Prime Harvesting with a cash buffer?

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cyclist
Posts: 322
Joined: Fri Jun 21, 2013 9:04 am

Prime Harvesting with a cash buffer?

Post by cyclist »

I've read McClung's book, and Prime Harvesting has a lot of appeal. I'm considering it when I pull the trigger

I'm hoping that will be soon, when I'm 63 and DW 62. We plan to defer SS to 70 and know we'll need to draw heavily from our portfolio before Medicare and the end of our modest mortgage (around when SS and RMDs start.) Our intent is to be mindful of IRMAA brackets and the ACA cliff as appropriate. Most of our assets are tax deferred, and we'll do Roth conversions strategically as we can.

We don't normally keep cash but we've accumulated roughly 2 years worth of spending in cash as a buffer against sequence of return risk. Everything else is 55/45. I'm no fan of the drag on returns, but DW and I need that extra reassurance before taking the plunge.

How do we draw on that cash wisely in the context of Prime Harvesting? Consume it all first before tapping other FI? Keep it? Something in the middle? Absent any better idea, I'd probably let it shrink slowly over the next 5 years or so unless both stocks and bonds drop materially before then.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Prime Harvesting with a cash buffer?

Post by marcopolo »

cyclist wrote: Wed Jul 18, 2018 3:54 pm I've read McClung's book, and Prime Harvesting has a lot of appeal. I'm considering it when I pull the trigger

I'm hoping that will be soon, when I'm 63 and DW 62. We plan to defer SS to 70 and know we'll need to draw heavily from our portfolio before Medicare and the end of our modest mortgage (around when SS and RMDs start.) Our intent is to be mindful of IRMAA brackets and the ACA cliff as appropriate. Most of our assets are tax deferred, and we'll do Roth conversions strategically as we can.

We don't normally keep cash but we've accumulated roughly 2 years worth of spending in cash as a buffer against sequence of return risk. Everything else is 55/45. I'm no fan of the drag on returns, but DW and I need that extra reassurance before taking the plunge.

How do we draw on that cash wisely in the context of Prime Harvesting? Consume it all first before tapping other FI? Keep it? Something in the middle? Absent any better idea, I'd probably let it shrink slowly over the next 5 years or so unless both stocks and bonds drop materially before then.
Studies have shown that keeping a couple years of cash does not really help much with SRR. So, the main reason to do this would be if, as you state, you and your wife need that reassurance to take the plunge. In that case, if, and how, you draw down the cash cushion should probably also be based on what provides you reassurance that you can stay the course with the rest of you plan.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Broken Man 1999
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Re: Prime Harvesting with a cash buffer?

Post by Broken Man 1999 »

I have for some time had up to 2% in Vanguard's Federal Money Market fund. I originally started retirement with that fund as I thought it made sense to keep that amount as a cash-like cushion.

But I have decided to keep very little in the fund, as I have a boatload of Vanguard Short-term Treasury fund. So I won't be replenishing the fund, instead I will put most of the Vanguard Federal Money Market fund back into the market.

I think as long as you have access to your spending needs easily, it just doesn't make sense to have a large cushion.

I am a couple of years into retirement, and we have very accurate spending needs.

It has been very easy to just get funds when we need them from Vanguard.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
heyyou
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Re: Prime Harvesting with a cash buffer?

Post by heyyou »

My opinion is to keep it as long as your spouse likes seeing it. Consider it as the low earning, inaccessible part of your fixed income allocation. To pretend you like it, don't mention it again until the January after both of you have started SS. Matrimonial peace is worth more than whatever higher returns you would get on 8% (2 years/25 multiples) of your portfolio during that period. For you to keep your peace, do not look at what it would've returned elsewhere.
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