“So the “5-years of living expenses” in fixed income is just sitting there untouched. If I had to replenish it, I would just sell some stock in whichever combination would result in the lowest Federal income tax liability to me.”
Do you follow a benchmark that you try to follow over the long term? The benchmark you follow is determined by your long(your time horizon) term return expectation and cashflow needs. It has to provide enough growth in the long term (which could be highly volatile) and enough stability in the shorter term to extract income along the way.
The banchmark could be the S&P500? the MSCI World index or some other market cap weighted index?
If the benchmark is well constructed as are the two I mentioned above(?), the historical long term returns of these indexes can be used to set your return expectations. It would be used as a guide and you would try to have a portfolio asset allocation that would mimic the benchmark you choose, and re-balance if the returns diverge away from the long term historical returns.
I read somewhere that 70% of the portfolio long term returns are driven by asset allocation (stocks, bonds, cash) and 20% by sub-asset allocation of stocks (m.c.,sector, country, valuation) and bonds (duration, issue type, credit quality and if taxable), and only 10% by specific individual stocks, bonds or securities.
How do you approach asset allocation to provide you with the cashflow you need when you need it, and that over your full retirement period?
Do you use benchmarks? Do you use indexes and/or a collection of individual stocks?
tj