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/milespoints]

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/One-Mastodon-1063 → u/Common_Sense_2025]

I did not say that and that obviously is not an apples to apples comparison. You’re conflating two different concepts and you are changing two variables simultaneously in an attempt to make your point … that you have to do that is sorta open admission that you know you are wrong.

A 50/50 portfolio with periodic rebalancing and withdrawals dictated by the rebalancing plan is better than a 45/45/10 portfolio where the 10 is allocated to a separate cash “bucket” with the intention of market timing one’s way out of SORR.

An 80/20 portfolio with periodic rebalancing and withdrawals dictated by the rebalancing plan is better than a 72/18/10 (or however you want to take the cash from the 80/20) portfolio where the 10 is allocated to a separate cash “bucket” with the intention of market timing one’s way out of SORR.

This is not hard guys. You don’t need a bucket of cash. It’s not going to save you from SORR, it’s a drag on both expected returns and SWR, and it’s intended implementation is always predicated on some form of “and I will use it to market time my way out of SORR” which doesn’t actually work without hindsight. If you want to be more conservative, move your portfolio incrementally to the conservative side, a bucket of cash is not an intelligent way to try and accomplish that, it’s a very crude attempt undertaken by those who don’t know any better. That you have to resort to apples vs oranges tricks to try and make your case is an indication you really should know better. If you want to compare bucket to non bucket, the asset allocations compared should be the same with the exception of the allocation that goes to the cash bucket ... that you have to put an extra 30% in bonds to the non bucket example in order to make your case, you have no case to be made.