How much in cash at the time of retirement?

[Joylush]

That's perfectly ok. This isn't a competition and you don't have to be right, just don't be wrong. I have learned a lot from this thread.

I would classify secured mortgage notes as income. It's not very liquid, but does provide what I assume is monthly cash flow.

Yes, part of it is monthly income, part of it is return of principal. The notes are from financing homes I sold and financed for the buyers. I’m just not sure if they’d be classified as cash, real estate or something else.

As far as my allocations, currently they are: 20% cash, 40% real estate, 30% stocks/mutual funds, and 10% notes receivable.

 

[Finance Dave]

Originally Posted by disneysteve View Post
Me neither. If you have a substantial amount in cash (not just a little emergency stash), it is part of your AA. You can't really say you're 80/20 or 60/40 when 5 or 10% of your money is actually in cash.


Right now, we're about 67/23/10.

We'll have 4 years of cash - $400k, and our AA is 100% equities. If I consider the cash as part of AA then were 90% equities, 10% cash - no bonds.

I'm thinking that I'd rather be consistent with our AA, and have the sequence of risk and downturn covered by the 4 years of cash.

We can easily make that 8 years (or more) vs 4. But, that's a different topic.

Your later statement is correct. If you have cash, as disneysteve said, you can't have an AA of 100% equities.

 

[karen1972]

I'm 8% cash or roughly 2 years plus another 10% bonds, and the rest is pretty aggressively allocated. That works for us and has weathered us well when my BF lost his side gig at the same time there was a market downturn, which has happened twice now.

We still have 45 years easy so don't want to be too conservative yet.

 

[anothercog]

Not retired yet but expect to retire many years before I'm eligible for medicare.

I am anticipating (hoping) having 2 years of living expenses and cash plus a HELOC for emergencies. I'll want to manage my income for ACA subsidies.

 

[Finance Dave]

Not retired yet but expect to retire many years before I'm eligible for medicare.

I am anticipating (hoping) having 2 years of living expenses and cash plus a HELOC for emergencies. I'll want to manage my income for ACA subsidies.

That's the situation we are in. Try to pack as much as you can in Roth IRAs so you can "manage" your income without increasing MAGI too much. Or, if your living expenses are below about $65k (MFJ) then no issues lol.

 

[retire48in2018]

Originally Posted by disneysteve View Post
Me neither. If you have a substantial amount in cash (not just a little emergency stash), it is part of your AA. You can't really say you're 80/20 or 60/40 when 5 or 10% of your money is actually in cash.


Right now, we're about 67/23/10.



Your later statement is correct. If you have cash, as disneysteve said, you can't have an AA of 100% equities.

It's a matter of how you perceive things. I understand that the cash is there, as a matter of personal finance - it is a perception/paradigm of how to consider the cash.

We are more comfortable to leave it out of our investment allocation, as this is a security blanket of money just sitting there - uninvested.

Sometimes, there's more to this than math - it's also about behavior, psychology, etc.

 

[Winemaker]

Retired Jan 2020 and I set aside 3 years of cash (all the fear-mongering regarding SORR made me do it). ... Even though the market recovered before year end the peace of mind I had from having that cushion you just can't put a price tag on.

+1

I try to keep a 3 year stash, funded when I rebalance. I have rebalanced when the portfolio has given me my annual draw. It has worked for 6 out of 7 years. We are not planning to draw this year as we will have the proceeds from the safe of a rental SFH. It no longer fits in the business model in the rental portfolio. We will probably take the draw and convert it to DW's Roth.

 

[Winemaker]

I don’t understand why people do not consider cash as part of their asset allocation.

I consider my 3 year stash os part of my portfolio, but the annual draw that I put my checking, I do not.

 

[jazz4cash]

I am confused about the need to separate "cash" from fixed income.



I guess there is the ability to access it. But that is just an issue with availability.



If you had $100k under the mattress it would still take some time to turn it into something you could use for a large purchase.

It’s mostly personal preference and peace of mind. Cash is a subset of fixed income. As someone else said bonds can fluctuate (risk). You say “just an issue of availability”....availability is a huge, huge deal! If I had $100k under the mattress why would I need to “turn it into something” to make a purchase? I’m probably more concerned with ordinary expenses, not a large purchase.

 

[lem1955]

I had no cash aside from a local MM of about $10K. And I still had a mortgage payment and when that was paid down a couple years later I still had a HELOC. Now that is paid off too as a result of a small inheritance. In the past two years I've been building a taxable reserve - now about $57K. It isn't all cash but all is very conservatively invested. In addition I have one year's expenses in cash inside my tIRA that I draw down monthly.

 

[Animorph]

If I kept a fixed percentage of cash year after year I'd include it in the portfolio.

I only use cash for expenses, and normally sell portfolio assets for cash once a year. So the amount of cash would normally fluctuate something like one year of expenses to close to zero. Including that in the AA would just be annoying.

 

[CardsFan]

It’s mostly personal preference and peace of mind. Cash is a subset of fixed income. As someone else said bonds can fluctuate (risk). You say “just an issue of availability”....availability is a huge, huge deal! If I had $100k under the mattress why would I need to “turn it into something” to make a purchase? I’m probably more concerned with ordinary expenses, not a large purchase.

I guess my point is that cash IS an asset. In my accounting there is only equity and "fixed" income.

Fixed is in quotes because unless you have it in actual bonds, and not a fund, it really isn't fixed.

So, maybe I look at it as equities/other?

Anyway, trying to turn $100k cash, dollar bills, into a major purchase could be "interesting". Not saying it cannot be done, but taking $50k to a car dealer might raise a few eyebrows.

 

[Finance Dave]

It's a matter of how you perceive things. I understand that the cash is there, as a matter of personal finance - it is a perception/paradigm of how to consider the cash.

We are more comfortable to leave it out of our investment allocation, as this is a security blanket of money just sitting there - uninvested.

Sometimes, there's more to this than math - it's also about behavior, psychology, etc.

Ok, well I perceive squares to be round.

 

[MarieIG]

My realtor used to love telling the story about some clients who were gentlemen of foreign extraction, and who brought suitcases containing half a million dollars in cash to a real estate closing here in New Orleans years ago! I just can't even imagine, but according to him it happened and the closing went smoothly.

This was years ago and I suppose it might not even be legal to do this now-a-days; perhaps there are restrictions on big cash transactions because of drug dealing.

I had heard about cash closings (years back) but had never been to one.

At my first job out of school, one of the partners had a commercial client. The client Would. Not. Pay. Its. Property. Taxes. Timely. Ever. It would let the back taxes build up until they were threatened with legal proceedings.

I would be sent over and handed a shopping bag full of cash, which I took over to the Clerk's office. They took it. (I had to wait for it to be counted and for a receipt.)

 

[YVRRocketSurgery]

Not retired yet but we generally float between 1.75x to 2.25x our current annual spend and expect to continue to do so into retirement. Some of it has to do with keeping minimum balances to avoid fees. The missus is also not proactive enough in allocating her cash. We also like having enough cash to take advantage of opportunites and handle unexpected spending shocks.

However, I don't think it's necessarily only about how much cash you keep but about liquidity and cashflow too. Wade Pfau talks about utilizing buffer assets (among other strategies to managed sequence of return risks) that are outside your investment portfolio and not correlated to help you avoid selling your equities at a low. You can possibly employ a home equity loan or maybe a line of credit in combination or supplement with other strategies. IIRC, he also talks about the cash value of a Whole Life insurance policy as a buffer asset if you have one.

 

[steveark]

Four years, which is $400,000. That doesn't count bonds, that's just cash. Once we start drawing Social Security that will be twelve years worth, likely will reduce it then. Been at this level for the five years we've been retired.

 

[srblanco7]

Working on building our cash cushion now as a condition precedent to ER. Targeting roughly 2 years of planned expenses. That'd will put our AA at roughly 77/18/5.

 

[hotwired]

2 cents

After the pandemic crashed we realized our comfort level was quite a bit lower than we thought so our goal is to have two solid years of quote unquote salary saved up. We're shooting for 160k and with the sale of one of our Apartment buildings we did hit that number just now

What really struck me as I was scanning This Thread was how many people said that they had no regrets even though they were probably overweight where they needed to be in cash. I'm taking that to heart because sometimes when things get going Rosie I'm tempted to lower that stash and put it to work somewhere... I think our cash deserves early retirement just like we do and we'll leave it there.

 

[audreyh1]

What really struck me as I was scanning This Thread was how many people said that they had no regrets even though they were probably overweight where they needed to be in cash. I'm taking that to heart because sometimes when things get going Rosie I'm tempted to lower that stash and put it to work somewhere... I think our cash deserves early retirement just like we do and we'll leave it there.

Really, why sweat the cash, especially when starting out? You might need a couple of years to get used to no regular paycheck and living off investments alone. I sure did. This is a good place to give yourself a break while you find your comfort level. Unless you are marginally funded for retirement (and not a good idea to retire early in that case anyway), you’ll be fine.

In our case, our retirement fund has grown to be quite a bit larger than our needs (knock on wood), and no children as heirs, so we don’t sweat excess cash building up in short term funds.

 

[DrRoy]

In the first couple months I never had more than 1.3 years worth, but at the end of 2020 I added about 8 months more.

 

[disneysteve]

Really, why sweat the cash, especially when starting out? You might need a couple of years to get used to no regular paycheck and living off investments alone. I sure did. This is a good place to give yourself a break while you find your comfort level.

That's exactly what I'm thinking. That shift from earning and saving to living off of your savings (especially with no pension or fixed income) has got to be a big adjustment that takes some time to tweak and adapt to. Having a stash of cash seems to me that it would smooth over any bumps in that road.


I'm not retired yet but I'm leaning toward having about 2 years worth of spending in cash when I do.

 

[FLSUnFIRE]

I plan to have about 2x cash but a good chunk of that is iBonds bought in the early 2000's... I probably shouldn't call them "cash" as I'm not getting rid of those risk-free tax deferred returns! I did set up a HELOC to help me manage cashflow/taxable income realization if needed.

 

[Joylush]

My question would be if you had enough saved to fund your lifestyle for the rest of your life, doesn’t that mean you “won the game”? I assume that’s what that means.

So would you then be inclined to be all in cash? What if you had 30 years to plan for and had $10,000,000. Would you put it all in cash? Keep 25% in cash? What is the best approach in that scenario.

I’d lean towards taking what I thought I’d need, maybe 30% of it and protecting it even if it meant little to no growth. The remainder to be spread among other investment vehicles like index funds, stocks or real estate. Or is even that too much to risk?

 

[meleana]

We had 3-4 years. Then we also have way too much cash in hubby's 401k and IRA (over $500,000). A bit also in my IRA. We probably should invest it but since we retired and moved last year I have been kind of stuck about what to do with it. It seems to be ok with our financial planner which is why I have not been motivated to invest it.


But I am thinking down the line if one of us passes and one SS check it will not generate enough money to meet expenses. Right now neither of us takes SS, and we are drawing down the cash in taxable accounts.

 

[disneysteve]

We had 3-4 years. Then we also have way too much cash in hubby's 401k and IRA (over $500,000). A bit also in my IRA.

When I asked the question, I was thinking strictly of cash in liquid accounts, but you raise an interesting point. Folks may also have cash in their retirement accounts. I do. I mainly keep that to be able to take advantage of investment opportunities that arise from time to time. For example, last March when the market dropped sharply I bought 700 shares of JETS, the airline ETF. I sold it last week for an 81% ($8,500) gain. Since it was in my Roth, there was no tax impact at all to worry about.