Holding $600K in cash - feeling like an idiot. Options???

[LarryMelman]

For the last several years, I have become an income investor. I buy dividend paying stocks which will eventually (I am still working) provide retirement income. Everything I like is overpriced right now, so since I don't immediately need the income I've been letting cash pile up more so than ever. Whenever I get the itch to buy something new, I remind myself that instead of buying a 3% dividend now, I may be able to buy a 4% dividend later.

I also hunt for bank account bonuses, as mentioned above. Chase had a deal for tying up $15K in a savings account for 3 months and DD into a checking account, which paid $500 in bonuses. That's more than I'll make in interest on all my cash in the entire year.

 

[Bruno]

I am another idiot with a pile of cash at ...

Me Too but @ Discover Bank. I have 2 CD coming due before long. I visited with a broker the other day and she told me she has bonds paying 4.9%. Didnt really go into details. I dont know much about bonds.

 

[MRG]

ATT is paying 7% dividend. Century Link at 7.8%. SOS at the money calls and puts are paying 10% two weeks out. QYLD is paying almost 12%.

 

[chassis]

Read what Dalio has to say about cash as an investment. It’s not pretty. Cash is a terrible investment for the medium to long term.

Try a mix of:
HYSA
dividend stocks
Index funds
Put options to protect capital

A combination of the above is low-medium risk and will so far better than inflation and you always have access to your money.

 

[ut2sua]

I don’t think i-Bonds would be a good choice. There is a penalty if you cash them in less than five years after issued.
Treasury bills are liquid, but there is risk of losing value if you need to sell before maturity. If you’re willing to hold to maturity they’re very safe.

Many folks are using MYGAs. You may want to look into them. Make sure you get it from a solid company because they are not FDIC insured.

https://www.annuityexpertadvice.com/fixed-annuity-rates/

I am new to I-Bond, but I believe if one cashes out the bond after 1 year (and before 5 year or something like that), the only "penalty" is to lose 3 months of interest. So 3 month of interest would be taken from the total amount. I read this as: principal + interest will be preserved (minus 3 months of interest) if cashing out before 5 year and hold for 1 year ()

 

[sengsational]

All in VTI.

The OP would really feel like an idiot if the market went against him and had to delay retirement because of it. So, yeah, bad idea.

If your 401k has a stable value fund this may be a good place for cash. Even if you can’t get to it until 59.5 you can always sell stock outside the 401k while at the same time buying the stock inside the 401k.

Good idea.

 

[jollystomper]

If your 401k has a stable value fund this may be a good place for cash. Even if you can’t get to it until 59.5 you can always sell stock outside the 401k while at the same time buying the stock inside the 401k.

I agree with this, most 401K stable value funds are still providing a relatively good return.

I find the threads trend interesting. When the markets are at all time highs, there seem to be a preponderance of "I have too much cash!" themed threads. When the markets go way down into recession/depression territory, there seem to be a preponderance of "I don't have enough in cash!" threads. Human nature, I guess. This is one reason I based my cash holdings on my spending needs for my desired expense interval, regardless of what the market is doing.

 

[ut2sua]

Thanks everyone for your input. I do feel better after reading all your comments. One option for us is: after I fire, to shift some of our 401K to an IRA and start a 72t to get some $ out (say 20K a year or so). The good thing about that is the 72t will last about 5 years which is just around the time I have access to my IRA at 59.5. The extra cash amount is low enough (once DW and I will have no income) that it won't interfere with ACA, and it is a nice way to resupply our cash account (and perhaps allow me to take some risk with my cash balance, or just to help with the Roth conversion tax payment). The bad thing that I don't like is I have to withdraw that fix amount every year regardless. I have learned somewhere in this forum that Fidelity could help setting such an account up for folks.

 

[LarryMelman]

if one cashes out the bond after 1 year (and before 5 year or something like that), the only "penalty" is to lose 3 months of interest.

That's right. The CPI was just announced today. After May 1, the rate on new I-bonds will be at least 3.54%. That's the highest in 10 years.

Also note, and you may know this, that you MUST hold them for a year.

 

[ut2sua]

That's right. The CPI was just announced today. After May 1, the rate on new I-bonds will be at least 3.54%. That's the highest in 10 years.

Also note, and you may know this, that you MUST hold them for a year.

I will definitely start some I-bonds purchases next month. Thanks for sharing.

 

[Koolau]

So our situation is: I may FIRE anytime between now and the next year or so
DW and I are 50 and 54. And we are holding 5x of expense in short term CD earning less than half a percent interest (120K*5=600K). Our plan is, once I fire, to live off of this $ until I turn 59.5 and have access to our 401K and IRA. My work plan 401K does not play with the 55 rule We plan to do some Roth conversion during the 5 years (but that will cost some more cash to pay for conversion taxes). I don't think I have much option, but would like to ask anyway in case there is some better way than holding cash for folks in our situation. I have started reading about I bond, and that may help, but there are limits on how much we can buy. Thanks for sharing your thought.

I think it's okay to look around to see if you can eek out a bit more interest (but keep in mind: If you can get 1/2% more someplace, that's a total of $3K a year.) Better than a stick in the eye, but not as good as you and DW likely did on your 3 stimulus infusions! It's a perspective thing. It's "costing" you a bit (maybe) to have your cash more-or-less sitting there, but you DO have a plan. It's based on your FIRE before 59 1/2. For THAT extra 5+ years, it may be costing you a few grand. WHAT a bargain! Who wouldn't pay a few grand to be able to retire when they want to rather than when they otherwise would be able to. SO, I wouldn't worry too much about your plan - it sounds good to me, anyway.

I would have a bit of concern about inflation reducing the value of your cash stash, but if inflation comes, rates will rise and it won't cost you much to dump CDs paying 1/2 percent to grab the "new" ones at (what?) maybe 3%, 4% - whatever.

What I really like about your plan is your ability to pay the taxes on your Roth exchanges. That is GOLD in my opinion. We retired with "plenty" but had to scrape and scrap for cash to do many of our Roth conversions. You are in the cat-bird's seat to convert up to whatever tax level you desire. We should ALL have set it up this way.

My advice? Relax. Look for some extra interest at a leisurely pace. Relax. Enjoy and just do your plan. It sounds like a good one. As always, YMMV.

 

[NW-Bound]

I find the threads trend interesting. When the markets are at all time highs, there seem to be a preponderance of "I have too much cash!" themed threads. When the markets go way down into recession/depression territory, there seem to be a preponderance of "I don't have enough in cash!" threads. Human nature, I guess...

Consider the opposite.

Suppose at the market top, you have no cash, which means you are all in stock. Bought high?

And at the market bottom, you have loads of cash, which means you have sold all your stocks. Sold low?

I don't think the above is a good position to be in.

 

[Bruno]

After May 1, the rate on new I-bonds will be at least 3.54%..

Can you buy I-Bond from Fido?

 

[ivinsfan]

I will definitely start some I-bonds purchases next month. Thanks for sharing.

An I bond is a good option for someone on a subsidized ACA plan. The interest is not reported as income until you cash it out.. ( I know the cliff is gone for awhile , but still good info).


Note there are limits on how many I bonds you can buy in a year.

 

[NYEXPAT]

Stonks for sure, the S&P is about to melt up to 4400 very soon!

 

[jim584672]

The OP would really feel like an idiot if the market went against him and had to delay retirement because of it. So, yeah, bad idea.

Go fat or go home.
You NEED multiple Teslas.

 

[sengsational]

An I bond is a good option for someone on a subsidized ACA plan. The interest is not reported as income until you cash it out.. ( I know the cliff is gone for awhile , but still good info). ...

They don't send out 1099-IOD for those? I know nothing about I-bonds, but I got 1099-IOD's for treasuries that I used to have.

 

[jollystomper]

Consider the opposite.

Suppose at the market top, you have no cash, which means you are all in stock. Bought high?

And at the market bottom, you have loads of cash, which means you have sold all your stocks. Sold low?

I don't think the above is a good position to be in.

Actually, it it not really the opposite, but the result that occurs from what I mentioned.


Market highs -> I have too much cash, I'm missing out --> invest -> low cash.
Market lows -> I'm gonna lose everything, not enough cash, sell to get cash --> high cash


Whereas I prefer: This is the cash I'm happy with -> Market high or low -> don't worry, be happy .

 

[NW-Bound]

Actually, it it not really the opposite, but the result that occurs from what I mentioned.


Market highs -> I have too much cash, I'm missing out --> invest -> low cash.
Market lows -> I'm gonna lose everything, not enough cash, sell to get cash --> high cash


Whereas I prefer: This is the cash I'm happy with -> Market high or low -> don't worry, be happy .

OK. It's not really how much cash you have, but what you are going to do about it.

I have a lot of cash compared to what I spend. But I have even more stocks. I need to sell some stocks.

But being as greedy as I am, I will not sell them outright, but sell call options on them at even higher than current prices. Even if the stocks do not hit the higher prices and I do not get to sell the shares, there's cash from the option premiums to add to the stack of cash. More cash either way.

I love cash! You don't buy things with stocks. You do with cash.

 

[LarryMelman]

Can you buy I-Bond from Fido?

Huh? These are US Savings Bonds. You buy them online from the Treasury. They provide an online account, you never see a paper bond, and you can redeem them in whole or in part. Really, it's one of the easier things that the Gov't provides.

Another note, the annual purchase limit is only $10K.

 

[NW-Bound]

They don't send out 1099-IOD for those? I know nothing about I-bonds, but I got 1099-IOD's for treasuries that I used to have.

Interest on I bonds is not taxable until you cash out.

And even when you cash out, I don't think they even send out anything. Not really sure, because I cashed out some I bonds only once. Either I missed the 1099, or they did not send it, and I forgot to report the interest on my tax return.

Later, the IRS sent me a letter saying "You owe us this much money. Pay it!"

 

[jazz4cash]

Thanks everyone for your input. I do feel better after reading all your comments. One option for us is: after I fire, to shift some of our 401K to an IRA and start a 72t to get some $ out (say 20K a year or so). The good thing about that is the 72t will last about 5 years which is just around the time I have access to my IRA at 59.5....

... I have learned somewhere in this forum that Fidelity could help setting such an account up for folks.

Have you actually run a 72t (SEPP) calculator? At current rates it would take a pretty large balance to get 20k/yr. Fidelity does have support for this type of distribution.

I didn’t realize your funds were locked up in deferred accounts. My earlier idea of using MYGAs only helps with the ROI concern. Perhaps a large broker for MYGAs would support a 72t using the 10% free withdrawal feature.

 

[audreyh1]

Interest on I bonds is not taxable until you cash out.

And even when you cash out, I don't think they even send out anything. Not really sure, because I cashed out some I bonds only once. Either I missed the 1099, or they did not send it, and I forgot to report the interest on my tax return.

Later, the IRS sent me a letter saying "You owe us this much money. Pay it!"

You have to log into your Treasury Direct account early the next year and download your 1099-INT. They mail nothing. I have done this.

 

[sengsational]

You have to log into your Treasury Direct account early the next year and download your 1099-INT. They mail nothing. I have done this.

This has been my experience as well. And the formatting is pretty horrific. Not a nice PDF with nice boxes, making it obvious which numbers to pay attention to, but rather a paragraph with numbers in it. I had built a ladder and it was kind of a jumble to deal with, come tax time. And the login to Treasury Direct! But it worked and was stable/predictable at least.

 

[NW-Bound]

You have to log into your Treasury Direct account early the next year and download your 1099-INT. They mail nothing. I have done this.

OK. Then, I did not miss or lose that 1099 in the mail.

I suspect that I was not the only one neglecting to pay the taxes on the cashed-out I bonds.

I don't think they even sent me an e-mail reminding me to log in to see the 1099. They don't have to do anything like commercial enterprises, because they are the gummint.