It occurs to me that if I were to spend down my taxable money in early retirement, which makes sense from a certain present-day tax-minimization point of view, I could run into problems if I needed or wanted money… because then I’d either have to pull from IRA (taxable) or spend Roth / HSA (and I want to spend those last).
Why might I need or want money? Buy property, do a bucket list activity, home renovations, replace a vehicle, emergencies…
Seems to me I need to keep enough taxable money as a buffer against needing to make a 1099 distribution, with the size and timing of the possible spending in mind.
What amounts of taxable cash & bonds & CDs do some of you who are retirees keep handy?
I’ve always felt that a widely diversified investment strategy was best. we’ve use a 40% - 40% - 20% (40% real estate, 40% paper investments and 20% cash) strategy for 50 years, and now that I’m well into my retirement years it’s worked out pretty well.
We could have improved it slightly by buying tax-managed paper investments when I have to take RMDs rather than just re-invest in the same funds. But as long as we don’t bounce into the 20% cap gains bracket I’m happy. Our day-to-day retirement income is isn’t dependent on our stock/bond/fund investments.
That’s interesting… we’re at 20% cash right now a year prior to retirement. So the question for us is how far down to draw on it? I think we’ll draw some of it, but keep a large chunk so we avoid having to pull from IRA.
Do you have any income coming in? Assuming you do from social security pension etc…Are you taking any distributions right now? Agreed with the other answer, consider pulling out money each year from your retirement accounts so that you don’t bump into higher tax brackets.
I’m not retired yet, but when I retire, my wife will have a small PT income, and a small SocSec income (she will re-file when I take my SocSec at 70). So we’re definitely going to Roth convert and consume tax-deferred money from Retirement to 70.