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

[Bruno]

For #2, I was on a phone call with Fido (MC 401K), and the rep basically told me my MC 401K doesn't allow the 55 rule withdrawal.

Is there some benifit to keep it in a 401K? First thing i did was move it all to an IRA so could buy what every i wanted not just was the company offered.

 

[ut2sua]

Is there some benifit to keep it in a 401K? First thing i did was move it all to an IRA so could buy what every i wanted not just was the company offered.

Rule 55 only works for 401K (not IRA). If I don't have that, I can move to IRA post RE

 

[Bruno]

Rule 55 only works for 401K (not IRA). If I don't have that, I can move to IRA post RE

Oh ... My mistake when i checked several years ago it was my understanding it was the other way. When i retired mine was in a Fido 401k and i had the option to move to a IRA. Sorry if it confused anyone.

 

[chassis]

Is there some benifit to keep it in a 401K? First thing i did was move it all to an IRA so could buy what every i wanted not just was the company offered.

I have a large percentage of my net worth in a previous employer's 401k because of a fund selection I am not able to invest in elsewhere. This may be a factor for people who are considering rolling out of a 401k and into an IRA.

 

[Dtail]

I have a large percentage of my net worth in a previous employer's 401k because of a fund selection I am not able to invest in elsewhere. This may be a factor for people who are considering rolling out of a 401k and into an IRA.

Absolutely, especially with a good yielding Stable Value Fund.

 

[NW-Bound]

Speaking of Stable Value Fund (SVF) in a 401k plan, I am glad we left some money in my wife's SVF when we rolled most of her 401k out to an IRA to have more choices of investments.

I just looked, and in the trailing 12 months, the return was 6%. Not at all shabby! Certainly more than our I Bonds.

At this point, the amount in that SVF is only about 3% of total investable assets, but any extra dollar is worth having.

PS. The above SVF and our I bonds add up to 8.5% of investable assets. They used to be a higher percentage, but the other parts of the portfolio outgrew them. Well, that's the price of playing safe.

The bigger part of the cash+cash equivalents is in a short-term T-bill fund that I used to guarantee cash-secured puts. That part grows almost like the stock portion in the last few years.

I will not take money out of the SVF and the I bonds to invest or do cash-secured puts. I am greedy, but know I need to have some reserves.

 

[Bruno]

Rule 55 only works for 401K (not IRA). If I don't have that, I can move to IRA post RE

I went back and looked at my notes and i was looking at Rule 72t. I never looked at rule 55.

Rule 72(t) allows penalty-free withdrawals from IRA accounts and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. ... This rule allows account holders to benefit from their retirement savings before retirement age through early withdrawal without the otherwise-required 10% penalty.

 

[Thomas3857]

I'm in the same boat and find this thread very interesting. Lots of cash ($1m) with about $350K of it sitting in a tax advantaged account. It's about 1/3 of our net worth. Hope to retire in 2024 and was figuring I would draw down the cash in retirement until I need to get into the tax advantaged accounts. I'm 55. With every day bringing a new market high it just seems like a terrible time to put it into equities but I know trying to time the market is a poor strategy. Bonds seem like a risky play at this point also. What to do? I know first world problem and all but it's quite stressful.

 

[LarryMelman]

Speaking of Stable Value Fund (SVF) ... I just looked, and in the trailing 12 months, the return was 6%. Not at all shabby! Certainly more than our I Bonds.

My I-bonds from 2001 with a 3% fixed rate have had an average yield of 5.2%. Back then, you could buy them with credit cards, and I don't remember if there was a purchase limit. I planned to buy $5K a month on an airline-miles card, hold them the required 12 months, redeem, rinse and repeat. Unfortunately a job loss after 9/11 put a stop to that. The fixed rates plummeted after 2001 and have been 0 most of the time since 2010. Credit card purchase ended in about 2004 and the $10K annual purchase limit came a few years later.

5.2% did not seem attractive for idle cash in 2001, but it certainly has been good in hindsight.

 

[jazz4cash]

I went back and looked at my notes and i was looking at Rule 72t. I never looked at rule 55.



Rule 72(t) allows penalty-free withdrawals from IRA accounts and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. ... This rule allows account holders to benefit from their retirement savings before retirement age through early withdrawal without the otherwise-required 10% penalty.

72t won’t work for 401k but you can usually transfer to an IRA and then do 72t. It was discussed way back in post #33.

 

[NW-Bound]

My I-bonds from 2001 with a 3% fixed rate have had an average yield of 5.2%...

3% real gain above inflation is one heck of a deal. I did not learn about I bonds until 2003 or 2004, and the fixed rate already dropped to 1.2% or so, and that's what I had. I kicked myself for missing out. The $10K limit was not yet instituted, and I was putting most of my cash into I bonds then. The deal was just slightly above CD, if memory serves, but the delayed tax was a plus for me, because I still had earned income.

Of course, the fixed rate later dropped to 0%, and later I bonds merely tracked inflation without any real gain. So, I stopped buying.

 

[LarryMelman]

Of course, the fixed rate later dropped to 0%, and later I bonds merely tracked inflation without any real gain. So, I stopped buying.

Yes, it's been a different game since the fixed rate went to 0. I've bought the annual 10K a couple times when the inflation-based adjustable part of the rate (the 6-month change in CPI, doubled) made them worthwhile. For example, in mid 2011 at 4.6% and again in early 2012 at 3.1%. I held those until mid 2015 which was the only time the inflation-based part of the rate was negative (but capped at 0). When the 3-month early surrender penalty on those bonds became 3 months of 0, I sold them.

The rate on new bonds coming on May 1 of at least 3.54% will be the highest rate since November 2011.

 

[Cayman]

You're spot on op.

We're 54, RE'd in 2017 and have 10+ years in cash and cash equivalents.We were 90+ percent equities while working. Now, cash smoothes out the rollercoaster ride.

Firecalc says in the worst timeframe, my heirs will get a lot more than I retired with.....so no need for me watch all of my accounts tank when we have the inevitable downturns. (But my greedy self sure wishes my cash was in stocks this year.)

 

[GoodLife59]

$600k is a lot of money. Have you laid out a detailed budget for the next 5 years? Have you accounted for things like inflation, health insurance, necessary major expenses (i.e new car, home repairs)? Once you hit 59.5 will your 401k serve your needs for the rest of your life? I’d suggest meeting with a CFP and tax specialist to drill down your specific circumstances. Major hats off to you for getting to this point. Your definitely in a position of strength.

 

[almost there]

Its going to be 1-3 yrs till int. rates get back to normal / sane levels.
Inflation will cause it to go up. No getting around it. As the fed is just playing games with us now. Pretending inflation is low...

 

[Global Wizzo]

I didn’t use cash for five years, but I did use cash for about 2.5 years. In my case the tax savings more than made up for interest at a near zero rate.

 

[audreyh1]

My I-bonds from 2001 with a 3% fixed rate have had an average yield of 5.2%. Back then, you could buy them with credit cards, and I don't remember if there was a purchase limit. I planned to buy $5K a month on an airline-miles card, hold them the required 12 months, redeem, rinse and repeat. Unfortunately a job loss after 9/11 put a stop to that. The fixed rates plummeted after 2001 and have been 0 most of the time since 2010. Credit card purchase ended in about 2004 and the $10K annual purchase limit came a few years later.

5.2% did not seem attractive for idle cash in 2001, but it certainly has been good in hindsight.

The purchase limit back then was 30K per individual per year.

 

[WhenIsItTime]

Don’t feel like an idiot at all. You’ve got the bulk of your funds invested in your 401K and IRA.

I don’t think this data was shared even to the end of the thread, which is certainly to the OP’s discretion. However, hard to assess without knowing if the cash balance is 50%, 20%, or 5% of the total portfolio.

 

[Bdroc]

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.

The penalty for early redemption of iBonds is a loss of the last 3 months of interest. Let's say you buy an iBond yielding 1.6% and redeem after only one year. You will still have earned 1.2%.

The good thing about iBonds is that the rates will go up if inflation goes up.

Fixed annuities are insured by the state but they have big surrender charges if cashed in early.

 

[gooddog]

Easy options for income are:
1) Schwab intelligent income portfolio (can choose conservative, moderate, or aggressive)

2) A combination of conservative dividend paying ETF's like PSK & XLU
3) The lottery

 

[audreyh1]

I don’t think this data was shared even to the end of the thread, which is certainly to the OP’s discretion. However, hard to assess without knowing if the cash balance is 50%, 20%, or 5% of the total portfolio.

A lot was implied by his strategy of having enough cash set aside in taxable account to fund several years of expenses until he is 59.5 and could access his 401K. This implies that the 401K is invested for longer term and is also considerably more for a sufficiently funded retirement.

 

[richardf]

Nope

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.

Don’t do it, medical and dental insurance and health care will kill you unless you both are on Medicare. Cash is good. It is the number one retirement asset.
What is FIRE?

 

[LarryMelman]

Let's say you buy an iBond yielding 1.6% and redeem after only one year. You will still have earned 1.2%.

The rate changes every 6 months. After a year, you will have earned 0.8% (ther first 6 months at 1.6%) plus three months at whatever the rate changed to after 6 months (assuming you sell after 12 months and forfeit the last 3 months of interest).

 

[anothercog]

Don’t feel foolish. That’s my goal-to save 3-5 years of expenses in cash by the time I retire.

 

[Old Microbiologist]

Don't feel like an idiot. We went 100% cash in all accounts since the beginning of April so now have roughly $1.5 M in cash. My wife Day Trades with some on her brokerage account but is back to going to cash daily by close of the market.

We are doing this because we believe the market is in a huge bubble and an impending collapse might be coming. I am hoping not but after serving in the US military 40 years I am a pessimist about the US government doing anything smart.

[Mod edit]

We do not use our funds at all living 100% on pensions. So, I am unsure why we keep building this but you never know what the future holds. With no travel anymore our expenses are a fraction of normal.