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Old 03-08-2009, 02:55 PM   #41
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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
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Old 03-08-2009, 02:57 PM   #42
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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
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Old 03-08-2009, 03:03 PM   #43
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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.
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Old 03-08-2009, 03:49 PM   #44
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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.
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Old 03-08-2009, 05:05 PM   #45
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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?
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Old 03-08-2009, 05:07 PM   #46
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hopefully we will look into an hsa when we are ready to retire early
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Old 03-08-2009, 05:12 PM   #47
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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!

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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!
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Old 03-08-2009, 09:12 PM   #48
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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.
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Old 03-09-2009, 01:15 AM   #49
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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".
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Old 03-09-2009, 03:15 AM   #50
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9 years current spending.
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Old 03-09-2009, 12:30 PM   #51
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This thread is making me realize that perhaps I should move a few year's expenses from my Vanguard GNMA account to a money market account. We currently have only about a year's worth of funds in our money market account.

Any pitfalls in transferring a few years of living expenses from GNMA to money market?

I noticed today that, since much of our taxable funds are in VG 500 Index, getting to 59.5 (55 now) without needing IRA money will be a little trickier. But we'll probably see some recovery by then.
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Old 03-09-2009, 12:45 PM   #52
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Originally Posted by TromboneAl View Post
This thread is making me realize that perhaps I should move a few year's expenses from my Vanguard GNMA account to a money market account. We currently have only about a year's worth of funds in our money market account.
Al, I wonder if some folks could be confused about what is being reported when someone says "I have x number of years living expenses in cash". I posted ~10 years, but I don't actually have that amount sitting in a MMkt account.

What I do have is enough in a MMkt account and CDs to cover the annual shortfall I expect to experience over the next 10 years after applying other sources of income to my annual expenses using the following formula:

Estimated annual expenses (includes taxes)
- estimated annual income from SS
- estimated annual income from dividends
= estimated annual shortfall

Are others using similar logic when reporting how many years living expenses they have in cash?
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Old 03-09-2009, 01:19 PM   #53
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FWIW, I'm going to use Wikipedia's definition for cash equivalents:
Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months.

I own no Cds, no short term govt bonds or T bills.
I have a small money market account with 2 months living expenses.
My immediate liquid cash reserve is monthly income from a COLAd govt pension and a fixed annuity. Right now I have 4 months living expenses in a savings account.
I have immediate check writing on my muni bond fund. I could tap the currently reinvested dividends if need be.
I have a small stake in EE and I bonds, which I could cash only in dire emergencies. Last resort only.
Future income is a deferred FERS pension and SS at an unknown level.
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Old 03-09-2009, 01:39 PM   #54
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About 11 years cash currently, no pension (unless I get SS, I am 44 so it is more likely that someone will close flying pigs first), plan (hope) to retire in 4-6 years. I plan on keeping 12.5 to 14.5 times annual living expenses in cash when I am in retirement.
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Old 03-09-2009, 01:47 PM   #55
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What I do have is enough in a MMkt account and CDs to cover the annual shortfall I expect to experience over the next 10 years after applying other sources of income to my annual expenses using the following formula:

Estimated annual expenses (includes taxes)
- estimated annual income from SS
- estimated annual income from dividends
= estimated annual shortfall

Are others using similar logic when reporting how many years living expenses they have in cash?
That is how I am figuring it .Last year I had only three to five years in cash or cash equivalents but the market was causing me to lose sleep so I went to ten years . If and when the market picks up I may lessen this to six years .
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Old 03-09-2009, 01:58 PM   #56
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Are others using similar logic when reporting how many years living expenses they have in cash?
I am, but I don't think everyone else is. Other posters are explaining what they're doing, but the posts are filled with manifestations of the current sad economic times and strategies designed for liquidity perhaps at the expense of prudent asset allocation.

I think it would be helpful if folks would mention what their total AA is given their "years of cash" plans.

My target AA in retirement is 50/45/5. Currently, thanks to the "auto-rebalancing" feature of the current downturn, I'm at 40/55/5 and I'm dragging my feet on rebalancing. But either of those allocations or anything inbetween, coupled with SS and future pension, gives me a cash flow adequate to not have to sell equities or long/mid-term fixed holdings during a downturn.

My priority for my AA is portfolio performance with liquidity secondary as long as it is adequate to protect me from significant selling in a downturn. I think some folks have had their thinking changed by this recession to the point where they're saying that liquidity is #1 and after liquidity is established look and see what AA that gives you.

As I've mentioned in earlier posts, I'm concerned about future inflation as much as I'm concerned about liquidity. I think it's possible that we may find prices rising faster than equities during a sluggish upturn. So, given a target AA of 50/45/5, I'm trying to rebalance with these three goals:

1. portfolio performance
2. adequate liquidity
3. inflation protection

"Years of cash" is only one variable in the equation. BTW, I'm not doing very well so far......
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Old 03-09-2009, 02:03 PM   #57
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Originally Posted by TromboneAl View Post
This thread is making me realize that perhaps I should move a few year's expenses from my Vanguard GNMA account to a money market account. We currently have only about a year's worth of funds in our money market account.
I think many here would consider a GNMA bond fund to be high quality enough to be a "cash equivalent".

Personally, when I figure how many years expenses I have covered, I include ALL my bond funds even though some of them are not conservative enough to be considered a "cash equivalent". Most of my bonds are in short term diversified bond funds which hold plenty of corporate bonds, but I feel that I have so many years worth including cash (over 10), that I have time for the corporate bonds to recover too. In the meantime, I can enjoy the interest payments.

Audrey
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Old 03-09-2009, 02:08 PM   #58
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I think many here would consider a GNMA bond fund to be high quality enough to be a "cash equivalent".

Audrey
I think it would be a matter of your definition of "selling in a downturn." The Vanguard GNMA fund has a historical trading range that shows a 10% drop in NAV is very possible and happens from time to time. If you consider selling shares that are down 10% to be OK, then I'd consider a GNMA fund a source of liquid assets. If selling something 10% down would give you a headache, better keep GNMA's in the mid/longterm fixed category.

A GNMA fund is definitely not a "cash equivalent" however. Quality isn't the only measure of "near cash" status. Example: a long term Treasury is surely of the highest quality but is a long, long way from being a "cash equivalent."
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Old 03-09-2009, 02:45 PM   #59
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I am, but I don't think everyone else is. Other posters are explaining what they're doing, but the posts are filled with manifestations of the current sad economic times and strategies designed for liquidity perhaps at the expense of prudent asset allocation.

I think it would be helpful if folks would mention what their total AA is given their "years of cash" plans.

......

My asset allocation for many years was 75% stock 20% bonds and 5% cash . I could handle this AA when I was working and it was just on paper but now that I'm retired this AA especially during this market caused me to lose sleep and I love to sleep so my new and improved AA is 60% 25% 15% cash . I will return to less cash and more bonds once the market stabilizes to end up with a AA of 60% 30% 10%.
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Old 03-09-2009, 02:47 PM   #60
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One wonders if the market can recover at all given that almost everyone says they aren't selling now but plan to reduce their AA in stocks when we recover some...
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