Author Topic: First Year Spending Money - Drawdown or Saved Cash?  (Read 6362 times)

CryingInThePool

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First Year Spending Money - Drawdown or Saved Cash?
« on: June 29, 2015, 02:35:58 PM »
How did you fund that first year? Anything youíd do differently looking back?

As I plod through what I hope is my last OMY Iím curious how those that pulled the plug handled first year expenses.   Did you save up Cash? Start the Draw Down X months in? Some combo of both?  Has it ended up that your FIRE date coincides with your reallocation date?

I read the studies that say having a substantial cash buffer wonít protect you from FIRE failures and may actually harm you but I didnít interpret that, maybe incorrectly, as applicable to first year of expenses. 
If Iím serious about pulling the plug in summer of 2016 and I want to fund the first year in part with cash Iím going to have to start making some allocation adjustments towards cash on my auto-investing pretty quickly. 

Thanks in advance for letting me learn from your experienceÖ

DoubleDown

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #1 on: June 30, 2015, 09:49:29 AM »
Near the end of my work career, instead of paying down a mortgage and investing as aggressively, I saved up about 6 months of expenses. That plus vacation payout gave me about 8-9 months total living expenses. After about 6 months, I sold an individual stock I had planned to dispose of anyhow as part of my overall rebalancing and tax strategy. I'm in the process now of selling a rental home that will cover about 3 years of expenses. I plan to hold about one year of expenses in cash, and invest the rest.

When that money's gone, I'll turn to other taxable assets that will hold me over until I'm about 54. Then I'll start drawing on Roth, pension, after that will be tIRA/401k/Soc. Sec/etc.

FrancisinPa

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #2 on: June 30, 2015, 03:56:54 PM »
If I RE I plan on drawing from my Ally savings account. The rate is not much less than a 1year cd. As CD's come due I'll add more to the Ally account and reinvest the difference. I plan on having a monthly auto transfer to a checking account for basic expenses. Sort of like getting paid once a month.

deborah

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #3 on: June 30, 2015, 04:17:09 PM »
I had an amount of cash that I had been drawing down and continued to draw down until it was no more. But that was my plan. Different people have different looking stashes, which mean they have different initial draw downs. If you want to supply some figures and types of stash bucket, people could suggest how they would draw it down (it doesn't need to be real). Most people here would not have got into the position I was in with a lot of cash.

iris lily

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #4 on: July 01, 2015, 08:04:37 AM »
We are spending cash. We have a lot of cash.

I have a pension which gives us some income. That's our main income until I draw Social Security at age 62. DH will  likely not take social security payment until later. 

DH is actually still working occasional jobs for a couple of friends. One of our friends is a real estate agent who needs properties fixed up on a certain timeline, and he counts on DH to meet his deadlines. Otherwise, our friends have small fix-it jobs that DH will do for a little money.
« Last Edit: July 01, 2015, 08:08:02 AM by iris lily »

patrickza

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #5 on: July 01, 2015, 08:25:41 AM »
I'm still trying to figure that our. When I leave, my leave payout will give me a years worth of expenses in cash. Part of me says to put it to work straight away and invest it, the other part says to leave the stache growing and use up the cash. I guess it's a question of will there be a crash vs will the market go up.. I think the law of averages says it will go up, so you're better off investing straight away.

AlwaysBeenASaver

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #6 on: July 02, 2015, 07:01:16 AM »
I'm funding this year and the next few years expenses with a combination of cash, dividends, and sale of assets I don't want to be holding. The cash is my last couple of paychecks and vacation payout. The sale of assets starts with stock I own from 2 companies I've worked for - I prefer not to own individual stocks so I'm glad to be selling these. I also have cash and CDs to fund expenses in years when the market is way down. I won't be using that up until that time comes - in good-market years I'll be selling assets as needed.

soccerluvof4

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #7 on: July 05, 2015, 11:15:12 AM »
We set aside about a year + of cash because of a business liquidation but were going to try and stretch it as long as we can. Then depending on what other goals we have planned and achieve ( like downsizing again) that will dictate our withdrawal. Also I have been looking for ways to make some extra cash with all my time on the side but so far nothing intrigues me to again increase our time with the cash.

Carolina on My Mind

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #8 on: July 05, 2015, 04:43:33 PM »
I'm halfway through my first year of FIRE.  I'm using cash this year, but that wasn't actually my plan coming in.  During my last year of working, I built up a cash cushion (almost a year's worth of expenses) so that I'd feel less nervous about quitting.  I thought I'd want to keep a bunch of cash on hand going forward, but once I quit, it felt right to spend the cash first and let the stocks keep growing (knock on wood). 

geekette

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #9 on: July 05, 2015, 05:11:09 PM »
I'll admit, I'm a wuss...  We're two years in and we've consistently kept a couple years' cash cushion.  Last year we sold some stock options that were about to expire and got a small inheritance which refilled the cash.  This year we'll have to either sell something or do a Roth conversion to create income to stay out of medicaid territory anyway.

We like to sleep at night, so a cash cushion is good for us.


Cassie

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #10 on: July 05, 2015, 05:13:38 PM »
Pensions & $ from our p.t. consulting.

Spork

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #11 on: July 05, 2015, 07:45:31 PM »
FIRE was last week.... so our strategy is still forming.

We are sitting on a decent amount of cash as a start.  We also have significant taxable accounts we can draw from and some Roths... but we haven't quite formed our strategy fully.   I would also like to start a Roth conversion ladder with some Traditional IRAs and have not done the math exercises yet to see how that will work out.

Ozstache

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #12 on: July 05, 2015, 08:15:15 PM »
I'm not really a good example for this question as the income I get from my military pension exceeds our spending by a reasonable a margin. My wife works casually as well, because she truly enjoys what she does, which exacerbates the underspend 'problem'. As such, not only does our stash remain intact but we are still adding to it. I should have retired sooner.

Mrs.LC

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Re: First Year Spending Money - Drawdown or Saved Cash?
« Reply #13 on: July 06, 2015, 06:58:38 AM »
We are in month 19 of retirement and have used a combination of cash and small income from consulting. At the end of 2014 we converted a chunk of 457 money for future needs as the tax liability was minimal due to our low income. That same strategy should be able to fund us for a number of years.