Retirees should keep 12-18 months’ of spending money in a cash reserve such as a money market fund. Say you want to spend $20,000 over the next 12 months, in addition to what you’ll get from a pension and from Social Security. If so, you should keep $20,000-$30,000 in a money market fund, for ready access.

As your cash bucket will be drained, you can replenish it in this manner.

  1. Use investment income. Move your interest and dividends into your cash reserve. Investment income in a taxable account will be taxed anyway so it might as well be used for spending.

  2. Sell your winners. Cash in what’s up rather than what’s down. If stocks have pulled ahead of bonds, in your asset allocation, you might sell stocks or stock funds to re-balance your portfolio.

  3. Sell your losers. If your portfolio doesn’t need re-balancing, sell the securities where you have paper losses in a taxable account. You’ll recognize immediate tax losses while deferring taxable gains

  4. Sell your bonds. Finally, lighten up on bonds. Hold onto stocks, which can be expected to do best over the long term.