How much money needed in cash and how to get it?

[TheWizard]

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Originally Posted by marko +1 This is how we view it. If you can live off of your portfolio's growth, dividends and interest, having $X set aside not working for you is a bad idea. IMO once you retire, 'savings' that is not in the market is wasted opportunity and lost income. YMMV.

I totally agree. I do try to keep around $10k in checking to deal with lumpy expenses but everything above that goes into my taxable account at Vanguard and eventually into stock index funds...

[24601NoMore]

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Originally Posted by kevink The tendency among those who have "plain vanilla" all-stock-and-bond portfolios is to both not count cash as part of their overall portfolio and (often) to underestimate just how long and deep equity market downturns can be. As a retiree (early or otherwise) the depth and duration of equity market drawdowns can end up mattering greatly - unless of course your portfolio is so large that you can reign in withdrawals at will or are mostly investing for legacy anyway. I've found this rule of thumb offered by Bernstein and others to be useful (having lived through two major market crashes in ER): whatever you have in equities be fully prepared for it to lose 50% of its value and to stay down for up to a decade before recovering. In terms of cash specifically, this article is the best I've found for explaining its value and dispelling some of the most pervasive myths about it: https://portfoliocharts.com/2017/05/...pier-investor/

Could not agree more wholeheartedly! Equity risk seems frequently underestimated here on ER and elsewhere.

The advice to be prepared for the equity portion of your portfolio to lose up to 50% (possibly higher nowadays given extreme valuations) and stay down for a decade before recovering is very good advice indeed. I've also heard it said "never hold $$ in equities that you plan to need within 10 years".

Allocations to cash allow you to pay the bills without pulling from equities that are down - perhaps largely down. Plus, if held in taxable accounts allows you to dip into your "piggy bank" as needed to manage MAGI for ACA subsidies and similar reasons.

Like KevinK, I'd advise that there is nothing wrong whatsoever with holding cash. How much depends on one's overall plan, risk tolerance, etc. But as I said before - most professional advisors recommend at least 6-12 months in an "emergency fund" if nothing else. And that's usually just a starting point with many of us holding far more than 12 months expenses in cash.

[audreyh1]

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Originally Posted by RunningBum In hindsight I'd have been better off keeping that cash invested, but not without more risk.

There is the rub.

I don’t worry about excess cash. Certainly not a year or two’s worth. We already have plenty invested in equities and bonds for the long term and the retirement portfolio has grown significantly (knock on wood). So I’m pretty sanguine about getting it to grow even faster.

[Koolau]

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Originally Posted by audreyh1 There is the rub. I don’t worry about excess cash. Certainly not a year or two’s worth. We already have plenty invested in equities and bonds for the long term and the retirement portfolio has grown significantly (knock on wood). So I’m pretty sanguine about getting it to grow even faster.

Yep. I've always worried more (been concerned more) about LOSING money than NOT making money. Since I have "enough" now, why would I chance NOT having enough just to get more than I need? Definitely a YMMV situation.

[24601NoMore]

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Originally Posted by Koolau Yep. I've always worried more (been concerned more) about LOSING money than NOT making money. Since I have "enough" now, why would I chance NOT having enough just to get more than I need? Definitely a YMMV situation.

EXACTLY!! If you have "enough", risking what you have to get "more" may not be a smart move - unless you aspire to a fancier lifestyle or leaving "more" for heirs. And many of us that have achieved "enough" do not fall into either category.

At some point, achieving 'enough' means you dial back your risk.

OP, however, seems to not have this luxury and needs to balance growth and risk. I do get the sense they may not be 'ready' for retirement without significant expense reduction first..or working a few more years to add to the kitty..because independent of amount of cash to hold, I'm not aware of ANY plan that allows for 6-7% SWR over an up to 30 year retirement..

[rodi]

As several have suggested a HELOC can be your emergency fund. But apply for it while still working - less hassle. (Though I was approved a few months after I retired... so no job doesn't mean an automatic 'no' on the loan.)

As several have suggested - #2 is a bad idea. If you have too much income this year that overlap period could be clawed back/taxed. My husband had started SS, then had to go back to work for 5 months due to his replacement quitting with no notice. He had to finish up the job he'd done 70% of the work on. Because he had extra income, he hit some income threshold that made SS a less than bueno deal.

I do a variation of some of the cash flow discussions here. Like the OP much of my money is pre-tax accounts - so I kill two birds with one stone... I transfer money from the pre-tax account each quarter - having income taxes withheld. This saves me from having to file quarterly taxes. I have a little extra taken out because we have a little rental income - and it's enough to cover both taxable events for the quarter. Quarterly is finite enough for me.

[TheWizard]

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Originally Posted by Koolau Yep. I've always worried more (been concerned more) about LOSING money than NOT making money. Since I have "enough" now, why would I chance NOT having enough just to get more than I need? Definitely a YMMV situation.

What about long term care possibilities as we get older?
And at age 71, I still do my own yardwork and cut and stack several cords of firewood each year.

But when I'm 91, maybe I'll get tired of doing that myself and would like to hire that work done.
So where's the money for that coming from?
Charity

[MarieIG]

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Originally Posted by UpQuark Thanks for all the replies. Now I have even more to think about though! So sounds like, which I never realized, there are 'stable value' funds in 401k plans so I could cover both getting reduction on my taxes during this last year of work while simultaneously building 'cash'-ish pot of money (assuming a person can sell out of stable value funds at any time??). If I do that, and also turn off reinvestment of dividends for this year, the combination will meet (and slightly exceed) the one year of 'cash' which the Fidelity advisor suggested. I am very confused about bonds, first, my situation is I have barely enough money to retire, and it does not look like I will have to worry (unfortunately) about too-large RMDs down the road. Most of my money is in retirement target year funds and my portfolio AA is 60/40. So if that 40 means that 40% are in bond type investments, are they kind of like cash and I could just sell those to avoid selling investments that are at a low price in a bad market? Or do the bond prices go down too? Or since it is a target-year fund would selling any of it be sold at a 60/40 ratio? Should I sell all my target year fund and buy instead separate equity and bond funds so I can control where I am selling from? I'm not understanding why people should have the AA of 60/40 at my age (65 yrs), it is sounding to me like maybe a person should have a few years of cash and then use an AA of 70/30? I really need a good amount of growth because according to the Fidelity guy I talked to this week, I need to be able to take out 6% a year, so I need at least 7 or 8% increase. I'm wondering if I should nudge my portfolio toward a 65/35 AA?

This important bit of information . . . I would suggest that you lay out your financial situation including expenses and sources of income.

The problem here is that 7 or 8 percent - is not guaranteed. Sure, you could get it, but if there is a big market drop, how would you deal with that.

Also, is that "Fidelity guy" intending to charge you for assets under management?

[Koolau]

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Originally Posted by TheWizard What about long term care possibilities as we get older? And at age 71, I still do my own yardwork and cut and stack several cords of firewood each year. But when I'm 91, maybe I'll get tired of doing that myself and would like to hire that work done. So where's the money for that coming from? Charity

Well, in my case I did purchase LTC insurance years ago. I pay my HOA to do all the yard work. I don't have heat or AC, so there's that. Don't plan to live to 91, but if I do, there's money in the stash for hiring help.

Now, all this says no "black swan" events. One 1/4 mile asteroid 100 miles off our coast would pretty much void everything else but YMMV.

[levindb]

I plan on running out of money at age 105...at that age, children will be in their 70's, grandchildren in their 40's and great grandchildren may be ready for college.

If we don't make it to 105, then there will be funds for the heirs...but I do want to make sure I have funds to pay for fresh diapers as I age...

I have a HELOC for unplanned expenses, or to help spread an expense beyond the current calendar year to help with IRMA. We keep just a few months CASH in our retirement accounts that I can transfer to my checking account within 1 day. I see no need to keep years worth of cash earning less than inflation.

Our BOND LADDER fills up the CASH as they mature, and the STOCKS are used to purchase the next BONDS. Rinse and repeat until there is nothing left. We delayed SSA until age 70 and that will meet most of our required spending and should handle inflation. Since we just purchased our forever home with 30 year mortgage (at age 70), that portion of our expenses will not be impacted by inflation.

This approach works for us, as we tend to live well within our means and then blow a wad on experiences every so often (6 week safari, 4.5 month world cruise, 1 month Alaska cruise/RV adventure). In time, travel expense will be replaced by medical expenses. Retirement is not for everyone, but we intend to enjoy it till the end...

[ERhoosier]

Agree 100% with the prior advice to NOT have $$ in equities that you may need within the decade. You only get ONE shot to manage your nest egg. While the market has generally been going up nicely the past dozen years, no one is saying the market is "cheap" these days and there have been prolonged periods of marked inflation-adjusted decline (like '99-'09 down 47% or '65-'82 down 65+%).

"Hindsight" says I should have put all my retirement assets on 21 Red at the roulette wheel just before that number came up.

Don't bet your future on one roll of the dice.

[marko]

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Originally Posted by ERhoosier Agree 100% with the prior advice to NOT have $$ in equities that you may need within the decade. You only get ONE shot to manage your nest egg. While the market has generally been going up nicely the past dozen years, no one is saying the market is "cheap" these days and there have been prolonged periods of marked inflation-adjusted decline (like '99-'09 down 47% or '65-'82 down 65+%). Don't bet your future on one roll of the dice.

OTOH, if your goal--and ability--is to live off dividends, market price is less important than what dividend payers are doing. As such, having money on the sidelines not working for you is money not working for you.

Dividends usually pay through bears and bulls and one can always jiggle the dividend payer mix as the world changes, but to have cash just sitting there is cash not doing it's job. YMMV.

[24601NoMore]

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Originally Posted by marko OTOH, if your goal--and ability--is to live off dividends, market price is less important than what dividend payers are doing. As such, having money on the sidelines not working for you is money not working for you. Dividends usually pay through bears and bulls and one can always jiggle the dividend payer mix as the world changes, but to have cash just sitting there is cash not doing it's job. YMMV.

Good point and I'm a huge fan of dividend payers (much to the chagrin, I'm sure, of the Total Return folks), BUT..there have been plenty of divvy payers (CTL/LUMN, WELL, T, ...) that have cut dividends in the past year or so. Sometimes 50+%.

I actually know this because I hold all 3...DOH!

The big surprise was T. They were a "Dividend Aristocrat" which means they had to pay dividends for 25+ years without cuts..yeah, they cut so are now being booted off the "Dividend Aristocrat" list..

Bottom line..dividends are great, and fund a large part of some of our expense plans..but don't get "too" comfy with them because they can - and often ARE - cut unexpectedly. (The one that really hurt was CTL..they cut their dividend something like 54%. I for a [long story] reason hold quite a few shares. Yeah, that was painful to the cash flow).

That said, there are some decent dividend funds like SCHD..but they are getting pretty darn expensive and I'd personally hold back on purchase until there's a buying opportunity at much lower prices than we are seeing now..

[Dave in VA]

So just sell some of the stock (at a profit) you bought when you sold your cd’s, and put it back in cash. It’s called rebalancing

[Koolau]

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Originally Posted by levindb I plan on running out of money at age 105...at that age, children will be in their 70's, grandchildren in their 40's and great grandchildren may be ready for college. If we don't make it to 105, then there will be funds for the heirs...but I do want to make sure I have funds to pay for fresh diapers as I age... I have a HELOC for unplanned expenses, or to help spread an expense beyond the current calendar year to help with IRMA. We keep just a few months CASH in our retirement accounts that I can transfer to my checking account within 1 day. I see no need to keep years worth of cash earning less than inflation. Our BOND LADDER fills up the CASH as they mature, and the STOCKS are used to purchase the next BONDS. Rinse and repeat until there is nothing left. We delayed SSA until age 70 and that will meet most of our required spending and should handle inflation. Since we just purchased our forever home with 30 year mortgage (at age 70), that portion of our expenses will not be impacted by inflation. This approach works for us, as we tend to live well within our means and then blow a wad on experiences every so often (6 week safari, 4.5 month world cruise, 1 month Alaska cruise/RV adventure). In time, travel expense will be replaced by medical expenses. Retirement is not for everyone, but we intend to enjoy it till the end...

DW just visited our good friend today. Friend had picked some mangos out of her back yard and wanted DW and another friend in our neighborhood to have some. Friend asked DW to make a delivery on the way home as she no longer drives. Oh, friend is, you guessed it, 105. YMMV

[WestUniversity]

I rebalance our portfolio and top up our cash at the beginning of each year. Depending upon what month of the year we are in, we have roughly anywhere from 12 to 24 months of cash…

[5Miler]

When I retired 9 years ago at 58, I kept about 2 or 3 years of cash available in case of market downturns. As time has passed, I now only hold about 6 to 9 months of cash on hand. This is mostly as I can easily start SS if needed for cash flow although I keep putting it off each year as my dependence on that income source has waned.

I set up a monthly transfer from my IRA money market about 8 years ago and periodically transfer from whatever IRA investment I feel is overbalanced to feed the money market. Since it eliminates the need to change the investment targeted for the transfer, I have never changed the monthly transfer amount in 8 years. Probably should up that amount I suppose.

I was going to start SS last December at 67.5 but decided to wait until this December at 68.5. Now that it's nearing time (well, a few months away anyhow) to actually start the process, I'm thinking maybe next year at 69.5 years old. How is that for failure to make a commitment.