Retirees should keep some money as cash on hand in an account where it is easily accessible such as a money market fund, for expenses beyond regular outlays.
Such expenses could be either planned—such as a major vacation or a long-desired improvement to your home—or unplanned—such as the need to replace a car or the roof on your house.
As your cash bucket is 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 desired 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.