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I am new to the Fool and will be retiring next year. I found the argument that we should keep the money we anticipate spending over the the next five years out of the stock market particularly compelling for a retiree. See "A Place for Bonds" under retirement/bonds.

The relevant point is quoted below:

"As Fools, we maintain that money we know we will spend in the next three to five years should not be invested in the stock market. Stocks go down, and we don't want to sell into a down market when we need the cash. Therefore, we want that money in more stable investments like money market funds, T-Bills, CDs, and short-to-mid-term bonds."

My question is after an initial allocation, how does one make in work in a retirment situation?

Say, I anticipate spending $30,000 a year from retirement savings. Five years would be an intial allocation of $150,000 divided between short term and mid-term bond funds or bond index funds. Let us provide for monthly withdrawls of $2,500.

When would the Fool reallocate from equity assets to bond assets? Every year? Wait until equity holdings appreciate at 10-15%?

Any help thinking this through?


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The idea is to avoid selling into a down market.
Threfore, if the first year of living on retirement income is a down year, do nothing, and live on the laddered bonds, money markets, etc.
If then the second year is a good year, sell enough stocks to replenish two years of retirement income needs. Both of the missing rungs of the ladder should be replaced.
If the first year is an excellent year, sell enough to replenish the account at that time, just replacing the year spent.
Anyway, that is my take on your question. Best wishes, Chris
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