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General concensus is that you need 20 years living expenses saved. Place 5 years worth in cash/cash equivilants and the rest in equities, the simplist equity to hold is an S&P 500 Index fund. ....... Each year, take a year's worth of living expenses from equities and place in cash.

Just as a clarification, isn't the idea to each year transfer one year's worth of living expenses out of equities and into cash/equivalents if the market has a good year, but if the market is down (like this year) you'd continue to leave your equities untouched and continue to just draw down on your CD's or MM funds?

As a related question, although I think I've got the idea of having the 5 years worth of living expenses in cash or equivalents to allow you to ride through market downturns without having to cash equities at reduced values, I'm not clear as to what guideline would be commonly used to determine (in any year) if it was better to continue to draw down on the cash or whether to convert. In other words, if my equity funds are down 5% this year, obviously I shouldn't convert. But if the funds increase 5% next year (back to where they were at the start of this year) is it then time to replenish the 2 years worth of cash, or would you be looking for the funds to recover more before converting?
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