Positioning for R-day

[SecondAttempt]

I am just a few weeks over 1.5 years from my retirement day.

I plan to have 1 year of expenses in cash on that day and a 60/40 (stock/bonds) asset allocation.

For the cash, let's say we were talking about $100,000. Where would you keep it? I have never kept much in banks, usually just having a checking account and maybe a fairly small savings account. My tentative plan is to keep about $10000 in checking, $25,000 in savings/CD at a bank, largely to take advantage of a higher tier checking account that waives fees and offers some additional benefits useful to me. The remaining $65,000 would be in my brokerage money market and a short term bond fund to get a marginally better return. Does that sound reasonable? Would it make sense to have some in my IRA? I can't think of a reason it would except to add that I have ~$40,000 "stranded" in a money market in an old 403(b) account that i will be able to roll into my IRA when I retire. So it would be conveninet to take that route...(long and uninteresting story about why it is stranded!)

I will turn 59 a few days after I retire and will be able to take penalty free IRA withdrawals before the end of the year (2024) if that matters.

For my asset allocation, I am already at 70/30 so getting to 60/40 will not take much. I plan to reallocate when I roll over to my IRA.

I understand that rollovers are not always the best choice. In my case my 403(b) accounts are with TIAA-CREF and you cannot even imagine how sick of them I am! My investments are Vanguard funds but TIAA is such a nuissance to deal with that I will roll over the first day I can!

 

[TheWizard]

$100k is a lot of cash.
I'm ten years retired and keep around $10k in checking, replenished each month with retirement income.
So my finances are similar to when I was working but I keep about twice as much in checking to buffer my travel expenses.

I do have a lifetime annuity with TIAA. Together with SS, my income exceeds my expenses, so I have a negative withdrawal rate from my portfolio. I invest additional money almost every month...

 

[VanWinkle]

The tax man will help you decide where to keep this cash- If you can handle the extra income then IRA is fine. This will reduce your amounts available for Roth Conversions before Social Security so plan carefully. Take some time to understand taxes in retirement during the time before you retire. I would keep this in a high yield savings account or a Money Market account. Short term bonds are still taking a hit during these interest raising times.

VW

 

[mrfeh]

Money needed in the near future (a year or two), should not be held in something that can potentially lose value (that includes short term bond funds).

As of today, I would say your best option is buying treasury bills. If that's too complicated for you, I'd go with CDs or an online savings account.

You can easily get 2.5-4% on this cash now, which is usually a lot better than a local bank's saving/checking account.

 

[TripleLindy]

Not only does this money need to be safe from decline, it needs to be accessible because it’s what you’ll live off of. If the $100k is for 1 year of expenses, I’d put it in as high yield a savings account as I could find. Set up an auto transfer of ~$8k/month to your checking account. This also gives you some flexibility in the event that you have an unexpected large expense vs. trying to invest a portion for a very short period of time.

 

[Rianne]

Your spending habits have so much to do with what you have set aside in cash. Unless you foresee an event although events can be unpredictable. Our taxable index funds are all long-term investments so the tax hit would be somewhat smaller if we needed to use them. Our plan is to keep our 50% index funds alone for a few years. I figure we can always sell or cash in bonds if needed. We have minimal cash on hand, maybe 6 months of spending.

 

[perez99]

I just learned to buy treasury bills at auction and in secondary markets. It's fairly easy. Check the golden period thread for details. That should work quite nice for what you need.

 

[COcheesehead]

Five years of liquid assets are what I commonly see recommended. In todays environment I would build a ladder with at least five rungs. I built mine with ten rungs to bridge us to social security. The ladder throws off more than what we spend, but gives us the comfort in knowing we can let our equities ride. I hold only about 2-3 months worth of expenses in actual cash. Everything else is buried in the ladder earning about 4.5% tax free or 6.3% taxable.

 

[pacergal]

If this is for your first retirement year expenses, I echo what others have said--keep it safe and easy access. I vote for CDs.

 

[SecondCor521]

I am just a few weeks over 1.5 years from my retirement day.

I plan to have 1 year of expenses in cash on that day

Why?

If you keep $100K in cash, and spend from the cash and refill the cash from investments, then that seems equivalent to me to just setting aside $100K in cash at the beginning of retirement, never spending it, and just spending from investments. Setting aside $100K in cash and never spending it doesn't make sense to me. That $100K invested over 10 or 20 years at 60/40 should outpace CDs/Treasuries/banks/money markets, shouldn't it?

If you instead treat the $100K as some sort of accordion-style bucket, then what are your rules for when to refill, and how do those rules avoid representing market timing?

I may be young and foolish, but I hold zero cash and have an AA of 98/2. I refill checking from investments every month as needed. Yes, years like this one are ostensibly worse for me. But having been at least 90/10 since I retired in 2016 means that I am ahead of the game because of the previous five or six years; I think I will remain ahead the rest of my life.