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Old 08-24-2017, 03:25 AM
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Originally Posted by reneeh63 View Post
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.
there are a few things you can do .

adding in an spia as a base has been shown to improve things because the higher cash flow early on allows equities to grow longer before being sold to refill .

you can do a rising glide path .

that is where you go from high allocations down to 35-40% equities and each year increase equities as time goes on up to your desired allocation .

the idea is odds are pretty good if valuations are high when you start , the next decade has been shown to produce below average returns . so you are doing the reverse , while conventional models reduce equities as you age , a rising glide path increases them . this way if the decade is below par you have full fuel tanks for the next leg up while not having full fuel tanks 8 years in on a bull market .

longest bull ever was 10 years so far .

or just find a comfortable mix and stick to it . for me 45-50% is comfortable and works .

i found i can increase performance by using different models optimized for different time frames .

my income model produces more than just bonds and cash would with just a tad more volatility as an example . it is 75% less volatile than the s&p 500 .

at times my growth model can be more aggressive than the s&p 500 . so i just find for me running mulitiple portfolio's time optimized works well.

i start each year with 2 years cash , and it dwindles down over the year to just 1 year in reserve . this year we bought a car from the reserve so next year i have to refill it .

the income model holds a few years of money , then i have a growth and income model with a few years and finally a growth model gets my long term money for eating 20-30 years from now .

Last edited by mathjak107; 08-24-2017 at 04:49 AM..
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Old 08-24-2017, 06:08 AM
Location: Florida
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Originally Posted by nicet4 View Post
This, talking about withdrawal rates, is something I don't have to worry about which is a good thing because we really don't have that much saved.

We got some but it sure isn't six figures. This is the biggest reason why I am putting off collecting social security benefits until 70. Now I suffer, I am counting down the days.

Right now, if I go another year.... sob...., I don't think we would need any savings but we'll take the absolute minimum out and leave the rest for an "emergency" whatever that might be.

But what is the minimum? Say we have $50,000 saved how much will we be required to take out every year at 70.5 years of age?
Zero if the money is not in a retirement account.
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Old 08-24-2017, 09:05 AM
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It's interesting that many seem to want the full inheritance (principal) passed on. Short of having disabled or children with other very special situations (we have one...out of three...but unlikely to outlive us), leaving large amounts of money to children often has a negative effect on them.

We try to spread around some money NOW....so they won't have to wait until they are 65 (assuming we die at 90) to have a bunch of money they may not need as much...by then.

I am almost 64 but we saved well and have made average returns of 7% (Vanguard) and 10.5% (Fidelity) in our IRA's and other savings (going back to 2003...probably similar or higher before). My parents will definitely be leaving me (us) something, but I don't count that money in any calcs.

As it stands right now I am collecting SS, making 20K or so from my "hobby work" and taking the rest from the IRA and from dividends from non-IRA stocks...and it seems to be keeping the bills paid. Even figuring a low end of yearly income from IRA and reg. investments would keep us in a fairly luxurious lifestyle.

I don't anticipate living another 30 years but it's always possible. Even at that, a 5% take from my IRA and other investments each year will probably see both of those investments growing anyway...at least enough to over inflation.

Not that I am looking forward to it, but I'd rather live in a 500K plus monthly nursing home than a 200K plus monthly one....assuming quality is commensurate with price.
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Old 08-24-2017, 09:17 AM
Location: SoCal
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Originally Posted by mathjak107 View Post
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 .
My comment was regarding investing more in stocks for max return, not having cash buckets. It's not always about max return, it's about your comfort level. I'm only 40-60% in stocks and I can meet my spending needs.
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Old 08-24-2017, 09:57 AM
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don't get mislead in to thinking we are talking excessive amounts of equities . we are not .

cash buffers are very popular where you keep your portfolio intact in down markets but they work no better and likely "less good " than just drawing equally from stocks and bonds in good and band times so your allocation is maintained with no cash bucket . .

follow the difference , in a normal spend down you maintain your comfortable allocation be it 50/50 ,60/40 etc . up or down market you sell off what needs to be sold while preserving your allocation .

with cash buckets it is different . with cash buckets you deplete the cash , then refill cash from bonds then finally at some point you refill from the equities .

but the origonal allocation is not preserved . as you spend the cash the ratio to bonds and stock is getting higher and higher . so if the down turn extends long enough now you are selling bonds to refill cash . all the while stocks are untouched and becoming a higher and higher allocation .

eventually if you wait to long to refill cash and bonds you can be 80% stock before refilling .

using no cash bucket just has you selling stocks and bonds each year whether up or down and your allocation never changes .

ideally they should work out close but the cash does have a lower return most of the time so the buckets utilizing cash usually do not do as well .

Last edited by mathjak107; 08-24-2017 at 10:08 AM..
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Old 08-24-2017, 10:24 AM
Location: Florida -
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Originally Posted by mathjak107 View Post
there is a chart . it is based on your age and spouses age too . if there is less than 10 years difference divide the balance by 27.40 years for year 1 .

it changes yearly . next year divide by 26.50 . but remember , by 70-1/2 your balance may be way larger

IRA Required Minimum Distributions Table | Bankrate.com

A very useful RMD chart!

An attitude I've detected in comments by some regarding RMD's is that one's savings will be diminished by money withdrawn from an IRA as part of an RMD. On the contrary, an RMD is only the amount of otherwise deferred income one must pay taxes on that year. It should be unnecessary to say it, but, unless otherwise spent, the withdrawn, post-tax amount remains in the control of the retiree.
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Old 08-24-2017, 10:29 AM
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sure , it can be reinvested in tax efficient funds and etf's in a brokerage account .

the real pain of rmd's is when they trigger other things linked to taxable income . or when once spouse dies and the other has to file single . that can be quite painful tax wise
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Old 08-25-2017, 02:29 PM
Location: Near San Francisco, CA
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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!

Mathjak107 - thank you for your post. As usual, very informative and good information to consider. I don't want hijack the thread with an extended side discussion, but I do have two observations about the study that may be worth exploring, if I understand it correctly. First, it appears that the cash was removed from the portfolio without changing the asset allocation of the remaining invested portfolio after the cash was removed. Setting aside several years of cash allows the asset allocation of the remaining portfolio to be changed to increase the absolute return of the invested portfolio, e.g., a greater percentage invested in equities, but this was not tested in the study. Second, in the situation where the side cash was completely depleted, the entire cash pool was replenished all at once in the next year, which is unnecessary and unrealistic.
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Old 08-25-2017, 02:32 PM
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no matter how you slice it cash is a weight in up markets and lags bonds and equities .

it is very very rare that just spending from the pie and maintaining your original allocation of stocks and bonds won't beat anything with a few years cash too .

in fact i saw a study with two years cash and all the rest equities . over a 30 year retirement it had a lower success rate than 50/50 .

of course that could work out differently if rates have an extended rise instead of fall .

but generally comparing spending from a portfolio of just equities and bonds , no cash tends to do better than trying to maintain a cash bucket for down years in a bucket system . .

that being said we always have 1 to 2 years cash on hand .

Last edited by mathjak107; 08-25-2017 at 02:41 PM..
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Old 08-25-2017, 03:21 PM
Location: Mount Airy, Maryland
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Yeah I'm with MJ. While I can certainly see the logic in a cash buffer to avoid withdraws when the market is down 3 years of living expenses in cash is a crazy amount of money earning nothing for years.

As for the initial topic I have been playing around with the Firecalc models and found that over 4% worked out something like 90% of the time in any market.
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