How Many Month/Years of Living Expenses do You Keep in Cash?

[Surewhitey]

We have $1200 coming in on deferred comp plan, $1200-2000 in PT w*rk and $1500 in divy's. All per month. Our expenses are $2k on a good month & $3k on a bad one, so we're covered.

We have a rewards checking that earns 2.5% & have 4-5 months there. Bunch of various 5yr CD's averaging 2.5% that will start renewing (or not) in a year or so. $90k in stocks for the really bad emergency...all in all, a bunch of years...

 

[pb4uski]

....If they would have needed a day or two to tap a CD or money market fund, then I would not call that cash.

Both are cash equivalents for all intents and purposes. Most MM accounts have checkwriting privileges and the CD you can walk in the bank at anytime and walk out with cash (albeit perhaps after an early withdrawal penalty).

Note that technically, a CD is not a cash equivalent if it is subject to penalty, but for the purposes of this thread, it is near enough to be considered cash.

 

[FIREd]

I have about 3.5 years worth of expenses in cash (savings accounts and money market funds). I also have about 4 years worth of living expenses in CDs and i-bonds. That's the way it is right now, but I can deploy the cash very rapidly if I see an opportunity and I sometimes find myself very cash-poor.

 

[mrfeh]

Planning on ER in 3 years, and want to have money set aside for expenses 4 years in advance. Thus, we began the purchases for that income ladder (using I-bonds and short-term munis) this year.

Plan is to have 1 year's expenses in cash and the following 3 years in bonds.

 

[obgyn65]

To answer the OP question, if cash includes CDs and munis, the answer in my case is 50 + years

 

[gayl]

I don't think munis qualify as 'cash' ... they're definitely fixed income investments. CASH would be cash / savings accounts / CDs bought on primary or secondary market .... things guaranteed via FDIC.

 

[Hiredgun]

Currently 1 1/2 years in MM and 5 additional years in VG Short Term Muni-Bond Fund. (assuming $100K per year budget).

This may be too much. However, we just retired and my wife has recently been diagnosed with aggressive (triple negative) breast cancer. So, although this would normally be too conservative of an investing strategy for me, I feel like this gives me some much needed safety, flexibility and cash on hand for unexpected medical expenses or emergencies.

In 2014 I may adopt more risk, but only to the extent of investing 4 years ($400K) in VG Intermediate Term Bond Fund (VWITX). If anyone has contrary or supplemental advice I'm happy to listen. Thanks,

 

[clifp]

Cash it varies but typically 2-3 months
1.5 years in CD ladders which is actually 2-3x that long since it would supplement my dividend income after being slashed by 25-40%. A precaution I put in place after 2008/2009

 

[MDJO]

Currently 1 1/2 years in MM and 5 additional years in VG Short Term Muni-Bond Fund. (assuming $100K per year budget).

This may be too much. However, we just retired and my wife has recently been diagnosed with aggressive (triple negative) breast cancer. So, although this would normally be too conservative of an investing strategy for me, I feel like this gives me some much needed safety, flexibility and cash on hand for unexpected medical expenses or emergencies.

In 2014 I may adopt more risk, but only to the extent of investing 4 years ($400K) in VG Intermediate Term Bond Fund (VWITX). If anyone has contrary or supplemental advice I'm happy to listen. Thanks,

My budget is the same as yours, also recently retired at 59, and I have five years of what I would call cash - assets that will not go down in value and can be accessed immediately or within a few weeks. I feel the same way you do - it's too much cash. But for different reasons, I feel I need the same safety as you note. As time goes on, I will probably reduce my cash to four years or less, when I feel more comfortable with my plans.

(Rest of assets (around $1.3 M) are all equities, mostly dividend payers.)

Best of luck to you and especially to your wife. Hang in there!

 

[padlin00]

Hi. I was just wondering, for those of you in FIRE, and those of you approaching FIRE, how many months/years of living expenses do you keep as cash or cash-equivalent. I imagine you would do that so that you have the certainty of having the money needed to pay your monthly fixed expenses.

Also, do you keep a separate amount in cash to deal with unexpected emergencies. If so, how do you determine how much to keep in the unexpected emergencies account?

Unexpectedly retired 2 months ago, collecting UE for 8 months then on my own. No pension, 57 yo, wife works pt. I have at least a years $ in savings acct from severance. Have about 1 year in I bonds and another 5 or 6 years in GIC (US version) in my 401k that I can withdraw any sum from once a year before 59. So depending on what you call cash, I have between 1 and 8 years worth.

For unexpected emergencies I could tap into one of our Roths or any of the above, so I'd say that I do not have a separate acct for emergencies.

I also need to go through this and get it nailed down, I haven't touched a thing since I left work. I'm good with the idea of not needing an emergency fund, I can always use a credit card till I can get $ from an account somewhere. I do like the idea of about a years cash in savings and a couple years in something that doesn't fluctuate like the GIC's or the I bonds. I'd say I currently have too much as such.

 

[Dreamer]

This may be too much. However, we just retired and my wife has recently been diagnosed with aggressive (triple negative) breast cancer. So, although this would normally be too conservative of an investing strategy for me, I feel like this gives me some much needed safety, flexibility and cash on hand for unexpected medical expenses or emergencies.
,

You have much more to worry about then having too much money in cash. I am glad to hear that you are financially prepared for this and I hope it turns out well for your wife. It is amazing what medicine can do now. Take care of yourself and your wife. Let her know that she has people pulling for her that she does not even know.

 

[gayl]

For unexpected emergencies I could I'm good with the idea of not needing an emergency fund, I can always use a credit card till I can get $ from an account somewhere.

I view my EF as something that I could tap in case the car blows up, probably something that'll never be tapped. Hopefully.

 

[gayl]

But I can see how in your case the monthly cash & EF can get muddled. Hang in there

 

[Culture]

If you consider short term bond funds to be "cash-equivalent," my IPS calls for about 8 years of cash. Bonds are 40% of my total portfolio. 30% of bonds are short-term bonds, and 5% are MM (ultra-short bonds) or cash (bank). So 14% of my assets are in cash (short-term bonds, MM and bank accounts). I am currently spending about 1.7% of my assets per year.