quote:

You're not accounting for sequence of returns risk. If market drops first few years of retirement and you draw 5% annually it will rapidly deplete your nest egg.

If you are being risky, sure. Right now with bonds and CD's like they are if you are having a major market issue affect your retirement you are being incredibly risky. You could be 100% bonds or CDs and be getting basically that 5%.

But I always say, why would you not have at least 15 months in a CD, money market, etc for your future spending? That way your next 12-15 months has 0% risk? Your risk in the market is 15+ months away and a lot can happen in that time period.

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Posted by CharlesUFarley

Daphne, AL

Member since Jan 2022

269 posts

Posted on 4/1/24 at 5:10 pm to baldona

I like the bucket approach pushed by an investment website I won't name.

The basic approach is 2 years of projected spending in a cash bucket, 8 years of projected spending in a bond bucket, and everything else (15 + years) in stocks. I deviate from these amounts, but I like the approach.

The thing about this approach is that if you elect not to reinvest them, the annual distributions from stock mutual funds tend to fill up the cash bucket every year regardless of market conditions. It's not really scientific, but it is kind of painless in that you don't have to put a lot of thought into it or agonize about selling at the right time. It's going to happen anyway, and hopefully the fund manager chose to sell at a good time. This probably doesn't work as well with passively managed funds.

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