Cash Resources

[Tiger8693]

I think it's one of the "earlyretirementnow" blog pieces. He talks about having a cash reserve fund to be spent only in years when the market is down 20% or more (I believe that was his number but I can't find the blog piece at the mo' and can't recall the title of it)

This would have gotten you through all the 4% failure years and amounted to only 2 1/2 years of expenses on cash.

Interesting. I need to review this against bucket strategy.

 

[pb4uski]

I don't keep more than a year in actual cash (money market) but have 42% in bonds and other short term.

+1 I used to carry 6% and later 5% cash in an online savings account. I really no longer see a need or use for it and it simplifies things for me.

I rebalanced recently at 61/39/0 and will let the equity % drift up over time to 65% before considering any more rebalancing.

The quid pro quo is that I used the cash that we used to keep to pay off our mortgage and car loan so our monthly draw is only 80% of what it was before and our WR is only 2.5%.

 

[razztazz]

Interesting. I need to review this against bucket strategy.

Here's a link to the article. Search down for "Cash Bucket."
https://earlyretirementnow.com/2018...hdrawal-rates-part-25-more-flexibility-myths/

Having re-read it, it seems less relevant to the actual topic of this thread. Also, he seems to disparage cash buckets in several other articles on his own website...? In fact everything I seem to read there deals with some sort of gloom & doom. The complete opposite of the (I think) overly sanguine Money Mustache guy's website.

But for today’s exercise, let’s assume the money is not invested in the same 80/20 portfolio but instead held as cash in a money market account (returning just the 3-month T-Bill interest rate). Also, assume that we only withdraw from that cash cushion if the investment portfolio goes more than 20% underwater. Once the cash cushion is exhausted we tap the investment portfolio and we never replenish the cash account it again. So, think of the cash cushion strictly as an insurance policy against Sequence Risk for the first few years after retirement.

 

[audreyh1]

I think it's one of the "earlyretirementnow" blog pieces. He talks about having a cash reserve fund to be spent only in years when the market is down 20% or more (I believe that was his number but I can't find the blog piece at the mo' and can't recall the title of it)

This would have gotten you through all the 4% failure years and amounted to only 2 1/2 years of expenses on cash.

I actually created a reserve in 7 year CDs earning 3%, that can help supplement my income once my income from the retirement portfolio drops below 20% in real terms (which means my portfolio also dropped that much). Now I would still draw from the portfolio, it’s just that I have something to help cushion the shrinking income.

It’s not that big a reserve - about 1 year’s after tax spending at the time.

Who knows if I will ever use it for that purpose.....

But it seemed like a good application for intermediate term CDs paying a good rate at the time.

My %remaining portfolio withdrawal method does not fail. It’s just that during the worst case scenarios, the income would shrink pretty significantly over long periods of time.

 

[Katsmeow]

I don't keep cash reserves. I do have some bond funds that I could pull from in a down market.

 

[Markola]

This question is similarly emotional to “Should I pay off the mortgage?” Years of cash stash help some people sleep at night while others can’t stand the thought of “cash drag” preventing every penny from being invested and working hard for them. So a lot of the answer is, it depends on one’s comfort level.

 

[NotYourAverageJones]

We retire in a couple years and we will have "enough" income from my DH military retirement, tax free VA disability and a decent Mega corp pension, to cover all our annual required expenses in retirement. So for our situation, we don't need as much cash on hand as some others might need or feel comfortable having in order to sleep at night.

That said, we will prob still keep about 10%+ cash/equivalents on hand to use for fun spending and add back what we took out of that bucket at the end of each year. When SS kicks in at age 70, that income will then cover our fun spending, so having a specific amount of cash on hand won't be necessary!

 

[mickeyd]

I'm not a bucketeer either.

I stash 4-5 years in PMMF and STB fund @ VG. I think that I have too much in cash and am always looking for a way to better invest part of it. To tell the truth, I just like having instant access to a bunch of cold hard cash for vacations and top-shelf liquor.

Man do I sleep well at night, and many afternoons!

 

[HI Bill]

With my investments at an all-time, high, I still have 5 years of living expenses in money market and bond ETFs. I already sold enough stock to live on for the rest of 2020. For me, at least having this amount of cash, helps me sleep at night, and knowing I don't have to recover overnight from any large swings, will (hopefully) keep me from selling at a loss. Made that mistake once before.