan 23, 2018 1:32 pm

Personally I am in the withdrawal phase and I keep 2 -3 years MM fund for living expenses in my personal non-tax deferred account so that I am not forced to sell equity into a market collapse in order to make living expenses. I always keep an equity heavy portfolio and I count on equity, not fixed income, to provide portfolio growth. In the market crash of 2007-9, having that cash in MM saved me a bundle. I was able to avoid selling any stock at a huge discount.
garlandwhizzer....Was having the MM fund by happenstance or design back in 07-09? Did you set up that MM fund thinking it was a 'behavioral brake' for yourself? If you did that purposefully, it sounds like your strategy worked (like sperry8).

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