I'm 100% stock index funds ($1,800,000). I'm retired, single, 62. Earlier today, I changed my Dividends & Capital Gains in my taxable account from 'Reinvest' to 'Receive Cash'.
I’ve wondered about this for a while, so if you are invested in a fund that pays dividends quarterly you just budget it into thirds so you know what your monthly expenditures can be?
Cash in a portfolio is money market accounts, savings accounts, CDs, Short term bonds, MYGAS, stable value fund, G fund(TSP) Anything that can be sold instantly for cash with little pentaly
I am retiring in one year and this content really is putting my mind at ease. I only have stocks in my 401K (2/3 of which are roth) for the tax shelter. My cash is sitting in laddered CD's in a bank. It comes out to a 80% stock 20% cash portfolio.
A lot of pundits would say your stock potion is way too much . IDK. You want to keep up with inflation, and you want enough to die decently. Do you need 80% stock exposure to do that?
This is one of my favorite videos you’ve made thus far James. Thank you for your succinct framework for how to allocate, replenish and live on cash…especially in a down market 👍🏻
For some years now I've been questioning the common wisdom of asset allocation by percentages. Allocation by "how much do you need" sure makes a lot more sense to me!
I found your channel and I love it. Clear, concise, and informative. It is very rare that I stay focus on financial talks. However, You capture my attention on every videos I watched because it affects me as I head to retirement. Thank you so much.
I agree. I believe most people keep way too much actual cash in retirement rather than just keeping a stock/bond allocation of say 60/40 with perhaps some reserves in cash. By pulling from whatever is up the most or not down as much in the case of when both stocks and bonds are down at the same time, it will aid in keeping your portfolio balanced and keep your money invested. Too much cash simply ensures lower returns.
I watch and have been watching videos of this sort for a long time. I am a Selfmade Millionaire, Retired in my early 40s and YOU are by far, the best at what you do! I agree with your strategies and realistic, Non-emotional approach to Investment and Retirement planning. I like to quote Potter from "It's a Wonderful Life" When he tells George that they both succeeded "BECAUSE THEY DIDN'T PANIC!" The market IS a Rollercoaster... HARD STOP! YOUR ACCOUNT WILL GO DOWN!! From time to time, that is. BUT, It ALWAYS goes UP! Stop bitting your nails, folks, because Once you understand this..... Life is Good!
I like your strategy of setting up an allocation that includes some cash and then rebalancing to that allocation as either the stocks change value, the cash is drawn down, or dividend / interest is paid. Very straightforward, and can even be automated by something like a robo-advisor.
I really appreciated this video as it is top of mind as I start my retirement in the next few weeks. Your explanation and the different approaches/considerations were very insightful. Thank you!
Most people listen to financial advisers and make a huge mistake on not investing enough in stocks, especially know when we are in the beginning of a huge technowldgy on like never seem before, Growth stocks all the way.
Great video. I agree that anything that you can liquidate easily is cash, less equities. As I retire, now close to age 63, I am looking at this exact situation.
I had to rewatch the last two parts of this. We are 100% in stocks/ETFs which generate income. We have a three year cash reserve ($60k). We need about $20k to fill the gap between SS, pension and our living expenses. We have less than $1m in stocks. You helped me realize that I don’t need our portfolio to generate more than 4% in dividends. Great video
Thanks for this video Exactly what I am trying to figure out right now 61.5 retiring 65/66 🤞SS 70 don't wanna take negative hit when pulling $ out. I'll listen couple more times and learn something thanks again
I have 85% stock paying dividends and 15% in CDs. I'm currently living off my dividends and a small pension. No debt and waiting until 70 to collect SS.
I do not count portfolio as cash since when you pull from that it will be seen as income. Cash in a bank is not seen as income. For the purposes of say qualifying for ACA, you will need to pull some money from somewhere ( or do roth conversions ) to generate income and hit the minimum number to qualify for ACA. We plan to pull in down years, small draws from the conservative side when needed to get ACA and back fill some of the cash and in big up years, pull more money to back fill cash bucket as needed. We have 4 years of household expenses with travel in cash now. That allows us to ride out multiple years of market downturns. We picked this number because since the beginning of the market the longest bear market so far has been 2.9 years ( so 3 years ). With the avg being just over 1 year. Don't know what the future will bring but you have to start somewhere and all we can do it go by what historically has been true and model something around that. Cheers.
I will not be 100% in stock when I retire. I will probably do a 80/20 or 70/30 depending on what I need to generate in the way of cash. I love your videos by the way they are very clear and I love how you explain this topic. And great having the caption box as well. Good job I subscribed I’m getting ready to retire in five years and I loved your five year before retirement video. Very helpful.
James, to your question of what do we consider "cash". Like for many things, I have a definition for my circumstances that I realize may not be an all encompassing definition for all possible circumstances. I consider "cash" to be any value assets that are not invested or in any way needing to be sold in order for me to "spend" the value. Therefore I consider checking and bank savings accounts are "cash". But also, I consider values that are in IRA and 401K accounts but not invested, I consider those as "cash" too. Still being in my gap years I've been spending down "cash". The "cash" assets I have were mostly my emergency fund during my career years. After passing age 59 1/2 I no longer have a penalty to consider any time I need funds out of my IRA or 401K. Without that penalty I no longer felt it necessary to leave funds idle. The emergency fund was money losing value to inflation. To me that was an acceptable small insurance cost compared to the cost of a job loss that would most likely coincide with a down stock market. Without the pre - 59 1/2 penalty I no longer saw need to continue having "cash". So my decision was to spend down cash before I ever start selling investments. I have spread out spending "cash" from the IRA account based upon staying under the next step in progressive tax rate. I'm OK going into the future without idle "cash" as protection against a down market stock sale. As I learned from your videos a couple of years ago, using one of the long term withdrawal strategies (such as 4% rule) is how we plan for the investments to last the rest of our lives. Thanks for continuing to put out vids that cover the technical and attitude aspects of retirement planning.
About to retire and have a 3 bucket strategy based on money need. Two years of spending need in Money Market and short term bonds, years 3-8 in a conservative 30/70 fund that pays a healthy dividend, then years 8+ are 100/0 broad stock fund.
Really well done with great examples and alternative options with logical reasoning. Situation: < 59.5 -- I keep 3 years in bonds and reset it every year or so whenever the market it 'up'. Take out 60K from Trad IRAs to fill Ally savings cash bucket. Take additional as needed to fill Ally savings cash bucket from contributions part of ROTH IRA.
I used to think of my bond funds as stable but they proved to be equally volatile in 2022. So they seem to be sticky on the way up but not on the way down. By the way, I retired 3 years back when I was 56 and realized what you said about portfolio throwing out money and possibility to have a much higher stock component. But was hesitant since it went against received wisdom. Glad to hear this well argued vlog which confirms my intuition.
This is the best RU-vid video I have come across to describe the use of bonds in a portfolio. absolutely brilliant James. Well done and thank you for this content. I have found it really helpful. 😀
Good video but inflation needs to be expected for increase needs. I am invested in dividends etf, reit, cef, and equities. I hope to live on SS and dividends. Principle for un expected expenses
Great content! And the words on the screen really helps with comprehension while you were talking about it. I am going to retire next year and it sure is helpful to know what to expect and how to spend the money. I didn’t even think about that the need of cash would decline down the road when Social Security kicks in! This helps me to think that I should be a little bolder with respect to spending in my go-go years.
I don’t think in terms of cash vrs. investments. Rather I think in terms of relative risk. My least risky is in my bank account. Then I have about 1 year’s worth income in a money market account. Then I have about three years income in a Tax Free Bond ladder. Then I have my IRA and ROTH. Finally I have a regular highly-diversified managed brokerage account. Up until this year, I’ve been doing partial conversions from my regular IRA into my ROTH. I’m now having to take RMDs from my IRA which I use to extend my Bond ladder. My goal at retirement was to not have to pull money from investments during a down turn because often what you pull out could have been worth much more long-term. I call that ‘expensive money’. I don’t want to pull out expensive money, nor do I want to pull out because I’m in a panic. I can always tell myself that I’ve got 3 to 4 years of expenses already covered, so I can weather a recession. So far my strategy has worked well. I’ve been retired for 7 years now and while my annual expenses are quite a bit less than my working annual income, the net value of my nest egg is still much larger now than when I actually retired.
Cash is a separate asset class and correlates differently than bonds. Think of 2022 when bonds went down and cash wen up. Cash is not the same as Bonds. Sounds like the "60/40" portfolio you are describing is actually more like 60/36/4" portfolio. More people need to use "Guard Rails". A 100% equity portfolio may not work well depending on the portfolio size relative to the spending needs. Other factors include RMD and taxes and asset location strategy.
I even consider a dividend stock like AT&T as cash. I get a dividend payment of 5% every year and everytime I can decide to take the cash or to reinvest. And there is not really a risk of dropping. So I see no sense of cashing on a bank account.
Yes it changed my thinking about bond funds. I got out of funds in early 2021 and invested in individual bonds, treasuries and CD’s. I do still have a managed bond/equity fund that I’m seriously considering converting to index stock fund/individual fixed income. Doubt I’ll ever put any more new money into bond funds in the future.
So happy I recently discovered your RU-vid channel - your demeanor and voice combined with your knowledge of financial topics is a rare combination. One think I wish you mentioned / clarified more is … are you always talking figures $ that pertain to an individual or to a married couple. For example when you say “you may have a $40,000 social security income” are you thinking a two person household or an individual? When I’m a one person subject it’s hard to know where I stand with the dollar equivalents.
I just recently realized this. I’ve always kept track of ‘liquid’, but did not included the short term bonds from my 401k. It was the rise in high interest savings that made me aware. Also, I do the first bucket based on dollars, not %. Only investments are apportioned by %. That means while bucket 1 is by $, the rest are by %. Finally, I have the good fortune that pensions give. I believe that makes it easier to use a dynamic withdrawal strategy. I’m guessing other types of annuities do the same.
I am comfortable with 100% stocks. CASH for me is anything liquid that is including stocks that I can sell anytime I want that is not tied with my 401K or iRA or any other retirement account.
CASH = Cash, short term CDs, Money Market. Long term CDs, Bonds and T-bills typically have a longer term horizon to me and have a penalty for early withdrawal. So to me, they're less like cash because of that. I think of them as intermediate investments, which I couldn't tap into immediately, if needed.
This is the best video I've ever come across that actually explains when to re-balance and just how much. My question is, does this apply to a portfolio that is in an IRA or more specifically to after tax investments? With my IRA, I felt stupid and invested in a target date fund. Now, I don't know what to do.
Target date fund is just like a portfolio of stocks and bonds wrapped up in one fund, and they do the rebalancing for you. You just take out how much you need to take out. You still might want to have a true cash "HYSA" or CD ladder of money as a buffer between you and a 2020 type bad year, but otherwise, you can view the target fund as one big pile of retirement savings.
James, Always love your content Sir! I am blessed to have a pension and that plus Social Security exceeds my monthly full expenses. House is paid off. Currently invested 100% equities-(90% S&P500 fund FXAIX, 10% International low expense fund)-idea is I never need to touch them, so if portfolio is up any quarter-(3 month cycle)- I will sweep profits into my High Yield Savings lock in gains, if they are down any quarter I do not touch them so never a loss--REPEAT. Any obvious flaws with this strategy? Rich
Consider lumpy expenses. If your high yield savings will cover that, great. I just had to drill a new well. You may need to buy a new car, put on a new roof, be displaced due to a natural disaster and need 10s of thousands before life gets back to normal. Or you may just decide to do a slow vacation touring in Europe, Asia or South America and need to fund much more than normal living expenses. Or multiple of those might hit at once. While working you might have funded it on credit cards, some other line of credit, etc. Now you are retired, debt may be less desirable.
My wife and I expect to fully fund all of our retirement needs and then some from SS, state pension, teachers pension and returns from VIG in brokerage account. Expect to hold about $250M in cash in brokerage account as well. Roth IRAs for both of us will be 100% equities, my traditional IRA of approximately $1MM will be 80% equities with balance in short term bond investments for RMDs and QCDs. Great video! Thank you James!
We are 82% equities, 15% bonds, 3% cash across multiple accounts, both tax-deferred and not. My allocation target is 80% stocks--bull market has had its effect on our stock allocation--will rebalance at some point. Dividends/interest covers RMDs for now (I am 75), although that will be harder to achieve as the RMD percentage increases. We're living on SS, RMDs, taxable dividends + interest and a tiny pension. Bull market makes everything easy, but trees don't grow to the sky. Next downturn will cause psychic pain as our portfolio shrinks, but we probably won't have to sell anything to stay afloat.
Not all stock, but very close. Within a few years of full retirement. Also, we have a pension that roughly equals what our two Social Security payments will be combined. That helps a great deal. Also, have enough cash to replace at least a 18 months of dividends or account withdrawals.
Cash = checking balance, savings balance, HSA funds we have receipts for, T bills, short term CDs, ROTH IRAs (we are over 59 1 2), I bonds held for more than a year, home equity.
The name of the game is cash flow. If SS, any pensions and dividends, interest etc meet your needs, why sell anything? That is planning to fail. Live on your generated income, and you don't need to worry. That plan works for me...
1st Dividends No longer on reinvestment, 2nd Cash Reserves in Bank, 3rd Roth IRA Basis, 4th Roth 401k investments/Growth. This would be my strategy based on my structure currently.
Today is May 9, 2023. I am 62 years old and have been retired for 4 years. My income is 90% dividend paying stocks,and 10% IRA withdraw. My yearly income is over $500,000 per year. I still invest my extra cash into additional stocks that I own that pay a dividend. My goal is to keep doing this for 10 more years. I do this because I hate holding a lot of cash in the bank that earns nothing . I realize that I will need to stop investing eventually as my tax liability will keep going up. Your thoughts? Thanks, Ed
The biggest difference between the cash in my bank account and the "cash" (bonds/mmkt/conservative) in my IRA portfolio, is that the bank account cash is tax-free. So once I come up against the 12%->22% tax bracket confiscating punishment for being a productive member of society, that's when I can pull the bank account cash if need be, similar to how many use the Roth
Awesome information. Currently I'm 100% dividend stocks. Some of them act like bonds because they are not a growth stock. I should be getting more $ from dividends but earlier in life i invested in growth and they have returned 1,000% -- I just wish I had more $$ to invest back 15-20 years ago. slowly working on rebalancing and will probably keep more in cash, and add some bond ETFs. thanks for this info!
James, any thoughts about buying CDs with respect to the length of time, engaging against high-yield, savings accounts, and money market accounts, with future interest rate drops expected?
I’m 72 withI 18 mo cash reserves should the market pull back 20% plus a home maintenance and auto set aside. My investments are all actively managed and equally divided between large cap, mid cap, small cap, and international
60/39 and some soda and beer cans I found littering the road way and those cans typically are tax free income unlike the rest of the portfolio which has some type of tax penalty.
Retired in 2022, I am applying a "glidepath" to my (initially) 60/40 portfolio, to reduce sequence of return risk - by planning to go from 60/40 up to 100/0 in 15 years (or so ... according to my state of mind when I'll be 95 ;-). In practice this means spending on my "cash-like" (= no downside volatility, up to 3% yield, liquid) funds first, at least in the current market conditions. Glad to have some corresponding "cash-like" accounts 1) underperforming and 2) tax free for the time being. Seems to work out fine up to now. Psychologically it is quite reassuring to not spend on low equity in bear markets, but to do so (perhaps one day ;-) in bull markets. So, finally my decisions are driven basically by asset-allocation ratios. P.S. I must admit I do not see the advantage of dividends in terms of cash-flow vs capital growth, but that might be because I do not benefit from the same tax conditions as you do in the US.
Sounds god to me. And total return as opposed to dividend investing makes sense. Dividends are part of total return. But I invest in stocks and keep cash as a strategic asset to have some ammo if markets opportunities are attractive. Personally, I never treat dividend income differently than capital gains. And if you are past major sequence of return risk, it makes sense to increase returns by accepting additional volatility. There is a tendency for advisors to use any "overfunding" to reduce volatility rather than increase expected return. At least some of this may be their interest in reducing the volatility of fee generating assets.
Is this what having money invested in target funds supposed to for the investor? If money has been re-balanced every year and the target fan by the advisers, then, if I have a target fund an appropriate one age wise, then I don’t have to worry about rebalancing myself. If I need the cash, I just take what ai need that year for my expenses. Then, of course, RMDs whether you don’t want/need to withdraw and the IRMAA cliff to mess it all up. Comments?
For me, cash is: in the bank, I bonds over 1 year old, and money in brokerage account in money market. I don't consider true bond holdings in an IRA as cash. This is more for replenishing cash positions down the road.
I was looking forward to working with you and your firm but after taking the questionnaire on your website, It appears that my wife and I do not have enough $$ to make it worth your time.🤔
We’re actively looking to add capacity so we can reduce that minimum. We hope to serve more people and are working hard to make our services more accessible. We appreciate your patience while we do so.
Hi James Enjoy watching your videos and how you explain them but can you explain how if you had £1 million then kept £250,000 in cash and invest £750,000 at 7% compound it isn't as you said £1.2 million it's less????
A HELOC is immediately spendable and strikes me as a good source of emergency funds. I've used one to smooth out cash needs for years. Velocity banking is paying off debt with debt and strikes me as ineffective when used alone. If you are unlikely to dig into an emergency fund, an unused HELOC is free and the cash could be used to buy something with a higher expected return.
You don't risk what you need to live on. That said, I retired early and may have a 40-year retirement. I keep 18 months living expenses in stable investments. At 70, I will collect S.S. and that will cover all my expenses and entertainment.The rest is mostly invested. I plan to leave a legacy for my family. Nothing is guaranteed, but going with 100 years of stock market history, why would I not have that money working for 40 years???
I have about 50% in the market, 30% in CDs, 10%cash, and 10% gold/silver. Basics: I just watch my checking account balances. If they still go up each month, all is OK. This includes required RMDs, SS, and a small pension. Key: Zero debt. Age 73, simple math. I invest my cash in stocks(recently CCL, TSLA, HD, and MMM) when they don’t look so great.
Remember: When you are retired (especially when first retired) SPEND what you have saved/invested. You are not still saving for the future! EG: I just rented an RV for a mini road-trip that I always wanted to do (PA to Fallingwater, United 93 Memorial, Johnstown Flood Museum, and area with my grandson and his parents. (Cruise America RV rental, simple, about $275/day).
@@CheckThisOut77I’ve been retired now for thee years, and I have settled on the same tool for monitoring my spending. At the end of the month I pay off the credit card and compare the checking balance to what it typically is at the end of the month when we are spending within our means (the amount we’ve decided live off each month).
Good content! When considering spending cash based on a market drop percentage (such as the suggested 20-25%), from what point should the drop be measured from? From the all time high? From an arbitrary date such as the first of the year? From the last withdrawal date? Almost any date selected has the potential to be an anomaly. Maybe the all time high was a very unusual spike that lasted only a very short time. for example. Your thoughts?
I read an article that resonates with me. The article stated that more frequent small withdrawals from your portfolio can lead to higher interest in your portfolio, think ( dollar-cost averaging) in reverse as opposed to 1 or 2 withdrawals per year.
Why wouldn’t you just spend your cash first to let your investments grow? Especially paper cash that is impacted by inflation. A little cash for emergency but the rest is spent year 1 and 2.
I'm an engineer, and my gut is calling BS on this. If we could indeed use this bucket method to pool cash and then draw from cash during down markets to protect our investment - then in accumulation phase there should be a way to similarly pool cash during upmarket, and then buy low once the market is down. That would be market timing, and we know it doesn't work. So I call bullshit on this, and a phycological cope.
As of this comment the S&P is up about 18% this year. However, it dropped more than 10% earlier this from its high point before recovering again. Intrayear decline means the market will drop throughout the year on average even if it ends the year in positive territory.
this video has no value to my retirement.. my portifolio in retirement is in all safe money..fixed income… fixed indexed annutiies…. no dowside from the market.. i pull from all my SAFE accounts monthly and have no concern for the stock market.. I have enough to do that but I understand many have to get some growth in retirement.. I have enuf in pension and social security and fixed income to enjoy my retirement… most people should strive for that so they dont have to take risk in retirement.. I know thats hard.. but try to make it a goal.. thas what I did…
Okay, just NO. You pull money out when you need it to meet an expense. Not to meet a "rule". I'm still hoping you can do basic math, and that just because you've retired, you haven't become a fool.
