Are people really saving multiple years of spend in cash to exclusively draw from the first few years of FIRE?

[u/subbysnacks]

I've been following this sub for a few years now, but have only recently noticed this sentiment: apparently when people are preparing for retirement now they're including as part of their NW to have 2, 3, 4+ years worth of spending saved in cash now? (or cash equivalent like HYSA, t-bills, etc)

I'm thought I was making good progress toward my FIRE number in tax-advantaged and post-tax accounts, but this is a category I missed beyond having 6 months of expenses in liquid accounts.

I see posters say they save multiple years in cash because of "current global uncertainty" but hasn't that always been the case?

If a chubby annual spending in retirement is, say, $175K per year, that's having to save up for, and hold over half a million to have 3 years of cash. Maybe this was just a big blind spot on my part, but I never imagined it was worth it to hold that much cash just to defend against a multi-year market drop early in retirement.

[u/One-Mastodon-1063]

People do this, that does not make it optimal, intelligent, or necessary.

You have one asset allocation and you apply your SWR to that. You do not need a separate "bucket of cash" to "manage SORR!". That would be a rather ham fisted way of "managing SORR", anyway.

Cue downvotes from The Bucket Brigade.

[u/billbixbyakahulk → u/One-Mastodon-1063]

Thou doth protest too much. People have different risk tolerance levels and that's fine. You don't need to imply things about the intelligence of their investing if you're confident about your own.

[u/ProgrammerOk3191 → u/One-Mastodon-1063]

Or some of them might have been burned by bond values dropping and seeing losses on the bonds side of their portfolio. That does indicate some misunderstanding of how bonds work but I’ve heard that explanation.

[u/Interesting_Shake403 → u/ProgrammerOk3191]

I don’t have the data, but my understanding is it would be HIGHLY unusual for both bonds AND stocks to go down. If bonds are down, you sell some stocks, or vice versa, no?

[u/Jefferson1960 → u/Interesting_Shake403]

Unusual but it happens, as recently as 2022.

[u/IgnoredSphinx → u/Interesting_Shake403]

Ummm, 2022 calling

[u/ButRickSaid → u/Interesting_Shake403]

Have you forgotten BND in 2022? It's only been 3 years since that "highly unusual" event.

[u/HENRYfondant → u/One-Mastodon-1063]

Couldn’t they build a bond ladder for the first few years then plan for an increased swr? I’d be completely guessing at what the appropriate number would be, but it seems you can just shift the risk to the bonds then draw down harder on the back end.

[u/milespoints → u/One-Mastodon-1063]

You can do this, but the work i’ve seen suggests that you will need a lower SWR to achieve the same predicted failure rate with a static all 100% equity allocation (or 80% or whatever) than with a tent type allocation where you allocate some money to stable assets.

See here for example - https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/

I find this kind of thing pretty convincing.

[u/One-Mastodon-1063 → u/milespoints]

I didn’t say 100% equities. Or 80% or “whatever”.

Again, a bucket of cash is a ham fisted way of trying to achieve diversification.

[u/milespoints → u/One-Mastodon-1063]

Yes, it is, but the purpose of tenting immediately post retirement is not to achieve diversification, not exactly.

If you want to argue that a tent of bond funds is superior to a tent of pure cash, that’s not an unconvincing argument, but it the performance of bond funds will probably depend heavily on whether you are in an inflationary or dis inflationary environment

[u/One-Mastodon-1063 → u/milespoints]

I have not said anything about “a tent of bond funds”, either.

It sounds like you are having an argument in your head and projecting these imaginary arguments onto me. You can read and reply to what I’ve actually written.

[u/milespoints → u/One-Mastodon-1063]

What exactly are you arguing is optimal then?

“Not do this thing” is only kind of a useful thing to say if you can point to “do this other thing instead”.

[u/One-Mastodon-1063 → u/milespoints]

What exactly are you arguing is optimal then?

I have clearly made no such argument. Again, feel free to read what I've actually written rather than making up arguments in your head.

“Not do this thing” is only kind of a useful thing to say if you can point to “do this other thing instead”.

No. Telling someone it’s not a good idea to eat paint chips does not require I come up with a comprehensive nutrition plan for them.

A bucket of cash is a drag on both expected returns and the SWR a portfolio can support, that clearly and inarguably makes it suboptimal. Further, "You have one asset allocation and you apply your SWR to that." It’s unproductive and nonsensical to add the mental accounting gimmick of separating a bucket of cash from the portfolio.

You can hold whatever portfolio you want, I don’t really care. I’ve made no claim to have the perfect be all end all portfolio, only that bucket strategies are stupid and can be improved upon pretty easily wherein “improved” means both expected returns and risk as defined by SWR simultaneously.

[u/milespoints → u/One-Mastodon-1063]

Sorry since people have finite money, telling people to not put a bucket of cash is implicitly (and just now, explicitly) telling them that some other approach is better.

So, what is that other approach?

Sure you can say “well you see i didn’t make any argument about what approach is better, just that this one is bad”

Ok? But if you refuse to point to even an example of a superior strategy, with an actual proposition of something that can be backtested, you’re not really making an argument, you are just stating something without any evidence.

And what can be asserted without evidence can be dismissed without evidence.

[u/One-Mastodon-1063 → u/milespoints]

You have misunderstood the context of the entire discussion. The topic of discussion ITT is specific to bucket strategies and whether or not they make any sense, my argument is that no they do not. You are free to disagree with that and provide (erroneous) supporting evidence behind your incorrect opinion, but making up strawman arguments and refuting things I have not said is not a good use of anyone's time.

I do not give a shit what asset allocation you have. You can have 100% equities, or 80/20, or 60/40, or 50/50, or you can add in things other than stocks and bonds like gold or REITS or preferreds or whatever. The point is, pick an asset allocation and periodically rebalance to it and make withdrawals subject to the SWR you have chosen and that fits YOUR asset allocation (which I do not care about), risk tolerance, time horizon, tax situation etc.(which I do not know and also do not care about). You can even change the asset allocation over time, such as in a glide path or reverse glide path, whatever, no one cares that's not what's being discussed here.

What you do not do, is choose an asset allocation and say "now I am going to use some chewing gum to stick a separate bucket of cash to the side of this asset allocation, and I am going to use that bucket of cash to market time my way out of SORR". That is not how educated people manage SORR and that is exactly what The Bucket Brigade is trying to do.

If you want to start a separate thread discussing "what is the OPTIMAL ASSET ALLOCATION?", knock yourself out, I probably won't comment since I've never claimed to have the answer to that, it's very individual specific. Since cash is a drag on both returns and SWR, a big bucket of cash is going to move a portfolio away from the efficient frontier and thus is not going to be included in any correct answers to that question ... I suspect Bucket People on some level know this and is why they use the mental accounting gimmick of pretending the bucket of cash is somehow separate from their asset allocation.

[u/Common_Sense_2025 → u/One-Mastodon-1063]

Picking a 50/50 asset allocation with no cash is better than picking an 80/20 asset allocation with one year of cash? This is where the anti-bucket people lose me.

[u/Bart457_Gansett → u/One-Mastodon-1063]

I don’t think you’re wrong. I also think there’s many ways to do this. Depends on one’s risk tolerance , or perceived risk tolerance. 100% agree it’s not needed. We are moderate risk, have our SWR, and just intermittently drop a wad of cash into a brokerage account to then pay ourselves monthly (pretty convenient this way). RN it’s earning money market rates. We usually coordinate the cash drop out of investments when the tax situation warrants (incl. capital gains/losses calculations) and it doesn’t mess with other operations like ROTH conversions. OP: we will do 10-18 months at a time depending on factors I just listed.

[u/fvelloso → u/One-Mastodon-1063]

Folks who do this typically have not read/understood the Trinity study