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Old 08-23-2017, 12:20 PM
 
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Old 08-23-2017, 01:32 PM
 
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Originally Posted by johnd393 View Post
That the money won't run out is great, but I think, with no kids or family to look after us, we need to have a big chunk left in our last years. What if I try to spend my last dollar on my last day and than, surprise, 90+ years old, $5000 left, and need a nursing home.
Yep. I'm 59. I kind of have to assume that Medicaid funding for nursing homes of the Boomers who ran out of money or never had any to begin with is going to be stretched so thin that the level of care is going to be awful. If I'm single, the sale of my house combined with my COLA-protected $44K/year Social Security income can fund it. If I remarry, I need to have a big pile of money in reserve to fund it.
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Old 08-23-2017, 05:40 PM
 
Location: Near San Francisco, CA
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Seems like a lot of these general withdrawal rates assume that no "pool" of living expenses has been saved and is ready to use. Having three years of living expenses saved in liquid assets at the start of retirement provides a lot more flexibility, in case there is a downturn right at the beginning of retirement. In this situation, withdrawals could be delayed until the investments recover.
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Old 08-23-2017, 05:46 PM
 
Location: Saint Johns, FL
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Nice, if I remember correctly you were going to be in a situation when you retired where you paid no taxes. I'd sure be looking into starting a Roth now (with $0 contribution), just so you can transfer money into it upon retirement. I'm guessing with 2 in family you could transfer $15,000 or so a year tax free.
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Old 08-23-2017, 05:49 PM
 
Location: Central Massachusetts
4,800 posts, read 4,852,811 times
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Originally Posted by Westcoasters View Post
Seems like a lot of these general withdrawal rates assume that no "pool" of living expenses has been saved and is ready to use. Having three years of living expenses saved in liquid assets at the start of retirement provides a lot more flexibility, in case there is a downturn right at the beginning of retirement. In this situation, withdrawals could be delayed until the investments recover.
If not delayed than at least a smaller withdrawal than the 4% withdrawal rate and a more conservative 3% or less from the start.
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Old 08-23-2017, 06:02 PM
 
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Quote:
Originally Posted by Westcoasters View Post
Seems like a lot of these general withdrawal rates assume that no "pool" of living expenses has been saved and is ready to use. Having three years of living expenses saved in liquid assets at the start of retirement provides a lot more flexibility, in case there is a downturn right at the beginning of retirement. In this situation, withdrawals could be delayed until the investments recover.
cash buffers have been shown to be irrelevant . any good they do is lost by the weight of them in up markets

study after study has shown that using cash buffers to spend when stocks are down offer no advantage to drawing equally from the pie in good and bad markets maintaining your allocation . in fact more often than not those cash buffers hurt more than help .

having cash to use in down markets is more a mental thing then a financial benefit .

for the record i do use 2 years in a cash buffer for comfort , not practicality


as michael kitces stated :


Cash reserve strategies that hold aside several years of spending to avoid liquidations during bear markets are a popular way to manage withdrawals for retirees. In theory, the strategy is presumed to enhance risk-adjusted returns by allowing retirees to spend down their cash during market declines and then replenish it after the recovery. Yet recent research in the Journal of Financial Planning reveals that the strategy actually results in more harm than good; while in some scenarios the cash reserves effectively allow the retiree to “time” the market by avoiding an untimely liquidation, more often the retiree simply ends out with less money due to the ongoing return drag of a significant portfolio position in cash. As a result, the superior strategy for those who want to alter their asset allocation through market volatility (the effective result of spending down cash in declines and replenishing it later) appears to be simply tactically altering asset allocation directly, without the adverse impact of a cash return drag. Nonetheless, this still fails to account for the psychological benefits the client enjoys by having a clearly identifiable cash reserve to manage spending through volatility – even though the reality is that it results in less retirement income, not more. Does that mean cash reserve strategies are still superior for their psychological benefits alone, even if they’re not an effective way to time the market? Or do total return strategies simply need to find a better way to communicate their benefits and value?
The inspiration for today’s blog post is a recent article entitled “Sustainable Withdrawal Rates: The Historical Evidence on Buffer Zone Strategies” authored in the Journal of Financial Planning by Walter Woerheide and David Nanigan of The American College (and covered originally in the May 19/20 edition of Weekend Reading for Financial Planners on this blog). In their research, Woerheide and Nanigan examined the impact of so-called “buffer zone” strategies – essentially, strategies that hold aside several years’ worth of withdrawals in cash reserves to avoid the need to liquidate during a market decline – and found that despite their popularity, such an approach actually hurts the sustainability of retirement income far more often than it helps!

https://www.kitces.com/blog/research...-market-timer/
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Old 08-23-2017, 08:02 PM
 
Location: SoCal
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Mathjak, it's not all about money.
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Old 08-23-2017, 08:45 PM
 
Location: Central IL
15,253 posts, read 8,548,360 times
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Quote:
Originally Posted by mathjak107 View Post
cash buffers have been shown to be irrelevant . any good they do is lost by the weight of them in up markets

study after study has shown that using cash buffers to spend when stocks are down offer no advantage to drawing equally from the pie in good and bad markets maintaining your allocation . in fact more often than not those cash buffers hurt more than help .

having cash to use in down markets is more a mental thing then a financial benefit .

for the record i do use 2 years in a cash buffer for comfort , not practicality


as michael kitces stated :


Cash reserve strategies that hold aside several years of spending to avoid liquidations during bear markets are a popular way to manage withdrawals for retirees. In theory, the strategy is presumed to enhance risk-adjusted returns by allowing retirees to spend down their cash during market declines and then replenish it after the recovery. Yet recent research in the Journal of Financial Planning reveals that the strategy actually results in more harm than good; while in some scenarios the cash reserves effectively allow the retiree to “time” the market by avoiding an untimely liquidation, more often the retiree simply ends out with less money due to the ongoing return drag of a significant portfolio position in cash. As a result, the superior strategy for those who want to alter their asset allocation through market volatility (the effective result of spending down cash in declines and replenishing it later) appears to be simply tactically altering asset allocation directly, without the adverse impact of a cash return drag. Nonetheless, this still fails to account for the psychological benefits the client enjoys by having a clearly identifiable cash reserve to manage spending through volatility – even though the reality is that it results in less retirement income, not more. Does that mean cash reserve strategies are still superior for their psychological benefits alone, even if they’re not an effective way to time the market? Or do total return strategies simply need to find a better way to communicate their benefits and value?
The inspiration for today’s blog post is a recent article entitled “Sustainable Withdrawal Rates: The Historical Evidence on Buffer Zone Strategies” authored in the Journal of Financial Planning by Walter Woerheide and David Nanigan of The American College (and covered originally in the May 19/20 edition of Weekend Reading for Financial Planners on this blog). In their research, Woerheide and Nanigan examined the impact of so-called “buffer zone” strategies – essentially, strategies that hold aside several years’ worth of withdrawals in cash reserves to avoid the need to liquidate during a market decline – and found that despite their popularity, such an approach actually hurts the sustainability of retirement income far more often than it helps!

https://www.kitces.com/blog/research...-market-timer/
I do appreciate seeing this - it always seemed like a bit of a shell game - any cash taken out to serve as a buffer certainly isn't earning anything so is a drag on the overall portfolio. I'm not a fan of strategies that only offer psychological benefits but don't do anything real.

So, if that doesn't help sequence risk, is there anything to be done other than delay retiring if the market looks "dicey"? And even then that's only if there is a downturn before you've retired...not if you're a few years in, for example.
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Old 08-23-2017, 11:40 PM
 
Location: SoCal
13,260 posts, read 6,351,451 times
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Quote:
Originally Posted by Westcoasters View Post
Seems like a lot of these general withdrawal rates assume that no "pool" of living expenses has been saved and is ready to use. Having three years of living expenses saved in liquid assets at the start of retirement provides a lot more flexibility, in case there is a downturn right at the beginning of retirement. In this situation, withdrawals could be delayed until the investments recover.
Bergen is recommending 50/50 portfolio anyway.
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Old 08-24-2017, 03:18 AM
 
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Originally Posted by NewbieHere View Post
Mathjak, it's not all about money.
then what is it about ? a withdrawal rate is only about the money . it is about finding a safe ,secure consistent income stream that meets your level of volatility you are comfortable .
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