How Many Month/Years of Living Expenses do You Keep in Cash?

[KB]

I retired just over 8 years ago. I keep 4 years of annual expenses in CDs at 1 year intervals. Over time I have accumulated another 2 years worth, sort of by accident. I either will add 2 more CDs or invest it in Vanguard. It's been sitting in my Ally savings for awhile until I figured out what to do with it.

 

[psweath]

5 years of living expenses in cash is what keeps me from checking on the market every day.

 

[Meadbh]

I think "how much" not only is subjective, but it depends on your "guaranteed" income. If SS and pensions cover 90% of expenses, you do not need much cash. If you are not yet on SS or have little or no pensions, you may want more.

Exactly.

 

[Independent]

I've got a DB pension that covers about half our current expenses. I make withdrawals from investments when the checking account gets down to about a month's expenses, and then withdraw a few months at a time.

I make no attempt to "time" withdrawals based on market conditions, because I don't think I have any special insights into market prices.

 

[Ronnieboy]

I'm not close to FIRE yet either, but the plan is:

Have two years of budgeted monies in cash equivalents while having dividends paid into that account to keep it topped off. No real maintenance/emergency fund set up per se, but part of the budgeted plan is to have $xxx/month for house repairs, $xxx for auto, etc. that would just build up until needed.
I would take the money out for the new washer, dryer, roof whatever, car out of said funds, just have to hope the money is there at the time and not have to go into a debit

 

[jebmke]

typically about 1/2 of months worth. I sell something at the beginning of the month to fund the upcoming month and by the end of the month it is gone.

 

[Badger]

If I would only be able to draw from the available cash in taxable MM accounts fed by dividends I would probably have about 4 years. If it was to suppliment pensions and SS then it would probably cover 10 years without changing our lifestyle.

Cheers!

 

[mickeyd]

I have about 2 years expenses stashed in "cash reserves" which is partially cash and the rest STB fund and a few other similar assets.

 

[martyb]

I'm retiring in 3 1/2 months. Initially, my federal employee DB pension will cover 75% of our expenses, with some cushion, including health insurance & a $1200 mortgage. Wife will continue working for a year or two, continuing to fund her 401k & making up the 25% difference in our budget. This will allow us to avoid withdrawals from my TSP.

In 4 years, I'll begin receiving my military reserves retirement, which will replace wife's working income. If she works until my mil retirement starts, we won't have to touch the TSP or her 401k. If she retires before the mil retirement begins (her choice) we'll have to withdraw at a 4% rate until the mil retirement does begin, then cease withdrawals at that point.

Wife is 3 yrs younger than I. She'll begin SS at age 62, when I'm 65. Her SS will only be maybe $600 or so. Mine is affected by the WEP, and will be $250 or less. Our biggest financial decision in the next 3 or 4 years will probably be whether to use portfolio funds to pay off the mortgage or continue making payments. Terms are 4.25% fixed, VA loan for 30 yrs. Paying off the mortgage will leave us with a much nicer monthly/yearly cushion, but at the cost of the loss of investment opportunity.

We won't have a large total portfolio, so paying off the mortgage would put a big dent in it (by about 50%). Still, since by age 60 (me, 4 yrs from now), my pensions will cover 100% of our finances, maybe that wouldn't be such a big concern. All that said, we will probably only keep 6 months basic expenses in cash, plus maybe $25,000 or so, in Roth IRA's for emergencies.

 

[48Fire]

I just keep a month or two of expenses in cash, and no separate emergency fund. If I need something, I can sell something.

 

[foxfirev5]

Currently at age 57 1/2 I have 5+ years expenses in cash. Ready to ER at anytime financially. If I don't retire before 59 1/2 I plan to reduce the cash portion as I get closer to age 62.

 

[Meadbh]

Clearly we are all over the map, from 1 month to 10 years!

 

[Bikerdude]

I guess it depends on what the meaning of cash is. If it includes CD ladders then I have about 8 years. If it is MM then I have about 18 months.

 

[Alan]

I guess it depends on what the meaning of cash is. If it includes CD ladders then I have about 8 years. If it is MM then I have about 18 months.

+1

I have a couple of months in a savings account, plus I do have ~2 years of annual spend in I-Bonds which is as good as cash IMO

 

[JonnyM]

None, "they" pay us. We spend it. If you want to get technical then call it max of:

One Month, lol.

 

[ChrisC]

What is cash? To me, it's real cash and cash equivalents such as funds in depository checking or savings accounts, CDs or T bills maturing in 30 days, and money market funds. Anything else isn't cash or cash equivalent instruments. I think of cash equivalents to be something you can almost immediately transform into cash or be available as legal tender for extinguishing current debt. So, not sure everyone is speaking the same language here when adding up their cash.

 

[48Fire]

I based my answer on cash being defined as money I can get my hands on immediately. When I sold our daughter's car a couple weeks ago, I asked them if they had cash before I agreed on the final price. If they would have needed a day or two to tap a CD or money market fund, then I would not call that cash.

 

[SunGuy]

I intend to have my cash be mostly from incoming dividends as a goal to achieve on my path to financial independence.

But I see the wisdom in having a set amount squirreled away just in case.

I am working to plant my nuts and seeds to grow into nice fruitful dividends trees over the next couple of decades.

 

[tylerdurden]

I currently keep about 6 months worth of expenses in an online savings account ("high yield," relatively speaking). I plan on reducing that amount going forward as I fix my asset allocation and get a better idea of our current budget. We recently had a lot of changes (moved to a new state, sold a house, etc.), so monthly expenses have been all over the board.

Btw, I am nowhere close to retiring.

 

[MDJO]

5 years of living expenses in cash is what keeps me from checking on the market every day.

+1

Five years is my goal, currently at four years in MM, savings, and cash balance pension plan that follows the five year treasury return but guarantees at least 2.8%. Megacorp allowed me to retire with a very nice buyout (thanks guys!).

If you look at the returns on the S & P 500 over the past 43 years, the number of times we've lost money over a five year period is relatively small, and almost never have we lost money on a ten year period.

 

[photoguy]

Although I have a large percentage in cash & cash equivalents (cash, MM, i-bonds), I tend not to think of the number of years of cash but rather the number of years of fixed income . My fixed income proportion of my portfolio is roughly about 10 years of living expenses. Note I do not have anything terrible risky in FI (from credit perspective riskiest would be short-term corporate).

 

[gayl]

I'm cash heavy right now but only bc a lot of my trailing stops crossed in August. Normally I only keep 6 months liquid reserve.

 

[scrinch]

About 8 years worth of cash, which I intend to use for expenses until I'm 70 in order to minimize income and maximize rollover from IRA to Roth before MRDs kick in.

 

[shasta]

5% cash, 25% bond indexes. (Domestic and international)

 

[gayl]

Shasta

when you say 'bond index' is this an index you created or do you use a MF or ETF? I am getting out of PONDX -- was doing great but not anymore