There seem to be two schools of thought on "enough short-term cash" for near-term expenses.1. What SHOULD we be doing with the Fixed Income holdings, including cash... for near and long-term.? I don't think I have enough short-term. I need to do something but am not sure what. (My biggest concern). Also, as we Roth convert, we'll have even more cash in taxable... what the best vehicle?
1) There are those that propose multiple buckets, where they have X years of expenses in cash, Y in bonds, and the rest in stocks.
2) There are those that simply draw proportionally from all their funds and maintain an AA across the entire portfolio of accounts.
For those in camp 1, X is usually 1-3 years and Y is usual 3-7 years. I guess the advantage camp 1 sees is they don't have to "draw proportionally" from stocks nor bonds when they've had a recent decline. That logic always strikes me as odd since during the accumulation phase buying after a decline occurs naturally as part of rebalancing (sell high, buy low!), but is eschewed by some during the withdrawal phase (which seems like an emotional fear-driven response; "now that I have no earned income, I can't afford the risk of selling high & buying low!").
Either way, it's usually advantageous to draw from Roth accounts last as that maximizes the tax-free growth benefit. Drawing from taxable or tax-deferred first seems to depend on whether or not Roth conversions are planned during years where the tax-bracket is lower than expected for other years (typically in the few years after all W-2 income stops but SS has not yet kicked in). A consideration for draining tax-deferred first is to reduce the future tax burden of RMDs when those kick in, or to minimize the tax-burden to heirs (leaving a Roth is much preferred to leaving a Trad IRA/401k, so spend tax-deferred before Roth).
It's really up to you use to use the "bucket strategy" or to just maintain an AA across all accounts making up the retirement portfolio. You have to do whatever helps you sleep at night and not elevate your nausea levels when markets have steep declines.
You said that even without SS, you will likely meet your income needs. Bill Bernstein was quoted as saying "when you've won the game, stop playing" with the money you really need. Since it doesn't seem like you really NEED this money and that you have plans to leave a legacy to charity & heirs, the inheritance assets could be treated in-part or in-whole as non-retirement funds, that are specifically for legacy. Such assets should likely be in a Roth, invested 100% in stocks, and never touched during your lifetime.2. We increased our equities with the windfall (that we didn't need)? Should I taper them back with SS not starting for 4-7 years, or let them ride (which is what I've been thinking)?
There's a balance to be had if your own life could be enjoyed more if spent some of the inheritance rather than put it all into a "for legacy" pot (the in-part or in-whole decision you have to make).
It sounds reasonable, but without a comprehensive analysis of expected future costs and growth/taxes of taxable, tax-deferred, and Roth (for retirement not legacy), it's hard to say with any confidence. It sounds like you have been modeling this in more detail so I'd trust your gut (or pay a flat fee advisor to confirm the conclusions you reached with your own analysis).3. All our Roths came from big conversions and gains over the last three years (with $200k so far this year with a maybe $70k more to do this year). I've been working to the top of the 24% bracket. I want to keep some in traditional for future long-term care possibilities, but have been thinking to convert down to ~$600k in traditional IRAs/fixed-income. I plan on another $270k of conversions next year followed by a couple years of ~$70k conversions. This year is our first IRMAA year (effecting us for 3 months of Medicare payments in 2026) and I'm cognizant of tax increases in 2026. Does this sound like a reasonable goal to you? I've been modelling to level taxes.
Statistics: Posted by bonesly — Tue Feb 27, 2024 2:34 pm — Replies 5 — Views 614