How Much Cash to hold in Retirement

[6miths]

Still have a bit of income now and then but never felt the need for any significant cash holding once we got established. Withdraw as needed in the direction that rebalances toward our predetermined AA.

 

[foxfirev5]

With a 40/60 AA we have 30x annual expenses in CD ladders / Cash / Series I Bonds within the 60 % portion.

 

[Montecfo]

A couple of thoughts.

First , we keep 2-3 years in cash including MM accounts, savings and CDs. That is our near term spending money, emergency cash and everything else. I craft a "paycheck" from these funds, which I replenish from asset sales in the ordinary course of investing. As an active investor, I seldom need to sell assets to rebalance as I do so dynamically.

Second, it helps to know people's pension situation. If someone is drawing a pension, obviously they need less cash. I do not have a pension, DW a very small one of say 1000 a month ( none presently). No plans to tap SS anytime soon.

Third, folks planning to keep high gain stocks in taxable accounts till death should look at current tax platforms, one of which calls for an end to basis step up at death.

Cheers!

 

[Dash man]

We have enough in CDs, Savings and a Flexible Retirement Annuity (which is basically a tax deferred savings account with no fees). CDs range from 1.5% - 3.5% with all but one maturing in 2021. The FRA pays ~2.6% and only new money is lower at 1%.
It would last us 8-10 years depending on if stock dividends were cut in a market crash . We’re 64, so we could always take SS if needed. We sleep well at night.

 

[Green Papaya]

I retired last year with 2 years cash (including lumpy expenses such as cars and travels) and 5 years bonds. Now we are down to 1 Yr cash and 4 Yrs bonds after some reshuffling, but I am still Ok with that. We plan to build up some more cash for a new house down payment next year. Bottom line is I am comfortable with from 5 to 7 years total cash and bonds.

 

[cooch96]

I plan to retire with 3 years cash (savings account). CD rates are so low right now, I doubt I'll bother with a ladder for the foreseeable future.

 

[Souschef]

I want my money working for me. I have a credit card with over a $40 K limit that will cover any emergency.
I can cover any expense as part of my RMD. Right now my projected RMD for next year is about $70 K.

 

[Montecfo]

I want my money working for me. I have a credit card with over a $40 K limit that will cover any emergency.
I can cover any expense as part of my RMD. Right now my projected RMD for next year is about $70 K.

Yes but this begs the question: are you funding the RMD by selling equities? RMD is not a funding source per se.

 

[Souschef]

Yes but this begs the question: are you funding the RMD by selling equities? RMD is not a funding source per se.

All I have in my IRA's are equities. I can either sell them or transfer them into a taxable account.
Since we are blessed with more than we will ever need, I distribute part of my RMD to our sons, plus some QCD's to various organizations.

 

[DrRoy]

For the first 3 years, I had a minimum of 3 mo, and pulled the next year's cash in Nov/Dec. This year, I am going to raise the minimum to 6 mo, and perhaps repeat that the next year or two until the min is up to 1 yr.

 

[Ole Red 29]

We keep about 4-6 months of expenses (including any known upcoming lump payments) in our checking. We pull funds from our after tax bond fund or dividends as needed. We have been retired almost 2 years and still working on this process.

 

[retired1]

I try to keep about 9 months worth expenses in CD/Cash accounts.

 

[OldShooter]

We keep about 4-6 months of expenses (including any known upcoming lump payments) in our checking. We pull funds from our after tax bond fund or dividends as needed. We have been retired almost 2 years and still working on this process.

Everyone is different. We carry checking account balances sufficient for the month's expenses plus maybe a $1K cushion, plus any extraordinary expenses like cars or vacations. We pull as needed from our tIRAs, usually just a few $K at a time.

I don't think either of us have ever used it, but Schwab will go to our taxable accounts for available cash if we somehow end up with an overdraft. Belts & suspenders, I also have a $10K overdraft credit line on my checking account.

 

[teetee]

I have low living expenses and have 10-15k in the bank which is enough emergency fund for the next 2-3 yrs. I am still working so if I need more cash (e.g. if my car gets totalled or I need a new water heater), I will stop the auto investment to build up cash.

 

[brett]

Anywhere from nine to eighteen months. BUT.......our withdrawal rate is very low. Less than one percent and that is primarily due to extended travel.

This number is really a function of both risk tolerance and the percentage of your income that is covered by pensions, etc.

 

[Perryinva]

I agree. The cash portion, I would look at as "of your additional funding". IOW, If you have 50% or more of your annual planned "income" from SS, Pensions, etc), then I would remove that from the plan. 3 years of what you require to WD to fund your retirement income.

Us too. In addition, when you decide to file for SS matters a great deal as well. We have pensions and DW already filed at 62 (68 now). I am 63 and don’t plan to file at least until 68, maybe 69. So my cash long term savings (@1.75%) is much higher than it will be once I file. Besides the small amounts monthly I take for bills, it is essentially just buying in installments the SS annuity I get by delaying. I prefer to keep it separated from my investing monies, as I equate the low/no risk to be equal to SS risk. When I do file, very minimal cash will be needed, only for the occasional lumpy purchase/expense in case I don’t want to sell in a down market, so maybe 3 months max, I estimate. So right now its like 6 years of actual needed living expenses, but it reduces a year, each year. If I were to file in 2021, for whatever reason, I would invest the cash.

 

[audreyh1]

Just before we retired we built up some “extra” cash. This was for a big splurge on travel for the first two or three years of early retirement. We did travel a lot then, but we didn’t use it all as we had plenty coming in from other investments in spite of the bear market at the time. Eventually it morphed into a buffer covering two years after tax expenses which seemed like a good idea after the crash and long bear market of 2000-2003.

 

[Markola]

May I ask what your AA is?

I recall your sage perspectives a year ago or so on the use of the fee-based Vanguard advisor service for providing peace of mind, specifically for one's spouse. I may need to go that route one of these days else DW may never let me stop toiling away at the desk. Anyway, I always value your perspectives.

I am glad you found my comments about Vanguard PAS helpful. In fact, the way our advisor deals with cash needs is just that - he plugs into the plan the anticipated needs we have for cash. As we get closer to that need, say for a car 3 years from now, he sells assets in the most tax efficient way to build the required cash nut. Otherwise, we stay fully invested.

Our asset allocation is 50/50.

 

[HI Bill]

I tend to go with three years.

This year, some exceptional events occurred. In January, I took out enough to cover 2020's expenses, just in case the market tanked. At the time, I was glad I did. When the investments recovered, I sold enough for a downpayment on a house, reducing cash to less than 1% of assets. When our old property sells, I'll be back to 2.5-3 years worth of cash, bond fund, and money market fund assets. Sure makes it easier to sleep at night, rather than being forced to sell equities in a down market!

 

[Blue531]

I keep things pretty tight. My expenses are extremely low each month and I keep no cash, unless you include $50 to $100 in checking. I prefer to have most of my money working for me since it is hard to time the market. I have currently about 12 years worth of expenses (I only need 3) in stock that is easily liquidated. I sell two or three shares each month as needed. I purchase all monthly necessities with a credit card and pay the balance in full at the end of each month. The value of my stock portfolio should outpace my spending, but even if it doesn't or if there is a bear market, I should still have enough. I only have 3 years to access 401ks or IRA and six years to go until I can draw social security at age 62. At 62, social security should cover most of my expenses and most of my principal will stay intact barring unforeseen circumstances, of course.

 

[tenant13]

Nobody can answer OPs question for him but whatever decision he makes it should be well informed.

Little known fact: if you live off cash, you may qualify for Medicaid and save on your health expenses.

Another little known fact: stable coins pegged to USD (like Tether, USDC, TrueUSD, GUSD etc.) pay 10+% interest.

 

[ICanSeeTheBeginning]

Cash versus Liquid Bond Funds

I understand that bond and bond prices fluctuate, but they are generally fairly stable even during a serious recession. If you believe this statement then why would one hold on to several years of cash instead of bond. My general thought is that a bond fund could easily drop 5 to 10 percent...maybe more, but probably not (during a recession). But the alternative is to give up a certain 4-5% a year one might make on the bonds by holding cash year after year. It doesn't take too many years to make up for the risk of holding bonds. I'm guessing I'm looking at this wrong or missing something, because a lot of smart people hold onto cash, but I'd appreciate an explanation as to what is so wrong with my analysis. Maybe an assumption of too much bond stability?

 

[Out-to-Lunch]

But the alternative is to give up a certain 4-5% a year one might make on the bonds

...

Maybe an assumption of too much bond stability?

To my ears, it sounds like an assumption of too much yield! Where can you get a certain 4-5%?

 

[cyber888]

At least 3 years of cash for me, or a maximum of 4 years of cash.

 

[ICanSeeTheBeginning]

To my ears, it sounds like an assumption of too much yield! Where can you get a certain 4-5%?

Yes, I should have said average 4-5% returns for bonds. But after correcting, what else is wrong?