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

[ut2sua]

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.

 

[Ready]

You could probably get closer to 1% on a 5 year CD and set up a ladder of $100K CDs. Look for CDs with minimal early termination penalties. If you only have to pay six months interest to cash out early you might still be a little better off for money you don’t need for 3-5 years. But if you are looking for something much better than your current rate you are not going to find it without adding in risk.

 

[Dash man]

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 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/

 

[Al in Ohio]

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.

Well I’d have 24-30 months of living expenses in CDs or bonds and the rest in a Vanguard tax efficient balanced index fund. So far mine are about 50/50 equities to bonds and the 1 year yield is 24.8%.

 

[jim584672]

All in VTI.

 

[retire to nature]

All in VTI.

+1

 

[RunningBum]

All in VTI.

Terrible advice to someone who needs that money for the next 5 years. Absolutely terrible.

 

[RunningBum]

Follow this thread: https://www.early-retirement.org/fo...ead-2021-please-post-updates-here-107187.html
to see what rates people are finding. Look at bankrate.com too. The CD ladder is a good idea but if the shorter term rates aren't great look at online savings accounts as well.

 

[Lawrencewendall]

Look into VNLA. Pays monthly, low volatility.

 

[audreyh1]

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

 

[Montecfo]

Some unconventional but low risk ideas

My fixed income allocation includes conventional choices including CDs (locked in at higher rates), bank savings (.66%), highly rated intermediate bond funds (3-4 year duration) and some less conventional choices including a very low volatility alternative equity fund (MERFX), a closed end fund (FRA) investing in floating rate senior debt, duration under a year.

The alternative choices are geared specifically to our present environment (low but slowly rising interest rates, growing economy) and I'm happy with results so far.

 

[NW-Bound]

I hold a 7-figure sum in cash or cash equivalents right now. I don't feel like an idiot.

I do want to get a better return on that cash though. As I often mentioned, I use a portion of that cash to write cash-secure put options. Even with deep out-of-the-money options, I got quite decent returns on that cash. Of course there's some risks, but I can set the risk level reasonably low, else it would be the same as buying stocks with that cash. And I already have lots of stocks, but don't want to go 100% as some do.

It's not for everybody though, but that's what I have been doing.

 

[monte1022]

We are in the same situation with 570k cash and 54/51yo. We finally dumped 150k into vwiax last Nov, 250k in Ally @0.5$, and currently looking for something else for 100k...will keep the rest in cash cash. We figured 100k/yr after I leave wo*k (sometime 2022) until 59.5yo ie. a 3-4 year gap. All other cash between now and exit buys a car, roof and HVAC.

Trying to manage income while still meeting our desired retirement budget for a decade will require extra cash. It is very hard to take risk with this money. Once our youngest graduates college, the upper limit for the ACA will be lower for us and we do not want to live on a tight until medicare. Of course we can always tap the Roths, but do not really want to early in retirement especially since those accounts are 100% stock and meant to fund from 70+.

In summary, we feel your pain in having so much money doing so little.

 

[Dtail]

Perhaps look into MYGA's.

 

[donheff]

I keep about five years of cash equivalent in the TSP G Fund. In OP's situation I would hang tight with several years in CDs. Things can go south in a flash. Cash is like an insurance policy for downturns.

 

[Hopeful]

Don't feel stupid. We are in a similar situation. We are thinking of retiring in January, and have also increased our cash to 600K in preparation. Right now we have 500K in no penalty CDs at Ally, and have opened an account at Live Oak for a 100K cd that is maturing soon. I have looked at the Toyota Income Driver Notes that are paying 1.5%, but have not made a decision yet.

 

[Aerides]

Our cash position is close to yours, a bit more than my normal comfort level. Went up a bit last year as we sold some low-performers to hedge against an unknown recession.

But meh. We're a long way off from 401k access, and 55-rule doesn't apply to us either. The cash is mostly in Ally CD's so it's not completely useless. But I'd probably normally recommend 3 years in cash is plenty, assuming you have other taxables to access before you. It seems you might not, so just prop it up with the best savings you can find via CD's for the next 5 years.

 

[Mark1]

...
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 like the current plan and wouldn't change a thing.

 

[24601NoMore]

Nothing wrong, IMHO, with using big allocations of cash to manage your AGI (eg: for HC subsidy reasons) and lower your exposure to market risk.

I funded the entire first two years of ER expenses, and 90% or so of this year's expenses with dividends from CDs. (Fortunately, I was able to get a lot of high 2 and even north of 3% Certificates a few years back and still have some that haven't yet matured). I also only hold <25% in equities and am perfectly happy with that AA as it allows me to sleep well at night.

Cash heavy plans CAN work, assuming 70s style inflation doesn't rear it's head again. Candidly, I had an entirely different outlook on that a year or so ago and prior to that time than I do now, though, as I do expect inflation to go pretty much bonkers in the next few years..will be hard for it not to with massive spending all over the place.

 

[jazz4cash]

I’d use a combination of High Yield Savings and MYGAs with 10% annual withdrawals that are not subject to penalty. 5 yr A rated paper is >2.5% and 3 yr paper is a bit less.

 

[Gallaher]

We have $700k in cash, way more than I want, (recently sold a house, waiting for a market buying opportunity and keeping AGI low). I’ve been retired for 42 months and at age 61 and 60 we pay less than $100 for ACA insurance.
There are always trade offs but I need this $700 to go most of 6 years before SSI, pension etc.
You probably can’t get what you want on your cash but you can probably get enough. Risk/Reward

 

[Sojourner]

Another way to generate a higher yield on your cash is to fund a new bank account that's got a nice "new account bonus" promotion going. Check out this list for some ideas:

https://www.doctorofcredit.com/best-bank-account-bonuses/

Looks like most of the signup bonuses these days are in the $200-400 range, but if you search you might be able to find something a bit higher in your state. This is, IMHO, one of the best ways to boost the pitiful yields on cash these days. An extra $400 on $100k transferred into a new high-yield savings account equates to roughly an extra 0.4% APY. Not much, but something. Better than you can get from a one year CD right now.

 

[RetireAge50]

If you are an idiot so are we as we are about the same age and also have just under 600k in cash. If the stock market keeps rising the cash amount will increase further as we rebalance to maintain 75% stocks and 25% cash. We have zero in bonds.

I like the feeling of having the cash for all of our spending for probably 10 years and at the same time having the stock portfolio for long-term gains.

 

[RetireAge50]

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.

 

[Midpack]

I am another idiot with a pile of cash at Ally...there are no better options with the same low risk and liquidity that I know of. Many here have been faced with the same problem for years, it’s only gotten worse, with no better future on the near horizon...