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Keep enough cash/near-cash handy to cover the ebb & flow of immediate expenses.
What is the definition of "immediate"? 1 month? 1 year? 10 years? (assume I will be 10 years away from SS)
Some things I am considering
1. Holding CASH (the easiest, probably least optimal strategy)
2. Holding a mix of CASH and Bonds and Dividend paying companies - enough to finance my lifestyle
So I am considering what I think is referred to as the "bucket strategy"
Bucket 1 : Used to finance my lifestyle until SS hits (say 10 years)
- Put sufficient funds into this bucket such that Bond interest and Dividends cover this period
- Forecasting Bonds payouts can be a challenge, maybe use 3% as a baseline
- Forecast Dividend growth of about 2% annually
Bucket 2 : Used for long term retirement
- Put remaining funds into this bucket
- Keep this 100% in equities for the next 10 years
- Once fully retired, move this into a 60/40 portfolio and use the 4% rule to fund lifestyle
Managing my basic expenses is not an issue at all, this is about flying first class vs. economy, and figuring out if 10 years at first class is feasible.
Not an optimal allocation of capital, but its easy to use this as a forecasting tool.
tecmo
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