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Re: How many years of expenses in cash at retirement?
Old 03-28-2007, 04:01 AM   #21
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Re: How many years of expenses in cash at retirement?

This is a good question. I have been trying to figure it out for myself. I read a rule of thumb that indicated that one should have 3 - 5 years of cash. That seems like a bit too much to me.

I am working on a plan that partitions our money into 10 year (mini portfolios) for the decades of retirement. Whether they are actually seperate or not, I do not know yet... It may be just managed in a spreadsheet.

Plus, one other note on our approach is that we do not care about leaving a large estate behind. We plan to spend it.


When we reach 55 and FIRE, I will have alotted money for the decade of 55 - 65. We will manage that money to last during that period of time. I will start with a small pension that cover 10% of our needs. DW will begin SS @ 62... another income stream. That pool of money for 55 - 65 will be invested probably @ a higher amount of Bonds and a low amount of stock to reduce volitility. The cash account will hold probably 2 years of money to achieve our desired lifestyle, and 3 years of a minimum acceptable lifestyle. Those 10 years will probably consume 40 or 50% of the total portfolio.

The rest of the portfolio will be invested more aggressively for the subsequent decades. With a division of the total allocated to each decade. We are fairly sure that we will reduce our discretionary spending as we age, but we know that health care expenses could increase. We believe our spending will reduce dramatically after 75.

The way I look at it. I do not want to go broke, but I do not want to ride the volitility of the market to the degree that it interrupts our plans in retirement. That said, extreme things could occur where we might need to make adjustments.

As we age, if interest rates increase and an annuity looks attractive, we will consider purchasing one for the income stream. This purchase would only represent a small amount of our net worth, but it creates a bit of a safety net incase certain things go wrong... However, it is not a contingency plan that mitigates all problems that we may encounter.

All of the income streams that we pick up as we age will reduce the actual amount needed in the cash bucket needs to cover the income gap for that 2 year period. We may be able to allocate more assets to equity in the portfolio that is being consumed and not affect our lifestyle (i.e., capture a bit more growth).

In short... The amount of money in cash depends on the overall plan and how much belt tightening one is willing to do if the seas get choppy.


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Re: How many years of expenses in cash at retirement?
Old 03-28-2007, 05:32 AM   #22
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Re: How many years of expenses in cash at retirement?

0 Cash (current main checking account has about $2 in it today). Live off of Retired Pay and SS (next year have to also include the first of small RMD on IRA) -- currently save about half of that. But then EVERYTHING we have in savings (guess we cannot call them "investments") in CD's and/or a very small portion in MMA waiting for good CD rates.

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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 01:28 AM   #23
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Re: How many years of expenses in cash at retirement?

Quote:
Originally Posted by Easy
I retired end of December 2006 at age 55 and went right to a contract position. Left 3 years of living expense in my 401k qualified plan in stable value fund and rollover the balance to VG. 2007 expense is covered by the contract gig and the monies left in my 401k will carry me to 59 1/2 at Jan 2011 for tapping IRA....[snip]
This is interesting, I hadn't thought of leaving some money in my 401k in order to withdraw it between ages 55-60 without penalty.

Does this only work if you leave the company at age 55 or later? Or does this also work if you quit at, say, 52 but wait until age 55 with withdraw from the small balance left in the 401k? Anyone know?
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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 12:51 PM   #24
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Re: How many years of expenses in cash at retirement?

Quote:
Originally Posted by Linney
This is interesting, I hadn't thought of leaving some money in my 401k in order to withdraw it between ages 55-60 without penalty.

Does this only work if you leave the company at age 55 or later? Or does this also work if you quit at, say, 52 but wait until age 55 with withdraw from the small balance left in the 401k? Anyone know?
I believe the rule is that you have to separate from service to your employer in the year you turn 55.

My answer to the original question is that I expect to be at an 80/20 allocation at retirement and plan on a 4% withdrawal rate, so I will have 5 years in cash/cash equivalents.

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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 01:06 PM   #25
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Re: How many years of expenses in cash at retirement?

Quote:
Originally Posted by SecondCor521
I believe the rule is that you have to separate from service to your employer in the year you turn 55.
2Cor521
It's separation in or after the year you turn 55.

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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 01:20 PM   #26
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Re: How many years of expenses in cash at retirement?

I too have 5 years withdrawals in cash equivalents (MM/CDs) and I-bonds.

Another maybe 10 years in two balanced funds with Forbes' B or better rating for both up and down markets.
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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 02:09 PM   #27
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Re: How many years of expenses in cash at retirement?

$0 cash ... weelll the checking account had SOMETHING in it ... but not much 8).

A severence package and unemployment was 1 years expenses. Then the rental cash flow carried the bulk of the weight. Oh, I threw $450k of HELOCs on some property as a safety net.

I like to keep it ALL working.
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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 04:08 PM   #28
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Re: How many years of expenses in cash at retirement?

I've got about 5 years in cash right now. A portion of "bucket 2" is in Total Bond Market and there are several more years there if the need should arise. I've got no pension to look forward to (blue collar worker) and feel the need to carry this much cash or near cash to bridge me to SS. I'm 58 and retired last March, DW 56 and also retired. Everything we have is home grown. I really envy those with pensions.

Will probably let cash drop to 3 years after SS kicks in, then hold it at 1 to 3 years after that.
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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 05:42 PM   #29
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Re: How many years of expenses in cash at retirement?

Quote:
Originally Posted by CyclingInvestor
I retired last year at 48. I keep about 2% in cash, 98% stocks. I do not feel I
need a large cash reserve since I am living on dividends.
But is it not true that in a bad bear market that dividends will tend to shrink also ?

I guess I have about 7 years in cash, laddered into T'Bills and PCFU 6.25% CDs
of varying maturities. But that's only the cash necessary to supplement
my dividends and a couple small annuities.

The answer may depend on what ROR you're getting on your cash. More than half of
my cash is in PCFU 6.25% CDs. That's as good a return as one migth expect from
a bond portfolio (no ?) so I feel pretty good about having that much in "cash".

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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 05:44 PM   #30
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Re: How many years of expenses in cash at retirement?

I agree with previous comments that this is an interesting topic. Thanks for bringing it up.

We have about 12 months in what I call our "contingency fund" (CF). This used to be our "emergency fund" but I'm semi-retired and DW is a few months away from retiring, so all of our future cash will be included in this fund and contingency fits better than emergency. The CF consists of a PMMF @ Vanguard, checking account and the cash value of some old LI policies that are no longer needed.

I pulled the trigger on one of my DB pensions a few years ago and that goes into the CF each month. DW will pull the trigger on her pension in the summer of 2007.

The LI policies will be cashed in before the end of 2008.

In 2009 I will pull the trigger on my other DB pension.

2010 is the year that DW and I will pull the trigger on our SS benefits.

All of these income streams will be dumped into our CF as I have scheduled them. This should give us an income close to 100% of our expected expenses.

By 2014 I will have to begin RMD that will dump even more money into my CF. I will direct RMD money into our CF. RMD for DW starts in 2018.

Bottom line, if it all works out as I have planned (which it seldom does), we will be taking a lot of vacations just to make sure that the majority of our stash doesn't go to the kids. (We have told the kids to not expect much of an inheritance.)

Now all we have to do is live for another 40 years!




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Re: How many years of expenses in cash at retirement?
Old 03-29-2007, 07:52 PM   #31
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Re: How many years of expenses in cash at retirement?

Quote:
Originally Posted by RustyShackleford
But is it not true that in a bad bear market that dividends will tend to shrink also ?
Generally not. Dividends from well-run companies were pretty much
unscathed in all recent bear markets. The last time they were really
impacted was in the 29-33 Depression. SInce I can easily live on half
my current dividend flow, I am not too worried.
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