I completely agree. My point was not that I treat cash differently, but simply that I appreciate its unique characteristics that occasionally come in handy when doing smart tax management.
Tax laws are so complex and dependent on your specific situation that it's hard to generalize, but here are a few situations I've experienced where the flexibility of the different assets in the PP/GB came in handy:sophie wrote: ↑Sun Nov 10, 2019 9:16 amVery interesting point Tyler! Do you have some specific examples in mind that you could share? Tax management during the withdrawal phase is crying out for a really good, detailed treatment. I notice that in the Bogleheads and Mr. Money Mustache forums retirement withdrawal strategies are sort of taken for granted, and rarely discussed.Tyler wrote: ↑Sat Nov 09, 2019 9:17 pmBut one of the really cool things about the PP is that with four very different assets there are lots of opportunities for things like tax loss harvesting or even just living off the cash for a while without selling anything. So with a little planning you may end up paying a lot less tax than you expect.
- With 50% cash and gold, the PP is more focused on capital gains than on ordinary income. So you have more flexibility in retirement to manage taxes than other investors depending heavily on dividends and interest to drive returns. When your capital gains qualify for the 0% long-term tax rate, you can also pretty easily offset the low amount of ordinary income via the standard deduction and tax loss harvesting.
- Let's say you've hit a rebalancing band in retirement. You run the numbers and determine that the capital gains from selling the appreciated assets will push you into the next tax bracket. Ouch! Luckily you can rebalance just enough to stay below the line and wait until the next tax year to do the rest. And in the meantime, you can temporarily fund your expenses directly out of the cash portion until it makes more sense to touch the appreciated assets again.
- You're enjoying retirement and decide to buy a new car in cash. Your first instinct may be to take the money out of your appreciated stocks to have a mini rebalance, but even though all the capital gains are long-term and qualify for the 0% tax rate you understand that the income still counts as MAGI in the ACA subsidy calculations. Running a few numbers, you learn that paying for your car with stock proceeds will double your healthcare premiums over paying for it out of cash. So you happily sell the TBills and re-fill them over the next year using the regular monthly dividend and interest income from stocks and bonds.
For reference, my federal income tax bill in retirement hovered at exactly zero for several years (before I got a part time job that brought in more income). Of course my situation may be very different from yours, so YMMV. And simply using a PP is not a magic bullet, as it's really all about smart tax planning. But IMO the PP is like a well-stocked financial toolbox with several handy tools to use when the need arises.