E-Fund replenishment / withdrawal strategies during FIRE

[appleshampooid]

Good morning, my apologies if this topic has been covered but I'm not finding much on it, or maybe I'm just using the wrong search terms :D.

We're getting close to FIRE and looking for guidance / tips / strategies on the timing of drawing down your stock/bond positions to fund living expenses.

For example my first inclination was to keep the same emergency fund we did while working, and periodically keep it topped up - but if I'm selling stocks on a monthly cadence to refresh the e-fund, what is even the point of having the e-fund there (cash drag), unless I have some kind of market indicator that would say "don't sell" - e.g. if there's a 5% downturn, spend a bit of the e-fund first and wait for a recovery.

I'd like to have something numbers based so I'm not going on "feel" or trying to reverse time the market if you know what I mean.

Cheers, thanks for any pointers

[Wintergreen78]

I’m working right now, but here is what I did when I quit working for three years. I’ll probably do something similar when I retire for good.

I kept about 6 months of expenses in a savings/checking account (about 2% of my net worth). I set my dividends and capital gains payouts from my taxable account to go to cash and shifted them to my checking account as they occurred. Every three months I would check investments and sell as needed to get my savings/checking account back to my target.

Some people will argue for less money in checking/savings. Some people will argue for more. Some people will say to pull money monthly. Some people will say to pull it annually. Some people will re-balance monthly. Some people will rebalance annually. I think all those approaches are fine and are really just details.

If your investments do particularly poorly for the first several years of retirement, or if inflation is particularly high, then adjusting spending or looking for additional income will move the needle. Tweaking your emergency fund or shifting stock sales by a few months aren’t likely to make a big difference.

[vand]

Good morning, my apologies if this topic has been covered but I'm not finding much on it, or maybe I'm just using the wrong search terms :D.

We're getting close to FIRE and looking for guidance / tips / strategies on the timing of drawing down your stock/bond positions to fund living expenses.

For example my first inclination was to keep the same emergency fund we did while working, and periodically keep it topped up - but if I'm selling stocks on a monthly cadence to refresh the e-fund, what is even the point of having the e-fund there (cash drag), unless I have some kind of market indicator that would say "don't sell" - e.g. if there's a 5% downturn, spend a bit of the e-fund first and wait for a recovery.

I'd like to have something numbers based so I'm not going on "feel" or trying to reverse time the market if you know what I mean.

Cheers, thanks for any pointers

You've highlighted one of the many problems with the whole "cash buffer" idea. There's no universal rule that you can backtest to say "use it here but not here" because you have no idea how deep or long your portfolio is going to fall, or how long it will take to recover so that you can replenish the buffer (if that's part of the plan also).

It's better to just have a fully invested portfolio but with a smarter asset allocation that supports a higher SWR and is less susceptible to SORR in the first place.

Did I mention my Ultimate SWR Portfolio?

[Rob_bob]

I'd like to have something numbers based so I'm not going on "feel" or trying to reverse time the market if you know what I mean.

Cheers, thanks for any pointers

Decide on a cash/fixed income/stock asset allocation and use/sell whatever you need to keep it balanced, pure numbers.

[MustacheAndaHalf]

We're getting close to FIRE and looking for guidance / tips / strategies on the timing of drawing down your stock/bond positions to fund living expenses.

Have you increased your bond percentage as you get close to FIRE?

Before now, the goal is accumulating enough to retire.  But after starting to depend on that money, the goal becomes preserving it, not growing it quickly.

[chasingthegoodlife]

Someone on the forum recommended this book to me a while back (https://www.amazon.com.au/Living-Off-Your-Money-Retirement/dp/0997403403 ) which explores this and other withdrawal questions with a lot of backtested data.

We’re not drawing down yet but I’ll dig it out later today and write a bit more about the conclusions. From memory, the traditional ‘bucket’ strategy was not a good peformer, but topping up cash and bonds from stocks based on particular market parameters was recommended. More to follow..

[Telecaster]

We’re not drawing down yet but I’ll dig it out later today and write a bit more about the conclusions. From memory, the traditional ‘bucket’ strategy was not a good peformer, but topping up cash and bonds from stocks based on particular market parameters was recommended. More to follow..

That's exactly right.   If you empty a bucket, where does the money to fill it back up come from?  Another bucket.   Where does the money to fill that bucket come from?  A third bucket.   Now the third bucket is empty....Which means you really only have one bucket. 

[bacchi]

Someone on the forum recommended this book to me a while back (https://www.amazon.com.au/Living-Off-Your-Money-Retirement/dp/0997403403 ) which explores this and other withdrawal questions with a lot of backtested data.

We’re not drawing down yet but I’ll dig it out later today and write a bit more about the conclusions. From memory, the traditional ‘bucket’ strategy was not a good peformer, but topping up cash and bonds from stocks based on particular market parameters was recommended. More to follow..

I follow this methodology, known as Prime Harvesting.

* Sell bonds to cover your expenses.
* When your stock net worth increases by a certain amount, sell stocks to buy bonds.

This is orthogonal to your withdrawal strategy/rate, which could be 4%, VPW, TPAW, etc.

[chasingthegoodlife]

Thanks @bacchi.

OP if you google ‘Prime Harvesting’ you’ll probably get a much better explanation than my paraphrasing :)

The book is worth a read if you are pondering your strategy, but it’s very dry and detailed.