How many years of cash/cash equilivents do you have now

[youbet]

Wow, this thread is very instructive. You guys have a lot of cash. Right now I have about two years of bare bones expenses in cash and cash equivalents, not counting bonds.

I think these discussions could be misleading to folks who haven't been following along. I don't think many of the posters are actually advocating carry high percentages of cash.

As some have indicated, there is a big difference between "years of expenses" held in "cash or cash equivalents" and having enough cash, interest income, dividend income and other income such as SS and pensions to avoid selling equities.

For someone with SS and a bit of a pension, a generic 60/35/5 portfolio might well supply decades of "no selling of equities" performance to support a barebones retirement budget. No particular emphasis on cash or liquidity required. Collect dividends generated by the 60% equities. Collect interest generated by the 35% fixed. Collect SS and pension. Use the 5% to smooth the periods between div and int payments. Live a modest life.

I follow the method FIREd@51 describes in post #23 above. It makes it possible to mangage investments with an eye on potential future inflation which, IMO, will eventually turn out to be more of a threat to ER types than the current downturn in equity prices.

 

[audreyh1]

I have almost 2 years in cash accounts separate from my retirement fund.

I have just under 12 years in cash+bonds in my retirement fund (~45% or so of my portfolio). Unfortunately some of my bond funds got hit really hard too last year, but I'm hoping they will recover first!

So - almost 14 years.

I am retired.

Audrey

 

[Hal3]

Let us know when that is!

Everything is in cash or short term bonds at the moment. I'm waiting until stocks look like an attractive buy, then will diversify more.

 

[Alan]

Income will be = non-cola pension + dividends + cash

Both dividends & cash come from retirement savings.

Enough cash for 10 years.

Cash for me is a combination of MMFs, CD's and I-Bonds.

In 8 years SS will kick in.

savings currently is made up of 15% cash. (rest is 35% equities, 50% bonds)

 

[redduck]

I'm two-to-three years from retirement.

I have about 10-12 years of cash/bonds/Wellesley. Assuming the market continues its current path, and I include my equities, I figure in total I will have 10-12 years + 6-8 days before my financial resources are depleted.

 

[Meadbh]

I think these discussions could be misleading to folks who haven't been following along. I don't think many of the posters are actually advocating carry high percentages of cash.

As some have indicated, there is a big difference between "years of expenses" held in "cash or cash equivalents" and having enough cash, interest income, dividend income and other income such as SS and pensions to avoid selling equities.

So....are we really talking about CASH FLOW?

 

[Alan]

So....are we really talking about CASH FLOW?

I thought we were talking about holding the amount you need to withdraw each year from savings to live on.

I have 10 years of cash for that and would keep that amount even without a pension. If I did not have a pension the % of my savings held in cash would be much higher and I would only be in equities at 15-20%.

 

[Grep]

So....are we really talking about CASH FLOW?

Yes, "years in cash" is very comforting, but it's really "years in cash enough to supplement cash flow" that counts. Pension plus dividends plus interest plus S.S., etc., with enough cash to make up the difference. For many people, a little cash goes a long way.

 

[Alan]

Yes, "years in cash" is very comforting, but it's really "years in cash enough to supplement cash flow" that counts. Pension plus dividends plus interest plus S.S., etc., with enough cash to make up the difference. For many people, a little cash goes a long way.

Agreed.

If my pension disappeared before I start drawing it next year then the cash I have in savings would last only 3 years, not 10. (In reality, if that happened I would drastically change the planned retirement to reduce spending)

 

[Steve O]

It's hard to calculate, but if things stayed the same as today I have enough for at least 20 years...

If we have inflation Id think interest rates would rise and I might be able to live off of interest without drawing down principal

 

[W2R]

How many years of cash/cash equilivents do you have now

I can't address this until someone explains to me what an equillivent is. It sounds like chemistry lab.

Good point - - seems like a wide variety of definitions going on in the same thread, with no particular standard definition.

For me, cash is money in a MM fund. A cash equivalent is something else that will not lose any value whatsoever - - in my case, the G Fund of the TSP.

I didn't include other bonds, Wellesley, dividends, my bank accounts (which are earmarked for my move and transitional expenses when I retire), or my house. As I mentioned in my post, I also didn't include pension or SS. If I include all of these things and don't include inflation then I have infinite years in cash, which is pretty meaningless. I think you can define it as you wish.

 

[youbet]

So....are we really talking about CASH FLOW?

Sure. And, IMO, that's a better way to look at withdrawals as part of overall retiree portfolio management than a "keep a separate stash of cash" view. But, to each his/her own.

Just scanning back over the posts in this thread, it's clear the definition of "cash" or "near-cash" or "cash equivalents" or "constant value investments" varies all over the place. Not surprising I guess.

I still believe in asset allocation as the key contributor to portfolio success. In retirement, I'm finding that withdrawal needs are influencing my AA decisions (and appropriately so!), but I don't find it beneficial to leave AA strategies behind and go to separate "cash" (whatever that is) stashes. I've just adjusted my AA so that cash flows + pension and SS = spending budget with some true liquid cash (5%) to handle emergencies and smooth over any periods with few int or div distributions.

 

[Alan]

I've just adjusted my AA so that cash flows + pension and SS = spending budget with some true liquid cash (5%) to handle emergencies and smooth over any periods with few int or div distributions.

Good point.

Currently all my income to live on comes from a salary, and I keep 6 months expenses worth of cash in a MMF for emergencies. My retirement fund is managed separately.

Next year my income to live on will come from pension + withdrawals from retirement fund. Fund will have 10 years cash ie CD's, I-Bonds etc to ride out markets.

I still intend to keep 6 months expenses in cash in a MMF outside of the retirement fund which will ebb and flow as it does now. oops - major unplanned for major expense, then use emergency fund to cover and cut back on living expenses until it is replenished.

Just my way of keeping things segregated and "logical".

 

[OAG]

If SS and COLA'd "pension" income is counted as cash, or cash equivalent, I just have to keep breathing.

Now you got me quoting myself. So if it is only CASH in MMA (not fund) and CD's, both earning interest, but disregarding the interest component, which can go up and down, and only assuming PRINCIPAL (could be under the mattress) we may have enough to pay expenses for the next 20 years. That should be enough (ages would be 88/91 at that point).

 

[youbet]

It's hard to calculate, but if things stayed the same as today I have enough for at least 20 years...

If we have inflation Id think interest rates would rise and I might be able to live off of interest without drawing down principal

Steve.... based on my experience with the double digit inflation we experienced in the past, most investments are hard pressed to keep up. Interest rates on CD's, for example, are typically a point or two above inflation. That's the "real" interest rate you're receiving. However, when high and rising inflation kicks in, you typically see negative real interest rates with CD's and similar paying less interest than the inflation rate.

I think the "final blow" to the current economic mess we're in will be an eventual dramatic rise in aggregate prices without corresponding increases in the value of most investments leaving retirees in a bind. I'm trying to plan for that. There are a number of threads here on TIPS and related ETF's and MF's. Do a search and read them.

 

[Steve O]

I have been doing a lot of reading

I have some in Vanguards TIPS fund, and a 25% allocation in stocks right now...

Im new at this game, cash seems safe right now....

I hope when the inflation comes rates rise to keep up.

If rates don't rise where else is there to go

 

[audreyh1]

So....are we really talking about CASH FLOW?

Meadbh - don't forget that people only need an investment portfolio that provides the annual living expenses NOT covered by pensions or SS. Therefore, when people calculate how many years of cash/cash equivalents that have, that would also be AFTER what is covered by pensions plus SS.

Audrey

 

[Rustic23]

I need about $20k a year to supplement a cola'd pension. I was maintaining 3 years in cash $60K prior to the market melt down. I now have about $30K as I have not cashed out stocks to replace cash. My hope is that the market will go up before I have to replace the cash account.

 

[Meadbh]

Meadbh - don't forget that people only need an investment portfolio that provides the annual living expenses NOT covered by pensions or SS. Therefore, when people calculate how many years of cash/cash equivalents that have, that would also be AFTER what is covered by pensions plus SS.

Audrey

The pensions & SS are an important variable, and since I won't have a pension, I guess I do need more cash! I should mention that the equities I am now investing in are dividend stocks. They should produce some cash flow over the years.

 

[Rich_by_the_Bay]

Wow, this thread is very instructive. You guys have a lot of cash. Right now I have about two years of bare bones expenses in cash and cash equivalents, not counting bonds. I am currently putting 75% of my monthy savings into cash and planning to increase that to 100% as soon as a recovery takes hold in equities. My goal is to have at least 5 years expenses in cash before retiring. Maybe I need to be more conservative!

Remember that most of us have to include health care premiums which can routinely run $10k to $15k per annum after tax expenses for a family of 2. If you FIRE at 60 you have 5 years x $13000 or so, or an extra $65k in cash needs to deal with, and even after MC kicks in there can be considerable out of pocket expenses.

Are retiree benefits such as pensions, tax shelters etc. taxed as ordinary income in Canada?

 

[mathjak107]

hopefully we will look into an hsa when we are ready to retire early

 

[Meadbh]

Remember that most of us have to include health care premiums which can routinely run $10k to $15k per annum after tax expenses for a family of 2. If you FIRE at 60 you have 5 years x $13000 or so, or an extra $65k in cash needs to deal with, and even after MC kicks in there can be considerable out of pocket expenses.

I forgot that, thank you!

Are retiree benefits such as pensions, tax shelters etc. taxed as ordinary income in Canada?

Pensions are taxed as income (least favourable); dividends are taxed less, and capital gains tax is calculated on 50% of the capital gain. Not that we've sighted a capital gain anywhere in the area this year!

 

[BunsGettingFirm]

I have about 3 years in cash for a bare bones budget. I'm not counting on unemployment income. With it, then 4 years of living expenses.

 

[Koolau]

Assuming uncola'd pension and SS remain viable and inflation remains "manageable", I have "infinite" cash. Of course, I define cash as checking/savings/CDs/Stable Value Fund in 401(k)/cash value in life insurance/SPDAs in IRA. Think I'm roughly at 80% cash as defined above. (% cash keeps going UP for some strange reason, heh, heh.)

Like others, I don't believe inflation will remain "manageable" wherein lies the problem. That's why I've been looking for inflation hedges. TIPS? - yeah, maybe. I-bonds? - got some but not convinced they will help much with the inflation rates I think are possible. Equities? - sure, but which ones and when to buy? How do any of these play out with either stagflation or hyperinflation? (Wanna hear something scary? The built in spell checker recognizes "stagflation"!)

So, depending on the economic scenario, I either have way more than I need or I could be broke in a few years. The latter assumes "this time it really IS different".

 

[sindy9001]

9 years current spending.