Suggestions on drawdown from 3 bucket retirement strategy

Audaxer

bostonerimus said:

Audaxer said:

GazzaBloom said:

Audaxer said:

GazzaBloom said:

bostonerimus said:

If you intend to be taking income from a portfolio then bond funds look like certain losers. If you can wait longer than the average maturity and plough back the distributions you'll make a few percent. They will hopefully be less volatile than stocks, but maybe keep the duration of the funds short or look at fixed term saving account ladders. The issue with holding to maturity and the range of maturities generally held inside a bond fund lead to the development of target maturity bond funds in the US that can be laddered. These have the "maturity" advantage of individual bonds and the diversity advantage of bond funds.

My thinking behind having the amount in Bonds was not for it to grow particularly but provide an alternative source of income during market crashes, assuming the bonds wouldn't crash anywhere near as hard as the stocks would. All the growth would come from the stocks fund which would provide all the drawdown until a 10% or more market drop then I would cease stock withdrawal completely and switch drawdown to the bonds. Hopefully never having to use the 2 years held as cash.

Yes, but in that scenario, if bonds also fell by say 5%, I would think it would then be better to drawdown the cash rather than bonds? If not, in what scenario would you drawdown from the cash? 

In an extreme emergency, cash is simply a comfort blanket as there will be no other "earned" income until state pensions kick in some years later.

How long until your State Pension kicks in? If it is only around 3 or 4 years, I think it is worth holding enough cash to pay yourself the equivalent of the State Pension over that period. Your drawdown rate from your investments will therefore just be what you need over and above your annual income including the State Pension.

When I retired I had to span a gap of 3 years until my pension started. I did something similar to what you suggest. I put 3 years spending in the bank and just lived off that. I carefully monitored my spending and also reduced my spending so that I had plenty still left in the bank after the 3 years. I did things like stopping TV subscriptions and limiting what I spent in coffee shops. As a result I saved money and I think both my mind and body became healthier.

That sounds sensible, but in hindsight maybe a bit over-cautious in your case, as I know from previous posts that even if you had spent all the cash, you would still have had more than enough in investments to cover any extra spend on the things you mentioned.