Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
michael kitce's looked in to the effect of cash buffers . he found more often than not cash buffers for spending in down markets resulted in less income , not more .
in summary
"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? "
Thanks - this is very helpful! I'm not that big on cash - psychologically I don't think I'll feel better taking money out of the bank versus some other investment account.
I disagree with those who say that investing after retirement is a MUST. .......
My point is that living frugally before and after retirement and LUCK also play a large part in on how well one will do in retirement.................
I don't understand why anyone would want to live frugally if they had a choice. I worked hard, saved some money and now I want to enjoy it. I live in a nice house in a high COL area with lots of great benefits. I have hobbies like photography that can get costly. I like to travel and I certainly don't want to watch every penny I spend.
I retired a little over 6 years ago. Since then my investments have done well. In fact they have more than doubled. They are more than 3 times the amount before the start of the Great Recession. I could have done much better, but I sleep well at night with investments that are well diversified.
My ignorant, illiterate peasant grandfather who immigrated from a poor area of Italy understood. He told all his kids and grandkids to have your money work for you.
same here , we only live once and i want to be able to do and see as much as i can now that we are in the last down of our lives .
our goal was to live better in retirement than we did while raising a family and scrimping and saving . now is the time to enjoy what we produced .
just got back from a great trip to charleston sc on thursday and heading out again to new orleans in a few weeks .
we just recovered back everything we spent the last 2 years this week as we now have a slightly higher balance than when we started .
hopefully it will hold and comes january when we reset our budget for next year we will get a raise .
if we were suddenly able to double or triple our budget we would still find ways of enjoying that money . in fact if i gave an extra 100k to anyone who claims to live frugally and told them they had to spend it to get it they would find a way to enjoy every penny . if i made it a yearly thing they would look forward to that money .
Thanks - this is very helpful! I'm not that big on cash - psychologically I don't think I'll feel better taking money out of the bank versus some other investment account.
i like running 3 different portfolio's so i can optimize the time frame which we will need the money .
we keep the current years spending money in cash , then 5 years withdrawals in a very conservative income model with only about 23% equity and the rest all kinds of bond funds from short to long .
another 5 years in a 60/40 model covers eating in years 6-11 and a 100% equity model goes out from year 12 to 30 plus years .
ytd returns are , my 100% equity growth model is up 8.22% , my growth and income model which is 60/40 is up 6.33% and my capital preservation and income model which is 23% equity is up 2.34%
at about 38%-40% equity headed to 45-50% eventually . the glide path was really for just for going in .to retirement until we had some up years . i started at about 30 -35 % down from 100% equity . we don't need more than 45-50% equity
I don't understand how you could be under 40% if you have a long term portion of your portfolio at 100% and the intermediate at 60:40. That would require a huge proportion in you 23% portion. If so, you are not getting much overall return since the 23% has only given you a couple 2% YTD.
i go for the total overall stock allocation . i feed it in to x-ray at morningstar and that guides me as to how much extra i need to put in the income model to achieve the total allocation i want .
the return is the same at the end of the day with any other comparable 45-50% equity allocated portfolio that also includes cash as part of the bond budget
doing equal amounts would give you a 60/40 overall mix so it takes a bit more in to the income model to get it to 50 %.
as far as returns the income model holds different allocations at different times .returns have actually been as high as 20% in 2009 . they were 7% for 2016 so the model is not fixed.
right now they are lower after being pretty decent because we got rid of high yield after a nice run up . at the moment there is not much lower risk opportunity . but things may end up migrating to international bonds or some other income area with better returns . we never know where we are headed next and which funds get swapped . .
valuations are just to high to be safe now in high yield , but the model changes as better low risk opportunity comes up . the high yield returned 16% last year . they try to keep beta at about 2/3's less than the s&p 500 for the income model so it is more aggressive than just a bond fund ..
so you have three models , the income model is 2/3's less than the s&p 500 , growth and income is about 1/2 to 60% the s&p 500 and the growth model trys to stay at 1 or a tad above the beta of the s&p 500. of course they have two other models that carry a higher beta as well but i don't use them . the select fund model is up 9.30% ytd .
don't forget if you held a few years cash your overall return would be less than the income model . you really don't need more than the current year in cash this way .
if you take a conventional 60/40 or 50/50 mix of vti and agg you have vti the total market fund up 6.80 and agg up 1.72% so if you do the math the 3 optimized portfolio's have a better return plus the income model will likely have different investments through the year beefing up that return .
Last edited by mathjak107; 04-29-2017 at 08:44 AM..
I disagree with those who say that investing after retirement is a MUST. Neither my grandparents nor my parents invested before or after they retired and they had plenty during their retirement and they also left fairly large inheritances -- BUT they had no debts when they retired, a large cash reserve through savings, and their social security was more than enough to meet their monthly bills. However, that being said, my grandparents also all had good health until the last few months of their lives, which made a HUGE difference. (My mother is still going strong at 84, living on her own and with no serious health problems. My dad, btw, died of cancer while he was still employed, but he had very good medical and disability insurance.)
My point is that living frugally before and after retirement and LUCK also play a large part in on how well one will do in retirement, and I just think it is wrong to issue "blanket" do's and don't. What applies to some people just might not apply to others.
I suspect that your parents and grandparents were getting a much higher interest rate on their CDs, bank savings accounts, or money market accounts than any of us can get now (or for the past 8 or 9 years). If rates ever go up to those levels again during my retirement lifetime, I will definitely move a good chunk of my mutual fund investments to "cash" in these FDIC-insured investments.
Regarding the OP's question. Check with the company that runs your 401k. They may provide free "investment advice" to 401k participants (not saying it will or will not be the best advice, but it might provide a start for your education about investments) They probably have a lot of good information on their web site, too.
You could consider investing in real estate, either properties and/or notes. With notes, you become the bank on loans. You can earn 10% interest without becoming a landlord.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
