As I creep toward the IRS's age marker of 59.5 I find myself less involved with making accumulation decisions and more concerned with asset disbursement decisions that will come along over the next 1- 5 years. I find myself thinking a little more short term with a portion of my investment (1-5 years) while, at the same time, realizing I still may have a 30 year horizon for other investments. I see my investments as sitting in two buckets, long term and short term.
Getting a handle on my 1-5 year time horizon (of needs and wants) helps to shape decisions and strategies as to where these resources will come from over the next 1-5 years. For me, separating a portion of my retirement assets into two buckets (short term and long term) is helping me sleep a little better at night knowing that my long term investments will have at least 5 or more years to sort themselves out, while my short term needs are met by short term investments.
Mathematically speaking, it's an exercise in creating a spreadsheet of need/wants (a budget) against the resources available to pay for these needs and wants. At some point, earned income (wages) get replaced with unearned income (SSI, Annuities, pensions, dividends, capital gains) and deferred accounts become finally taxable (RMD @ 70.5). Earned Income (work) may still be part of one's income mix, but it often takes on a different role once we reach age 59.5 and beyond. Many of us may need to tap our investments to compliment these other income streams to pay our bills.
Wondering if readers have been grappling with these decision of separating out your investments into short and long term buckets? Also, have you found any good resources to guide you along the way? What are your favorite short term investment vehicles these days and over the next 1-5 year cycle.
Thanks.
Comments
I went through this same thought process over the last few years as I transitioned into retirement in June of last year. The benefits of this bucket system should be clear given recent turbulence. It's nice to be sitting on a few years of expense funding regardless of market activity. Fortunately, I was in the accumulation stage to prime bucket 1 during the historic run-up of the last few years.
For resources, Christine Benz from M* has generated a dozen or so articles offering suggestions on specific holdings within the bucketing categories. She pulls data as well from Harold Evensky, the originator of this mental accounting exercise.
For near term investments, I would offer up a recommendation based on my early experiences. For bucket 1...don't get too cute. I lost site of the fact that it's purely for expenses near term. I assumed I could simply plug it into a solid bond fund or a bond fund promising only "money-good" selections and it then would generate 3-5% returns while I sat back and scratched my belly.
Well...that didn't exactly work. I don't blame the fund manager for this...this was my error.
To this point in time, what did work were some very conservative muni's in the taxable account (VWITX), and then ZEOIX and SSTHX in the IRA.
The other lesson learned is to have some type of ancillary bucket specifically for dry powder. I have a bunch since I've been sitting on the bulk of my 401K rollover, but this recent downturn reminded me that having this in your back pocket for a very rainy day would be opportunistic.
Best of luck,
press
"The other lesson learned is to have some type of ancillary bucket specifically for dry powder. I have a bunch since I've been sitting on the bulk of my 401K rollover, but this recent downturn reminded me that having this in your back pocket for a very rainy day would be opportunistic."
Good point...I have given some thought to a strategy where a "dry powder" bucket gets filled by the out performance of long term investments during rising markets and gets emptied during periods of market under performance.
For example, if a fund has a historical yearly return of 6% the dry powder bucket would be used to add to the fund when the fund under performs and visa versa when it outperforms 6%.