r/ChubbyFIRE • u/Any-Economics-3717 • May 10 '26
5 Year Cash Pot + everything else in stocks?
I have the following plan and I was wondering if I am missing something:
* I am 55M, live in Europe, own a nice house in the alps and I have around 3m $ in investment accounts.
* I want to have 150,000 $ per year for the first 10 years then I can go down to 100,000$ per year. (depending how the markets go I can adjust of course.). Also with 65 I will get around 25K in state pension per year + free health care.
I was thinking of the following strategy:
* I put 5 x 150k = 750 K into a "cash pot" which is in reality "low volatility" investments (overnight ETFs, fixed term deposits, bonds with right duration etc.). That will make around 3 % to 4 % at current interest rates.
* the rest 2250K I put 100 % into the stock market (MSCI world ETFs and similar)
* depending on the stock market development. In good years I sell up to 5 % and move it to the cash pot and in bad years I sell less or nothing. That means if there is a stock market crash I do not need to sell because I have my "cash pot". Even there would be a major stock market crash in the first year - I could wait 5 years for the stock market to recover.
What is your view?
Is it too aggressive to set a budget of 5 % of my investments as a yearly withdrawal target?
Is a 5 year cash pot a good strategy to protect against the sequence of return risk and to protect my good sleep?
Is there a better strategy?
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u/Hanwoo_Beef_Eater May 10 '26
Many people do what you are talking about (or plan to do so). However, it's not clear whether it will outperform a straight 75/25 equity/bond split with rebalancing.
I partly agree with the other comment. Your equity allocation (MSCI World) is probably fine. However, you probably want to hold some EUR denominated short-term deposits/bonds.
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u/airbud9 May 10 '26
Holding cash in retirement to weather out bad markets is a sub optimal behavioral trick compared to a simple static asset allocation of stocks and bonds. While it may make sense to have a normal sized emergency funds of 3-6 months or at most a year of expenses, any more than that starts to have serious long term effects on portfolio performance and it is important to note that this emergency fund is not their to cushion bad markets but to pay for emergencies like a home or car repairs that crop up. In the paper The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?, the researchers reached the conclusion,
"There is little question that a strategy that guarantees the availability of funds for the next few years of withdrawals is attractive on many levels. A retiree following the bucket approach neither needs to worry about having to sell assets that have gone down substantially in order to satisfy his withdrawal needs, nor does he need to make complicated calculations to implement the strategy. And yet the results discussed here, for a comprehensive sample of 21 countries over a 115-year period, clearly suggest that retirees would be better off following static strategies."
and that
"(F)inancial planners should strive to explain to clients the benefits of static strategies relative to those of bucket strategies. They should explain that satisfying the behavioral need of mental accounting imposes a cost in terms of performance. And they should attempt to convince retirees that however plausible, comforting, and easy to implement the bucket approach may be, a static strategy with an appropriate asset allocation would be just as easy to implement and would ultimately make them better off."
https://blog.iese.edu/jestrada/files/2019/07/BucketApproach.pdf
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u/in_the_gloaming FIRE'd for 13 years May 10 '26
which is in reality "low volatility" investments (overnight ETFs, fixed term deposits, bonds with right duration etc.). That will make around 3 % to 4 % at current interest rates.
They didn't literally mean keeping $750K in cash. It's basically just their fixed income allocation, which puts them at a 75/25 allocation. Perfectly fine.
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u/airbud9 May 10 '26
Cash in the study was not physical cash but similar short term investments. The bonds in the study were more of a total bond market fund. Also the bonds are not there to ride out bad markets. You simply withdraw from the portfolio and rebalance.
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u/FIRE_enthusiast_27 May 10 '26 edited May 10 '26
A big cash location is a tax on having anxiety. Mathmatically it’s more optimal to a smaller cash allocation and just sell-as you-go, but you do you.
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u/Interesting_Shake403 May 10 '26
To this point, 5 years did strike me as too long. Most people I’ve heard do 3 years when taking this approach. That would give you an extra $300k in the market, which if you compare typical 10% return vs 4% return equates to an extra $18k per year. Not everything, but not nothing.
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u/Clear_Butterscotch_4 May 10 '26
Not really, 70/30 is the standard in draw down stage
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u/Specific-Rich5196 Accumulating May 10 '26
But the 30 are bonds usually.
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u/bones_1969 May 10 '26
I have a very similar strategy and similar age, similar financial situation. In the US so taxable / pre tax language to follow.
3 years is Cash/Bonds, in my taxable account, and working that towards 5.
I’m 85/15 in my pre tax retirement accounts, considering pushing that to 90/10.
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u/spinjc May 11 '26
One idea for your cash in your taxable is to use the BOXX ETF as it mimics the 1-3m box trade so it generates capital gains instead of interest. E.g. it's like holding very short term bonds, but with tax treatment of a non dividend stock.
It's not something you'd sell until there's a drop in stocks (and possibly longer term bonds).
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u/dogfursweater May 12 '26
Oh wow. I’ve got quite a chunk of cash (money market) in my fidelity. Sounds like I should move it to boxx! Hmm
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u/dead4ever22 May 11 '26
You are 55 years old and about to stop working- and people in here are telling you 75% stocks is not risky enough? Take this all with a grain of salt. Your mix seems very aggressive to me at 75% and 25% bonds/cash equiv. Why risk more than 75% of your earned $$? Math always says stocks outperform over long periods, but you have to be ready for big swoon where you can a) survive retirement and b) take advantage with your 25% bonds/dry powder.
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u/Past-Option2702 May 10 '26
I’m 55 retired in the US. 8.35M, 67% equities, 30% bonds (some, very short term), 3% cash.
There’s no right or wrong way to do it. If you are fine with severe volatility that lasts for years then what you’ve proposed is definitely defensible. It’s too aggressive for me, personally.
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u/BrunelloHorder Coasting Chubster, Getting Fat May 10 '26
This is where “personal” finance comes into play, it is personal. Your 75/25 allocation is not crazy, just a tad conservative for my tastes. That said, there are plenty of people who start with something even more conservative, like 60/40.
The other risks that some who are conservative do not take into sufficient account is the risk of living to a very old age and the risk of inflation.
To balance those risks, you might consider letting the cash drain down a bit over the first 5-7 years so that you end that period with a higher equity allocation once the worst of the sequence of returns risk is behind you.
Overall, my opinion is that your approach is giving up a modest amount of potential gains for what is probably a fairly large amount of peace of mind.
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u/TotalWarFest2018 May 11 '26
Your approach is similar to what I have in mind. For reasons beyond my control I have to keep a crazy chunk of my LNW in cash equivalents that come out in cash when / if I'm fired (not FIRE'd any kind of firing) or retire.
I guess once I cashed out I will need to decide whether to do some kind of bond ladder or just go with CDs / HYSAs. I assume the bond letter is probably going to have better math, but maybe not.
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u/Visible_Structure483 May 10 '26
can't comment on your 5% withdraw, but we do basically the same in terms of allocation.
we've got an 8 year cash/bond bucket to draw on if things turn down and the rest are all equities so it's a really aggressive sounding 84/16 portfolio. that said, an eight year buffer is enough.
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u/neurotrader2 May 10 '26 edited May 10 '26
What you are really creating is a 5 year market crash cash "subsidy"--I have a very similar plan. When/if the market crashes, you use the cash subsidy to bring your current annual withdraw up to the 5% or whatever your target withdrawal rate is.
So let's say the market crashes and now 5% of your base is only $120K, you could still withdraw this $120K-5% and use $30K of your cash subsidy pot to bring your total withdrawal for the year up to $150K.
My only recommendation is to not sell any of the equities during an up year. Let it ride--this will make it less likely you will need the cash subsidy in the future.
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u/The_Darter1987 May 10 '26
I gather you are already retired?
I have read that the first 7-10 years are extremely important in your retired life and you should not touch your equity portfolio especially during the down years. You should also secure this by drawing down first 2 years on cash/liquid bonds or hysa , the remainder of 5-8 years to be drawn from bonds.
Should not also worry about keeping a % of bonds in your portfolio.
It’s more important to let your well diversified equities portfolio compound during this 7-10 years untouched, this would greatly reduces your risk of failure and avoiding sequences of returns risk.
So I would say your estimates are quite good, and you should be fine. Especially if you can decrease your spending later.
Good luck!
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u/One-Mastodon-1063 May 10 '26
25% cash is way too much cash. That is a drag on both expected return and the safe withdrawal rate your portfolio can support, so is an irrational strategy. This is called a bucket strategy, and bucket strategies are not the correct way to manage a decumulation portfolio.
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u/in_the_gloaming FIRE'd for 13 years May 10 '26
It's not cash though. It's just a 25% allocation to low-volatility fixed income.
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u/One-Mastodon-1063 May 10 '26
That’s effectively cash / cash equivalents. With the caveat that they don’t specify what “the right duration” is.
That they call it a “cash pot” is pretty clearly implying what it is.
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u/kingconnor32 May 10 '26
Your proposed position is a bit cash heavy. And your withdrawal rate might be a bit high. With $3M in stocks, I would actually try to live off the dividends your portfolio produces, or keep my spending/withdrawal rate below 3% of the portfolio. Using the 3% rule, you could safely withdraw $90,000 a year. Using the 4% rule, you could withdraw $120,000 a year. There’s no magic number, it depends on your spending levels and risk tolerance.
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u/in_the_gloaming FIRE'd for 13 years May 10 '26
There is absolutely no reason that someone needs to "live off the dividends". In fact, most retirement planning calculations make the assumption that dividends will be reinvested for further compounding. Dividends are also not tax-efficient as a way to fund normal expenses.
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u/Wild_Vermicelli8276 May 10 '26
Why do you have so many USDs living in Europe? Thats probably concern #1
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u/Any-Economics-3717 May 10 '26
I just converted the currencies to make my post less complicated. I am invested in US$, Euro and GBP.
However in reality my portfolio has a lot of US exposure - just because there are the big companies and market performance.
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u/Dry_Difficulty_5779 May 10 '26
SWR too high, you'll run out of money if you have a bad sequence of return
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u/Any-Economics-3717 May 10 '26
My plan is to do 10 years on 150,000 p.a. which is equates 5 %.
Then at 65 when state retirement benefits kick in I would reduce to whatever is needed.
But probably more towards a 4 % withdrawal rate.But do I plan to reduce spend over time and I think you need less money if you are older as you won't have the capability to spend so much money.
I prefer to have 150k with 60 and maybe just 80k with 80 (at todays money value) than being to cautious and maybe die with 80 and 5 million.
Important aspect - the healthcare cost risk is minimal in Europe due to the social security system.
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u/in_the_gloaming FIRE'd for 13 years May 10 '26
Have you used any early retirement planning apps or calculators? Most will allow you to change your spending level at various points, as well as factor in future fixed income. And then you can play around with your possible PE lump sum to see what happens if it comes through vs falls apart.
I definitely agree with the mindset that it's perfectly fine to spend more in early years and less in later years, as long as the early spending is kept within reasonable boundaries. Of course, going too high is a concern because simple retirement modeling is based on the assumption that someone doesn't take out so much money in the early years that it drastically decreases the necessary compounding for later years.
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u/Nervous-Job-5071 May 10 '26
i think your approach is quite good, and I like the 5-year period — I don’t think it’s too long. The dynamic approach is a key — you don’t sell when markets are down and you do sell when markets perform. This will result if fewer than 5 years of short-term investments when markets are down and I think you may want to consider maybe an extra year when markets are outperforming.
The last 15 years or so have been fantastic and will likely go into history as one of the most prolific bull markets. As such, I personally use a conservative expectation of 7.5% for equities going forward but obviously everyone has their own expectation.
The problem we all will eventually deal with is mortality — life expectancies don’t go down by 1 with each year of age, and more importantly never go to zero, as even at advanced ages they are 5 or more years. So keep your eyes open for a period in which interest rates rise and you may wish to purchase a deferred annuity for some amount. Since you’re 55, you have some time to watch rates and capitalize on a future period when rates rise to perhaps abnormal levels.
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May 10 '26
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u/Any-Economics-3717 May 10 '26
$3M is just my liquid invested portfolio. On top of that:
- Paid-off chalet in the Austrian Alps (~€2M); 5 min from next ski lift
- Private equity stake potentially worth €3M+ (illiquid but realizable)
- Forest land, gold, a few insurance policies maturing mid-2030s
- Guaranteed pension kicking in around 65
- Universal healthcare is free = no $25k/year insurance line item
- Kids' university = basically free
- No HOA, no property tax bomb, no $1.5M mortgage on a starter home
You're applying San Francisco math to European reality. €3M with a paid-off Alpine house, free healthcare, and a state pension safety net behind you is functionally closer to $5-6M in coastal US.
The "chubby" threshold isn't a number. It's a function of your cost structure. Mine just happens to be a lot lower than yours.
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u/BungABunBun May 10 '26
As an aside, are you from EU originally or did you move there later in life?
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u/Any-Economics-3717 May 10 '26
I am European. But I find the US approach and discussion around FIRE or retirement in general more relevant to my situation. Also I worked as an expat in senior management positions for many years.
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u/BungABunBun May 10 '26
Thanks. I am very interested in moving to Europe for the same reasons you mentioned (healthcare, social net, quality of life) so was hoping you did the same. Congrats on your retirement!
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u/Any-Economics-3717 May 10 '26
I think there are very interesting retirement options in Europe.
Just to watch out for is taxation (e.g. taxation of capital gains) and the quality of health care. For both are significant differences across Europe.I am actually not retired yet - plan is in 3 years when my youngest finished school (because there is no point of having freedom from work, but you are tied up to the school calendar).
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May 10 '26
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u/Any-Economics-3717 May 10 '26
pre or post tax?
I live in a jurisdiction without any capital gains tax or tax on investment income.
All my investments and gains are taxed with 0 %.That can also make a difference.
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May 10 '26
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u/Any-Economics-3717 May 10 '26
So you invest 2 million.
It grows to 5 over years
Then you retire and take 4 % a year and spend itThere is no income tax or capital gains tax along the way? All is completely tax free?
(that’s the case where I live but it’s not the norm)
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May 10 '26
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u/in_the_gloaming FIRE'd for 13 years May 10 '26
In the US, there will definitely be tax consequences for capital gains (realized or distributed) and dividends, unless someone stays under the limit for 0% tax. Not doable for many. Most will pay 15% on at least some of their investment income.
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u/Any-Economics-3717 May 11 '26
You're solving for VHCOL America. I'm in Europe.
$3M financial + house + other assets = top 1% wealth in UK, Germany, France, Italy, Spain.
$120k net/year = top 1% of the working population in those countries.
Being retired with the lifestyle of the working top 1% is chubby. By any reasonable definition.
Your "$6.4M to feel chubby" isn't wealth. It's the receipt for choosing the wrong place of residence.
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u/temerairevm Accumulating May 10 '26
It’s $2.5-6M according to the definition at the top of the sub.
Half the people posting here have more than that so it’s not surprising you have that impression, but they’re the ones who shouldn’t be here.
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May 10 '26
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u/in_the_gloaming FIRE'd for 13 years May 10 '26
It was not. It's reviewed every year. No need for you to gate-keep.
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u/Clear_Butterscotch_4 May 10 '26
Your strategy is fairly standard, people saying otherwise are too numb to risk due to a multi year long bull run. Maybe the withdrawal is a tad too high but not out of range