Retired Investors - Do You Keep Cash For Down Years

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J295
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by J295 » Mon Mar 18, 2019 8:14 pm

We have “cash” and other non-equity investments as part of our portfolio because it fits our temperament and financial/life situation. We had much less of an allocation this direction when I was working.

carolinaman
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by carolinaman » Tue Mar 19, 2019 6:16 am

We live off SS and pensions so this is not a major concern for us. AA is 45/55 so there are plenty of fixed income funds to draw from as needed.

If we relied on investments for income, we would absolutely have 2 to 5 years of expenses in cash or cash like funds.

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bengal22
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by bengal22 » Tue Mar 19, 2019 8:08 am

I do not keep anything in cash until I need to spend it.

When I need money I pull from my taxable account, either Wellesley, Windsor 2, SP 500 index, or Wellington.

There is a cost to having monies in cash.

I don't care if I pull in a "down" year because I feel that on average I do better than holding cash

When I turn 70, between rmd, SSA, and pension my incoming exceeds outgoing. In theory at least.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

elainet7
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by elainet7 » Tue Mar 19, 2019 9:17 am

keeping a bucket for years of fixed expenses allows you to sleep at night
most people feel going forward you will not see stock returns of the past and a safe withdrawal rate is 3.5% rather than 4%
My philosophy is that if you can lose 50% of your equities and maintain lifestyle you are fine; if not lower your stock allocation
LISTEN TO BOGLE AGE IN BONDS He seemed to know more than all of us when he originally advised not buying int'l stock funds and history has shown US has done much better; twice that of int'l last 20 yrs

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tennisplyr
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by tennisplyr » Tue Mar 19, 2019 10:25 am

Retired for 8 years. I have typically kept ~5% in cash at Ally since I retired, the rest is split roughly 50/50. Feel very comfortable about my liquidity.
Those who move forward with a happy spirit will find that things always work out.

TN_Boy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by TN_Boy » Tue Mar 19, 2019 10:59 am

elainet7 wrote:
Tue Mar 19, 2019 9:17 am
keeping a bucket for years of fixed expenses allows you to sleep at night
most people feel going forward you will not see stock returns of the past and a safe withdrawal rate is 3.5% rather than 4%
My philosophy is that if you can lose 50% of your equities and maintain lifestyle you are fine; if not lower your stock allocation
LISTEN TO BOGLE AGE IN BONDS He seemed to know more than all of us when he originally advised not buying int'l stock funds and history has shown US has done much better; twice that of int'l last 20 yrs
But I think the question here is mostly bonds versus "cash," not fixed income versus stocks. Most respondents to this thread are probably viewing cash as a MM fund, or maybe 3 month treasuries, things like that -- stuff that cannot lose money in nominal terms (for the treasuries, if held to maturity).

And I don't personally sleep any better at night with cash versus quality intermediate bonds, though some do. I'd rather have the typically greater yield and rely upon the fact that a bond market "crash" of such bonds is typically not very painful.

Thus I'd be happy with 50/50 stocks/bonds where the bonds are in a total bond market fund. But some people (making up the numbers a bit) might be 50/40/10 stocks/bonds/cash. Such an allocation would probably return a bit less every year (which will add up over a long retirement) versus 50/50, but obviously wouldn't be a tragic thing.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by German Expat » Tue Mar 19, 2019 11:20 am

TN_Boy wrote:
Tue Mar 19, 2019 10:59 am
elainet7 wrote:
Tue Mar 19, 2019 9:17 am
keeping a bucket for years of fixed expenses allows you to sleep at night
most people feel going forward you will not see stock returns of the past and a safe withdrawal rate is 3.5% rather than 4%
My philosophy is that if you can lose 50% of your equities and maintain lifestyle you are fine; if not lower your stock allocation
LISTEN TO BOGLE AGE IN BONDS He seemed to know more than all of us when he originally advised not buying int'l stock funds and history has shown US has done much better; twice that of int'l last 20 yrs
But I think the question here is mostly bonds versus "cash," not fixed income versus stocks. Most respondents to this thread are probably viewing cash as a MM fund, or maybe 3 month treasuries, things like that -- stuff that cannot lose money in nominal terms (for the treasuries, if held to maturity).

And I don't personally sleep any better at night with cash versus quality intermediate bonds, though some do. I'd rather have the typically greater yield and rely upon the fact that a bond market "crash" of such bonds is typically not very painful.

Thus I'd be happy with 50/50 stocks/bonds where the bonds are in a total bond market fund. But some people (making up the numbers a bit) might be 50/40/10 stocks/bonds/cash. Such an allocation would probably return a bit less every year (which will add up over a long retirement) versus 50/50, but obviously wouldn't be a tragic thing.
I am curious how people that do it actually account for it. e.g. for my emergency fund (I am still working) I have it outside my asset allocation and don't consider it at all. So doing the same with your example would it then be 50/40/10 or 45/45/10?

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by TN_Boy » Tue Mar 19, 2019 12:27 pm

German Expat wrote:
Tue Mar 19, 2019 11:20 am
TN_Boy wrote:
Tue Mar 19, 2019 10:59 am
elainet7 wrote:
Tue Mar 19, 2019 9:17 am
keeping a bucket for years of fixed expenses allows you to sleep at night
most people feel going forward you will not see stock returns of the past and a safe withdrawal rate is 3.5% rather than 4%
My philosophy is that if you can lose 50% of your equities and maintain lifestyle you are fine; if not lower your stock allocation
LISTEN TO BOGLE AGE IN BONDS He seemed to know more than all of us when he originally advised not buying int'l stock funds and history has shown US has done much better; twice that of int'l last 20 yrs
But I think the question here is mostly bonds versus "cash," not fixed income versus stocks. Most respondents to this thread are probably viewing cash as a MM fund, or maybe 3 month treasuries, things like that -- stuff that cannot lose money in nominal terms (for the treasuries, if held to maturity).

And I don't personally sleep any better at night with cash versus quality intermediate bonds, though some do. I'd rather have the typically greater yield and rely upon the fact that a bond market "crash" of such bonds is typically not very painful.

Thus I'd be happy with 50/50 stocks/bonds where the bonds are in a total bond market fund. But some people (making up the numbers a bit) might be 50/40/10 stocks/bonds/cash. Such an allocation would probably return a bit less every year (which will add up over a long retirement) versus 50/50, but obviously wouldn't be a tragic thing.
I am curious how people that do it actually account for it. e.g. for my emergency fund (I am still working) I have it outside my asset allocation and don't consider it at all. So doing the same with your example would it then be 50/40/10 or 45/45/10?
Not quite following your 50/40/10 versus 45/45/10 example.

But I think this answers your question ... I would not consider an emergency fund pre-retirement as part of my retirement asset allocation. Thus 50/50 stocks/bonds before retirement with a separate 6 months of expenses set aside in MM or somesuch and not counted in the 50/50. After retirement I would not keep an "emergency fund" .... that's what those bonds are for.

Actually, we have taxable investments and avoid an explicit emergency fund pre-retirement.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Tue Mar 19, 2019 3:26 pm

2015 wrote:
Mon Mar 18, 2019 7:46 pm
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't.
After wading through all the hyperbole I see you mentioned 2008-09. I was selling bonds and buying stocks at extreme discounts per my simple static AA and rule-based rebalancing bands during that time and was amply rewarded. Layering a sub-optimal "buckets of cash for down years" system on top of that or in lieu of a simple rule-based asset allocation model just muddies the waters and precludes or at least interferes with rebalancing. Which is why they contribute to the increased probability of portfolio failure as opposed to preventing it. Not to mention most bucket "systems" are so short on actual operational details as to make them more of a notional and ad-hoc approach rather than anything that can actually guide decision-making during times of market turmoil. Which is exactly what you don't want when bad times arrive.

I guess I could pretend that some of my fixed income portfolio holdings in one or more of my accounts is some special cash bucket to save me from the big bad bear market but I fail to see any point in doing that. I do have a little elephant figurine on a shelf in the house that the Thai shopkeeper told me would make me lucky with money, so no need to add any more "systems" of that nature to my management plan. :mrgreen:
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by elainet7 » Tue Mar 19, 2019 4:53 pm

when the tide goes out you will see who is swimming without trunks
when the mkt is high everyone is feeling grear
in retirement preservation of capital is Number 1
absolute return is not as important as maintaining lifestyle and being able to cover all expenses

2015
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 2015 » Tue Mar 19, 2019 5:08 pm

MnD wrote:
Tue Mar 19, 2019 3:26 pm
2015 wrote:
Mon Mar 18, 2019 7:46 pm
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't.
After wading through all the hyperbole I see you mentioned 2008-09. I was selling bonds and buying stocks at extreme discounts per my simple static AA and rule-based rebalancing bands during that time and was amply rewarded. Layering a sub-optimal "buckets of cash for down years" system on top of that or in lieu of a simple rule-based asset allocation model just muddies the waters and precludes or at least interferes with rebalancing. Which is why they contribute to the increased probability of portfolio failure as opposed to preventing it. Not to mention most bucket "systems" are so short on actual operational details as to make them more of a notional and ad-hoc approach rather than anything that can actually guide decision-making during times of market turmoil. Which is exactly what you don't want when bad times arrive.

I guess I could pretend that some of my fixed income portfolio holdings in one or more of my accounts is some special cash bucket to save me from the big bad bear market but I fail to see any point in doing that. I do have a little elephant figurine on a shelf in the house that the Thai shopkeeper told me would make me lucky with money, so no need to add any more "systems" of that nature to my management plan. :mrgreen:
Did you actually read the 2008-2009 threads or did you just like using words like "hyperbole"? Maybe you sold bonds and bought stocks during that time but the average investor did not. Go back. Do some research. Read how most investors actually behaved during the crisis. As for you, if you're intellectually honest, you'll admit you got lucky. In alternate universes it might have turned out much uglier.

And it's pure nonsense to state that most bucket systems are short on details. Read the threads here and read elsewhere. Nothing "ad hoc" about it except in your lack of reading perhaps. I should emphasize I do not use a strict buckets approach. I have matched all liabilities and have a separate risky portfolio which I'll probably never touch. I like using the term "buckets" because it gets people yelping like a couple of nervous poodles meeting on the street.

I've noticed some people have an almost pathological desire for certainty, for perfection, for maximization, for the "strategy" with the most prowess. Such prowess disappears in any complex system when the devil sits down for breakfast wanting your bacon and eggs. And the devil always sits down in complex systems in ways you never thought of before. Always.

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G12
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by G12 » Tue Mar 19, 2019 5:13 pm

Very minimal cash. Have 3+ years of EE bonds close to maturity to cover some expenses if needed, plus real estate partnership income, plus a boat load of QDI. I do have some 12+ month CDs, but they are not earmarked for living expenses, more like if we move and need additional funds to buy a house, etc.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by pascalwager » Tue Mar 19, 2019 6:03 pm

The Estrada studies show that any stock allocation =>40% has a low historical failure rate, and a 60/40 AA has a zero failure rate. Right now, I'm at 53/47 and retired with a pension and health plan (no SS). I'm thinking of slowly spending down the bonds until I reach 60/40 and then rebalancing periodically at that AA using the total return approach.

No, I'm not keeping cash for down years. However, most of my present "bonds" are actually Treasury Bills (money market funds) because of the present flat yield curve. If yields improve, then I would probably transfer into 2-year Treasury bond funds or the nearest equivalent. I would not personally invest in intermediate bond funds as I don't think I need to take term risk. Other retirees may have individual circumstances or smaller portfolio sizes that require them to take more term risk. Larry Swedroe discusses this issue in his bond book.

I do keep $5k to $10k in my bank checking account to guard against overdrafts.

Note: If "Satan did come calling", or was even just rumored to have been seen on my street, I could probably be frightened into temporarily (or longer) spending only from my bond funds; but hopefully I could resist as long as seemed reasonable.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Broken Man 1999 » Tue Mar 19, 2019 6:04 pm

2015 wrote:
Tue Mar 19, 2019 5:08 pm
MnD wrote:
Tue Mar 19, 2019 3:26 pm
2015 wrote:
Mon Mar 18, 2019 7:46 pm
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't.
After wading through all the hyperbole I see you mentioned 2008-09. I was selling bonds and buying stocks at extreme discounts per my simple static AA and rule-based rebalancing bands during that time and was amply rewarded. Layering a sub-optimal "buckets of cash for down years" system on top of that or in lieu of a simple rule-based asset allocation model just muddies the waters and precludes or at least interferes with rebalancing. Which is why they contribute to the increased probability of portfolio failure as opposed to preventing it. Not to mention most bucket "systems" are so short on actual operational details as to make them more of a notional and ad-hoc approach rather than anything that can actually guide decision-making during times of market turmoil. Which is exactly what you don't want when bad times arrive.

I guess I could pretend that some of my fixed income portfolio holdings in one or more of my accounts is some special cash bucket to save me from the big bad bear market but I fail to see any point in doing that. I do have a little elephant figurine on a shelf in the house that the Thai shopkeeper told me would make me lucky with money, so no need to add any more "systems" of that nature to my management plan. :mrgreen:
Did you actually read the 2008-2009 threads or did you just like using words like "hyperbole"? Maybe you sold bonds and bought stocks during that time but the average investor did not. Go back. Do some research. Read how most investors actually behaved during the crisis. As for you, if you're intellectually honest, you'll admit you got lucky. In alternate universes it might have turned out much uglier.

And it's pure nonsense to state that most bucket systems are short on details. Read the threads here and read elsewhere. Nothing "ad hoc" about it except in your lack of reading perhaps. I should emphasize I do not use a strict buckets approach. I have matched all liabilities and have a separate risky portfolio which I'll probably never touch. I like using the term "buckets" because it gets people yelping like a couple of nervous poodles meeting on the street.

I've noticed some people have an almost pathological desire for certainty, for perfection, for maximization, for the "strategy" with the most prowess. Such prowess disappears in any complex system when the devil sits down for breakfast wanting your bacon and eggs. And the devil always sits down in complex systems in ways you never thought of before. Always.
I agree with your statement that I bolded 100%! That is why I do not use bucket systems or Liability Matching Portfolios or separate portfolios. Far too complex for my tastes. A simple 50% Equities, 50% Bonds AA where I make a decision once a month: Do I sell equity holdings or do I sell bond holdings? Then I occupy my time with other pursuits for another month.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

nguy44
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by nguy44 » Tue Mar 19, 2019 6:16 pm

I retired the end of June 2018 with estimated spending of 5-7 years of cash. The purpose was to use this and not be forced to sell equities during down market times. I also have not yet decided when I will take SS so the cash gives me flexibility. 95% of it is in high yield savings/MM/CD accounts, the rest in "same-day-access-if-needed" local checking accounts, also used when my pension does not cover the monthly bills.

I am monitoring this, so far I overestimated my needs and my expected cash spending is 35% of what I had expected. We still have some large expenditures and a change in medical insurance in the second half of the year that will increase our cash needs. But it is likely we might only hit 50-60% of our target... in which case I'll probably look at reducing the cash allocation.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Laika » Tue Mar 19, 2019 6:45 pm

I am not quite retired yet, but I currently have at least 8 years of cash and near-cash vehicles (money market funds and similar) on hand. But that's computed using a reasonable "safe withdrawal rate" - a rate that I'd be hard-pressed to actually spend. Given what I do typically spend, I have at least double that on hand.

I recognize that this is not going to maximize returns, and to the contrary it's likely to be a drag on returns. But since I have "enough" I am not out to maximize returns, I'm out to maximize portfolio survival while minimizing my concerns about the markets and money. And, as well, I have the idea that I may purchase an upgraded or second home at some point.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by RAchip » Tue Mar 19, 2019 6:48 pm

At this point in time, cash returns about 2.5% in a money market so holding cash today is different from holding cash a few years ago.

I am in the situation of having “enough” in stocks and bonds so i keep a lot of cash.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Ferdinand2014 » Tue Mar 19, 2019 10:36 pm

MnD wrote:
Mon Mar 18, 2019 12:29 pm
No I do not because I don't subscribe to discredited and inferior financial management strategies.

A static AA with proportional withdrawals and periodic rebalancing is significantly superior to any common "bucket" strategy - which purports to prevent retirees from selling equity during down years. However logical and comforting a cash bucketing approach sounds, all bucket strategies do is to increase the probability of portfolio failure in retirement. Bogleheads should not be advocating a suboptimal withdrawal strategy any more than calling for market timing or signing up at Edward Jones.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?
Abstract
A bucket approach, which broadly consists of parking a few years of annual withdrawals safely in cash and investing the rest of the portfolio more aggressively, is a popular strategy often recommended by financial planners and typically embraced by retirees. Although this strategy is not devoid of merit, the comprehensive evidence discussed here, from 21 countries over a 115-year period, questions its effectiveness. In fact, simple static strategies, which by definition involve periodic rebalancing, clearly outperform bucket strategies, and they do so based not just on one but on four different ways of assessing performance.

https://www.marketwatch.com/story/do-bu ... 2019-02-12
Why are bucket strategies more likely to fail than the non-bucket strategies? The answer has to do with the periodic rebalancing transactions periodically undertaken by the non-bucket strategies. Such rebalancing, of course, involves selling a portion of outperforming assets and purchasing more of underperforming ones, in order to bring the portfolio’s allocation back in line with its intended allocation. This rebalancing means that the approach constantly is buying low and selling high, which needless to say is a winning strategy.

Having read the article, I am not completely sure how they performed the rebalancing of the static portfolios. If I understand the rules described in the article, with all static portfolios, they first took out 4% (inflation adjusted) yearly "proportionally' from stocks and t-bills, then rebalanced to the predetermined allocation.


"The annual withdrawals are taken proportionally from stocks and bills when implementing static strategies, and from one of the two buckets (depending on each specific rule) when implementing bucket strategies. After the withdrawal is made, in the case of static strategies the portfolio is rebalanced to the target asset allocation; in the case of bucket strategies, no rebalancing takes place. After the annual withdrawal is made and the allocation is rebalanced (when it applies), the portfolio compounds at the observed return of stocks and bills for the year."


So would this mean as an example, a 60/40 portfolio with a 10,000 balance, first, take 4% proportionally or $240 from stocks, $160 from bonds, leaving a balance of 9,600. Then second, rebalance the $9,600 to a 60/40 ratio again. If the ratio was exactly at 60/40 before the withdrawal and you withdraw at the same proportional ratio of 60/40 as in the example provided, the second step is unnecessary. What if the allocation had drifted to 65/35? Do you simple withdraw in a 60/40 ratio, then perform a rebalance to 60/40 as the second step? Would it be the same to just calculate the withdrawal amount needed to get to 60/40 in one step? does it matter? How do you do it? Maybe this is simply 6 of one or half dozen of the other?

It seems the essential failure of the bucket approach is that 1. you are only rebalancing one way - never buying stocks low, just selling stocks high. 2. Your allocation percent changes over time as the first bucket is in a withdraw number (in years) instead of a percent of the total allocation.

In order to rebalance both ways - both buy low and sell high - in the static strategy, you need to do the 2 step approach instead of a one step approach, or am I missing something?
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by SevenBridgesRoad » Tue Mar 19, 2019 11:13 pm

TN_Boy wrote:
Tue Mar 19, 2019 10:59 am
elainet7 wrote:
Tue Mar 19, 2019 9:17 am
keeping a bucket for years of fixed expenses allows you to sleep at night
most people feel going forward you will not see stock returns of the past and a safe withdrawal rate is 3.5% rather than 4%
My philosophy is that if you can lose 50% of your equities and maintain lifestyle you are fine; if not lower your stock allocation
LISTEN TO BOGLE AGE IN BONDS He seemed to know more than all of us when he originally advised not buying int'l stock funds and history has shown US has done much better; twice that of int'l last 20 yrs
But I think the question here is mostly bonds versus "cash," not fixed income versus stocks. Most respondents to this thread are probably viewing cash as a MM fund, or maybe 3 month treasuries, things like that -- stuff that cannot lose money in nominal terms (for the treasuries, if held to maturity).

And I don't personally sleep any better at night with cash versus quality intermediate bonds, though some do. I'd rather have the typically greater yield and rely upon the fact that a bond market "crash" of such bonds is typically not very painful.

Thus I'd be happy with 50/50 stocks/bonds where the bonds are in a total bond market fund. But some people (making up the numbers a bit) might be 50/40/10 stocks/bonds/cash. Such an allocation would probably return a bit less every year (which will add up over a long retirement) versus 50/50, but obviously wouldn't be a tragic thing.
I'm wondering how helpful a thread like this (not the TN Boy quote I'm referencing here, but the overall thread) is to the Topic Author. I guess it shows there are differences of opinion. Yes, cash. No, cash. Hmmm, OK...

I referenced this particular quote because it is pretty darn insightful. TN Boy understands there are different folks and different workable approaches to solving a problem. I happen to sleep better at night with three years cash (MM, CDs). As we've read, others here see the world differently. Cool.

There are some pejoratives in a few of the responses (the words "mental accounting", for example) which I suggest you ignore. In fact, it might be a good rule of thumb: anyone who states there's one best way to do something should probably be discounted, especially if they use pejoratives or sarcasm, often designed to make you feel stupid.
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by SevenBridgesRoad » Tue Mar 19, 2019 11:15 pm

RAchip wrote:
Tue Mar 19, 2019 6:48 pm
At this point in time, cash returns about 2.5% in a money market so holding cash today is different from holding cash a few years ago.

I am in the situation of having “enough” in stocks and bonds so i keep a lot of cash.
This covers quite a few of us here, I'm guessing.
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by bertilak » Wed Mar 20, 2019 6:36 am

It's a long thread so I didn't try to read it all and this may have already been said: No, I don't keep cash -- I keep bonds. I have a 50/50 allocation.

Also pertinent: I have a pension and SS that cover ALL regular expenses. Investments are mostly for legacy, emergency/unexpected expenses (e.g. new septic system) and minor lifestyle upgrades (eating out, travel, landscaping).
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by KlangFool » Wed Mar 20, 2019 9:06 am

tennisplyr wrote:
Tue Mar 19, 2019 10:25 am
Retired for 8 years. I have typically kept ~5% in cash at Ally since I retired, the rest is split roughly 50/50. Feel very comfortable about my liquidity.
tennisplyr,

For completeness sake, your 5% is equivalent to how many months of expense? 12 months? 6 months? 3 months?

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by DetroitRick » Wed Mar 20, 2019 9:16 am

No, I don't. My banked cash only covers an amount sufficient to cover emergencies, plus a small liquidity cushion (a few months of expenses). So I don't maintain cash for down years. Or hold any material cash positions in investment accounts.

Fixed income holdings in my investment accounts, among other many other purposes, provide my funding sources for those down years. And they were chosen with that criteria in mind. Right now, I do keep just over 1 year worth of withdrawal needs in individual Treasuries (and then invest a bit more aggressively elsewhere as a result). But that piece varies by market conditions and personal situation over the years (higher/lower amounts, Cd's vs Treasuries vs. defined maturity etf's).

Beyond these bond holdings, I also maintain some modest borrowing capacity in retirement as an additional option for down years. My strategy is not a very conservative one, but it fits my plans and has worked well for me.

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Wed Mar 20, 2019 11:36 am

2015 wrote:
Tue Mar 19, 2019 5:08 pm
MnD wrote:
Tue Mar 19, 2019 3:26 pm
2015 wrote:
Mon Mar 18, 2019 7:46 pm
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't.
After wading through all the hyperbole I see you mentioned 2008-09. I was selling bonds and buying stocks at extreme discounts per my simple static AA and rule-based rebalancing bands during that time and was amply rewarded. Layering a sub-optimal "buckets of cash for down years" system on top of that or in lieu of a simple rule-based asset allocation model just muddies the waters and precludes or at least interferes with rebalancing. Which is why they contribute to the increased probability of portfolio failure as opposed to preventing it. Not to mention most bucket "systems" are so short on actual operational details as to make them more of a notional and ad-hoc approach rather than anything that can actually guide decision-making during times of market turmoil. Which is exactly what you don't want when bad times arrive.

I guess I could pretend that some of my fixed income portfolio holdings in one or more of my accounts is some special cash bucket to save me from the big bad bear market but I fail to see any point in doing that. I do have a little elephant figurine on a shelf in the house that the Thai shopkeeper told me would make me lucky with money, so no need to add any more "systems" of that nature to my management plan. :mrgreen:
Did you actually read the 2008-2009 threads or did you just like using words like "hyperbole"? Maybe you sold bonds and bought stocks during that time but the average investor did not. Go back. Do some research. Read how most investors actually behaved during the crisis. As for you, if you're intellectually honest, you'll admit you got lucky. In alternate universes it might have turned out much uglier.
Along with maintaining a static AA and rebalancing in later 2008 and earlier 2009 per rebalancing band rules I was reading and participating in threads here in 2008/09. So I don't need to go back and do any "research". Yes I suppose not engaging in sub-optimal exercises of mental accounting and self-illusion such as cash bucketing made me "lucky" in 1987, 2000/02, 2008/09 and other lesser calamities. Funny how following best investment management practices brings on the "luck".

Average investors (the vast majority of which wouldn't last 5 minutes here) engage in all kinds of behavioral errors which costs them dearly in terms of wealth accumulation and retention. But that doesn't mean we should promote sub-optimal strategies for managing market volatility such as "cash bucketing for down years", signing up with Edward Jones so you have a friendly advisor down at the strip mall to help you stay the course, or deploying a moving averages strategy so you will "get out" prior to the majority of a down-side move.

A more useful strategy is what is usually recommended - adopt an AA you can hold in all types of markets, minimize expenses, tune out the noise, avoid complexity and investment parlor tricks ect.
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

marcopolo
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by marcopolo » Wed Mar 20, 2019 1:08 pm

MnD wrote:
Wed Mar 20, 2019 11:36 am
2015 wrote:
Tue Mar 19, 2019 5:08 pm
MnD wrote:
Tue Mar 19, 2019 3:26 pm
2015 wrote:
Mon Mar 18, 2019 7:46 pm
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't.
After wading through all the hyperbole I see you mentioned 2008-09. I was selling bonds and buying stocks at extreme discounts per my simple static AA and rule-based rebalancing bands during that time and was amply rewarded. Layering a sub-optimal "buckets of cash for down years" system on top of that or in lieu of a simple rule-based asset allocation model just muddies the waters and precludes or at least interferes with rebalancing. Which is why they contribute to the increased probability of portfolio failure as opposed to preventing it. Not to mention most bucket "systems" are so short on actual operational details as to make them more of a notional and ad-hoc approach rather than anything that can actually guide decision-making during times of market turmoil. Which is exactly what you don't want when bad times arrive.

I guess I could pretend that some of my fixed income portfolio holdings in one or more of my accounts is some special cash bucket to save me from the big bad bear market but I fail to see any point in doing that. I do have a little elephant figurine on a shelf in the house that the Thai shopkeeper told me would make me lucky with money, so no need to add any more "systems" of that nature to my management plan. :mrgreen:
Did you actually read the 2008-2009 threads or did you just like using words like "hyperbole"? Maybe you sold bonds and bought stocks during that time but the average investor did not. Go back. Do some research. Read how most investors actually behaved during the crisis. As for you, if you're intellectually honest, you'll admit you got lucky. In alternate universes it might have turned out much uglier.
Along with maintaining a static AA and rebalancing in later 2008 and earlier 2009 per rebalancing band rules I was reading and participating in threads here in 2008/09. So I don't need to go back and do any "research". Yes I suppose not engaging in sub-optimal exercises of mental accounting and self-illusion such as cash bucketing made me "lucky" in 1987, 2000/02, 2008/09 and other lesser calamities. Funny how following best investment management practices brings on the "luck".

Average investors (the vast majority of which wouldn't last 5 minutes here) engage in all kinds of behavioral errors which costs them dearly in terms of wealth accumulation and retention. But that doesn't mean we should promote sub-optimal strategies for managing market volatility such as "cash bucketing for down years", signing up with Edward Jones so you have a friendly advisor down at the strip mall to help you stay the course, or deploying a moving averages strategy so you will "get out" prior to the majority of a down-side move.

A more useful strategy is what is usually recommended - adopt an AA you can hold in all types of markets, minimize expenses, tune out the noise, avoid complexity and investment parlor tricks ect.
+1

It is not clear to me why I would want to design a sub-optimal plan for myself based on behavioral errors exhibited by other investors. Isn't the whole point of setting up a simple AA plan to avoid those behaviors?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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teacher
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by teacher » Wed Mar 20, 2019 2:18 pm

We have about 9% in savings/investments at our credit union, but those funds are earmarked for long term expenses. If we were to need funds beyond SS & pension, we would withdraw from our Stable Value fund, but it is very doubtful that will ever happen because after-tax RMD withdrawals exceed any imagined future cash needs.

Ron
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Ron » Wed Mar 20, 2019 4:02 pm

In preparation for retirement in 2007, my wife/me each converted an amount equal to 3-4 years of required income (including taxes due) into our respective TIRA MM accounts. At the time, we were getting ~4% interest which was a bit less than the average bond return at the time.

A few months after I retired, we also purchased a life/survivor (at 100%, with a 28 year guarantee period) SPIA which continue to return an IRR of 4.79% and that return does not include return of premium paid. While we expected to be impacted by expected inflation rates in the future vs. what we are receiving on the SPIA on the date of policy issuance, that did not happen. BTW, the SPIA was purchased at the age of 59 to act as both a pension (which I did not have) and also as SS gap coverage. While planning to claim SS at my FRA age of 66, it turned out so well (along with the return of the total market since retirement) that I delayed my SS until early last year, when I turned 70. That SPIA income remains and can be considered a topping for our SS "sundae". Sometimes it works out if you purchase an SPIA earlier than around the suggested age of 80...

Our original target AA for retirement was 50/50 (50% cash, 50% bonds/cash). Today, both at age 71, our AA target was reset to 60/40. BTW, while we were both employed, we maintained a 90% equity position.

As our various retirement income vehicles came on-line (SPIA, wife's pensions, SS, etc.) we maintained the same 3-4 years in MM cash, but the actual cash held was less and less as the years went on.

Today, our actual MM cash position represents ~1.6% of our combined retirement portfolio. Any other cash (around 2%) is part of our actual respective holdings which we have no control over for a total of ~3.6% held in cash in our combined holdings.

While we held a lot of cash in the beginning of retirement for those "what if's" (like 2008-09, which happened shortly after I retired), our current income, along with RMD's (funded by December's distributions) cover more than 100% of our retirement expenses.

To answer the OP's question, we kept cash at the beginning of retirement, but that requirement was reduced/eliminated as time went on.

FWIW,

- Ron

2015
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 2015 » Wed Mar 20, 2019 6:37 pm

MnD wrote:
Wed Mar 20, 2019 11:36 am
2015 wrote:
Tue Mar 19, 2019 5:08 pm
MnD wrote:
Tue Mar 19, 2019 3:26 pm
2015 wrote:
Mon Mar 18, 2019 7:46 pm
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't.
After wading through all the hyperbole I see you mentioned 2008-09. I was selling bonds and buying stocks at extreme discounts per my simple static AA and rule-based rebalancing bands during that time and was amply rewarded. Layering a sub-optimal "buckets of cash for down years" system on top of that or in lieu of a simple rule-based asset allocation model just muddies the waters and precludes or at least interferes with rebalancing. Which is why they contribute to the increased probability of portfolio failure as opposed to preventing it. Not to mention most bucket "systems" are so short on actual operational details as to make them more of a notional and ad-hoc approach rather than anything that can actually guide decision-making during times of market turmoil. Which is exactly what you don't want when bad times arrive.

I guess I could pretend that some of my fixed income portfolio holdings in one or more of my accounts is some special cash bucket to save me from the big bad bear market but I fail to see any point in doing that. I do have a little elephant figurine on a shelf in the house that the Thai shopkeeper told me would make me lucky with money, so no need to add any more "systems" of that nature to my management plan. :mrgreen:
Did you actually read the 2008-2009 threads or did you just like using words like "hyperbole"? Maybe you sold bonds and bought stocks during that time but the average investor did not. Go back. Do some research. Read how most investors actually behaved during the crisis. As for you, if you're intellectually honest, you'll admit you got lucky. In alternate universes it might have turned out much uglier.
Along with maintaining a static AA and rebalancing in later 2008 and earlier 2009 per rebalancing band rules I was reading and participating in threads here in 2008/09. So I don't need to go back and do any "research". Yes I suppose not engaging in sub-optimal exercises of mental accounting and self-illusion such as cash bucketing made me "lucky" in 1987, 2000/02, 2008/09 and other lesser calamities. Funny how following best investment management practices brings on the "luck".

Average investors (the vast majority of which wouldn't last 5 minutes here) engage in all kinds of behavioral errors which costs them dearly in terms of wealth accumulation and retention. But that doesn't mean we should promote sub-optimal strategies for managing market volatility such as "cash bucketing for down years", signing up with Edward Jones so you have a friendly advisor down at the strip mall to help you stay the course, or deploying a moving averages strategy so you will "get out" prior to the majority of a down-side move.

A more useful strategy is what is usually recommended - adopt an AA you can hold in all types of markets, minimize expenses, tune out the noise, avoid complexity and investment parlor tricks ect.
Your response smacks of behavioral errors in and of itself (the first sentence in particular). Luck is inherent in all human activity, and the only reason you got lucky was because an alternate universe didn't occur, not because of any particular actions you took or because how superior you are to other investors. So called "best management practices" bring both good and bad luck. It's imperative to remember that. Extrapolating your own behavior as well as your luck to the rest of reality (i.e., other people) is a very common error I see Bogleheads make.

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Wed Mar 20, 2019 7:04 pm

marcopolo wrote:
Wed Mar 20, 2019 1:08 pm
It is not clear to me why I would want to design a sub-optimal plan for myself based on behavioral errors exhibited by other investors. Isn't the whole point of setting up a simple AA plan to avoid those behaviors?
It's trading one behavioral error for another versus recognizing and avoiding both with best practices.
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

OffGridder
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by OffGridder » Wed Mar 20, 2019 7:10 pm

Not for "down years", but we do maintain a bit of cash. This is what we do:

I am in retirement withdrawal phase. Three fund portfolio. Fixed income allocation is all in TBM, plus 6 months expense in a Money Market fund. Once per year in December we withdraw our estimated expenses for the following year from the 3 fund portfolio to maintain our Target AA, and transfer those funds to a Money Market account. We draw that MM account down by transfers to checking account on monthly basis and then replenish the MM the following December. So the amount we have in "cash" ranges from around 6 to 18 months expenses.
"Goodness is the only investment that never fails." | H.D. Thoreau

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Wed Mar 20, 2019 10:01 pm

2015 wrote:
Wed Mar 20, 2019 6:37 pm
Luck is inherent in all human activity, and the only reason you got lucky was because [i]an alternate universe didn't occur[/i], not because of any particular actions you took or because how superior you are to other investors. So called "best management practices" bring both good and bad luck. It's imperative to remember that. Extrapolating your own behavior as well as your luck to the rest of reality (i.e., other people) is a very common error I see Bogleheads make.
So to sum up a "buckets of cash for down years" strategy underperforms static allocations with rebalancing when examined using 115 years of data from 21 countries, and based not just on one but on four different ways of assessing performance.
BUT HOLD ON - the bucket strategies might succeed in alternate universe occurrences. A very common Boglehead oversight.
Very convincing!
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

dkturner
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by dkturner » Thu Mar 21, 2019 5:58 am

German Expat wrote:
Tue Mar 19, 2019 11:20 am
I am curious how people that do it actually account for it. e.g. for my emergency fund (I am still working) I have it outside my asset allocation and don't consider it at all. So doing the same with your example would it then be 50/40/10 or 45/45/10?
We don’t treat our cash reserves as part of our investment portfolios. We treat it simply an additional checking account, though one that gets money market fund interest rates. The closest we come to considering our “cash” as a retirement asset is in determining how many years of spending power we have in “safe” assets (cash, Treasuries, and short-term high quality corporate bonds).

22twain
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 22twain » Thu Mar 21, 2019 6:48 am

OffGridder wrote:
Wed Mar 20, 2019 7:10 pm
Once per year in December we withdraw our estimated expenses for the following year from the 3 fund portfolio to maintain our Target AA, and transfer those funds to a Money Market account. We draw that MM account down by transfers to checking account on monthly basis and then replenish the MM the following December. So the amount we have in "cash" ranges from around 6 to 18 months expenses.
That's basically what I do, except that I estimate the dividends that I'll get in my taxable account during the year, and subtract them from my estimated expenses to determine the withdrawal amount. So the maximum amount of "cash" is about 8 months of expenses, plus a bit of cushion to reduce the chances of running out before next December. But I don't stress out about that, because I can always make an extra withdrawal or do it early. My spending rate is at only about 2% of my portfolio per year, anyway.

I'm not collecting Social Security yet. When I do, in five years, the withdrawals will become very small or stop completely.
Last edited by 22twain on Sat Mar 23, 2019 7:04 am, edited 1 time in total.
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by tennisplyr » Thu Mar 21, 2019 7:03 am

KlangFool wrote:
Wed Mar 20, 2019 9:06 am
tennisplyr wrote:
Tue Mar 19, 2019 10:25 am
Retired for 8 years. I have typically kept ~5% in cash at Ally since I retired, the rest is split roughly 50/50. Feel very comfortable about my liquidity.
tennisplyr,

For completeness sake, your 5% is equivalent to how many months of expense? 12 months? 6 months? 3 months?

KlangFool
Roughly 1 year....but I have no problem with going to bonds next.
Those who move forward with a happy spirit will find that things always work out.

B. Wellington
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by B. Wellington » Thu Mar 21, 2019 7:27 am

OffGridder wrote:
Wed Mar 20, 2019 7:10 pm
Not for "down years", but we do maintain a bit of cash. This is what we do:

I am in retirement withdrawal phase. Three fund portfolio. Fixed income allocation is all in TBM, plus 6 months expense in a Money Market fund. Once per year in December we withdraw our estimated expenses for the following year from the 3 fund portfolio to maintain our Target AA, and transfer those funds to a Money Market account. We draw that MM account down by transfers to checking account on monthly basis and then replenish the MM the following December. So the amount we have in "cash" ranges from around 6 to 18 months expenses.
This is basically our plan as well.

I have read dozens of research papers on "bucketing" and as others have pointed out, it is more mental accounting, complexity, and ones behavior in how those funds are withdrawn. 6 to 18 months of expenses in a MM account seems reasonable for us.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by teacher » Thu Mar 21, 2019 8:03 am

The average recession between 1854-1919 lasted 22 months. Between 1945 and 2001 recessions lasted 10 months. The last recession lasted 18 months. With that in mind, why would one plan for the possibility of cashing in shares out of necessity in long durations of time when they are down? We had to do that at the end of last year to fulfill the Required Minimum Distribution. We can't time the market, especially when withdrawals are required, but managing RMDs in unpredictable times feels a little like jumping up when you think the runaway elevator is going to hit bottom. The reality is, once those shares were removed from the portfolio, their growth potential was gone forever.

Before age 70.5, investors still have the option to keep their portfolios intact. They can decide if they want to ride the market and withdraw as needed, or keep cash in a predictable bucket that will cover a designated time of expenses; not so for tax deferred investments.

rixer
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by rixer » Thu Mar 21, 2019 10:43 am

teacher wrote:
Thu Mar 21, 2019 8:03 am
The average recession between 1854-1919 lasted 22 months. Between 1945 and 2001 recessions lasted 10 months. The last recession lasted 18 months. With that in mind, why would one plan for the possibility of cashing in shares out of necessity in long durations of time when they are down? We had to do that at the end of last year to fulfill the Required Minimum Distribution. We can't time the market, especially when withdrawals are required, but managing RMDs in unpredictable times feels a little like jumping up when you think the runaway elevator is going to hit bottom. The reality is, once those shares were removed from the portfolio, their growth potential was gone forever.

Before age 70.5, investors still have the option to keep their portfolios intact. They can decide if they want to ride the market and withdraw as needed, or keep cash in a predictable bucket that will cover a designated time of expenses; not so for tax deferred investments.
You also have the option of just reinvesting your RMD in a taxable account instead of spending it.

2015
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 2015 » Thu Mar 21, 2019 1:07 pm

MnD wrote:
Wed Mar 20, 2019 10:01 pm
2015 wrote:
Wed Mar 20, 2019 6:37 pm
Luck is inherent in all human activity, and the only reason you got lucky was because [i]an alternate universe didn't occur[/i], not because of any particular actions you took or because how superior you are to other investors. So called "best management practices" bring both good and bad luck. It's imperative to remember that. Extrapolating your own behavior as well as your luck to the rest of reality (i.e., other people) is a very common error I see Bogleheads make.
So to sum up a "buckets of cash for down years" strategy underperforms static allocations with rebalancing when examined using 115 years of data from 21 countries, and based not just on one but on four different ways of assessing performance.
BUT HOLD ON - the bucket strategies might succeed in alternate universe occurrences. A very common Boglehead oversight.
Very convincing!
No that is not "summing up". What I stated was what I stated. The only reason you got lucky was because something else didn't happen (e.g., we had an L shaped market after 2008), not because you are superior to other investors. You placed a bet and you got lucky. Only overconfidence will prevent you from seeing this.

As to bucket strategies, I stated my own strategy is liability matching, which could be construed as "bucketing", and it works in the totality of the complex system in which my life exists. The "studies" you almost religiously adhere to are just that--studies. They cannot be applied without consideration that an individual has many other inputs, actors, and influences (some unknown and unknowable) going on in their life.

Reminds me of the whole (now discredited) "best practices" business fad. There's "best practices" and then there's your life. If you got lucky, then you got lucky. But don't try to pretend it's something else.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by GerryL » Thu Mar 21, 2019 1:22 pm

B. Wellington wrote:
Thu Mar 21, 2019 7:27 am
OffGridder wrote:
Wed Mar 20, 2019 7:10 pm
Not for "down years", but we do maintain a bit of cash. This is what we do:

I am in retirement withdrawal phase. Three fund portfolio. Fixed income allocation is all in TBM, plus 6 months expense in a Money Market fund. Once per year in December we withdraw our estimated expenses for the following year from the 3 fund portfolio to maintain our Target AA, and transfer those funds to a Money Market account. We draw that MM account down by transfers to checking account on monthly basis and then replenish the MM the following December. So the amount we have in "cash" ranges from around 6 to 18 months expenses.
This is basically our plan as well.

I have read dozens of research papers on "bucketing" and as others have pointed out, it is more mental accounting, complexity, and ones behavior in how those funds are withdrawn. 6 to 18 months of expenses in a MM account seems reasonable for us.
Same here, with the added point that I do not count my cash stash as part of my portfolio. Up until now I have been feeding the stash from severance, minimal income and, since a few months ago, SS. Soon I will begin topping up the stash with a portion of my RMDs -- probably annually. The way I am looking at it, once the money comes out of the portfolio (retirement and non-retirement investments) and goes into the stash, I cease considering the potential for growth … or loss on those dollars. Has been working for me.

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Thu Mar 21, 2019 2:57 pm

2015 wrote:
Thu Mar 21, 2019 1:07 pm
MnD wrote:
Wed Mar 20, 2019 10:01 pm
2015 wrote:
Wed Mar 20, 2019 6:37 pm
Luck is inherent in all human activity, and the only reason you got lucky was because [i]an alternate universe didn't occur[/i], not because of any particular actions you took or because how superior you are to other investors. So called "best management practices" bring both good and bad luck. It's imperative to remember that. Extrapolating your own behavior as well as your luck to the rest of reality (i.e., other people) is a very common error I see Bogleheads make.
So to sum up a "buckets of cash for down years" strategy underperforms static allocations with rebalancing when examined using 115 years of data from 21 countries, and based not just on one but on four different ways of assessing performance.
BUT HOLD ON - the bucket strategies might succeed in alternate universe occurrences. A very common Boglehead oversight.
Very convincing!
No that is not "summing up". What I stated was what I stated. The only reason you got lucky was because something else didn't happen (e.g., we had an L shaped market after 2008), not because you are superior to other investors. You placed a bet and you got lucky. Only overconfidence will prevent you from seeing this.

As to bucket strategies, I stated my own strategy is liability matching, which could be construed as "bucketing", and it works in the totality of the complex system in which my life exists. The "studies" you almost religiously adhere to are just that--studies. They cannot be applied without consideration that an individual has many other inputs, actors, and influences (some unknown and unknowable) going on in their life.
I'm sorry to hear about all your complexity. My simple approach is the Boglehead philosophy. Low cost, broad diversification in index funds including fixed income funds, a static AA I can live comfortably with, periodic rule-based rebalancing to my AA and stay the course.

Hence if you are attributing my investment performance behavior to "bets and luck", then you are attributing the investment behavior and performance of all here that follow the Boglehead philosophy to "bets and luck". All you accomplish by dismissing the Boglehead philosophy and instead cheerleading for demonstratively sub-optimal and underperforming alternatives such as "buckets of cash for down years", along with categorically dismissing "studies" that underlie modern portfolio and the Boglehead philosophy is to demonstrate yourself as someone lacking in credibility.

In order for you to demonstrate any credibility in this context and forum, the onus is completely on you to provide credible evidence that "buckets of cash for down years" does not in fact result in suboptimal outcomes relative to the Boglehead philosophy of maintaining a static asset allocation with periodic rebalancing. Absent that, you really have none by squawking about the latter approach as placing bets and getting lucky along with anti-intellectual sneering about "studies".

Here's the link to the Boglehead Philosophy with a short excerpt - you may wish to review. Good luck! :beer
https://www.bogleheads.org/wiki/Boglehe ... philosophy

Create an asset allocation that includes bonds to reduce the volatility caused by the stock part of your portfolio, then rebalance when needed. This balanced approach will help you to stay the course. Once you set up a Boglehead portfolio, the only real course correction needed is to rebalance once per year to bring the stock/bond allocations back to pre-set levels. (Investors generally want to increase bond holdings slightly every year, such as by setting the percentage of bonds "to your age in bonds".) Although making only that one change every year takes discipline, it is also an enormous relief to be able to tune out the endless chatter of when and what to buy and sell.

Conclusion
In summary, a Bogleheads investor tends to (1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

One of the wonderful things about Boglehead investing is that it generally only requires a part of a day to set up, and then about an hour a year of effort to rebalance. Beyond that, there is no need to watch the markets or follow financial news. Even better, it works. Although Bogleheads investing may seem strangely simple, it is based on decades of comprehensive research showing that buying and holding the whole market consistently outperforms many of the alternatives.
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

delrinson
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by delrinson » Thu Mar 21, 2019 3:16 pm

Sounds like a very sensible, straightforward approach. May do this when the time comes.
OffGridder wrote:
Wed Mar 20, 2019 7:10 pm
Not for "down years", but we do maintain a bit of cash. This is what we do:

I am in retirement withdrawal phase. Three fund portfolio. Fixed income allocation is all in TBM, plus 6 months expense in a Money Market fund. Once per year in December we withdraw our estimated expenses for the following year from the 3 fund portfolio to maintain our Target AA, and transfer those funds to a Money Market account. We draw that MM account down by transfers to checking account on monthly basis and then replenish the MM the following December. So the amount we have in "cash" ranges from around 6 to 18 months expenses.

nesdog
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by nesdog » Thu Mar 21, 2019 4:20 pm

Laika wrote:
Tue Mar 19, 2019 6:45 pm
I am not quite retired yet, but I currently have at least 8 years of cash and near-cash vehicles (money market funds and similar) on hand. But that's computed using a reasonable "safe withdrawal rate" - a rate that I'd be hard-pressed to actually spend. Given what I do typically spend, I have at least double that on hand.

I recognize that this is not going to maximize returns, and to the contrary it's likely to be a drag on returns. But since I have "enough" I am not out to maximize returns, I'm out to maximize portfolio survival while minimizing my concerns about the markets and money. And, as well, I have the idea that I may purchase an upgraded or second home at some point.
This is pretty much us as well; retiring in June at 65-1/2, wife already out of the workforce. Due to inheritance, we ended up very cash heavy, but most of it is in rotating 6 month t-bills. Will hold on SS until minimum of 67 then evaluate. We sleep really well.
Insert clever comment here...

RadAudit
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by RadAudit » Thu Mar 21, 2019 4:34 pm

2015 wrote:
Wed Mar 20, 2019 6:37 pm
Luck is inherent in all human activity, and the only reason you got lucky was because an alternate universe didn't occur, not because of any particular actions you took or because how superior you are to other investors.
Living in hope I don't veer off in to an alternate universe. +1 on the actions and superiority thing.

One month of expenses in checking, 2% in MM, 49% in bonds and 49% in stocks for no particular reason other than for now it feels comfortable and has for some time. 9 years in to retirement.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

2015
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 2015 » Thu Mar 21, 2019 7:40 pm

RadAudit wrote:
Thu Mar 21, 2019 4:34 pm
2015 wrote:
Wed Mar 20, 2019 6:37 pm
Luck is inherent in all human activity, and the only reason you got lucky was because an alternate universe didn't occur, not because of any particular actions you took or because how superior you are to other investors.
Living in hope I don't veer off in to an alternate universe.
...
As one who has veered off (several times), I hope you don't either! :wink:

When the devil has come to my breakfast table, not only has he wanted my bacon and eggs, but my coffee and juice, and place setting, too. Sometimes he even made me leave the table as he merrily chowed down.

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munemaker
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by munemaker » Thu Mar 21, 2019 7:48 pm

RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Yes, I keep 5 years of cash/CDs to carry me until SS @ age 70. I subscribe to the principle that money needed in the next 5 years should not be exposed to market fluctuations.

pascalwager
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by pascalwager » Fri Mar 22, 2019 12:32 am

TN_Boy wrote:
Tue Mar 19, 2019 10:59 am
elainet7 wrote:
Tue Mar 19, 2019 9:17 am
keeping a bucket for years of fixed expenses allows you to sleep at night
most people feel going forward you will not see stock returns of the past and a safe withdrawal rate is 3.5% rather than 4%
My philosophy is that if you can lose 50% of your equities and maintain lifestyle you are fine; if not lower your stock allocation
LISTEN TO BOGLE AGE IN BONDS He seemed to know more than all of us when he originally advised not buying int'l stock funds and history has shown US has done much better; twice that of int'l last 20 yrs
But I think the question here is mostly bonds versus "cash," not fixed income versus stocks. Most respondents to this thread are probably viewing cash as a MM fund, or maybe 3 month treasuries, things like that -- stuff that cannot lose money in nominal terms (for the treasuries, if held to maturity).

And I don't personally sleep any better at night with cash versus quality intermediate bonds, though some do. I'd rather have the typically greater yield and rely upon the fact that a bond market "crash" of such bonds is typically not very painful.

Thus I'd be happy with 50/50 stocks/bonds where the bonds are in a total bond market fund. But some people (making up the numbers a bit) might be 50/40/10 stocks/bonds/cash. Such an allocation would probably return a bit less every year (which will add up over a long retirement) versus 50/50, but obviously wouldn't be a tragic thing.
The issue, based on the thread title, involves the question of removing a portion of your portfolio (cash) from the rebalancing process so that it's not available to purchase stocks in the down years. If the cash allocation is based on a fixed %, then it will be available for rebalancing into stocks. If the cash allocation is based on a fixed $ amount (say, 5-years living expenses) then it has been separated from the portfolio and will not be available for rebalancing into stocks. This results in a less productive retirement portfolio, as explained by Estrada in his retirement studies.

michaeljc70
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by michaeljc70 » Fri Mar 22, 2019 10:12 am

If retiring early (before 59), I think you do need to make some changes. The general idea is to keep bonds in tax-free or tax deferred accounts. If you do that and retire early (assuming you don't want to use tricks like 72t), you cannot pull those funds out easily. That would require selling equities when down, keeping $$$ in cash equivalents or keeping bonds in a taxable account. You also aren't getting SS if retiring before 60 so that won't help smooth things out.

For a normal retiree, I wouldn't keep more than a few months in cash.

German Expat
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by German Expat » Fri Mar 22, 2019 10:29 am

michaeljc70 wrote:
Fri Mar 22, 2019 10:12 am
If retiring early (before 59), I think you do need to make some changes. The general idea is to keep bonds in tax-free or tax deferred accounts. If you do that and retire early (assuming you don't want to use tricks like 72t), you cannot pull those funds out easily. That would require selling equities when down, keeping $$$ in cash equivalents or keeping bonds in a taxable account. You also aren't getting SS if retiring before 60 so that won't help smooth things out.

For a normal retiree, I wouldn't keep more than a few months in cash.
Nothing stops you from selling equities in taxable even if they are down and rebalance in tax deferred (watching out for wash sale rules) to the appropriate allocation. This will then be the same as selling bonds.

garlandwhizzer
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by garlandwhizzer » Fri Mar 22, 2019 12:41 pm

I keep at least 2 years and often 3 years of projected living expenses in cash (Prime MMF) at all times and keep it in my personal account, not the IRA so I can access the money, as much or as little as needed, at any time without generating any fees (unlike CDs) or taxes (unlike bonds which may generate capital gains when sold). Unlike using bond funds for this purpose, MMFs generate no capital gains or losses with each sale which vastly simplifies taxes when it's time to file if you resort to this frequently for income during a bear market. MMF provide instant tax-free liquidity in whatever amount is needed, whenever it is needed.

My portfolio is equity heavy for a 72 year old, 60+% equity, and I have no pension or income stream other than SS plus RMD from my IRA. MMF have in recent years been yielding essentially the same as ST and even IT quality bonds so this convenience hasn't costed much. I learned in the Great Recession that having this time buffer, 2 - 3 years of time in which you don't have sell a single share of equity, plenty of time to formulate a plan on how best to minimize your psychological pain and financial loss was a good anti-depressant. Most sharp severe market downturns last less than 18 months so having a life preserver for 2 - 3 years in the severe storm helps a lot. The other thing this provides is the ability, if you have sufficient nerve when the tide turns and the market takes off again, to buy equity at fire sale prices. Even if you don't choose to do this, sleeping better at night through a severe bear market is sufficient reward IMO. This works for me and may or may not work for others.

Garland Whizzer

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Earl Lemongrab
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Earl Lemongrab » Fri Mar 22, 2019 3:09 pm

I didn't change anything about my asset allocation when I retired. I'm 60/40, with 20% of fixed-income in stable value and half in bond index.

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