Two Thoughts About Today

  1. Well, it’s happening. I hope I have enough cash reserves to ride it out. I think I do unless this time is really different. Drukenmiller said it could be, and he’s seen a lot.

  2. I’m going to be very disappointed if Buffett emerges from this still holding a bunch of cash. I don’t really care where he’s putting it - just that he does.

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I have 5 years of living expenses in cash— hope that’s enough to make it through. Could stretch that to 6 with some basic expense whittling I think.

What do others who are retired have in cash for living expenses? I don’t have any SS or pension income yet.

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Roughly 2 years in cash, some of it in retirement accounts, some in taxable accounts.
Maybe another couple years in things that are not quite cash, but close enough.
Investments should throw off enough dividend income to cover us for several years.
Long enough until I start collecting Social Security, which will cover a portion of living expenses.
In the process of trying to downsize our home, which may free up another year or two of living expenses, if things go roughly according to plan.

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5.5 yrs cash & Treasury instruments in core accounts, plus some other odds & ends. Another year in I-bonds

Un-defer Social Security plus a little belt tightening gives us 8+ years

No debt, and a large garden plus orchard

(But I don’t have to like it)

–sutton

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Owner in a business we started now with a younger generation and staff handling the big stuff. It’s more of a concentrated 25 hour week these days predominately involved with product design matters. Am also collecting rents on industrial and commercial properties. Thirty years ago my bride and I did not have much to our name. We can attest to the wonders of compounding.

Later this year I am forced to take social security (70) and I am already dreading the prospect of RMD extractions beginning two years from now. I’ve spent a lifetime learning and am geared for increasing, not decreasing our portfolio. I can understand that aspect in older investors like Warren, Charlie and many others of their ilk.

Anyone else not retiring and holding off to the last possible dates for social security and RMDs?

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I’m going to be very disappointed if Buffett emerges from this still holding a bunch of cash. I don’t really care where he’s putting it - just that he does.

I think that’s a fair complaint if the downturn in markets lasts a while.
If it turns out to be a brief bungee dip like 2020, it’s hard to imagine Berkshire being able to deploy too many billions in time.

A good long year or more with prices low and flat would be good for Berkshire.
Maybe a nice big negotiated buyout at a moderate premium to the new lower price that the market has already determined is the new normal.
The BNSF approach: we can dream.

Jim

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I have 5 years of living expenses in cash— hope that’s enough to make it through. Could stretch that to 6 with some basic expense whittling I think.
What do others who are retired have in cash for living expenses?

I have a fair bit of cash at the moment, but it’s mostly earmarked for some big upcoming expenditures, so I can’t really answer the question very meaningfully for myself.

Though a cash cushion is a nice idea, two thoughts, which everyone is free to ignore:

If one has a feel for the valuation level of one’s portfolio, high/medium/low, then variation in the cash cushion can make sense.
When valuations of your positions are high, have more cash on hand. Measured as years of expenses, or as percentage of portfolio.
When valuations of your positions are low, feel free to have less. It’s a good time to own stocks.
The valuation level of the broad market doesn’t really matter, it’s what you own that matters.

If you are doing periodic sales over a 10-20 year period, the average multiple you’ll get on those shares is going to be…average.
Some will be low, some will be high, but it will all come out in the wash.
So, obsessing about not having to sell during a bear market isn’t always worth the trouble.
(if you are in danger of running out of money because of those unlucky sales, the problem is the amount of money, not the bear market).
So, with a smaller cash cushion on average over time, you’ll likely have better long run returns. If that’s a goal.

Jim

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Would be nice if he gave T&T a further 20bn each to allocate now. That would make sense to me.

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Anyone else not retiring and holding off to the last possible dates for social security and RMDs?

If the rest of your income will be broadly unchanged from now to post age 72 when RMDs kick in, maybe you should consider taking some income now up to the next marginal tax threshold. You’ll then have lower RMDs from age 72 and, if those RMDs would have pushed you into a higher tax bracket hopefully you’ll end up paying a lower rate of income tax after starting RMDs.

Not sure I’ve expressed that correctly but, in extremis, if you have no income from now until age 72 and then start taking large RMDs plus SS you’ll obviously have a higher marginal tax rate from age 72. So, taking something now would be taxed at a lower rate than leaving it until forced to withdraw. If you can, play around with a simple tax calculation before and after age 72 to see if you can end up with a higher post tax aggregate income.

Also, if you don’t need the income for living expenses now maybe you could do a Roth conversion for a portion of your IRA. Hopefully pay taxes at a lower rate today and never have to pay them again in the future and reduce the RMD problem but keep the assets tax sheltered.

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This site might offer you some ideas. I found it helpful in thinking through the options. Explores timing strategies for Roth, ira and S.S.

H t t ps://www.kitces.com/blog/tax-efficient-retirement-withdrawal-stra…

Remove the spaces in https, not sure if the screener would let this through.

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If the rest of your income will be broadly unchanged from now to post age 72 when RMDs kick in, maybe you should consider taking some income now up to the next marginal tax threshold. You’ll then have lower RMDs from age 72 and, if those RMDs would have pushed you into a higher tax bracket hopefully you’ll end up paying a lower rate of income tax after starting RMDs.

Not sure I’ve expressed that correctly but, in extremis, if you have no income from now until age 72 and then start taking large RMDs plus SS you’ll obviously have a higher marginal tax rate from age 72. So, taking something now would be taxed at a lower rate than leaving it until forced to withdraw. If you can, play around with a simple tax calculation before and after age 72 to see if you can end up with a higher post tax aggregate income.

Also, if you don’t need the income for living expenses now maybe you could do a Roth conversion for a portion of your IRA. Hopefully pay taxes at a lower rate today and never have to pay them again in the future and reduce the RMD problem but keep the assets tax sheltered.

StanleyDIP, I do appreciate the time you took to put together this information and there are probably folks on this esteemed board who can utilize the above approaches. We are already in the max tax bracket and probably will be in that bracket for (hopefully) many more years as we continue to collect income from the family business, property rents, dividends and taxable stock sales (we try to avoid taxable stock sales, see note below).

Unfortunately, converting to a Roth would be a horrible loss of net worth at this point in our lives. Instead I’ve already prepared my bride for our donating the maximum amount allowable from our SEP and 401K accounts when we reach RMD age. We already gift appreciated stock positions we need or want to exit to our charitable trust. It works out to refill our grantor trust as we gift out to 501c3 organizations annually doing good works in our community.

We delayed social security until age 70 as we did not need additional income and, besides, my investor nature said getting an 8% greater return for every year delayed is a good investment (provided I live as long a my mom who turns 100 in two months and still manages her own affairs). Overall it is a good problem to have and we have resigned ourselves to paying lots of taxes every year.

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I have 5 years of living expenses in cash— hope that’s enough to make it through. Could stretch that to 6 with some basic expense whittling I think.

Same here.

If you are doing periodic sales over a 10-20 year period, the average multiple you’ll get on those shares is going to be…average.
Some will be low, some will be high, but it will all come out in the wash.
So, obsessing about not having to sell during a bear market isn’t always worth the trouble.

Yeah, but: sequence of returns risk?

If you are doing periodic sales over a 10-20 year period, the average multiple you’ll get on those shares is going to be…average.
Some will be low, some will be high, but it will all come out in the wash.
So, obsessing about not having to sell during a bear market isn’t always worth the trouble.

Yeah, but: sequence of returns risk?

I mentioned that.
Say you get a 4-5 year bear market with valuations low at all times. Not the worst possible, but pretty bad.
What fraction of your aggregate positions are you selling in that interval if you had (say) only a year of cash?
Probably not that much.
And if it is that much, as I mentioned, your problem isn’t really the sequence of returns risk, it’s that you have too high a withdrawal rate for the size of your pile.
If you’re owning the S&P 500 at current prices, you’re sensibly expecting no real total return for
the next 5 years so I would hope you’re not withdrawing more than (say) 2%/year of today’s value.
If selling 8-10% of your portfolio at below average prices pushes your balance below what
can meet your future needs you simply don’t have enough money for your expense profile.
Sequence of return risk is real, but it’s a problem only for those unfortunate enough or imprudent enough to be skating too close to the line already.
Don’t forget the flip side of the equation.
What is the impact on your supportable income 20-25 years from now by having 5 years in cash at all time?
It’s possible to be too close to that line, as well.

Jim

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I am almost certainly within 15 years of death yet if I had 1/20th of my current net worth I’d run my life and my portfolio precisely as I already do. Keep a few years of living expenses on hand and just live…nothing else.

People in business end up with the “wealth” over time and people who sell to buy all bonds and such both end up with comparatively less and their families end up with less. How do I know? Lord people I’ve watched this for year.

We go to Cumberland Island every year and stay at one of the homes still owned and controlled by descendents of Thomas Carnagie, Andrew’s younger brother and business partner. Thomas sold out I think before Andrew did, still was the world’s 5th richest person, and now a hundred years and tad later basically all his descendents are struggling.

Lord all these type families would be worth multiples of Gates/Musk/Bezos/Buffett if they’s just diversified into the world’s businesses and lived their lives as they wanted. It is a given success formula if capitalism survives.

But we all seek alpha I guess, the world’s always coming to an end and such. Panic, sell…or load up and chant. As my dad endlessly told me there’s two typs of people on this earth: Show and tell; or have and hold.

Have and hold works just fine. Business will survive if capitalism does.

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“Show and tell; or have and hold.”

Amen - wealth whispers

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For those who may need to borrow in the next few years, Interactive Brokers’ margin rate is the lowest:
https://www.interactivebrokers.com/en/trading/margin-rates.p…

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For those who may need to borrow in the next few years, Interactive Brokers’ margin rate is the lowest:…

My advice: do not EVER use broker margin.
It can be taken away at any time, for any reason or no reason.
And if (when) that happens, you can be sure it’s not an auspicious time for you to want to raise cash.
Broker margin loans: the number one way smart rich people become smarter poor people.

I do break the rule, like most rules.
The only time I use it is on rare occasions that I’ve written some cash-backed puts slightly in excess of my cash pile in that account.
(and a bunch of other things are true: unusual clustering of expiry dates and terrible bid/ask spreads so I don’t close early)
If the stock is low and I let them expire in the money, they are exercised over the weekend, so I’m using margin for an hour or two on Monday morning before I sell the stock.

Jim

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<My advice: do not EVER use broker margin.
It can be taken away at any time, for any reason or no reason.>

I agree with you in general. But in the past few years when I was 100% invested, it helped a great deal when my holdings dropped 30-50% while I needed money. I was lucky that in the past six months I was able to sell many shares in relative good prices and turned -10 to -20% margin into +20% cash. I won’t likely borrow again unless the bear market would last a long time.

I am almost certainly within 15 years of death
Drink more Cherry Coke!

if I had 1/20th of my current net worth I’d run my life … precisely as I already do
The very best one can wish for: To have no regrets. Congratulations!

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Uwharrie, I suggest converting IRA’s to ROTH while you have fresh money coming in……get the taxes paid now and get it over with and that solves the RMD. Nothing says you can’t invest in other things when you do RMD.

Not on SS yet, although I could, I don’t need the money so I’m letting it grow a little bit more.

Lucky Dog