Quote:
Originally Posted by Aleta
Jim: How can't you draw down in a down year? If you have an IRA, you have to take out a certain amount according to the tables. You can wait until you are 70 1/2 to start drawing from it. I would always start with any cash accounts first receiving interest before going to the traditional IRA's.
Also, what did you mean by not taking an inflation adjustment in a down year?
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Aleta- most of my approaches are dealing with between ages of 53 and 70.5 (before RMDs kick in) and dealing with a Roth. Issue 1 is I hope to have most of IRA monies moved to Roth between now and age 70.5.
If a person has passed the point of no return (where bucket 3 does not exist), then they are drawing down principal and this strategy is much less effective.
Plan is a 3 bucket approach:
Bucket 1 is 9 years cash. This means when I retire, I want 9 years expenses in CDs or cash.
Bucket 2 is income generation. It needs to generate 1 years income each year from dividends, interest and growth.
Bucket 3 is growth. It's goal is to replenish bucket 2 with moderate success.
I would NOT take out of bucket 2 in a down year and I would not take out of bucket 3 in a down year.
I would NOT increase income from bucket 1 in a down year (inflation adjustment) either.
year 1- if portfolio generated income needed, 1 years cash moves to bucket 3
year 2- if portfolio generated income needed, 1 years cash moved to bucket 3
repeat as needed until I have only 3 years expenses in cash.
The goal is to either a) increase the shares in buckets 2 and 3 or at minimum maintain the shares in buckets 2 and 3 in a down year (do not sell and decrease shares).
Decreasing shares increases probability of running out of money in retirement.
If market moved down (early in retirement) that is single biggest risk to this plan, so the plan accounts for that with an abnormally high starting cash allocation.