On the day you retired...

[Major Tom]

When I began withdrawals from my portfolio, I had about 4 years worth of cash. After a while, it occurred to me that, along with the quarterly didvidend payouts from the taxable portion of my investments, this meant I could live for quite a bit longer than 4 years without selling any shares. This seemed like too much, so I bought some more equities and reduced my cash to about 2 years worth. I'm now standing at about 18 months in cash, but dividend payouts will keep me going for a bit longer than that. Not sure how low I will allow the cash stash to go before selling a few equities but, as they say, "We'll see how it goes."

 

[Onward]

One year in cash.

 

[RobLJ]

Cash

About 4 years now for when I retire next year, 6 if you consider DW (younger) will continue to work. I include money markets as cash. I'll probably roll some of that into short bonds and munies before I pull the plug.

 

[mathjak107]

I had no cash the day I retired. I don't believe in cash unless it return 5% or more.

Several studies have shown that one shouldn't have any cash when they retire because it is a drag on portfolio return. Cash is simply a mental crutch that some folks use. But if you are one of those folks, then by all means have some cash, but it will cost you.

cash is a drag but the first 5 years are a different story. if the equity portion has not yet gone through a good up cycle to gain a cushion then spending down from equities can be quite damaging if poor sequencing happens early on. .

it is akin to a string of losing trades if the poor sequencing strikes up front.

that is why the rising glide path is showing more and more promise. you reduce equities early on to 20-30% protecting the early years and increase to your max allocation dollar cost averaging in the next 15 years.

of course if the first 5 years are good you will miss some gains but i think most retirees would not mind giving up some upside potential which may do nothing for their lifestyle at this point for better down side protection if worst case scenerios play out which can be far damaging then the upside given up.

 

[Koolau]

I guess the term "cash" is a bit nebulous to me. I define cash as any easy to obtain funds that costs little or nothing to convert and can be done in a day or two. IOW, the conversion process isn't cumbered with sales charges, paper losses, etc. So, for me, that would include savings accounts (of which I have virtually none), checking accounts in which I keep $10K to $20K since monthly expenses could chew that up in 4 to 5 months. I also have significant I-bonds which are turned into cash at a bank if they haven't changed the rules - so far, I've let these ride as they are a very useful vehicle for "titrating" ones taxes. If you have $20K and $10K of it come from proceeds, you can take the money out and only pay taxes on $10K. I also have a stable value fund and stock fund within my 401(k) which can e-transfer cash to my bank in less than 48 hours. Admittedly these transaction have tax consequences, but the "cash" is available very quickly.

Ready cash (in the wallet, bank accts., etc.) are minimal (I mentioned as much as $20k, but I have access to 10 times that with a phone call or e-transfer).

So when I retired, and shortly after, my cash was about the same. I went through the "easy" cash pretty quickly as I paid the taxes on Roth conversions. Now, I get "cash" (e.g., in the check book) as I need it from my 401(k).

Even Roths could be considered cash since the conversion to cash is quick and is tax free.

But, for the most part, I just don't keep much unproductive cash around - just what I need to never worry about writing a good sized check when I need to. YMMV.

 

[Totoro]

Currently have about 10 years in cash or equivalents (high yielding savings accounts).

Consider myself semi-retired (self-employed and FI) since this year.

It's my hedge against the next drop in the stock market, then I'll adjust. Not worried about the loss of return in the mean time.

 

[Cobra9777]

Since retiring last year, our AA includes 5% cash, which is roughly equal to 2 years spending not covered by other sources of income. Plus a few one-shots that we know about. We'll probably reduce this in the future after we have a little more experience. It's definitely a drag on performance and the balance really hasn't dropped much. Dividends from the taxable account go straight into the cash account. That, plus other sources of income, seems to cover all our expenses. So I'm definitely considering dropping to 1 year and possibly lower.

 

[TimSF]

We had about 5 years of expenses in cash, but we had just sold our home. Gradually, have been bringing it down to 2-3 years, where I think we'll keep it.

 

[AnIntentionalRoad]

In 2012 when I retired we had about 60% of our portfolio in cash because we had sold a business the year before. We have been dollar cost averaging into the market and are just now getting to our 50/40/10 allocation target (though our bond allocation is mostly in 1-5 year funds whereas much of that eventually needs to migrate into intermediate term funds).

 

[iac1003]

I hope I am retiring in about 7 months and I have 2 years in liquid cash accounts now and about 0.5-1 year in retirement accounts that could be liquidated. When I know more about my retirement (meaning how much part-time work I'm willing to do) I will invest some more of my cash holdings in something that is money-making.


Sent from my iPhone using Early Retirement Forum

 

[BellBarbara]

We had 4 years. Didn't really plan this, about half was due to an inheritance. Since we were not going to withdraw for a few years, we ended up keeping it there. We are down to 2.5 or so now.

 

[audreyh1]

I had about 3yrs after-tax expenses in cash, but one of those years was really the "travel splurge budget" that we had set aside while getting ready to retire. This was so we could travel well the first year or two without worrying about market shenanigans.

This is in addition to the 5% cash in our retirement portfolio that is a standard part of our AA.

 

[mathjak107]

retiring in 11 months from today and pondering this exact question.

i intend to follow the rising glide path pattern so as of last week we reduced equities to about 34% in preparation .

now we are thinking about the cash issue since i will hold off until fra for ss.

living here in nyc (queens not manhattan) will not be cheap but this is where our kids and grandkids are so this is where we will be.

my inclination is to tuck 3 years away but with a big travel budget needed the first few years i am wondering if 3 years will be to light as we may actually end up with 2-2-1/2 years left.

i think with delayed ss we are going to be very dependant on our own portfolio. the rising glide path in my opinion meshes nicely since it will give us more down side protection early on when we are dependant the most.

once ss kicks in and the portfolio goes through an up cycle we will be less dependant on it and the higher equity levels will mesh better with less sequence risk.


all this stuff makes my hair hurt. .

 

[braumeister]

Since retiring 13 years ago, the cash portion has varied between one and two years of spending. I think of it as a buffer, and it's comforting.

Less than a year would be ok, down to maybe six months, and two years is my absolute upper limit.

 

[mathjak107]

the reality is after a few up cycles even zero cash and 100% equities past just about every 30 year time frame.

the extra gains in the up years from not having the weight of cash and bonds more then cushions any spending from equities in down years.

the only exception is the first 5 years , you really do need quite a bit of downside protection as those are the most vulnerable times.

during the early years it may be worth giving up some up side gains for more worst case scenerio protection.

that is the route i am planning on .

 

[Meadbh]

When I ERd I had approximately one year's expenses in cash. I also had a non redeemable GIC ladder, maturing 1-5 years away, amounting to 3-4 years' expenses. I had put this 'cash factory' in place about 3 years prior to ER. I knew that a chunk of cash would be coming available at regular intervals and if the markets turned sour I hoped to avoid touching equities for several years. This is my second year of ER. In 2013 I used mostly cash to fund expenses. In 2014 I took some gains and have withdrawn mostly from taxable accounts. The Retirement Risk Period* lasts about another 3 years and I plan to spend down some of the cash coming from maturing GICs during that time. However, in the long term I expect to keep one year's expenses in cash and another year's expenses in GICs, and I plan to house that in my TFSA. Since the decrease in GICs will likely increase my equity allocation, I guess you could say I am following a rising equity glide strategy.**

* Milevsky
** Pfau

 

[mathjak107]

actually any system where you spend down cash and when you rebalance you bump the equities up will be a rising glide path.

the extreme would be something like ray lucia's buckets. if you delay refilling buckets 1 and 2 for 15 years you can be 85 and 90% equities.

of course the difference with buckets is once you rebalance the equities drop .