Book Excerpt: Learning the 'Safe-Money' Benchmark Strategy

Ed. Note: The following is an excerpt from Retire in a Weekend! The Baby Boomers’ Guide to Making Work Optional. You can catch a sneak peek of Bill's DVD, The 10 Biggest Mistakes People Make When Retiring & How YOU Can Avoid Them, at

A few years before retiring, if possible, you should begin to accumulate an amount of money that’s equivalent to 1 to 5 years worth of withdrawals (based upon your expected income needs). This systematic accumulation of cash is done on purpose so that you have a safe-money source to pull from when the balance of your investment portfolio and the stock and bond markets may be declining in value. Some people want one year of cash on hand. Some want two years of cash on hand. Some people want three, four or five year’s worth of cash on hand. Everyone’s number is different and that’s okay. It all depends on your comfort level.

Each time your portfolio exceeds a pre-established benchmark, you should systematically harvest the excess money above the benchmark, and put it in cash or short-term bonds (money market funds, CDs, and/or U.S. Treasury bills). For example, Sue and John have accumulated $250,000 in their portfolio. Together we have established $260,000 as their benchmark. Any time the value of their portfolio reaches or exceeds $260,000, we liquidate at least $10,000 and put the proceeds in a money market fund. We build up a cash cushion so when they want to take money out, it comes out from an asset class (cash) that isn’t subject to market fluctuation.

Here’s another example. Kay has accumulated $700,000 in her IRA account. We have established $725,000 as her benchmark. Any time the value of her account reaches or exceeds $725,000, we liquidate $25,000 and put the proceeds in a money market fund. Kay now has a cash cushion equivalent to four years worth of withdrawals. When Kay’s portfolio performance is positive, we liquidate (sell high) and build up more cash to spend. When Kay’s portfolio performance is flat or negative, we simply take withdrawals from her cash cushion. This protects her from having to liquidate shares of her stocks and bonds when they may be declining in value due to normal market fluctuation or a correction.

The “Safe-Money” Benchmark Strategy™ is a total return concept that takes into account your goals, tolerance for risk, and both the growth potential and income potential (interest, dividends and capital gains distributions) of each asset you own. This strategy allows for an inflation-adjusted income stream for you, and greater flexibility when taking money out.

The “Safe-Money” Benchmark Strategy™ is best implemented 2 to 5 years before retirement and needs to be monitored at least annually after retiring. Additionally, the strategy is easier to implement in a retirement account such as an IRA because there are no tax ramifications until money is actually withdrawn. Individual’s who wish to employ the “Safe-Money Benchmark Strategy in a taxable, non-retirement account, should consult with a qualified advisor such as an accountant to learn the most tax efficient way to harvest gains.

One final note: once you’ve accumulated your desired pot of cash to take money from (1, 2, 3, 4, or 5 years), consider raising your benchmark to a new higher level threshold. For example, since Kay now has four years worth of cash on hand, we have increased her benchmark from $725,000 to $750,000. Cash is king but we don’t want too much cash either. You’ve got to find a balance that works for you.

>>More from OTM Contributor Bill Losey

Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert for On the Money. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend!. The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at