The Dangers of Cash

[ncbill]

I'm wondering if my strategy for cash will get me in trouble.

When I RE'd five years ago, I wasn't all that confident that it would work. I waited until I had about one year's worth of expenses in the bank, not counting my 401k, or my regular checking account for routine expenses.

Fast forward five years, and it's all still there. I had it in CDs for a while when those were productive, but now it's in a high-yield savings account which gives me about the same (low) return as CDs these days.

I'm comfortable with this strategy. I have a non-COLA pension which, so far, has covered my expenses without dipping into the 401k, which is allocated about how I want it.

I'm also considering selling the house and not buying another one for a year or so while I scout for a new place. That would be an even bigger pile of cash to manage.

BUT...

Lately I wonder about the safety of keeping cash. What if I lose my health insurance just before a big medical expense? What if someone slips on my front steps and sues me? Would the cash be an easier target than, say, my house or 401k? Would having cash hurt my eligibility for some program I'm not even aware I might need?

I haven't thought this through completely. Assuming I want this money to remain in cash (as opposed to investments) then what other dangers am I exposing myself to that I might not even realize?

Health insurance...COBRA or ACA if you're in the U.S.

"Slip & fall"...liability covered by home insurance...add umbrella if you want.

401k plan...protected from creditors under federal law.

 

[street]

Are 401K protected from divorce cases?

 

[CaptTom]

401k plan...protected from creditors under federal law.

Now this is the kind of thing I was getting at. Can I just make a contribution to my existing 401k, or set up a new Roth or something?

As for health care, I have insurance through my former employer. Every few years they hire a consulting company to interrogate us (via mail) to make sure we qualify for the coverage. I'm always in fear that I forgot to dot an "i" or cross a "t" and they'll conveniently discover it right after a major operation, and use that as an excuse to deny the claim.

 

[RunningBum]

Now this is the kind of thing I was getting at. Can I just make a contribution to my existing 401k, or set up a new Roth or something?

No, a 401K is done through an employer, and you said you are retired. Plus it would be crazy to contribute after tax money into a tax deferred account. A Roth contribution requires wage income as well. Besides, IRAs don't enjoy the same protection from lawsuits as a 401K has.

If you have a 401K now, don't roll it over to a tIRA if you are really that paranoid about a lawsuit.

As for health care, I have insurance through my former employer. Every few years they hire a consulting company to interrogate us (via mail) to make sure we qualify for the coverage. I'm always in fear that I forgot to dot an "i" or cross a "t" and they'll conveniently discover it right after a major operation, and use that as an excuse to deny the claim.

And have you seen anything at all in these interrogations where they ask about how much you are holding in cash investments? I'll bet not.

And your talk about cash being easy to move and hide is ridiculous. If someone is coming after you in a lawsuit, a good investigator will see that transaction and sudden reduction in wealth and it will be uncovered.

Having some concern about this is fine, but going beyond the point of having adequate liability coverage including an umbrella policy is just silly, IMO.

 

[ncbill]

No, a 401K is done through an employer, and you said you are retired. Plus it would be crazy to contribute after tax money into a tax deferred account. A Roth contribution requires wage income as well. Besides, IRAs don't enjoy the same protection from lawsuits as a 401K has.

If you have a 401K now, don't roll it over to a tIRA if you are really that paranoid about a lawsuit.

And have you seen anything at all in these interrogations where they ask about how much you are holding in cash investments? I'll bet not.

And your talk about cash being easy to move and hide is ridiculous. If someone is coming after you in a lawsuit, a good investigator will see that transaction and sudden reduction in wealth and it will be uncovered.

Having some concern about this is fine, but going beyond the point of having adequate liability coverage including an umbrella policy is just silly, IMO.

Rollover IRAs retain federal protection from creditors in the event of bankruptcy...just don't add any new contributions...i.e. open another IRA for new contributions.

Any new IRA setup is also federally protected up to $1 million & change (limits adjusted every 3 years for inflation) also when filing bankruptcy.

Note you have to file bankruptcy to enjoy the above (federal) protections.

https://rodgers-associates.com/blog/retirement-funds-exempt-from-creditors/

State law can be much more generous than the above...e.g. here private creditors cannot seize any type of IRA (including inherited) nor can wages be garnished (exception: federally-guaranteed student loans)

 

[Gallaher]

Asteroids cross the Earth's orbit. One might strike the Earth. Cash won't matter much at that point.

Keep going as you are and forget about "what could happen".

You or I might not wake up tomorrow morning. It's not up to you, or to me.

Yeah, what they said! If really want to keep it under wraps you can can convert to hundred dollar bills and store at home....a whole other bunch of risks

 

[brokrken]

I haven't thought this through completely. Assuming I want this money to remain in cash (as opposed to investments) then what other dangers am I exposing myself to that I might not even realize?

I think inflation is a bigger fear than the ones you have mentioned.

 

[chassis]

@CaptTom what research have you done on opening a Swiss bank account?

 

[NW-Bound]

Are 401K protected from divorce cases?

In Arizona which is a community-property state, this is what I heard from a coworker in his divorce case.

He had to share his 401k and pension with his stay-at-home wife. How did he do that, because the pension would not start until he retired, and his 401k was not accessible either, plus their present values were before taxes?

He said the lawyers figured out something for him that made sense. He did not share the details.

Sounded quite messy!

 

[rodi]

In Arizona which is a community-property state, this is what I heard from a coworker in his divorce case.

He had to share his 401k and pension with his stay-at-home wife. How did he do that, because the pension would not start until he retired, and his 401k was not accessible either, plus their present values were before taxes?

He said the lawyers figured out something for him that made sense. He did not share the details.

Sounded quite messy!

401ks (and IRAs and Pensions) are not protected in divorce... at least not from what I've seen.

Assets accrued during the marriage are joint... if a spouse stayed home, running the house, raising the kids, eating bon-bons, whatever... he/she is still entitled to half of the benefits accrued by the other spouse. It's handled through a Qualified Domestic Relations Order (QDRO). All 401k/IRA/Pension management companies are VERY familiar with these.

For a friend of mine - she was the primary earner, her 401k was split off - with her ex getting a portion in a manner similar to a beneficiary getting their share of an inheritance... My friend's 401k shrunk by the amount carved off, and a new account was frozen and spun off for the ex spouse. I believe her ex also qualified for a portion of the pension - but like my friend - did not qualify to start collecting it yet.

That being said - it depends on the couple and divorce agreement. When my sister and ex-BIL split - they negotiated a deal where he did not touch her teachers pension and IRAS were kept separate - but the remaining assets were split in a way that made it all even-steven overall. It was easier that way.

 

[street]

NW thanks. I have known about 4 guys that got divorced that I know had a pension and a 401K. They are all still working and I always wondered how they settled those funds.

I'm glad I never had to find out. Lol

 

[aja8888]

Are 401K protected from divorce cases?

No, neither are company pensions. Ask me how I know.

 

[street]

Thanks aja8888.

 

[CaptTom]

Funny how this thread has now turned to the darker topic of divorce. That may be one reason I had concerns about cash in the first place.

I went through an epic divorce early in my adult life. I learned a lot of hard lessons, one of which is that we don't "own" anything. Everything we think we own can be taken away with the stroke of a pen by some judge.

I was fortunate to have learned this lesson at a young age, while I still had some time to recover. They say living well is the best revenge, and while I may not be living as well as the "blow that dough" crowd, I feel like I've made good choices since then. And my attitude toward physical possessions is probably healthier than a lot of folks.

 

[deserat]

401ks (and IRAs and Pensions) are not protected in divorce... at least not from what I've seen.

Assets accrued during the marriage are joint... if a spouse stayed home, running the house, raising the kids, eating bon-bons, whatever... he/she is still entitled to half of the benefits accrued by the other spouse. It's handled through a Qualified Domestic Relations Order (QDRO). All 401k/IRA/Pension management companies are VERY familiar with these.

For a friend of mine - she was the primary earner, her 401k was split off - with her ex getting a portion in a manner similar to a beneficiary getting their share of an inheritance... My friend's 401k shrunk by the amount carved off, and a new account was frozen and spun off for the ex spouse. I believe her ex also qualified for a portion of the pension - but like my friend - did not qualify to start collecting it yet.

That being said - it depends on the couple and divorce agreement. When my sister and ex-BIL split - they negotiated a deal where he did not touch her teachers pension and IRAS were kept separate - but the remaining assets were split in a way that made it all even-steven overall. It was easier that way.

From my experience in a community property state, it is all considered joint property outside of any inheritances which will be carved out from the divvied up amount depending on what form the inheritance is in (property, stocks, cash, other material possessions, etc). I, a female, having been the larger breadwinner or partner with the highest net worth, have been moved down a few notches financially with my divorce. Luckily as in your last paragraph, we had separate pensions and enough assets to not have to deal with QDROs.

With regard to 'hiding' or tracking assets, through our mediation process we were to be open with what we had, however, as part of the process we could have hired auditors and they would find those assets. Moreover, if it is found out that there was a significant deviation from what was reported or available, either party can go back to court to get some of those assets based on the 'prevarication' or 'obfuscation' by said party. I seem to remember we had to sign a document attesting that we had divulged everything or we could be sued after the fact, i.e., the divorce contract could be null and void based on one of the parties lying.

My uncle ended up in court many times based on his ex wanting more from him....that was many years ago. Nevertheless, if one wished to move on from a financial standpoint after a divorce (knowing it is a highly destructive act for both parties), it is better to take the hit honestly now than to have to deal with it later in my estimation.

 

[Paulz]

NW thanks. I have known about 4 guys that got divorced that I know had a pension and a 401K. They are all still working and I always wondered how they settled those funds.

I'm glad I never had to find out. Lol

I have two friends that got divorced. The first made a little more than his ex-wife, she got 50% of his 401k, and he 50% of hers. She also got 50% of his pension based on the years they were married. Of course, the first 7-8 years he worked before they married he had a much smaller salary, so she got 50% of his best years that made up his pension. Of course, there were investment accounts, house, etc, but we only really talked about the retirement accounts.

My second friend's divorce was a little friendlier. She waived the rights to his pension in full for 60% of his 401k. Of course, he gave her the pre-tax portion while he kept the Roth. He has a pretty rare "super pension" where he can retire at age 50 with ~46% of his salary with COLA adjustments, so didn't ask for anything from her 401k in agreement for her not to touch the pension.

 

[Koolau]

Funny how this thread has now turned to the darker topic of divorce. That may be one reason I had concerns about cash in the first place.

I went through an epic divorce early in my adult life. I learned a lot of hard lessons, one of which is that we don't "own" anything. Everything we think we own can be taken away with the stroke of a pen by some judge.

I was fortunate to have learned this lesson at a young age, while I still had some time to recover. They say living well is the best revenge, and while I may not be living as well as the "blow that dough" crowd, I feel like I've made good choices since then. And my attitude toward physical possessions is probably healthier than a lot of folks.

This whole thread direction reminds me of the old joke about "Divorced Barbie" - she comes with half of Ken's stuff! YMMV

 

[GenXguy]

This whole thread direction reminds me of the old joke about "Divorced Barbie" - she comes with half of Ken's stuff! YMMV

Oh, I think I had heard that one as "all" of Ken's stuff.

 

[Oakster]

I'm wondering if my strategy for cash will get me in trouble.

When I RE'd five years ago, I wasn't all that confident that it would work. I waited until I had about one year's worth of expenses in the bank, not counting my 401k, or my regular checking account for routine expenses.

Fast forward five years, and it's all still there. I had it in CDs for a while when those were productive, but now it's in a high-yield savings account which gives me about the same (low) return as CDs these days.

I'm comfortable with this strategy. I have a non-COLA pension which, so far, has covered my expenses without dipping into the 401k, which is allocated about how I want it.

I'm also considering selling the house and not buying another one for a year or so while I scout for a new place. That would be an even bigger pile of cash to manage.

BUT...

Lately I wonder about the safety of keeping cash. What if I lose my health insurance just before a big medical expense? What if someone slips on my front steps and sues me? Would the cash be an easier target than, say, my house or 401k? Would having cash hurt my eligibility for some program I'm not even aware I might need?

I haven't thought this through completely. Assuming I want this money to remain in cash (as opposed to investments) then what other dangers am I exposing myself to that I might not even realize?

It sounds like you are saving your cash for some type of emergency fund. It sounds to me like it is similar to the idea of using CD ladders to protect yourself from invest loss in the stock market. The theory is that you have 3 years of living expenses in CD's that you can cash out each year as needed if the stock market crashes. Then you do not need to sell your investments at a low price to pay the bills. With good stock market years, no need to use the CD's, just renew them to keep the 3 year ladder going.

I dont think using a little bit of cash in that manner would hurt anything, other than the risk of theft. As long as your account stays secure, you are good to go. I would not view your investments as being any safer than cash emergency funds in the event of a lawsuit. That is what insurance is for. I carry a $1 million dollar umbrella policy. Not sure that I need it yet, but it is fairly cheap and protects me from the rare occurence of a lawsuit.

 

[Doc0]

I like cash. It's available to spend as needed. Buffet recently raised a lot of cash in his portfolio, so did Gates. Everybody was waiting for the dollar to crash and commodities to explode, except the dollar is up and commodities and bond yields are down.

Cash is not a riskless asset over a decades long timeframe because of inflation, but if you have a 30 year retirement planned and 1 year of that is cash your risk is trivial and owning "trivial risk" is an asset in itself. It reduces your non-trivial risk. It's the perfect thing to have on hand to buy your hamburgers with, when your portfolio falls in half. You would do much worse to have to sell your risky assets at a 50% loss. You can look at the proceeds from your house sale as an "asset" rather than cash since your intention is to plow that back into real estate. That "cash" is simply a placeholder for the value of the next RE purchase.

I think the FBI tracing the BTC tied to pipeline ransom is actually a plus for BTC. It means BTC can't be used as some kind of faceless black market currency without consequence, unlike gold bullion or cash.

 

[indiajust]

Does not sound like you are managing cash. Sounds like fear and inertia are managing you. It is the classic conundrum, getting on/off the flee to cash treadmill is too hard. You are stuck.

Pick a cash bucket size and stick with it. Invest the rest. If you can't figure out what to do, donate it, since you will never need it or use it.

 

[aja8888]

Oh, I think I had heard that one as "all" of Ken's stuff.

I must remind folks that community property in a divorce does not mean things get split evenly. Ken had a bad lawyer.

 

[Closet_Gamer]

I'm wondering if my strategy for cash will get me in trouble.

I think inflation is a bigger risk to cash than anything else.

No lawyer worth his salt is going to avoid asking for the value of your bond fund just because you'd need to click "sell" before you click "transfer to counterparty."

 

[themillerman]

The Dangers Of Cash

I'm sure you've already gotten plenty of "advice" about the question of vulnerability but on the issue of qualifying for various programs, other than long term care/Medicaid qualifications, most programs that operate on a qualification basis mostly consider INCOME to determine eligibility, not cash or investments.

 

[Mountain skier]

My CD's earn $ each day...seems better than many bond categories currently. The more years of cash saved the more secure you'll feel. Invest part of portfolio in equities as a hedge against inflation.

Many retirees I know feel better having most of their $ in cash.