Amount of money needed in savings prior to RE

[AreWeThereYet0]

I wanted to find out what the consensus was on how many years of reserves one should have available when you retire. Five years? I tried searching on this topic and did not find anything that covered this. Thanks,

 

[pb4uski]

Not sure what you mean by reserves.

It varies greatly. On one extreme are people whose pensions and SS exceed their spending and they don't need any retirement savings at all. On the other extreme are people with no pension and not much SS and they should have as much as 25x their spending.

 

[RunningBum]

I doubt there's any consensus. What feels right to you?

I used to not worry too much about cash until the ACA subsidy came about. Now I try to have enough cash to supplement dividends to get me thru to 65.

Just an example of varying views on the topic, and this is just from one person.

 

[camfused]

@arewethereyet0, use Firecalc or similar tool to see how much you will need, with a given lifestyle.

 

[AreWeThereYet0]

Okay. For example, I will be fifty when I retire and will have to wait for SS and pension. How many years of living expenses should I have prepared at fifty so I won’t be forced to sell my non tax advantaged funds during possibly bad market conditions? What kind of padding is recommenced at the start in that situation? Thanks

 

[COcheesehead]

Can’t be answered without planned expense number. A lot of folks have this backwards. It’s not how much you have, its how much you plan to spend.

 

[Animorph]

If this is just about cash in a savings account I'd personally go with one year. However, in 2007 when I retired and fearing a recession I went to 30% cash/bonds/bear market funds and 70% equities. I was planning to stay at 100% equities.

As far as I'm concerned, bonds (I use FXNAX, so mostly treasuries) are the same as cash. I'm now at 75/25. I'm perfectly fine selling only bonds to fund our expenses if stocks are way down, or only stocks if they're running high. Or raising cash month to month if I don't want to sell anything. I normally have zero to one year of expenses in cash and try to refill only when the portfolio as a whole is doing well.

 

[bada bing]

Okay. For example, I will be fifty when I retire and will have to wait for SS and pension. How many years of living expenses should I have prepared at fifty so I won’t be forced to sell my non tax advantaged funds during possibly bad market conditions? What kind of padding is recommenced at the start in that situation? Thanks

If you're asking about a cash buffer to smooth access to more volatile investments, that is a matter of personal opinion. Could be as short as 1 year or less of spending and you'll see some plan on 10 years or more. Depends. My personal plan is 3-4 years at first, reducing to 1 year or less when I'm on SS and pension at age 70 and beyond.

If I was 50 and retired, I'd want at least 3 years spending as a cash buffer as part of a portfolio that totals at least 30 times expected spending. You can calculate an appropriate adjustment on that based on realistic guesses for eventual SS & pension, but best guess is that SS at least is going to get a haircut within 15 years. At age 50, I'd plan on a 40 year planning horizon, so 3.3% SWR is the maximum I'd use. Lot's of guess work at age 50.

 

[Badger]

It looks like you have been here for a little over 2 years. Maybe you haven't been following the posts but you need to be more specific with your question and with your circumstances if you want any meaningful answers.
In our case we have all medical covered through medicare and tricare, we have SS and small pensions that cover our expenses, no mortgage, etc. We are very frugal people and what we have saved/invested for retirement is more than enough to take care of us for a couple of lifetimes, donate to charities, and still have a good chunk left for inheritance.

How that information or information from anyone else with their different circumstances would help you is beyond me.
What is it that you really want to know?


Cheers!

 

[Toocold]

I'm not yet 50, but I have a years worth of expenses in savings. I also have about 3 years worth of cash in our AA. With that said, I also generate approximately 1x passive income and receive 1.75x in deferred compensation of our target extended expenses. It's very conservative.

 

[Red Badger]

Can’t be answered without planned expense number. A lot of folks have this backwards. It’s not how much you have, its how much you plan to spend.

+1.

Some recent and historic figures provide examples.

https://www.forbes.com/sites/jrose/2019/02/19/9-famous-people-that-went-bankrupt-before-they-were-rich/#135a904d41cf

 

[RetireAge50]

I’m currently 53 and have enough cash to last until SS and pensions kick in. Our overall AA including this cash is 63/9/28.

 

[Fermion]

I’m currently 53 and have enough cash to last until SS and pensions kick in. Our overall AA including this cash is 63/9/28.

That is just because bonds are complete crap right now, right?

 

[bizlady]

For us, it was enough after tax cash to get us to 59.5 so we could draw from retirement without penalty. Now, it is one year expenses in money market in retirement fund plus cash for planned vehicle purchase in same account. In addition we keep about 15k after tax for unplanned emergencies.

 

[O2Bfree]

I retired at 57 with 3+ years of expenses in cash to last at least until 59-1/2 when I can dip into a Roth IRA if necessary. Dividends pay for about 1/2 of my expenses, so I can drop some cash into the market when it dips. Part of our plan involves keeping our taxable income down to qualify for ACA subsidies. I haven't decided yet if I'll start taking SS at 62. After 65 I might still keep ~3 years of cash on hand to ride out market lows.

 

[scrabbler1]

I wanted to find out what the consensus was on how many years of reserves one should have available when you retire. Five years? I tried searching on this topic and did not find anything that covered this. Thanks,

When I retired 12 years ago at age 45, I set up my portfolio so that the non-retirement (taxable) part to generate enough income to cover my expenses until age ~59.5 when I would begin having unfettered access to my rollover IRA. My whole ER plan was split into two parts, the more important part being between ages 45-59.5 because I would have to live on only ~2/3 of my total portfolio. Once I reach age 59.5 (which is only about 2 years from now, wow!), the rollover IRA would become the first of my "reinforcements" I would have access to, the others being my frozen company pension and SS.

Because of this reasonably reliable income from my portfolio's taxable subset, I keep nearly no cash in it, reserves or otherwise. I realize the income is not inflation-adjusted, so if I have to tap into principal it's okay. I don't use the entire portion to generate the income used to pay the bills.

In short, OP, worry about getting from age 50 to whatever age (~59.5?) you need in order to gain access to more of your portfolio.

 

[rkser]

If you're asking about a cash buffer to smooth access to more volatile investments, that is a matter of personal opinion. Could be as short as 1 year or less of spending and you'll see some plan on 10 years or more. Depends. My personal plan is 3-4 years at first, reducing to 1 year or less when I'm on SS and pension at age 70 and beyond.

If I was 50 and retired, I'd want at least 3 years spending as a cash buffer as part of a portfolio that totals at least 30 times expected spending. You can calculate an appropriate adjustment on that based on realistic guesses for eventual SS & pension, but best guess is that SS at least is going to get a haircut within 15 years. At age 50, I'd plan on a 40 year planning horizon, so 3.3% SWR is the maximum I'd use. Lot's of guess work at age 50.

+ 10

I find this approach to make the most sense & I follow in similar ways

 

[RetireAge50]

That is just because bonds are complete crap right now, right?

Right. Moved from bonds to cash (for now). Mostly to take advantage of the 3 plus percentage CD’s offered a bit ago by NFCU. Once they expire will need to figure out what to do.

 

[SumDay]

I'll share this blog post with you. It helped me get ready for our retirement two years ago, and continues to give me guidance for asset allocation. He stresses that you need to know how much you plan to spend to maintain your lifestyle.

https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

This post helps me with rebalancing: https://www.theretirementmanifesto.com/how-to-manage-the-bucket-strategy/

It's pretty straightforward, no fancy financial speak, so I hope it helps.

 

[street]

I would say what ever your expenses are, plus the years you want to pull from your reserves. Now, saying that you also have choices and or options to what you would feel save with.

I for one have enough reserves, as you call it, to never have to touch my investments. I have no pension and my reserves as of today have grown more then when I retired, so I have a negative WR, so to speak.
Everyone has a different view and path to get where they want to be in the end.

 

[sengsational]

I often bring up the concept of selling to yourself. For instance, I have very low after tax cash balances, and fairly healthy equity percentage, but not worried about "selling low". Just dropped 30K on a car, kind of on the spur of the moment, and it was no problem, even though the market was a bit lower at the time. I sold after tax equities, but concurrently, inside the 401k, liquidated stable value fund and bought essentially the same thing I sold in after tax. The AA remained unchanged.

 

[jollystomper]

I wanted to find out what the consensus was on how many years of reserves one should have available when you retire. Five years? I tried searching on this topic and did not find anything that covered this. Thanks,

Okay. For example, I will be fifty when I retire and will have to wait for SS and pension. How many years of living expenses should I have prepared at fifty so I won’t be forced to sell my non tax advantaged funds during possibly bad market conditions? What kind of padding is recommenced at the start in that situation? Thanks

IMHO 5 years is probably a good balanced approach to start with. I cannot find the info now, but I have read that over 5 year periods the market has almost never lost money. I recall that over any 10 year period the market has not lost money, but 10 years of expenses might be considered an "excessive" amount to have in cash. Of course, it depends how much that amount is.

However, whatever you start with, evaluate it after each year for adjustment. For example: If the market is down, and you have spent a years worth no worries, you still have 4 years, sleep well at night. If you now feel you are comfortable with less, DCA some of the cash into the market. If the market is up, consider not being greedy and taking out some of you gain to maintain 5 years of expenses (or close to that). If it turns out you overestimated your expenses and have more than 5 years of expenses, you can choose to continue as you are, or invest some of the "excess". This is are art, not a science, with the ongoing caveat of "it depends".

In our case, I retired at age 60. My pension covered close to 60% of our planned retirement expenses, and I did not plan to take SS before 63. So we started with 5 years of cash to cover the 40% (adjusted for inflation, as my pension is non-COLA) needed for our expenses. After 2 years our cash spending has been just over a third of what we planned, and we have more than 5 years of expenses now in cash. We are likely going to use the "excess" to pay off our mortgage. It will also allow us to delay my SS beyond age 64 (when it plus pension will cover all of our planned expenses).

The above is not really to show what you should specifically do, but more to show one potential process that might be useful when thinking about this.

 

[Offgrid Organic Farmer]

I wanted to find out what the consensus was on how many years of reserves one should have available when you retire. Five years? I tried searching on this topic and did not find anything that covered this. Thanks,

As I understand your post, it sounds like you intend to spend your savings to support yourself in 'retirement'.

I have been retired for 19 years, so far, and I have never spent our savings on anything so trivial as our cost-of-living.

We save in case of emergencies, and when our savings gets to be very much then we invest those savings.

We support ourselves from my pension and our investments.

I am not sure what we will do when we reach SS age. I guess we will take it, but I have no idea what we will do with it.

 

[pb4uski]

And just how is what you do and your wonderful life with a pension helpful to the OP's situation?

 

[Offgrid Organic Farmer]

And just how is what you do and your wonderful life with a pension helpful to the OP's situation?

Are you consuming your savings?