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Short term cash question
Old 10-31-2018, 03:32 PM   #1
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Short term cash question

I am sitting on around $80k in short term cash in Vanguard (their money market fund and brokerage clearing account). This will likely be the first bucket of money I draw from for living on after retirement. I am about 18 months out from retiring (somewhere around March to June of 2020)(That is when my youngest graduates from High School).

Question is - is there a better place to stash some or all of that $80k for the next year or so, other than a money market account?

Backstory - my AA is around 60/40 (Stocks/Bonds)(Altho I am gradually moving this to a higher equity position - meaning, I have pretty much stopped buying bond funds and also life cyle funds).
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Old 10-31-2018, 04:02 PM   #2
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If I understand you correctly, you won't need all the $80k immediately when you retire. Is this correct?

I would build a 12 month (good) or 24 month (better) CD ladder, to give timely access to the money and get a better rate than a MM account would provide. Fidelity shows these options as of today:

Option A: 2-Year Ladder (4 CDs)

2.35% 6 mo
2.70% 12 mo
2.85% 18 mo
3.05% 24 mo
Ladder APY: 2.74

Option B: 1-Year Ladder (4 CDs)

2.25% 3 mo
2.35% 6 mo
2.40% 9 mo
2.70% 12 mo
Ladder APY: 2.42

Put $20k in each of the 4 CD's. If you don't need the money when the first CD matures then buy a new CD for the longest term in your ladder (24 mo or 12 mo). Repeat when the next CD matures if you don't need the money yet. This would give you access to 25% of your money each 3 or 6 months after you retire. It also lets you benefit as rates increase and subsequent purchases would be at the longest term (highest) rate.

Brian
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Old 10-31-2018, 04:06 PM   #3
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If you really want it as a complete safe cash account, I don't think anyplace else is materially better (I just checked bankrate.com and the highest MMA I saw was 2.30% and Vanguard is paying 2.21% right now, not worth switching.)

If you don't mind tying it up, I looked at 1-2 year CDs that pay 2.75%. Not much difference in how much you would earn in 18 months, but a little.

Personally, I'd stick with the money market if that was my cash cushion.

Edit: The CD ladder isn't a bad idea but it takes work.
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