Before retirement, it's essential to build a cash cushion amounting to one to two years' worth of portfolio withdrawals. Cash yields have improved, allowing investors to hold cash without it being considered 'dead money.' Investors should aim to create a cash bucket tailored to their withdrawal strategy, explicitly calculating based on total spending needs instead of broad living expenses. For example, a 66-year-old planning for retirement might construct this cushion based on his estimated withdrawals while considering ongoing equity investments and quality bond holdings to secure future financial needs.
Your cash bucket should consist of one to two years' worth of portfolio withdrawals, not living expenses. This means planning for immediate cash needs in retirement.
It is advisable to build a cash cushion of $160,000 for immediate portfolio withdrawals, particularly for those delaying Social Security benefits.
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