Cash on Hand

[UnrealizedPotential]

I keep enough in cash to cover my deductible in ACA in case I need it and maybe a few thousand beyond that for an emergency. Someone could not carry any cash and make it work I suppose depending on the circumstances one has as long as their health care situation is completely covered. One would also need to have plenty of cash flow every month to cover any unforeseen expenses.

But I think that is easier said than done so most people I am guessing carry at least some cash on hand.

 

[street]

I have about 12% cash in CD's, savings account and checking. I have enough in cash with 12% to cover us for 25 plus years. When I take SS it will even last longer. To most my plan might be unorthodox way of doing business. My ACA comes directly out of saving each month. This works for me and I have the cash if I want to buy more land or invest in more markets etc..

My plan was/is if the markets headed south and lasted for year and years I wouldn't have to touch my investments ever if I didn't want to. I will have to when RMD occurs but that is 12 plus years away.

 

[Montecfo]

I think it also depends on whether one is 100% dependent on their withdrawal from investments to cover annual spending or one has a guaranteed income stream from pension and SS that covers most spending needs.

I think that's right. We presently have 2 years' expenses in cash. But we will be dependent solely on investments till FRA or later, and DW's mini-pension is mainly longevity insurance. So having cash and, right behind that, short term bonds provides a needed runway in the event of a prolonged bear market, particularly in the early going.

Glide path to ER later this year probably.

 

[jollystomper]

I am going into retirement with enough cash to supplement my pension and cover projected expenses for up to 5 years (depending on when I choose to take SS). This is very conservative but I will be not forced to sell equities to get cash. I will re-evaluate at the end of each year, based on the past year expenditures, future plans, and investment gains/losses how much cash to keep.

 

[GoodWishes]

Typically have a good amount of cash on hand. Currently it's probably around 3+ years of expenses. We keep that much around for several reasons, one being for larger purchases if something comes up, the other being for dry powder should the market dip into bear territory.

+1

At the beginning of the year, we
- Review expenses for last year.
- Project expenses for current year.
- Decide how much stock to sell if any (based on projected expenses, market condition, estimated taxes, etc).
- Pay all the estimate taxes by the April deadline.

Done for the year and no need to think about it until next year.

 

[Cayman]

As you see by the replies here, the amount of cash held depends on individual needs, circumstances and preferences.

If your retirement budget is fully funded by SS and/or a pension, you may keep less cash on hand than if you ER 20 years before SS and access to your tax deferred retirement accounts.

And then there's your comfort level with risk. I keep quite a few years of expenses in cash. If the market declines 35%+ and stays that way for a decade... then I purchased cheap insurance by holding cash and I'll sleep well.

 

[Al18]

Good discussion. I noticed some folks are calling CD's cash. I use Fidelity Retirement Planner and Fidelity calls CD's bonds and calls cash sitting in an account short term.

I like the idea of moving 6 months to 1 year of expenses into an on-line savings account that pays interest. On a monthly basis, I plan to move money to a checking account to pay bills.

 

[Cobra9777]

We usually have about 3% of the portfolio in cash, which is shuffled between our Fidelity CMA and Ally online savings. The total amount is equal to about 6 months total spending or about 2.5 years of cash required. Most of our ongoing nondiscretionary expenses are covered by 2 pensions, some rental income, and dividends from the taxable account. SS still to come at some point.

For large discretionary spending (travel, home improvements) or larger items that get paid once per year (property tax, insurance), we simply transfer the required funds from online savings to checking. Then I replenish the online savings by selling equities in the taxable account and rebalancing if needed in tax-deferred. I don't necessarily do this immediately, but sort-of opportunistically replenish at whatever point, and in whatever amount, seems appropriate at the time... considering tax impact, balance in the Ally account, market timing, and other probable near-term cash needs.

 

[H2ODude]

Keep way more of it in the accounts than necessary (2-3 years) but cash ON HAND? I thought that meant stacks of bills. And yeah, I keep $3-5k in the safe in case of hurricane or other disasters like the Russkies messing the grid. May not be all that warranted but it's nice to know it's there. And yes, I know it makes no interest.

 

[jazz4cash]

Good discussion. I noticed some folks are calling CD's cash. I use Fidelity Retirement Planner and Fidelity calls CD's bonds and calls cash sitting in an account short term.

I like the idea of moving 6 months to 1 year of expenses into an on-line savings account that pays interest. On a monthly basis, I plan to move money to a checking account to pay bills.

I (arbitrarily) designate CDs > 24 mos as bonds and shorter maturities are cash. I have almost no bonds due to fear of rising rates. Fido lets me designate them as I choose and my AA is currently 62/30/8 but the longer term CDs on my ladder get redesignated as they drop below 24 mos.

 

[audreyh1]

Good discussion. I noticed some folks are calling CD's cash. I use Fidelity Retirement Planner and Fidelity calls CD's bonds and calls cash sitting in an account short term.

I like the idea of moving 6 months to 1 year of expenses into an on-line savings account that pays interest. On a monthly basis, I plan to move money to a checking account to pay bills.

It probably makes sense for Fidelity to call CDs bonds since they sell them on the secondary market and CDs brought through Fidelity are marked to market every day, so you can actually see the interest rate sensitivity.

Folks that buy them directly from banks or credit unions don’t see this. They just have to be aware of the penalty for early withdrawal (not an option through a brokerage) and take that into account. Bankrate.com or someone actually has a calculator where you can see the effective APR if you withdraw early from a CD you are considering buying.

Personally I don’t worry about it for funds held for 12 months or less.

 

[Hermit]

I have about 12% cash in CD's, savings account and checking. I have enough in cash with 12% to cover us for 25 plus years. When I take SS it will even last longer. To most my plan might be unorthodox way of doing business. My ACA comes directly out of saving each month. This works for me and I have the cash if I want to buy more land or invest in more markets etc..

My plan was/is if the markets headed south and lasted for year and years I wouldn't have to touch my investments ever if I didn't want to. I will have to when RMD occurs but that is 12 plus years away.

Actually, you don't have to do anything with RMDs except pay tax and move the proceeds to a taxable account. With the cash you have you can pay the taxes out of that stash and just move the funds to taxable.

 

[pb4uski]

.... you don't have to do anything with RMDs except pay tax...

That's the rub, but the reality is that it is highly likely that the taxes paid on the RMD... as a percentage... will be much less that what I would have paid had I not deferred that income and by the time RMDs come I'll be relocated in a no-income tax state so there are additional savings. So while paying the tax on RMDs is painful, I'm still ahead big time and I need to keep that in mind.

Still after so many years of planning for tax avoidance, it is hard to think of paying taxes as good.

 

[REWahoo]

Still after so many years of planning for tax avoidance, it is hard to think of paying taxes as good.

Yep, that does sound odd, but I'm enjoying the fact my marginal tax rate this year on my RMDs will be 12%, not the 28% I would have paid had I not deferred them. Dragging my feet on Roth conversions looks like it was a good strategy - so far.

 

[Hermit]

Yep, that does sound odd, but I'm enjoying the fact my marginal tax rate this year on my RMDs will be 12%, not the 28% I would have paid had I not deferred them. Dragging my feet on Roth conversions looks like it was a good strategy - so far.

I will never be below the 22%/28% income level. RMDs will just get whacked pretty hard in any case. No Roth conversions either. All that would do is move the tax date up. My biggest problem is that I was in the middle of moving my 401k to a Vanguard IRA and before I got my allocations back to exactly where I wanted them, the market took its big dive. Now I am short in my cash bucket for those RMDs. I am just hoping for a favorable time somewhere in the next three years or so to reallocate from stocks or bonds to needed cash.

 

[pb4uski]

Just curious.... do you think that the 22/28% tax rate that you expect to pay on RMDs is lower or higher than your marginal tax rates when you deferred that income?

 

[street]

Actually, you don't have to do anything with RMDs except pay tax and move the proceeds to a taxable account. With the cash you have you can pay the taxes out of that stash and just move the funds to taxable.

That is something I never would of even thought about. That is a great idea when the times that would be a great option.

 

[audreyh1]

That is something I never would of even thought about. That is a great idea when the times that would be a great option.

Some brokerages even allow withdrawal in kind, so you don’t have to sell the asset in the IRA and then rebuy in taxable. Of course your new taxable basis will be established when the asset is withdrawn, so it is equivalent to having bought it exactly then.

 

[Hermit]

Just curious.... do you think that the 22/28% tax rate that you expect to pay on RMDs is lower or higher than your marginal tax rates when you deferred that income?

About the same. Of course life does not always turn out how you expect or plan. A lot of my situation is caused by being single. The late DW was 10 1/2 years younger than me. I never even dreamed she would not out live me. In the current situation, I won't complain too much because between the pension without survivor benefits and SS on DW's account until I turn 70, I am doing pretty nicely financially.

 

[Scuba]

IMHO it is tempting to over-plan this kind of stuff. Like treating a SWR as if it is graven in stone and cannot be changed. There is also a common belief that our year-to-year spending will be level. Not so. To me, finances in retirement is a little like driving my car. As situations occur and as I see potholes or opportunities to coast, I deal with them. Like driving, I make small corrections as needed.

For cash, a small Megacorp pension ($800/month) plus Social Security almost but not quite handles my regular monthly expenses. A thousand$ or so a month plus cash for real estate taxes, income taxes, travel, etc. is the remaining need.

So when I need to top up the checking acount, I sell a few$K of equities or transfer a few $K when a t-bill matures. This happens maybe six times a year. The $K amount is a tiny blip on our AA, so I really don't worry about that.

As far as "cash" is concerned I never hold any significant amount. T-bills is about as close to cash as I get. Both DW and I have standby credit lines on our checking accounts so in the highly unlikely case where we immediately needed ten or twenty $K it is available to us that way rather than via an emergency sale of investment assets.

I would suggest that you ignore your question until you're retired. Then wing it for a year or so and the answer to your question, for your particular situation, will probably become clearer.

I think this is great advice based on my situation in retirement so far (17 months). Pre ER, I was a pretty detailed planner, but post-ER, I’ve been much more laid back. We just spend what we want to/need to in order to support our desired lifestyle. Due to some employee benefit payments from my previous employer, so far we have withdrawn very little from our taxable investment portfolio. That may change over time but I have been happy with the “winging it” approach so far.

Since the market has performed so well, net worth is up considerably since ER. I might not feel as laid back about all of this if the market were down.

 

[street]

Some brokerages even allow withdrawal in kind, so you don’t have to sell the asset in the IRA and then rebuy in taxable. Of course your new taxable basis will be established when the asset is withdrawn, so it is equivalent to having bought it exactly then.

audreyhi >>>>>> thank you for that info and I will ask them if they do that kind of transaction with RMD moneys.

 

[marko]

I keep about 3 months expenses in a local checking account (zero interest), and about 1 year of expenses in the Vang. Money Market account (right now that's about 1.5% interest). Every month I transfer from Vang. to my checking account about 1 month's worth.

Every 6 months I replenish the MM account, with a portion of my IRA Withdraw.

That's how we do it. We have about 2 years of dividends set aside in a short term bond fund and draw from that 2 or 3 times a year to replenish our checking as needed.

The dividends get replenished monthly/quarterly/annually.

 

[kcowan]

I have to manage cash in the form of dividends and maturing bonds. So every month I am able to top up our cash reserves. Our target is 12 months expenses. 6 months in pesos in Mexico and same in local currency. We are in a position of increasing our annual spend with transfers to kids/GCs and charities so that is a moving target but easily managed with our monthly process.