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Old 03-25-2018, 07:38 AM   #1
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As I work my way through my pre retirement checklist of to dos a thought occurred to me. As far as the mechanics of paying bills in retirement is concerned, how much of your portfolio do you normally keep in cash? Is it a percent of your portfolio or is it a number of months of expenses? And how often do you convert investments to cash? Once a year? Quarterly? Monthly? Looking for input and direction in this regard. Thanks!
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Old 03-25-2018, 07:47 AM   #2
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As I work my way through my pre retirement checklist of to dos a thought occurred to me. As far as the mechanics of paying bills in retirement is concerned, how much of your portfolio do you normally keep in cash? Is it a percent of your portfolio or is it a number of months of expenses? And how often do you convert investments to cash? Once a year? Quarterly? Monthly? Looking for input and direction in this regard. Thanks!
I have a rewards checking account at 1.95% interest up to 30,000.(10 months of living expenses)

I have a short term bond fund at Vanguard that I sell every 3-4 months to replenish my Vanguard Money Market fund. That fund sends 3000.00 per month to my rewards checking account on the 1st of every month.

I do not count my rewards checking as part of my portfolio.

So far it is working great but only about 2 years in retirement.
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Old 03-25-2018, 07:49 AM   #3
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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.
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Old 03-25-2018, 07:49 AM   #4
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As I work my way through my pre retirement checklist of to dos a thought occurred to me. As far as the mechanics of paying bills in retirement is concerned, how much of your portfolio do you normally keep in cash? Is it a percent of your portfolio or is it a number of months of expenses? And how often do you convert investments to cash? Once a year? Quarterly? Monthly? Looking for input and direction in this regard. Thanks!
I keep track of the number of months expenses we have in cash or near cash/short term bonds in my local currency. I don't have a specific target but it's been at least 24 months since I retired - more than I need (even if DW quit her job) but I'm comfortable with it.

I don't do any targeted conversions.
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Old 03-25-2018, 07:50 AM   #5
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I keep 2-5% of our total portfolio in cash. My target is 5% so I rebalance to 5% but if I haven't rebalanced for a while it could get as low as 2%. This cash is in a taxable online savings account that currently pays 1.5%.

I have a monthly automatic transfer of $x from that online savings account to our local credit union account that I use to pay bills... my retirement "paycheck". If the CU account gets uncomfortably low, which can happen when property taxes and insurance are due, then I'll just to a special one-time transfer to replenish it.

Now that money market fund interest ratea are close to what online savings accounts offer I could skip the online savings account and just do automatic monthly transfers from my Vanguard taxable MM fund but I set up what I currently have many years ago and it works so I'm not inclined to change it.
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Old 03-25-2018, 08:03 AM   #6
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This depends on many things including tax diversification and AA. If you are have most of your assets in TIRA/401k and get your spending cash by taking a taxable distribution, you likely need to plan your withdraws. If you have a significant amount in taxable accounts that distributes dividends, then depending on what percentage the distributions make up of your total spending could determine a small or no need for making actual withdraws beyond the dividends.

I have about 4% cash (CD and HYS), but have not touched it. Live mostly of dividends/distributions in taxable accounts.
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Old 03-25-2018, 10:07 AM   #7
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As I work my way through my pre retirement checklist of to dos a thought occurred to me. As far as the mechanics of paying bills in retirement is concerned, how much of your portfolio do you normally keep in cash? Is it a percent of your portfolio or is it a number of months of expenses? And how often do you convert investments to cash? Once a year? Quarterly? Monthly? Looking for input and direction in this regard. Thanks!
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.
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Old 03-25-2018, 10:16 AM   #8
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I keep a cash bucket of 3 to 5 years of expenses. I refill it by selling stocks when their prices appear high, and delay refills while stock prices appear depressed.
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Old 03-25-2018, 10:22 AM   #9
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Except for a small (~$500) cushion in my local bank's checking account over and beyond the minimum balance needed to avoid account fees, I don't keep any cash cushion. I receive a monthly dividend from my big bond fund which, along with a similar quarterly dividend from a stock fund, provides the cash I use to pay my bills.
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Old 03-25-2018, 10:32 AM   #10
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We keep about 2 to 4 weeks of expenses in our checking account just like we did while working.

We get quarterly dividends from our taxable accounts which cover monthly expenses for about 4 months of the year. For the other 8 months of the year, we sell shares from our taxable account as needed.

Thus, we essentially have zero cash sloshing around. Credit cards are used to pay most of our bills and it is easy to float big purchases for 45 days or so without paying any interest, plus we get the 2% cash back.
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Old 03-25-2018, 11:23 AM   #11
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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.
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Old 03-25-2018, 12:28 PM   #12
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I have multiple types of cash buckets. Credit Union checking and has 2 months spending. It gets refilled as it's used from several income streams: rental income, DH's SS, my small pension, and after tax monthly portfolio withdrawal.

I have a savings account that has funds from and for lumpy expenses. Tax refunds go there, insurance, hsa funding, property taxes come from there. Any extra from checking gets swept to this savings.

Once a quarter I take a withdrawal from ira/inherited IRA. I pay taxes on these quarterly withdrawals and deposit the net in money market. This funds the monthly transfers to checking. There is cash buffer in the money market of 6 months. There is 6 months gross in the inherited IRA just in case.
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Old 03-25-2018, 01:04 PM   #13
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... Once a quarter I take a withdrawal from ira/inherited IRA. I pay taxes on these quarterly withdrawals ...
Withholding is considered to be paid during the tax year regardless of when it is actually paid. At the suggestion of our CPA, we pay all of our estimated taxes in December by taking a distribution that has withholding equal to our estimated state and federal taxes for the year. So you really don't have to loan the government money at 0% interest to the extent of those quarterly payments.
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Old 03-25-2018, 01:19 PM   #14
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I keep up to a year of spending in cash and build cash once or twice a year.
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Old 03-25-2018, 01:56 PM   #15
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Originally Posted by VanWinkle View Post
I have a rewards checking account at 1.95% interest up to 30,000.(10 months of living expenses)



I have a short term bond fund at Vanguard that I sell every 3-4 months to replenish my Vanguard Money Market fund. That fund sends 3000.00 per month to my rewards checking account on the 1st of every month.



I do not count my rewards checking as part of my portfolio.



So far it is working great but only about 2 years in retirement.


Thanks VanWinkle and thanks to everyone else for the great input. I already had some loose ideas of how I am planning to handle it but your responses have helped me hone my plan...
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Old 03-25-2018, 02:01 PM   #16
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IMO, If you have a lot of cash on hand, it is not working for you. My checking account is topped up every month by SS and a small pension.
Most of the time, that covers expenses.
Unfortunately, this year I owe a bunch on my taxes, so i will use part of my RMD to cover it.
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Old 03-25-2018, 02:15 PM   #17
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IMO, If you have a lot of cash on hand, it is not working for you. ....
Not really... let's say that you are 60/40 and over the long term you expect stocks to yield 7% and bonds to yield 4%.... that is a weighted average return of 5.80%.

Now let's say that you decide to target 5% in cash that earns 1.5%, changing the overall AA to 60/35/5. That 5% target is after rebalancing, so on average during the year it is really more like 3.5%... so the "cost" is 0.0875%, reducing the 5.80% to 5.71%.
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Old 03-25-2018, 05:41 PM   #18
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On average, about 2-3 weeks of cash on hand in checking account.
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Old 03-25-2018, 06:12 PM   #19
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As I work my way through my pre retirement checklist of to do’s a thought occurred to me. As far as the mechanics of paying bills in retirement is concerned, how much of your portfolio do you normally keep in cash? Is it a percent of your portfolio or is it a number of months of expenses? And how often do you convert investments to cash? Once a year? Quarterly? Monthly? Looking for input and direction in this regard. Thanks!
I pull a years worth of funds out of my portfolio every January and send it to a saving account earning ~1.5%. I pay myself from that savings account monthly.

I rebalance what us remaining in the portfolio and leave it alone for a year unless there are really big market moves.

So you could make sure you have a year or partial year worth of funds when you retire, or do your initial withdrawal upon retiring or whatever.

Beyond the spending money which is kept separate, there is 5% in cash in my portfolio as part of my AA.
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Old 03-25-2018, 06:18 PM   #20
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IMO, If you have a lot of cash on hand, it is not working for you. My checking account is topped up every month by SS and a small pension.
Most of the time, that covers expenses.
Unfortunately, this year I owe a bunch on my taxes, so i will use part of my RMD to cover it.
That really doesn’t matter. If you have a very large portfolio compared to your annual spending needs it’s just fine to have a big chunk in cash.

It depends personal goals - some folks may want to grow their stash aggressively. Other folks may feel like their stash is plenty big enough already and decide to reduce risk on part of it.

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.
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