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Old 11-03-2020, 07:42 AM   #41
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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 donít 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 donít 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.
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Old 11-03-2020, 08:04 AM   #42
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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.
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Old 11-03-2020, 10:38 AM   #43
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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.
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Old 11-03-2020, 04:15 PM   #44
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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!
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Old 11-06-2020, 01:52 PM   #45
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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.
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Old 11-06-2020, 05:06 PM   #46
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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.
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Cash versus Liquid Bond Funds
Old 11-06-2020, 06:04 PM   #47
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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?
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Old 11-06-2020, 09:03 PM   #48
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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%?
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Old 11-06-2020, 09:07 PM   #49
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At least 3 years of cash for me, or a maximum of 4 years of cash.
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Old 11-06-2020, 09:30 PM   #50
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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?
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Old 11-06-2020, 09:40 PM   #51
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I have two years set aside but my suggestion is to start funding your ROTH ASAP. If you have money in a 401k you need to covert as much as possible. The government is spending money like a drunkin sailor and that tab is going to come due soon. If you have a nice next egg they will help you spend it but not on things that you choose.
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Old 11-06-2020, 10:02 PM   #52
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Yes, I should have said average 4-5% returns for bonds. But after correcting, what else is wrong?
I don't have any misgivings about holding bonds. I have bonds, not cash myself.

Sometimes I have temptations to "lock in" my gains and switch from bonds to cash, and sometimes I have temptations to seek higher yield with riskier bonds. I manage to sit on my hands and do nothing!
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Old 11-06-2020, 10:09 PM   #53
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....

Sometimes I have temptations to "lock in" my gains and switch from bonds to cash, and sometimes I have temptations to seek higher yield with riskier bonds. I manage to sit on my hands and do nothing!
"don't do something, just stand there" is not bad advice. (See Jack Bogle quotes asserting the same....)
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Old 11-07-2020, 12:47 AM   #54
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"don't do something, just stand there" is not bad advice. (See Jack Bogle quotes asserting the same....)
Yup!

I admit to having that in the back of my mind whilst posting!
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Old 11-07-2020, 06:53 AM   #55
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Going into retirement at age 60, I had 5 years of estimated expenses not covered by my pension in cash. I did not want to be forced to sell equities during down streaks. I also envision taking SS 5 years out at the earliest, at which point pension + SS would cover our expenses. Close to half of that cash was planned to cover medical insurance and expenses before medicare.

I over planned, but I am fine with it. The medical premiums will be less than half of what I planned for. Our actual spending - which has been at a "very comfortable" level - was slightly less than planned before this year. This year, try as we might, we are going to be savers. Interest, dividend, and DW's part time income for the past 2.5 years have been higher than expected. Add to that an unexpected large work bonus after I retired, plus a much larger than expected inheritance that I did not factor in. The current outlook is that our cash will last 7 years.The main change that impacted was our decision to pay off our mortgage 7 years early.

I am fine with that. Even accounting for the yet-to-be-paid taxes in our tax deferred accounts, I do not feel the need to increase our stock/bond allocation beyond current levels. It helps that the vast majority of our "bond" allocation is is a stable value fund that still yields 3%. I am happy with "singles" instead of "swinging for the fences". They still move us along very well.
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Old 11-07-2020, 07:03 AM   #56
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My MO is similar to SecondCor521. I replenish my checking account with 2-3 months of expenses whenever it runs low. Other than that, I donít keep anything in cash. Cash yields less than other types of fixed income, and I fail to see the benefit of giving up that additional yield.
My target AA is 40/60/0. Whenever I need to replenish my checking account, I take it from the asset class (equities or fixed income) that is above its targetóa sort of mini-rebalancing.
I invest almost entirely through low cost index funds, and thereís no cost to liquidate some to replenish checking account.
I donít worry about having to sell assets at a loss because, (1) the amounts involved are small, (2) Iím usually selling the better performing asset class, so itís less likely to have a loss, (3) if thereís a loss, itís there whether I sell or not; selling is just a way of recognizing that reality.
Bottom line, I just donít see sufficient reason for keeping any money in cash and giving up the higher yield you get from bonds, CDs, etc.
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Old 11-07-2020, 08:32 AM   #57
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Keep an adequate amount of cash available that will let you sleep soundly a night. One incorrect consideration is that holding cash means no returns. I keep at least five - seven years in a bond paying 3-4% and is triple fee tax free.

Buy the bond in the state/municipality you live in to get triple free. Conservative investment but 3-4 tax free yields 5-6%. Nice strategy for "holding cash".
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Old 11-07-2020, 09:14 AM   #58
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Our cash treatment is a bit unique from what I can tell. So I'm getting close but haven't yet stopped working. We've over saved (if that's believed possible) so plan to allocate as follows:
55% Equities - index and managed value strategy
30% Real Estate - syndicated deals giving K1's
10% Cash - Put Option Selling strategy
5% Cash - amounts to a comfortable 18 months of expenses

For Put Option selling you need three things - desire, time, knowledge - need all three and the knowledge part is fairly base level! But definitely need the desire and time. I keep rolling 30 days or less expiration dates at out of the money strike prices on stocks I don't mind owning. Selling Cash Covered Puts. I collect premium (and I've done this and tracked every trade for over a year now as practice for retirement) and earned 48% on that money. So plan is to not withdraw anything from any allocations except this one, and actually continue funding the others if so blessed with continued performance. With short time horizons as market begins a drawdown I can adjust strikes, lessen cash on hold, etc... and then make bigger premiums as the market hits lower lows. I love this practice and can't wait until the conference calls are over and I only do this - along with a bunch of volunteer and family activity.

Curious if others use their Cash in this manner vs. simply sitting at .6%?
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Old 11-07-2020, 09:28 AM   #59
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I plan to have minimum 2 years expenses in a Money Market account. Then i'll have between 2-3 additional years in CDs. I won't put it all in CDs because in the past I put my cash in CDs then needed to take a penalty when I needed to get the money early. I lost principal on that CD.
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Old 11-07-2020, 09:29 AM   #60
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, 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!
Your example points out how very different each situation is. You have an extremely aggressive equity allocation and therefore keep cash as a buffer to prevent selling equities in a down market. I'm much older (early 70's and FIRE'd 16+ years) and have a more conservative portfolio (56/44) and could likely go for a decade or more on interest, divs and fixed asset liquidation supplementing SS + pension. Even with a bit over half of our assets in equities, it would take a really bad, really long market downturn before being forced to liquidate equities to cover expenses.

Just pointing out why stating your personal situation is key to understanding why someone is holding, or not holding, some level of cash.
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