How much in cash at the time of retirement?

[disneysteve]

How much did you have set aside in cash (or plan to if you're not yet retired) at the time of retirement? I read recommendations for anywhere from 1-3 years of expenses but I'm curious what actual people have done.


Having a stash of cash can lesson the anxiety of knowing if you'll have enough money to pay everything. It also eases the concern over the market crashing the day after you retire since you'll have money set aside to live on for a while and give the market time to recover. Drawing from your cash also won't count as income for any triggers like ACA subsidy or other things.


If you had a lot, were you glad you did? If you didn't have a lot, do you wish you had? Did you have a pension or other guaranteed source of income that made you feel a large cash position wasn't necessary?

 

[tmm99]

Maybe I had $250K or so? I only have about $120K in cash now after being in retirement for over 5 years.

 

[audreyh1]

We had set aside an extra $100K or so for early retirement extra travel budget. It’s accumulated since. Our portfolio has grown a lot (20+ years retired) and we also have more cash.

Yes, we were glad we had extra as we retired in 1999. Having the extra meant we didn’t cut back on any of our plans when we retired. I’ve always been happy to have plenty of it since. Honestly, our investments currently support more than our lifestyle, so I never worry about “cash drag” or some such concern.

No pension or other income sources. We live entirely off our investments until DH reaches 70.

 

[jazz4cash]

I targeted 3 yrs and I overshot so I had 5/6 which included a CD ladder @ 4%. Yes it was very comforting since I had some doubt if I was doing it right. I still feel a bit lost without a semi monthly paycheck. Although I wish I had been closer to 3 yrs that’s probably hindsight as much as anything knowing how the market has run.

 

[mystang52]

Maybe too much by textbook standards, but it gave me a strong comfort level that it would hold me over in event of a major economic slowdown. Never regretted it.

 

[Palmtree]

Well, since you asked... Once we hit our number plus 20% we were very happy. The market was / is at a nice high so I decided to take some of our chips off the table. 100K seemed like a nice round figure and was a little over 2 years draw. (We also have a pension) This was way back in 2019. Did I miss a bit of run up since then? Yes; yes I did. Do I care? Not at all. Having that mental safety net lets me sleep well at night.

 

[Jerry1]

I didn't have a specific amount in mind, but it was probable about 3 years worth. It's good to have cash - and, it's good to have after tax investments. If I could go back and change my finances, I would certainly balance my taxable and after tax accounts better. I have about 80% in taxable (IRA/401K) accounts. Makes it harder to manage taxes.

 

[Out of Steam]

Barely $20K outside of retirement accounts, though we did have both a pension and a retirement incentive the first year.

We have fairly conservative retirement account allocations, so don't face the same market risk as many others here.

 

[scrabbler1]

I set up my ER to include a steady income stream as monthly dividends from a bond fund, so no big stash of cash was needed. I did cash out a large company stock holding, so I used some of it to pay the added income taxes over the next few months. That was a very temporary bulge in my cash holding.

 

[54andchange]

None. The cash drag (negative real return after inflation) and opportunity cost of not being invested seem mathematically unsound to me. Of course there are, as always, sequence of return risks, but what most people don't realize is that those risks cut both ways. In our case, market went up and we used the "excess" earnings of the past few years for a plug-in hybrid luxury vehicle. No pensions.

 

[Aerides]

About 3 yrs, though I include CD's in that (which, until recently, at least brought in a couple of bucks).

 

[bada bing]

I received 18 months pay as severance and I put that in cash. The severance was an unplanned boost and keeping it as cash wasn't so much strategy as analysis paralysis. All together, I started retirement back in October with 4-6 years cash in after-tax accounts. If I defer SS and pension until age 70, it will be 8 years of living solely off of portfolio. After 70, pension and SS will cover my needs and a few wants and I'll dial back on cash holdings then. I definitely won't hold the ~20% cash allocation I do now.

I'm guessing that I'll be the most nervous about my finances for the first couple years of retirement. So far, I'm finding a fat cash position pretty soothing and I like it.

 

[Markola]

We are spending down some cash until DW hits 59.5, after which I anticipate we’ll remain fully invested, with regular sales of assets to live on.

 

[Out_the_Door]

Retired Jan 2020 and I set aside 3 years of cash (all the fear-mongering regarding SORR made me do it). Covid happens and the market takes a dump and i was glad I had that cushion. Even though the market recovered before year end the peace of mind I had from having that cushion you just can't put a price tag on.

 

[Ronstar]

I had about 5 years worth of expenses in cash when we first retired. Then we sold our snowbird condo and added another 5 years worth.

In some ways, I'm glad that we had/have enough of a cushion to weather a several year economic storm.

But given the stock market runup since 2014, it would have been better financially to have some of that cash invested.

 

[tdv2]

I had about 3 years worth at retirement but my withdrawal rate has been lower than originally budgeted so it turned out to be more than 3 years. Have been adding to that bucket recently to fund some toys. I do realize that it’s a drag on the portfolio but I can live with it.

 

[disneysteve]

I'm guessing that I'll be the most nervous about my finances for the first couple years of retirement. So far, I'm finding a fat cash position pretty soothing and I like it.

That's my thought. I figure the first year or so it will take some getting used to and some tweaking to work out the best withdrawal plan and having the cash on hand would smooth out any missteps along the way.

 

[audreyh1]

Because I sold company stock to reinvest into my new retirement AA (as opposed to continuing existing investments), I took a couple of years to dollar cost average into my new AA. I was concerned about the crazy market valuation in 1999. As such, I really had a lot more cash at first even though it was all slated to be invested. I ended up being very lucky with my timing, as most of my dollar cost averaging occurred 2000-2002, and I was finally fully invested in late 2002, just in time for a major turn around.

Oh yeah, and then 5 years to 2008. Yep - great direct experience with SORR 2000-2009.

Most folks will tell you that you are better off putting it all in at once, because on average the stock market will be higher after a year or two. Well - that may be true on average, but few of us retire in average circumstances. Each of us experiences unique circumstances, and you never know how it's going to turn out. You just gotta figure out how to get and stay invested and still sleep at night while sticking to your plan.

 

[Animorph]

I was retiring in 2007 and was very worried about a national savings rate that was negative. Despite being 100% stocks up to that point, I went ahead and sold about 30% for cash and a bear market fund. That was about 10% below the later market peak.

When the market hit 20% down I started buying stocks with the cash, roughly 20% of the cash for every 5% more the market went down. I ended up with all stocks again at the bottom. I had plans to sell some more conservative funds and buy some more aggressive funds, but I didn't quite have to do that before the market started to climb again. On the way up I sold shares monthly as needed to meet expenses while trying to stay as invested as possible.

That all worked out just fine, though I did hit the end of my cash with stock prices still dropping.

We all know to watch out for the "sequence of returns". Commonly this means watch out for a bear market at the start of your retirement. But I'd also be concerned with a bear market at something like year 5 as well. A conservative start helps with the first problem, but it also leads to lower growth that will hurt if you get the second problem instead. I think you want to get to withdrawals of something like 3% of your portfolio as soon as possible. That looks really safe historically, for the U.S..

I think if I was starting again today I'd stick with my current 75/25 AA. I feel ready for anything remotely normal. I can still (and will) add to the stock allocation in a bear market. Or I can live off the bonds if it's not the right time for stocks. I'm ready for a bear market at any time. I use FXNAX U.S. Bond Index which is heavily Treasuries, and performed well during the last recession. That's my key goal for bonds.

 

[jollystomper]

I was more conservative than most here. I went with 5 years of cash, based on our expected expenses beyond my pension. My plan was to not to have to touch investments for at least 5 years, and 5 years from retirement is the earliest I would consider taking SS, at which point our cash needs would be much less.

As of the end of 2020, our cash level is forecast to last over 7 years at our budgeted spend rate. Lower than expected spending, an unexpected inheritance and DW's part time work income jump (which was not included in our retirement plan) also contributes to the "problem". We reduced it a little by paying off the mortgage and gifting, and DW will quit part time by the middle of this year.

I am fine with my current AA (approx. 35/43/22). Through all the market machinations since June 2018 it has let us sleep at night, and still generates monetary returns beyond what we can spend.

 

[skyking1]

Weĺl be long on cash, but the reasoning is this:
The time for BTD travel is when we are younger. I want to have that money ready to go.
We are also looking hard at a new home/relocating at retirement. It will probably be a self build, and financing raw land is often difficult.

 

[corn18]

Any cash I have is just part of my 50/50 AA. My 401k holds a large majority of my fixed income allocation in the form of a stable value fund paying 2.2%. Our Roth accounts are 100% equity. So I use my taxable account to maintain the 50/50 AA. I have a giant severance package coming, so I will invest that in my taxable account to maintain the 50/50 AA. That will leave me with about $300k in cash that I can invest in bonds or just leave as cash. It's about 3 years of expenses, so I'll probably just leave it as cash.

I think it's important to decide if your cash is part of your overall AA. I think it is.

 

[flyingaway]

The definition of cash makes answers different. Many people would consider fixed income as a part of asset allocation.

 

[audreyh1]

If it's extra cash that you set aside to spend in the first few years of retirement, then it's not part of your long term retirement investments. You aren't going to rebalance it as you would an AA, or withdraw X% a year from it. It's there to spend right away.

If it's an extra cash buffer that you are going to leave in place indefinitely, then it makes sense to consider it part of your AA as it will figure into your rebalancing and annual withdrawal.

 

[HI Bill]

In 2020, I went on one last vacation, and was ready to ER when we returned in March. I had three year's cash equivalent, but the remainder of our investments had just lost 30%, making the purchase of a new home unachievable. Now that we've bought our new place, deferred ER about 10 months, and the markets have recovered, we once again have about 3 years of living expenses in money market and bond funds. Helps me sleep at night, and helps me have the confidence to give notice, and actually RE, in 5 days. Without this year's spending equivalent in cash, I'd be hesitant to pull the plug, given the relatively high valuations, and recent volatility.