Holding $600K in cash - feeling like an idiot. Options???

[Dtail]

Don’t do it, medical and dental insurance and health care will kill you unless you both are on Medicare. Cash is good. It is the number one retirement asset.
What is FIRE?

There are many retirees on this forum who don't wait until Medicare in order to retire.
One can manage their MAGI for large tax subsidies using the Health Exchange medical/dental system.

 

[pb4uski]

There are a number of programs out there offered by companies that function like an online bank account in that you can deposit or withdraw at will but no FDIC insurance.

Toyota's Income Driver Notes and Dominion Energy Reliability Investment Notes both pay 1.5%, as does GM Right Notes. Duke Energy, Ford and Mercedes have a similar programs but don't pay as much.

Obviously, no FDIC insurance and the credit risk of the issuer.

 

[disneysteve]

There are a number of programs out there offered by companies that function like an online bank account in that you can deposit or withdraw at will but no FDIC insurance.

Toyota's Income Driver Notes and Dominion Energy Reliability Investment Notes both pay 1.5%, as does GM Right Notes. Duke Energy, Ford and Mercedes have a similar programs but don't pay as much.

Obviously, no FDIC insurance and the credit risk of the issuer.

I've never heard of these. A quick search took me to the Toyota site. I skimmed the prospectus. I get that these are unsecured debt, no maturity, floating interest rate, not insured. All of that said, how can they be paying 1.5%? What's the catch? How safe is this money? How often do they adjust the rate? What's the track record for these things?


Can you suggest any sites to learn more about this type of thing?

 

[pb4uski]

No idea on the track record... they are news to me as well as of 6 months ago. The do adjust the rate periodically... none for Toyota in the last 6 months as I recall and once for the DERI notes.

No idea how they can pay 1.5% but not my problem.. perhaps they are turning around the money and issuing car loans that charge more than 1.5% would be my guess... and while no individual account money would be sticky the money would probably be pretty sticky in aggregate like bank deposits tend to be sticky. As safe as the issuers's credit and issuer's bonds to my knowledge.

 

[PointBreeze]

My 2 thoughts are:

#1) Could you do a 72(t) plan to get you to age 59 1/2 without a 10% early withdrawal penalty? You would have to run the 72(t) plan for a minimum of 5 years, but should be able to access your traditional IRA funds in this manner

#2) You say that your 401(k) does not play well with rule of 55 -- Does this mean that your plan will not allow partial distributions once you separate from service? If this is not the case, perhaps that plans could indeed be made to play well together. There is a common misconception that if the HR department does not know about the rule of 55 or explicitly mention it in the plan documents, then it is not allowed. This is untrue. All that is i needed is the ability to take partial distributions once you have separated from service.

-gauss

My 403(b)s were all with TIAA, and TIAA told me the rule of 55 was not supported.

 

[jazz4cash]

I've never heard of these. A quick search took me to the Toyota site. I skimmed the prospectus. I get that these are unsecured debt, no maturity, floating interest rate, not insured. All of that said, how can they be paying 1.5%? What's the catch? How safe is this money? How often do they adjust the rate? What's the track record for these things?


Can you suggest any sites to learn more about this type of thing?

They’ve been discussed on this forum several times in the past 6 months or so. Search through the 2020 version of the CD and Bank Promo deals thread and you’ll find some 1st hand experience but maybe not enough to satisfy your concerns.

 

[jazz4cash]

.

What is FIRE?

I didn’t see a response to this....it stands for Financially Independent Retire Early.

 

[disneysteve]

They’ve been discussed on this forum several times in the past 6 months or so. Search through the 2020 version of the CD and Bank Promo deals thread and you’ll find some 1st hand experience but maybe not enough to satisfy your concerns.

Thanks.


In case anyone else is interested, the discussion starts on page 24 of that thread: https://www.early-retirement.org/fo...-2020-please-post-updates-here-101376-24.html

 

[pb4uski]

disneysteve, you might also want to check out this thread that looks like it just ran out of steam.

https://www.early-retirement.org/forums/f28/non-fdic-deposit-account-programs-105827.html

 

[disneysteve]

disneysteve, you might also want to check out this thread that looks like it just ran out of steam.

https://www.early-retirement.org/forums/f28/non-fdic-deposit-account-programs-105827.html

Thanks. Good discussion there.


I don't think I'm going to get involved in these at this point but I was intrigued to learn about them.

 

[pb4uski]

^^^ I just added a post to that thread. I have some CD money maturing in May so I'm starting to think about them. I've had DERI and Toyota since late 2020.

 

[maestro]

Terrible advice to someone who needs that money for the next 5 years. Absolutely terrible.

+1

 

[VFK57]

I am another idiot with a pile of cash at Ally...there are no better options with the same low risk and liquidity that I know of. Many here have been faced with the same problem for years, it’s only gotten worse, with no better future on the near horizon...

+1

 

[audreyh1]

Well, you can turn extra cash sitting around earning little into something great! Just go over to the “Blow that Dough” thread.

Totally doesn’t bother me.

 

[sengsational]

I didn’t see a response to this....it stands for Financially Independent Retire Early.

I still recall getting this answer when I first joined the forum, but I was told it meant "f*rget it, retire early"

 

[pb4uski]

I thought it was "F__k it, retire early"

The first part being in the spirit of "Take this job and shove it".

 

[beernutzbob]

OP considering I'm doing essentially the same thing in preparation for retiring next year I think your plan is brilliant.

I have a pension and have accumulated 5 years in cash above that for anticipated living expenses. I'll likely put some into Ally or Marcus so it is not earning nothing.

Being able to go 5 years without having to sell equities for expenses and also having cash to buy equities on sale if a correction happens is a double win.

 

[gooddog]

Don't feel like an idiot. We went 100% cash in all accounts since the beginning of April so now have roughly $1.5 M in cash.

Might work being in all cash, might not. With the amount of money creation that is happening right now you could lose big time to devaluation (8% annual currency devaluation is 120k loss for you in one year on 1.5M). Have you considered moderate income funds or ETFs that pay dividends? An overseas dividend ETF might be good to capture the currency adjustments between the U.S. and something like Australia/NZ....


At the same time, I do understand the in and out of day trades making it easy to sleep at night. At least you know what you gained/lost for the day.

 

[Koolau]

Might work being in all cash, might not. With the amount of money creation that is happening right now you could lose big time to devaluation (8% annual currency devaluation is 120k loss for you in one year on 1.5M). Have you considered moderate income funds or ETFs that pay dividends? An overseas dividend ETF might be good to capture the currency adjustments between the U.S. and something like Australia/NZ....


At the same time, I do understand the in and out of day trades making it easy to sleep at night. At least you know what you gained/lost for the day.

Not sure where the 8% devaluation figure came from, but, if true, that could be called a "known" loss where a big bubble pop in the markets can be 50% without breaking a sweat. AND if there were a pop, that much cash would buy a lot of depressed stock. So, there's that.

I don't ever see going to all cash either (though never say never.) But, cash is king when stocks are in the toilet. YMMV

 

[ut2sua]

$600k is a lot of money. Have you laid out a detailed budget for the next 5 years? Have you accounted for things like inflation, health insurance, necessary major expenses (i.e new car, home repairs)? Once you hit 59.5 will your 401k serve your needs for the rest of your life? I’d suggest meeting with a CFP and tax specialist to drill down your specific circumstances. Major hats off to you for getting to this point. Your definitely in a position of strength.

Thanks for sharing your thought GoodLife59

 

[ut2sua]

OP considering I'm doing essentially the same thing in preparation for retiring next year I think your plan is brilliant.

I have a pension and have accumulated 5 years in cash above that for anticipated living expenses. I'll likely put some into Ally or Marcus so it is not earning nothing.

Being able to go 5 years without having to sell equities for expenses and also having cash to buy equities on sale if a correction happens is a double win.

Thanks for sharing Beernutzbob. It is good to hear that I am not alone in my thinking. Ally and Marcus are where my $ sit also.

 

[ut2sua]

We also have over $1M in cash and equivalents. Want to have a cushion in case the market turns bearish for an extended period. Still have plenty in the stock market to benefit from the growth. In five year we’ll both be taking social security at 70, but we can take it earlier if the bear shows up.

This is my thinking also. If the market is going to be great in the next 5 years, then I don't have $ problem. If it will be bad, I can hang on to my shares (if not buying more) during the next several years. I assure DW we won't have $ problem once we fired, so this is my escape route just in case

 

[ut2sua]

I went back and looked at my notes and i was looking at Rule 72t. I never looked at rule 55.

Rule 72(t) allows penalty-free withdrawals from IRA accounts and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. ... This rule allows account holders to benefit from their retirement savings before retirement age through early withdrawal without the otherwise-required 10% penalty.

You are correct on the 72t. Just keep in mind that you will need to withdraw the same amount at least 5 years or until 59.5 which ever is longer

 

[street]

OP's strategy is a very good one IMO. I'm heavy in cash also, for the long haul of down times, about 12% of total portfolio and 88% in the markets. More then most would have in what I have gathered from ER members and not the norm. It also is dry powder to buy in down turn in the market, and a plus to not having to sell stock to live.

 

[NW-Bound]

OP's strategy is a very good one IMO. I'm heavy in cash also, for the long haul of down times, about 17% of total portfolio and 83% in the markets. More then most would have in what I have gathered from ER members and not the norm. It also is dry powder to buy in down turn in the market, and a plus to not having to sell stock to live.

But you said you never rebalanced in your years of investing.