How much cash to hold?

[Curmudgeon]

Quote:

Originally Posted by LOL! We keep about 8% (0.08X) of annual expenses in cash or a little less than a month's worth. ... One way I think of all this is that I have made so much money not being in cash that I can afford to lose a lot now and then and still be way ahead.

Wow, that's interesting, certainly this view seems to be the 'outlier'. I'll have to run some numbers to see if it makes sense for me. Thanks for the perspective!

[Lake161]

Quote:

Originally Posted by Curmudgeon Wow, that's interesting, certainly this view seems to be the 'outlier'. I'll have to run some numbers to see if it makes sense for me. Thanks for the perspective!

I guess I'm an outlier as well. We keep 2-4 months in cash.

Michael Kitces has posted a couple of times on this topic with data to back up his assertion that the most significant impact of a cash reserve is more mental than real.
https://www.kitces.com/blog/are-cash...lly-necessary/

[audreyh1]

Perhaps - but if your retirement fund is already bigger than you need, why risk more in the market? To have more money when you die?

This is definitely a different strokes kind of thing - some folks don't mind volatility, others prefer to reduce it if it doesn't compromise their long term needs.

[Options]

Quote:

Originally Posted by audreyh1 Perhaps - but if your retirement fund is already bigger than you need, why risk more in the market? To have more money when you die? This is definitely a different strokes kind of thing - some folks don't mind volatility, others prefer to reduce it if it doesn't compromise their long term needs.

+1
If you've won the game, why keep playing? Next month, I will increase cash to 4x spending for this very reason, intending to repeat the process again in 4 years at a time when income/expenses will change.

[Dd852]

Quote:

Originally Posted by Lake161 I guess I'm an outlier as well. We keep 2-4 months in cash. Michael Kitces has posted a couple of times on this topic with data to back up his assertion that the most significant impact of a cash reserve is more mental than real. https://www.kitces.com/blog/are-cash...lly-necessary/

I'm a big fan of giving myself mental pleasures!

[brucethebroker]

So much goes into why do you need to have cash at all?
Cash flow? Not much needed if your SS plus pensions cover most of it.
Emergency bills (hospital, new roof, etc.)?. Wouldn't $10k or so handle that?
Opportunity (market lows, deals on a property, etc.)? That would really be part of your portfolio AA, right?
Planned expenditures (car replacement, vacation, kid's wedding/college)? Then it becomes part of your annual savings.

I feel it is like planning how much $ you need to FIRE, which really depends on your lifestyle when retired. And how much of a percentage of cash on hand, whether 5%, 10%, or 20% is too vague-it needs to be personalized to your situation.

[donheff]

MM is currently one year but often falls below as I use it for expenses and before I liquidate to replenish it. But I keep almost 10% in the TSP G fund which serves as a portion of our bond allocation and is a bit like a super-cash reserve. I can tap it during a prolonged downturn in equities.

[gerntz]

I consider the gold we hold in ETF's as cash & and as such, plus other cash, about two years of expenses.

[Dan32]

I tend to think of how much cash to hold in terms of asset allocation. Not in terms of how much do I need to cover expenses. Some have responded in this manner, but I may be in the minority. With that said my asset allocation is: 4.5% Cash. FWIW the rest of my allocation is: 4.5% Bonds, 2.5 % Gold, 12% Preferreds and CEFs, 6.5 % REITs, and 70 % Stocks. The OP asked in terms of both questions (in terms of living expenses and investable assets). Based on the answers it appears people manage cash to only one of these goals. In my case it's investable assets since living expenses are covered by a pension.

[audreyh1]

Quote:

Originally Posted by Dan32 I tend to think of how much cash to hold in terms of asset allocation. Not in terms of how much do I need to cover expenses. Some have responded in this manner, but I may be in the minority. With that said my asset allocation is: 4.5% Cash. FWIW the rest of my allocation is: 4.5% Bonds, 2.5 % Gold, 12% Preferreds and CEFs, 6.5 % REITs, and 70 % Stocks. The OP asked in terms of both questions (in terms of living expenses and investable assets). Based on the answers it appears people manage cash to only one of these goals. In my case it's investable assets since living expenses are covered by a pension.

I do both and keep them separate as I keep my retirement portfolio separate from funds set aside for short-term living expenses.

That's what works for me. I see many different approaches on this forum.

[CaliKid]

I really appreciate this thread and seeing what others do. As I am still working I make more than we spend so cash flow is not much of an issue. However, when retired I could see it being more so as cash flow is likely to be a bit less. Currently if a "big" expense comes up we can handle it. So doing about $25k of household improvements right now is fine. However, you just never know when emergencies (or that car I really want) will come up so good to have some cash. Currently trying to get cash as low as possible, in my taxable accounts, since interest rates are so bad. Been putting most of our extra money into investment real estate lately.

Also, I have an inherited IRA with mandatory distributions and I try to keep about 3 years worth of distribution in cash in there so I wouldn't have to sell stuff if market is way down for a prolonged period of time.

[SecondCor521]

13.46 months of cash (checking + savings - cc balances). Target is 9.29 months, so I have a little too much on hand right now. Often November/December are more expensive months for me, though, with Christmas and property taxes.

0% for investment opportunities. I am a LTBH index investor with a 90%/10% stocks/bonds allocation. I plan to rebalance whenever I get out of whack by more than 2 percentage points, which hasn't happened yet.

[braumeister]

I keep about 2.5 years of basic expenses in cash. Discretionary expenses (travel and the like) vary greatly, so are not included.

[Lsbcal]

About 0.8% of our portfolio is cash.

The next level up is short term investment grade bonds (VFSUX) currently at 5% of the portfolio. This is refreshed each year to include the next year's expenses plus the "set aside". This "set aside" is my term for money not spent from the previous year's available-to-spend money.

I think short term IG bonds has had a good history over the decades of riding the market up's and down's. Over a few decades, using this approach should be better then large dollops of cash. Yes, in 2008 VFSUX went down -1.1% but in 2009 it was up 13.5%.

[eta2020]

Enough to span bear market or more.

[FreeBear]

We're holding 9% cash, might gradually reduce to about 7%. We're also at 50% total equities. I need this AA to sleep at night. It has help get me through the couple of "bumps in the road" marketwise over the last 2 years of ER.

[FreeBear]

Quote:

Originally Posted by LOL! We keep about 8% (0.08X) of annual expenses in cash or a little less than a month's worth.

Quote:

Originally Posted by pb4uski When I was working... 0%. When I first retired....6% but recently revised down to 5% as 6% seemed to be too much.

Ditto when I was still w*rking-only held about 2 months worth of cash. Was all equities, all the time, until within just a few years of ER. Made a huge change to only 50% equities late in 2014 and, mostly, 2015 as I coasted into FIRE. I retrospect, I would have made this change over 5-10 years, but I surprised myself by retiring 7 years ahead of plan.

[SpinDr]

Approximately 14 months of expenses. Has generally ranged from between 6 months and 1 year. Both my wife and I are still working. Part of the cash is savings bonds purchased while at a former employer. Some are coming up on the 30 year timeframe where they stop earning interest. I would love to have more of those early bonds and the interest they earned.

[OnTheBeach]

We typically keep 3 years worth of expenses in cash and Short Term Bonds.

[jerryo]

Hmmm....perhaps my DW and I are risk averse, but (to my surprise) we seem far more conservative than most respondents. Semi-retired at ages 67 & 59, we have nearly 20% of our portfolio in cash and other short term U.S. government securities, which equals about 4-5 years of expenses. We also keep about 5-10% of our resources in bonds, about 5-10% in a quasi-annuity (from a rock solid former international employer) that guarantees 8% annual growth, about 15% in real estate equity and about 50% in stocks (a mixture of low cost growth funds, index funds and individual holdings).

We currently receive pensions (supplemented by part-time consulting) covering about 2/3 of our expenses and expect to receive additional pensions and social security over the next 3 years totaling 100% to 125% of expenses.

So while we're quite fortunate in that our savings and investments are more for luxuries and "insurance) than for necessities, it still feels more comfortable (particularly given our relatively high equity exposure) to keep a substantial cash cushion to ride out market ups and downs, even though this won't "maximize" our potential returns.

Anyone else in a similar situation?