Cash in Portfolio

[slowsaver]

I hold a certain amount of cash (cd/mm) in my portfolio, just because it makes me feel safe and allows me to sleep at night. Let's say, for the sake of argument, it's $100k. All my other money goes into stocks/bonds, while the cash amount stays the same.

After I retire, I'm not sure under what conditions would I spend this cash? I could see myself spending all the cash the first couple years, while I don't touch stocks/bonds (except for dividends) until the money is gone. Or, I could see myself holding the $100k forever, untouched -- but why? The answer must be somewhere in-between.

I'm curious what other post-FIRE people do to spend-down their cash. Or, what are the conditions where they use cash instead of selling investments. Thanks.

 

[REWahoo]

I'm curious what other post-FIRE people do to spend-down their cash. Or, what are the conditions where they use cash instead of selling investments. Thanks.

Many of us spend the cash in retirement and try to only sell investments (to replenish the cash) when the market is "up". There are a multitude of different strategies based on your individual situation (pension income, SS, etc.) and risk tolerance.

 

[PaunchyPirate]

I'm age 58 and wrapping up year 2 in retirement and I'm still sitting on somewhere between 18 months and 3 years of cash. The range is because it depends on how much I use dividends from my taxable account to supplement the cash. I'll probably burn that down for 2021 before selling anything to replenish it. When I do sell, I will likely sell enough for 18 months to 2 years of living expenses.

In 2019 and part of 2020, I used the dividends to supplement my spending. But when the COVID downturn started in Spring 2020, I turned on the reinvesting of my dividends to buy cheaper stocks. I just turned that back off and will start taking dividends again to augment spending needs.

I'm constantly adjusting my approach based on life's cards that are dealt.

 

[audreyh1]

After I retire, I'm not sure under what conditions would I spend this cash? I could see myself spending all the cash the first couple years, while I don't touch stocks/bonds (except for dividends) until the money is gone. Or, I could see myself holding the $100k forever, untouched -- but why? The answer must be somewhere in-between.

I'm curious what other post-FIRE people do to spend-down their cash. Or, what are the conditions where they use cash instead of selling investments. Thanks.

Tons of things in between. You might buy a new car, ugrade house, gift to heirs or charity, put down payment on a CCRC.

Personally I don’t sweat it so much. Ours tends to build because we routinely underspend our annual withdrawal. Not by design. It’s simply that the portfolio has grown so much over the last 10 years and thus our withdrawal = annual income has grown.*

This year we cut the overgrown cash buffer in half by gifting a big chunk to heirs. Our withdrawal was high with markets up so much. We figured it was a good time to do it. Turned out to be a great time since Covid hit shortly thereafter and adversely affected heirs lives.

Lots of flexibility!

* P.S. We annually withdraw a fixed % from the retirement portfolio under all market conditions.

 

[OldShooter]

I have a number of fixed income investments that vary in volatility, yield, liquidity and risk. Money I might need sooner will be more liquid and consequently lower yield. The mix is matched to my anticipated needs. aka "liability matching." In January I will be adding a 3 or 5 year MYGA to the fixed income side. Those are a bit odd; low volatility and relatively high yield but the penalty is no access to the funds during the MYGA period.

Different people use the word "cash" to describe different investment combinations of the characteristics above, so IMO you really can't count on that word to have a commonly-understood meaning. My "cash" is two twenties in my wallet plus my checking account balance. Beyond those I don’t use the word.

 

[slowsaver]

Thanks. All these are really helpful. So often, I hear people in this forum are 100% invested, and I wasn't sure how common it was to hold cash. I feel better about it now.

 

[Stormy Kromer]

I keep enough cash to supplement my guaranteed sources of income to met my living expense for 3 years. I've seen many downturns over the years and figure 3 years worth of cash should get me through a bear market without selling equities.


If my guaranteed fixed income (pension, SS..) met my living expense I would only keep an emergency fund of cash. Enough to cover unexpected repairs and emergencies. The rest would be fully invested to my asset allocation.

 

[audreyh1]

Thanks. All these are really helpful. So often, I hear people in this forum are 100% invested, and I wasn't sure how common it was to hold cash. I feel better about it now.

In our case, since our portfolio is quite a bit larger than we “need” (knock on wood!), we are fine about having some excess building up in cash. We like the flexibility and don’t feel the need to be 100% invested in non-cash assets.

Folks who want larger portfolios are probably more aggressively invested than we are.

 

[WyomingLife]

I am soon to be 57, FI and still w*rking. Our AA is roughly 65/30/5. The 5 is literally all cash, sitting among bank accounts and a Vanguard settlement account. It is roughly enough to cover at least three years of living expenses, maybe more. Why the 5? So we can sleep better at night. We feel that we have already won the game, so are content to leave some money on the table (literally, in this instance).

I view cash as just a specific type of asset. It carries inflation risks, for sure. But in the extremely unlikely case that Armageddon comes (again?), we hopefully can weather it for several years with the stache of dough without having to liquidate positions in a down market.

 

[RunningBum]

I've got 6 years left of ACA coverage, and I've accumulated enough cash in the form of CDs and online savings (right now PenFed premium savings) to supplement dividends so that I won't have to sell stock funds. This helps me manage income to get the ACA subsidy. If I fall short, I might dip into my HSA and Roth accounts.

If it weren't for the subsidies, I'd probably keep 6-12 months worth of expenses in cash.

 

[Out-to-Lunch]

Thanks. All these are really helpful. So often, I hear people in this forum are 100% invested, and I wasn't sure how common it was to hold cash. I feel better about it now.

I think many people (perhaps including me) mean that they are "100% invested except for the portion that is in cash"!

My buffer is not as big as large as $100k, but then my j*b is very secure.

 

[audreyh1]

I think many people (perhaps including me) mean that they are "100% invested except for the portion that is in cash"!

Right, I think that is usually the case.

 

[Sunset]

Thanks. All these are really helpful. So often, I hear people in this forum are 100% invested, and I wasn't sure how common it was to hold cash. I feel better about it now.

The only cash I don't consider invested is actual cash in wallet, and checking accnt.

Money in stocks, BND fund, bonds, CD's and emergency savings account (earning 0.60%) is what I consider invested.

So I'm 99.999% invested.

The CD's amount to about 2-3 yrs worth of spending.

 

[MrsHaloFIRE]

I have no need to but I always keep 6 figures cash as "go to hell" money.

 

[slowsaver]

I've got 6 years left of ACA coverage, and I've accumulated enough cash in the form of CDs and online savings (right now PenFed premium savings) to supplement dividends so that I won't have to sell stock funds. This helps me manage income to get the ACA subsidy.

This is a pretty important point I had not thought of. In order to avoid the ACA 'cliff,' you'd want to stockpile enough cash to not generate too much income.

 

[RetireAge50]

We have 25% in cash (same definition you described). The other 75% is stocks. This cash money will be used until SS starts (in 8 years) and also help us be flexible for ACA.

 

[harllee]

In 2008 I had almost everything invested --mostly in equities--I would just sell equities whenever I needed some cash. Big mistake. Then came the Great Recession and all my equities were way down. I did not want to sell stocks at the low point. So I did without things I really needed and sold things around the house to get by. I lost a lot of sleep. Once the market came back up I diversified my holdings and now hold a significant portion of my assets in bonds/ cds, etc. I never want to go through what I did in 2008 again.

 

[scrabbler1]

I have very little cash in my portfolio for two reasons: (1) I hate the idea of having any sizable amount of money earning zilch, and (2) I have a steady income stream from the bond funds within my portfolio to provide me enough income every month to pay my bills.


I have only a few thousand dollars in my local bank's checking account to give me a enough of a cash buffer to meet minimum balance amounts to avoid monthly fees and in case some small, unforeseen expenses arise where I need the cash to cover them.

 

[jollystomper]

I retired with projected 5 years of cash needed for expenses. we have been spending that down but, for various reasons, in 2.5 years we have had "difficulty" spending what we expected to spend (first world "problem"). Our year end cash balance is projected to be over 90% of our cash at the start of retirement.

We have sold very little equities not associated with taxes, re-balancing or 401K/IRA->Roth conversions. We did sell some to "celebrate" just being able to touch the money.

My SS FRA is in less than 4 years, so highly unlikely we will choose to spend this all the way down.

 

[pb4uski]

I've been all over the map on this issue. Essentially 0% cash while working and first year of retirement. Then changed AA to include 5% cash... good enough for a few years of expenses when combned with taxable account income and my small pension.

With the decline in interest rates I decided to get rid of the cash allocation and used it to pay off our mortgage and a small car loan balance... so back to 0% cash.

Then the 2020 spring covid crash came along and I went into capital preservation mode so currently lots of cash equivalents parked awaiting reinvestment if the stock market ever comes to its senses (not sure if that will ever happen but if not I'm a-ok staying on the sidelines.

 

[CardsFan]

The only cash I don't consider invested is actual cash in wallet, and checking accnt.

Money in stocks, BND fund, bonds, CD's and emergency savings account (earning 0.60%) is what I consider invested.

So I'm 99.999% invested.

The CD's amount to about 2-3 yrs worth of spending.

+1.

Same here. I guess you could consider the 5 months worth sitting in the B&M bank earning 0.01% cash. But I just consider it a poor earning investment.

And what about CD's? My CD's are currently earning 2-3%. That is more than many bonds right now. Why would I consider those cash?

I have an AA. It is 55/45, and I don't try to separate the 45 into smaller amounts.

 

[audreyh1]

Yeah - really splitting hairs here. Most of my cash is earning well over 0%. Some of it is still earning 3%!

And we generally only have a month or two worth in checking or MM earning nothing. A lot of it is in high yielding savings accounts earning at least 0.6%. May seem like nothing, but it's not nothing.

 

[street]

I'm the odd ball when it comes to holding cash CD's etc.. I have mentioned this before that I hold enough cash to live on for my time here on earth. I will live from SS and cash boldens. Unless there is some catastrophic event my plan is to never have to sell my investments/stock/bonds. It consists of 13% of my portfolio. Time will tell if this plan will hold true.

 

[RunningBum]

A lot of it is in high yielding savings accounts earning at least 0.6%. May seem like nothing, but it's not nothing.

I justify that rate by knowing that money is not at risk, or at least only a tiny risk.

 

[brett]

For us it is simply a matter of how much cash, on average, we burn through over and above our pension income each year. The largest part of it is used for income tax installments.

We keep about three years worth. Anywhere from 90-110K tops decreasing to about 40 before we pull back some money from equity to fill it up again.