do you ever tap your investments

[corn18]

How long will your current cash last and what, if anything, are you doing to replenish it? Have you done things like stopping reinvestment of dividends and capital gains for taxable accounts?

I have 3 years of cash. Well, I had 3 years of cash on 12 Mar 2021. We are spending it now because I don't want to sell anything this year because I am in the top tax bracket due to my severance package.

For 2022, we'll decide how to fund it when we get there. If the market has tanked, we'll spend cash. If the market is flat or growing, we'll sell whatever we need to fund 2022 from whatever keeps our AA @ 50/50.
One thing to keep in mind about cash is it makes no sense to have any cash if you are just going to replenish it every year, regardless of market conditions. Might as well not have any cash at all because it just creates drag. You need to sell stocks and/or bonds in flat or up years to fund that year and save the cash for down years.

I stopped all dividend and capital gains reinvestment years ago. I don't get much of that anyway with index funds.

[disneysteve]

One thing to keep in mind about cash is it makes no sense to have any cash if you are just going to replenish it every year, regardless of market conditions. Might as well not have any cash at all because it just creates drag. You need to sell stocks and/or bonds in flat or up years to fund that year and save the cash for down years.

Understood, though if you are saving cash for down years and you spend some of it, you need to replace it so that you're set for the next down year. If you spend 30 years retired, you're likely to have quite a few down years.

The other thing is that even in down years, investments still generate income - interest, dividends, capital gains. I realize you don't want a lot of cash due to the drag on the overall portfolio, but whatever amount you decide you do want - perhaps 1 year of expenses - you need to maintain and replenish as you spend it down or else at some point you'll have no cash left.

Am I wrong about that? Clearly I'm still trying to work out the details of how we will fund retirement and where we'll be drawing the money from each year.

[corn18]

Understood, though if you are saving cash for down years and you spend some of it, you need to replace it so that you're set for the next down year. If you spend 30 years retired, you're likely to have quite a few down years.

The other thing is that even in down years, investments still generate income - interest, dividends, capital gains. I realize you don't want a lot of cash due to the drag on the overall portfolio, but whatever amount you decide you do want - perhaps 1 year of expenses - you need to maintain and replenish as you spend it down or else at some point you'll have no cash left.

Am I wrong about that? Clearly I'm still trying to work out the details of how we will fund retirement and where we'll be drawing the money from each year.

That is a way to do it, but that is no different than having no cash. Think about it. If you have 3 years of cash and spend one year of it and then replace it by selling other investments, then why not just sell the other investments every year and not have any cash? In this scenario, it's just a mental thing that helps you feel better.

My dividends/interest/cap gains are not even close to covering my expenses, so that is a non issue for me. And I have no intention of chasing dividends to close that gap.

I may or may not replenish the cash that I spend in a down year (or this year). I will look at my overall portfolio and risk to see if I want more or less cash going forward. Only reason I decided to have 3 years to start retirement is it seemed like a non controversial amount. Just like a 50/50 portfolio. It may not be the right answer, but it sure isn't the wrong answer, either. I can see myself never having more than one year's expenses in cash to start the year and no cash at the end of the year. I'll have to see how my emotions handle the next market drop.

[disneysteve]

That is a way to do it, but that is no different than having no cash. Think about it. If you have 3 years of cash and spend one year of it and then replace it by selling other investments, then why not just sell the other investments every year and not have any cash? In this scenario, it's just a mental thing that helps you feel better.

My dividends/interest/cap gains are not even close to covering my expenses, so that is a non issue for me. And I have no intention of chasing dividends to close that gap.

I may or may not replenish the cash that I spend in a down year (or this year). I will look at my overall portfolio and risk to see if I want more or less cash going forward. Only reason I decided to have 3 years to start retirement is it seemed like a non controversial amount. Just like a 50/50 portfolio. It may not be the right answer, but it sure isn't the wrong answer, either. I can see myself never having more than one year's expenses in cash to start the year and no cash at the end of the year. I'll have to see how my emotions handle the next market drop.

That all makes sense, and I agree that there's not one "right" answer. I'm still exploring the options.

It seems to me as someone not yet retired that the first year or two of retirement will be an adjustment period where we are figuring out the best way to draw from our investments and having a nice cash cushion will ease that process. We won't have to worry about where the money is coming from for the next bill because it will be safely waiting in our money market if needed while we are deciding where it would be better to draw it from. Once we're settled into a retirement withdraw plan that's working for us, having less cash on hand would be fine. I think one year's worth would be a good baseline.

[Scallywag]

Understood, though if you are saving cash for down years and you spend some of it, you need to replace it so that you're set for the next down year. If you spend 30 years retired, you're likely to have quite a few down years.

The other thing is that even in down years, investments still generate income - interest, dividends, capital gains. I realize you don't want a lot of cash due to the drag on the overall portfolio, but whatever amount you decide you do want - perhaps 1 year of expenses - you need to maintain and replenish as you spend it down or else at some point you'll have no cash left.

Am I wrong about that? Clearly I'm still trying to work out the details of how we will fund retirement and where we'll be drawing the money from each year.

We're 2 decades away from retirement, but our plan ensures that we will be leaving a large inheritance. Depending on the size of our assets in 20 years, we will be leaving anywhere from 1/2 to 3/4ths of our nest egg, living off the remaining 1/2 to 1/4th of our assets for our own retirements.

I think if you have access to a solid health plan in retirement, plus a paid off home, and some SS / pension, there will be no need to make a decision on which assets to spend down, for living expenses. if you retire before you're eligible for Medi-care or SS, then I'd spend recent assets / highest cost assets first, to ensure you don't owe a lot of taxes when you are also paying out of pocket for living and medical expenses.

I wonder if that makes sense? Cash, to me, is peace of mind, even when it's sitting in a bank / credit union savings a/c, earning almost no interest. I hope to have a year's worth of expenses in savings at all times so that we don't have to sell when the market is down or otherwise try to time the market because we can't live in our brokerage a/c or eat mutual funds for dinner or go to the Dow when we're ill.

[srblanco7]

That all makes sense, and I agree that there's not one "right" answer. I'm still exploring the options.

It seems to me as someone not yet retired that the first year or two of retirement will be an adjustment period where we are figuring out the best way to draw from our investments and having a nice cash cushion will ease that process. We won't have to worry about where the money is coming from for the next bill because it will be safely waiting in our money market if needed while we are deciding where it would be better to draw it from. Once we're settled into a retirement withdraw plan that's working for us, having less cash on hand would be fine. I think one year's worth would be a good baseline.

My initial thinking was to ER with a couple years of cash as a stockpile to protect against SORR in the event of a market downturn in the first few years of ER. In that event, we’d use the cash and refrain from selling any 401k or brokerage account shares to allow time for the market to recover. (Hopefully) once we get past the first 5 years or so of ER, our SORR will diminish, we’ll have a solid handle on our actual spend (hoping this doesn’t actually take 5 years), and we’ll create an updated plan/approach for managing our finances, as needed.

[disneysteve]

(Hopefully) once we get past the first 5 years or so of ER, our SORR will diminish, we’ll have a solid handle on our actual spend (hoping this doesn’t actually take 5 years), and we’ll create an updated plan/approach for managing our finances, as needed.

Yeah, I think the first couple of years especially is when you actually have to figure out how to manage everything. After that, I imagine it gets easier. At least I hope so.

[srblanco7]

Yeah, I think the first couple of years especially is when you actually have to figure out how to manage everything. After that, I imagine it gets easier. At least I hope so.

Agree and our first few years of ER will still include expenses associated with kids in college, which creates an added variable. We generally have (reasonable) tuition funds set aside in 529 accounts, but there are other additional expenses with getting the kids thru college and getting them set up on their own.

[LivingAlmostLarge]

Absolutely!

We use our taxable investments as our mid-term planning tool, most commonly a holding tank for buying real estate... think 3-10 years out. We build up our taxable brokerage, then when circumstances arise that we need those funds, we'll pull it. I wish I could easily upload the chart from my Vanguard account... It's quite apparent exactly when I've done that over the last ~10 years (4 times). Sep'12: Bought first home, pulled ~50% of my taxable investments out. Aug'16: Moved, bought 2nd home, pulled out 95% of investments. Oct'18: Paid off first house (now a rental), pulled out 75% of investments. Jun'20: Sold house #2 & bought #3 (current) in cash, pulled 95% of investments out. In each case, a healthy chunk of cash was also involved, which as a whole, mitigated the risks of our relatively shorter outlook than typically desired for stock investments.

The strong markets over that period has definitely helped that dynamic, because we always ended up profiting each time we sold our investments. But at the same time, that account has never made it above $100k. However, I do view that brokerage as one part of my taxable investments as a whole, which includes our real estate, so I've always more or less retained that money. Not necessarily the BEST plan, but it's been our plan, and continues to be -- once that account has enough to buy a house that looks good as a rental, we're planning to pull it out again for the purchase.

I think this is where my problem is. I am shying away from drawing even for a rental though I know it makes sense. I should have invested our money earlier rather than holding onto cash to buy a rental. But coulda, woulda, should. Anyway I am not sure i want to keep pulling money out. I hate the idea of money being used instead of cash flowing it.

I also wonder if I shouldn't invest more of our cash EF because we do have I bonds.

[disneysteve]

I also wonder if I shouldn't invest more of our cash EF because we do have I bonds.

If your I bonds are at least 1 year old so they are redeemable, they can certainly be part of your EF. You would still want some liquid cash account since it takes a little time to redeem a bond, but otherwise you don't need to sit on a pile of cash beyond that.

[Nutria]

Twice I cashed some in (when I was young, and then not so you) and foolish, to pay CC debts. It's been 15 years since I last did that.

[sethmachine]

Do you guys ever tap your taxable investments? Or is it untouchable once it's gone into the brokerage account? I guess I struggle because once it's gone to our brokerage account I don't plan on using it. Money in our savings in our cash is what we can use.

Yes I do not touch my taxable investments (nor my pre-tax/retirement savings either, obviously). I try to predict my budget so whatever I contribute I won't need to claw back for 1 year in case of an extreme emergency/recession.

I treat the money as if it it is more or less frozen until my retirement or if I decide to buy a home.

Especially when dealing with taxable accounts, you should avoid touching investments until they've met the 1 year long term capital gains threshold. Otherwise, if you sell investments and they've appreciated, you'll pay tax on the gains as if it were income, instead of the favorable 0%-20% federal capital gains tax. More here: https://www.nerdwallet.com/article/t...ains-tax-rates.

I have not even bothered rebalancing my taxable account yet, as I want to control when I pay long term capital gains taxes. Instead I fix this as I contribute more money to both my taxable and retirement accounts.

The only time I would ever touch my taxable investments:

1. Extreme emergency/lost job/etc.
2. Downpayment on a home

[bennkar]

I haven't touched my taxable investments and don't plan to. That said, I have two years to go to retire and I am slowly spending down my savings as I am taking advantage of the last times I will be able to contribute to Roth (meaning I don't have enough salary after these contributions to live on). If that cash runs out (doubtful) I will sell my least appreciated assets first. But it shouldn't be a major amount in any case. After retirement I should be cash flow positive again due to my pension and no retirement contributions so this should only be a short term problem.