I'm about 18 months from pulling the trigger and the thing I can't get comfortable with is a bad first three years. Everything I read says sequence risk matters most early, but the advice stops at 'have a bond tent' or 'keep two years cash' without saying how it worked in practice. For those who are actually out: what did you hold in what, and did you ever have to sell equities in a down year anyway?
Mine is boring: 60/40, withdraw quarterly from whichever side is above its target, no cash buffer beyond three months. It has worked for six years. The bucket strategies aren't wrong but a lot of them are the same thing with more moving parts and more chances for me to fiddle.
The rule takes care of it. The first year I checked balances weekly and felt terrible, now I look four times a year and I feel fine. Same portfolio.
Do you find quarterly withdrawals stressful in a falling quarter, or does the mechanical rule take care of the feelings?
The thing that helped me more than any allocation was writing down, before I quit, exactly which expenses I would cut and by how much if the portfolio dropped more than 20%. Two pages, kept in the same folder as the spreadsheet. When it actually happened I didn't have to make good decisions in a bad mood, I just did the thing past me had already decided.
Same, and I'd add a trigger for the other direction. Mine says what we allow ourselves to spend extra on after two good years, otherwise you just ratchet down forever and never enjoy any of it.
One underrated piece: part time income in the first few years does more for sequence risk than any allocation tweak. Two days a week of consulting covered about 40% of our spending for the first three years and meant the portfolio barely got touched while it recovered. It also gave me somewhere to put my brain, which I hadn't expected to need.
Worth running your specific numbers past a fee-only planner once, even if you never see them again. I did it mostly to be told I was fine and instead found out I'd mis-sequenced which accounts to draw from, which was worth more than the fee.
@tessa_ondrak · 2mo ago · 3 replies
Four years out. I keep roughly two years of bare-bones spending in a money market fund and another three years in short duration bonds, everything else in equities. In practice I refill the cash bucket from whatever went up that year, which some years is dividends and interest alone. In the one genuinely ugly year I didn't sell equities, I just didn't refill and let the cash run down to about 14 months, then topped it back up the following spring. Worth saying I'm not an adviser and my situation has a paid-off house in it, which changes the numbers a lot.
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@tessa_ondrak · 2mo ago
Yes, by about 12%, mostly by not travelling. Wasn't painful because we'd already decided in advance which line items were the flexible ones.
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@dee_okonkwo · 2mo ago
Letting the cash run down rather than mechanically rebalancing is the bit I hadn't pictured. Did you cut spending that year too?
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