qandaQ: How should we handle planned withdrawals?

Q: Would you recommend holding cash in an amount equal to 1, 2, or 3 years of planned withdrawals, or do you recommend we just convert the amount planned for the immediate year? 

A: When I was an advisor I had lots of clients who were comfortable holding 1 or 2 years of cash to meet their near-term cash flow needs. In many cases the cash pool was separate from their long-term asset allocation. I like taking the cash annually instead of monthly. When I take it monthly I seem to be a little more focused on what the market is doing month to month. Of course sitting with money in cash or short-term bonds is going to reduce the return a bit. I think my conservative approach of taking the annual needs the first day of the year costs us about .10% a year in return, an amount I’m willing to exchange for greater peace of mind. I do keep the annual “cash” account in a short-term bond fund and move money to cash on a monthly basis.