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Old 03-25-2018, 05:43 PM   #21
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My target is a year or more , right now two years is the bullseye. That can change with market conditions,, my comfort, and age. When/if I ever get SS that may impact my cash comfort level, or change its meaning.
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Cash on Hand
Old 03-25-2018, 06:05 PM   #22
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Cash on Hand

For reasons Iíve posted previously Iím planning to take SS at 62. Once that happens, between my SS, DW pension and money from a part time job that she has, the question will be moot as those three streams will virtually cover our monthly expenses. In the meanwhile however I wanted some insight into how others handle this so that I can better plan for the gap from 60 to 62. Thanks again all!
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Old 03-25-2018, 06:15 PM   #23
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IMO, If you have a lot of cash on hand, it is not working for you. My checking account is topped up every month by SS and a small pension.
Most of the time, that covers expenses.
Unfortunately, this year I owe a bunch on my taxes, so i will use part of my RMD to cover it.
I don't like the idea of having too much cash in my local bank's checking account earning zilch or nearly zilch. I sometimes have to carry forward surpluses from one month into the next one or two to cover the larger, lumpier expenses. But I plan this out months ahead, while keeping my ~$500 cushion to cover the smaller, unforeseen expenses.

I also have some wiggle room in the timing of some of my discretionary expenses. I often charge things on my CC at the start of its statement period so I won't have to pay the bill for another ~42 days, after two more monthly dividends have arrived.
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Old 03-25-2018, 06:49 PM   #24
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That really doesnít matter. If you have a very large portfolio compared to your annual spending needs itís just fine to have a big chunk in cash.

It depends personal goals - some folks may want to grow their stash aggressively. Other folks may feel like their stash is plenty big enough already and decide to reduce risk on part of it.

I think it also depends on whether one is 100% dependent on their withdrawal from investments to cover annual spending or one has a guaranteed income stream from pension and SS that covers most spending needs.
I sold my house shortly before I retired and all that money went into cash accounts. Since retirement, I have been building my new house. Some months my expenses including house building will be more than $30k. Some months closer to $2k. I have also been supporting my DS as he finishes college. When I retired, I thought I had enough cash to cover both expenses plus my living when combined with pension and SS on the late DW's account. It turned out that I didn't have enough so for the last several years I have been withdrawing an annual $28k from 401k each year (moved to Vanguard IRA this year). Large cash is kept in an on-line bank (currently in CDs) and is transferred to my credit union savings account as needed. I keep an eye on the checking account and make sure there is enough there to cover all checks and other expenses as they come up by doing on-line transfers between accounts.

I am sure I have given up some income by keeping such a large amount in cash in the past, but it simplifies my life and I just don't have to worry about having enough cash on hand or figuring out how best to convert investments to cash. After the house is complete and DS has graduated, I will probably keep 1 to 2 years worth of cash on hand.
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Old 03-25-2018, 07:11 PM   #25
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Withholding is considered to be paid during the tax year regardless of when it is actually paid. At the suggestion of our CPA, we pay all of our estimated taxes in December by taking a distribution that has withholding equal to our estimated state and federal taxes for the year. So you really don't have to loan the government money at 0% interest to the extent of those quarterly payments.
That's what I do. I have a large RMD from an (inherited) beneficiary IRA that we take in December, holding back most of it to cover estimated taxes for the year. No need to hand it over any earlier than necessary.
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Old 03-25-2018, 07:38 PM   #26
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I keep enough in cash to cover my deductible in ACA in case I need it and maybe a few thousand beyond that for an emergency. Someone could not carry any cash and make it work I suppose depending on the circumstances one has as long as their health care situation is completely covered. One would also need to have plenty of cash flow every month to cover any unforeseen expenses.

But I think that is easier said than done so most people I am guessing carry at least some cash on hand.
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Old 03-25-2018, 08:47 PM   #27
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I have about 12% cash in CD's, savings account and checking. I have enough in cash with 12% to cover us for 25 plus years. When I take SS it will even last longer. To most my plan might be unorthodox way of doing business. My ACA comes directly out of saving each month. This works for me and I have the cash if I want to buy more land or invest in more markets etc..

My plan was/is if the markets headed south and lasted for year and years I wouldn't have to touch my investments ever if I didn't want to. I will have to when RMD occurs but that is 12 plus years away.
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Old 03-25-2018, 08:51 PM   #28
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I think it also depends on whether one is 100% dependent on their withdrawal from investments to cover annual spending or one has a guaranteed income stream from pension and SS that covers most spending needs.
I think that's right. We presently have 2 years' expenses in cash. But we will be dependent solely on investments till FRA or later, and DW's mini-pension is mainly longevity insurance. So having cash and, right behind that, short term bonds provides a needed runway in the event of a prolonged bear market, particularly in the early going.

Glide path to ER later this year probably.
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Old 03-25-2018, 09:01 PM   #29
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I am going into retirement with enough cash to supplement my pension and cover projected expenses for up to 5 years (depending on when I choose to take SS). This is very conservative but I will be not forced to sell equities to get cash. I will re-evaluate at the end of each year, based on the past year expenditures, future plans, and investment gains/losses how much cash to keep.
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Old 03-25-2018, 11:47 PM   #30
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Typically have a good amount of cash on hand. Currently it's probably around 3+ years of expenses. We keep that much around for several reasons, one being for larger purchases if something comes up, the other being for dry powder should the market dip into bear territory.
+1

At the beginning of the year, we
- Review expenses for last year.
- Project expenses for current year.
- Decide how much stock to sell if any (based on projected expenses, market condition, estimated taxes, etc).
- Pay all the estimate taxes by the April deadline.

Done for the year and no need to think about it until next year.
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Old 03-26-2018, 12:43 AM   #31
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As you see by the replies here, the amount of cash held depends on individual needs, circumstances and preferences.

If your retirement budget is fully funded by SS and/or a pension, you may keep less cash on hand than if you ER 20 years before SS and access to your tax deferred retirement accounts.

And then there's your comfort level with risk. I keep quite a few years of expenses in cash. If the market declines 35%+ and stays that way for a decade... then I purchased cheap insurance by holding cash and I'll sleep well.
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Old 03-26-2018, 04:39 AM   #32
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Good discussion. I noticed some folks are calling CD's cash. I use Fidelity Retirement Planner and Fidelity calls CD's bonds and calls cash sitting in an account short term.

I like the idea of moving 6 months to 1 year of expenses into an on-line savings account that pays interest. On a monthly basis, I plan to move money to a checking account to pay bills.
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Old 03-26-2018, 09:20 AM   #33
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We usually have about 3% of the portfolio in cash, which is shuffled between our Fidelity CMA and Ally online savings. The total amount is equal to about 6 months total spending or about 2.5 years of cash required. Most of our ongoing nondiscretionary expenses are covered by 2 pensions, some rental income, and dividends from the taxable account. SS still to come at some point.

For large discretionary spending (travel, home improvements) or larger items that get paid once per year (property tax, insurance), we simply transfer the required funds from online savings to checking. Then I replenish the online savings by selling equities in the taxable account and rebalancing if needed in tax-deferred. I don't necessarily do this immediately, but sort-of opportunistically replenish at whatever point, and in whatever amount, seems appropriate at the time... considering tax impact, balance in the Ally account, market timing, and other probable near-term cash needs.
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Old 03-26-2018, 10:08 AM   #34
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Keep way more of it in the accounts than necessary (2-3 years) but cash ON HAND? I thought that meant stacks of bills. And yeah, I keep $3-5k in the safe in case of hurricane or other disasters like the Russkies messing the grid. May not be all that warranted but it's nice to know it's there. And yes, I know it makes no interest.
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Old 03-26-2018, 01:14 PM   #35
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Good discussion. I noticed some folks are calling CD's cash. I use Fidelity Retirement Planner and Fidelity calls CD's bonds and calls cash sitting in an account short term.

I like the idea of moving 6 months to 1 year of expenses into an on-line savings account that pays interest. On a monthly basis, I plan to move money to a checking account to pay bills.


I (arbitrarily) designate CDs > 24 mos as bonds and shorter maturities are cash. I have almost no bonds due to fear of rising rates. Fido lets me designate them as I choose and my AA is currently 62/30/8 but the longer term CDs on my ladder get redesignated as they drop below 24 mos.
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Old 03-26-2018, 01:36 PM   #36
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Good discussion. I noticed some folks are calling CD's cash. I use Fidelity Retirement Planner and Fidelity calls CD's bonds and calls cash sitting in an account short term.

I like the idea of moving 6 months to 1 year of expenses into an on-line savings account that pays interest. On a monthly basis, I plan to move money to a checking account to pay bills.
It probably makes sense for Fidelity to call CDs bonds since they sell them on the secondary market and CDs brought through Fidelity are marked to market every day, so you can actually see the interest rate sensitivity.

Folks that buy them directly from banks or credit unions don’t see this. They just have to be aware of the penalty for early withdrawal (not an option through a brokerage) and take that into account. Bankrate.com or someone actually has a calculator where you can see the effective APR if you withdraw early from a CD you are considering buying.

Personally I don’t worry about it for funds held for 12 months or less.
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Old 03-26-2018, 02:36 PM   #37
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I have about 12% cash in CD's, savings account and checking. I have enough in cash with 12% to cover us for 25 plus years. When I take SS it will even last longer. To most my plan might be unorthodox way of doing business. My ACA comes directly out of saving each month. This works for me and I have the cash if I want to buy more land or invest in more markets etc..

My plan was/is if the markets headed south and lasted for year and years I wouldn't have to touch my investments ever if I didn't want to. I will have to when RMD occurs but that is 12 plus years away.
Actually, you don't have to do anything with RMDs except pay tax and move the proceeds to a taxable account. With the cash you have you can pay the taxes out of that stash and just move the funds to taxable.
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Old 03-26-2018, 02:41 PM   #38
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.... you don't have to do anything with RMDs except pay tax...
That's the rub, but the reality is that it is highly likely that the taxes paid on the RMD... as a percentage... will be much less that what I would have paid had I not deferred that income and by the time RMDs come I'll be relocated in a no-income tax state so there are additional savings. So while paying the tax on RMDs is painful, I'm still ahead big time and I need to keep that in mind.

Still after so many years of planning for tax avoidance, it is hard to think of paying taxes as good.
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Old 03-26-2018, 02:52 PM   #39
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Still after so many years of planning for tax avoidance, it is hard to think of paying taxes as good.
Yep, that does sound odd, but I'm enjoying the fact my marginal tax rate this year on my RMDs will be 12%, not the 28% I would have paid had I not deferred them. Dragging my feet on Roth conversions looks like it was a good strategy - so far.
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Old 03-26-2018, 05:23 PM   #40
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Yep, that does sound odd, but I'm enjoying the fact my marginal tax rate this year on my RMDs will be 12%, not the 28% I would have paid had I not deferred them. Dragging my feet on Roth conversions looks like it was a good strategy - so far.
I will never be below the 22%/28% income level. RMDs will just get whacked pretty hard in any case. No Roth conversions either. All that would do is move the tax date up. My biggest problem is that I was in the middle of moving my 401k to a Vanguard IRA and before I got my allocations back to exactly where I wanted them, the market took its big dive. Now I am short in my cash bucket for those RMDs. I am just hoping for a favorable time somewhere in the next three years or so to reallocate from stocks or bonds to needed cash.
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