How much Cash did you have upon retiring or planning to have -2x-3x yearly expenses?

[Aerides]

3 years. Average recovery from a crash of most kinds, sleep-at-night, etc. Not really worried about leaving growth on the table for that amount. Also helps us manage when to take cap gains for the ACA.

 

[RetireAge50]

Curious how you are getting 2.47% yield on cash. Are you talking CD's?

CD’s and Stable Value Fund in my 401k. I think of them as cash since they they don’t go down in value and are easily accessed.

 

[Katsmeow]

I said one year or less when I retired but honestly I don't remember. However, right now I have well less than a year. But I do have an asset allocation and I usually rebalance and take money wherever I need to take it from to create the rebalancing. For day to day I take a monthly withdrawal from the bond fund (all money is in tax deferred account). If I need to change that I can do so at any time. Anyway this has worked fine and I don't see a need to put a year or two's worth of expenses in cash. I think we have done better over the last 10 years doing it this way.

 

[2017ish]

Cash cash, or zero risk investments were next to nothing at retirement in 2017. I think we hit 3/4 of a year spending at one point as deferred income for DW came in. Now, we are at 1/4 of a year income, due to pulling a constant amount out of IRAs and not spending much the last couple of months. Our upcoming 6 week trip to Spain/Portugal will take care of that though.

Our "ballast" is in short term bond funds (e.g., VFSUX and BSV), which have some principal risk, but not much.

 

[Markola]

Holding significant cash is one of those investing choices, like paying off the mortgage early, that has strong emotional appeal but undercuts portfolio returns.

Portfolio 1 is 60% stocks/20% bonds/20% cash. Portfolio 2 is 60% stocks/40% bonds. 5% is withdrawn from each per year.

 

[RetiredHappy]

When we retired, we set aside a large sum of cash needs for 12 years, starting a large sum each year and tapering off towards the end of 12 years when SS, RMD and annuities would start flowing. We blew through all of them by year 5. It is not as bad as it sounds because we needed alot more money at the beginning and we did several uplanned splurges on high end cruises and a couple of new cars. Right now we realize that we no longer need to set aside cash deliberately to fund the other 7 years because we can just rely on not reinvesting dividends in our taxable accounts. Problem solved. For tax deferred account we will also turn off dividend reinvesting as they will partially meet RMD requirements. We do plan to set aside 3 years of cash in IRA acccount, with the amount being difference of the estimated RMD and dividends for each year. We figure that would cover downturn for 3 years and not be forced to sell when market is down to meet RMD.

 

[RetireeRobert]

At the time I retired early, I had maybe 7 or 9 times annual expenses. Some of that cash was redeployed when we built our dream home on acreage and paid cash for it, no mortgage.

 

[CaptTom]

1 year. That was my ER goal, (in addition to pension, 401k, SS, etc.) and I actually reached it about a year before I finally retired.

It's still there 5 years later, and has actually grown a bit. Maybe it makes no financial sense, but I keep it...

(3) Just to feel safe and secure - that you can sleep at night.

I think it depends on your situation. If your biggest challenge is how to Blow That Dough, your calculations will be different from my "shoestring retirement."

 

[mrfeh]

Because we have no pensions and our taxable accounts are all equities (for tax purposes), our formula for cash is:

years until we turn 59.5 * annual expenses, maximum of 3

As we approach 59.5 (and have access to our IRAs), that cash will be invested.

 

[Montecfo]

Great thread.

Are these two situations similar or very different?

Each investor has two years of cash needs in the bank/CD/MM etc

Investor 1:

Annual expenses: $60k
Pension: $0
Cash Held $120k

Investor 2:

Annual expenses $60k
Pension: $50k
Cash Held: $20k

 

[Koolau]

I only consider it "cash" if it is either in a checking/savings account or otherwise totally unencumbered by taxes OR not replaceable (like a Roth - no taxes, but I couldn't put it all back next year.) On that basis, I had roughly 1.5X when I retired. Most of that was spent a year later on living expenses AND our first remodel.

 

[VanWinkle]

I had 2 years in cash and 2 years in short term bonds taxable to cover income for 4 years and reduced ACA premium and cost subsidies. ACA for 2 was 0 cost with 750 deduct and 2250 OOP max. DW was fighting cancer for 3 years and this was a blessing to have low cost coverage.

 

[PaunchyPirate]

I had about 2.5 years in cash at retirement with the intent to live off it for my expenses. I'm coming up on 3 years retired in December.

In addition to the initial cash, I sold a second house and put about $40,000 of the proceeds into the cash pile. For 6 months or so at some point, I also let my dividends and capital gains distributions go into the cash pile to build things back up a little. The savings is sitting at about 1.5 years of spending right now. I'll probably let that go down to about 1 year's worth and then I'll start taking the dividends/cap gain distributions again. I'll augment from the cash pile as needed. Unless dividends/distributions tank at some point, I should be able to go another 2-3 years without having to sell something.

 

[karen1972]

I have about 18 months in cash plus dividends that should cover up to 2 years. As I get older maybe that will change but right now (with a 45 year horizon hopefully) I see my biggest risk is inflation vs. my ability to manage my finances in a downturn.

 

[FANOFJESUS]

Retired 15 years ago at 48. Had a couple months expenses in cash, same as today, with all the rest in equities. As I have lived off the dividends, I saw no need for a cash cushion yielding almost nothing. No problems so far.

I thought about doing that. The only thing is in a bear that dividend payment might be a 50% loss on the money at times. With 100% stocks it can take about five years to recover from a bear. So for five years you might be pulling at a loss.

 

[FANOFJESUS]

The other day a watched a video of a woman worth about 1.3M(100% stocks) with 25k in cash. I do not think that is enough cash how about you?

 

[scrabbler1]

I keep nearly nothing in cash, the same way I did when I was working. I hate the idea of tying up any significant amount of money earning zilch or nearly zilch. I have set up my ER portfolio so it will generate enough money every month (mostly from a big bond fund) to pay my expenses. My local bank's checking account has enough money to cover any fairly small minimum balance requirements plus another $500-$700 as a cushion to cover any smaller, unforeseen expenses. Any excess money gets invested somewhere, usually to the big bond fund.

 

[scrabbler1]

The other day a watched a video of a woman worth about 1.3M(100% stocks) with 25k in cash. I do not think that is enough cash how about you?

If her portfolio is generating enough money to pay her bills, then I'd say $25k is too much.

 

[RetireeRobert]

The other day a watched a video of a woman worth about 1.3M(100% stocks) with 25k in cash. I do not think that is enough cash how about you?

That little would make me nervous.

 

[Skyward1]

5.5 years to carry me to 59.5. (Cd's & ibonds).

 

[GravitySucks]

That little would make me nervous.

But does it make her nervous? If she didn't lose sleep over it during March 2020 she's at a good AA for her.

Too little info anyway. Is she collecting SS? Does she lived a low cost lifestyle?

 

[CyclingInvestor]

I thought about doing that. The only thing is in a bear that dividend payment might be a 50% loss on the money at times. With 100% stocks it can take about five years to recover from a bear. So for five years you might be pulling at a loss.

I am not quite sure what you mean that a dividend payment might be a 50% loss. The earnings and dividend flow increases each year (historically about 9% ave for me) regardless of what the stock price does (in my case -43% in 2008-2009, -53% in early 2020). Since this dividend flow is in excess of my spending, I just buy more stock with what is left over, meaning I benefit more when stock prices go down. This is why I find volatility exciting instead of terrifying.

I am still vulnerable to dividend cuts if a company runs into trouble, but the 3 I have been hit by (GGP, GE, KMI) were more than compensated for those years by increases by the rest of my portfolio.

 

[FANOFJESUS]

I am not quite sure what you mean that a dividend payment might be a 50% loss. The earnings and dividend flow increases each year (historically about 9% ave for me) regardless of what the stock price does (in my case -43% in 2008-2009, -53% in early 2020). Since this dividend flow is in excess of my spending, I just buy more stock with what is left over, meaning I benefit more when stock prices go down. This is why I find volatility exciting instead of terrifying.

I am still vulnerable to dividend cuts if a company runs into trouble, but the 3 I have been hit by (GGP, GE, KMI) were more than compensated for those years by increases by the rest of my portfolio.

Let say you put 100k in the s&p 500. A bear comes and it goes down 50%. The dividend of .6k is payed out. You are losing about .6k because if you left it in the market it would have time to go back up to 1.2k

 

[SecondCor521]

I thought about doing that. The only thing is in a bear that dividend payment might be a 50% loss on the money at times. With 100% stocks it can take about five years to recover from a bear. So for five years you might be pulling at a loss.

Yes. And not really that big of a deal in my opinion.

Let's take your 50% dividend cut (which as already mentioned is not likely), and assume stock prices are down 50% for 5 years.

My dividends only fund about 10% of my living expenses. So a 50% drop in dividends represents a 5% reduction in my living expenses. That's easily manageable just with some mild belt-tightening.

Obviously someone more reliant on dividends would probably have to sell assets to fund cash flow for a few years.

I'm at a 1% WR. So over five years of that bear market, I'm withdrawing 5% of my portfolio. Which is down 50%, so I'm losing 2.5% of my portfolio permanently.

Additionally, I don't actually take out 1% every January 1st; I take more like 1/2% every six months. Most bear markets bounce around in the doldrums but are not "down 50%" all the time in that potential 5 year period, so the actual haircut would on average be less than 50%.

The stock market drops 2.5% in a bad day. It goes up 2.5% in a good week. Even if I'm at 97.5% of my FIRE stash, I still have 100% FIRECALC success rate.

Even if you're at a 3% WR, the numbers above are tripled, so a 3% WR person would be at 92.5% (100% - 50% ( 3% * 5 years) = 92.5%). Most people even at 3% WR have enough margin to where they could handle that kind of permanent reduction in portfolio.

Further, bear markets are rarely 50% for 5 years. The last one I know of that was that magnitude and duration was 1973/1974 (*), so maybe once every 50 years. Facing a 30 or 40 year retirement, a typical FIRE person could expect one of these, but as noted above, at a 3% WR they could easily handle one.

Finally, remember that the 4% rule already includes those bad periods and still essentially survived every time (except for the poor people who retired in 1966 or 1969 and hit 1973/1974 at the wrong time). And 3% survived that period as well.

Additional cash on top of the 4% rule is another layer of safety. If you feel you need it, go ahead. But on average it's probably costing you more in opportunity cost for the 45 to 48 out of 50 years when there isn't that bad of a market.

(*) And I'm not sure you could find a 5 year period surrounding 1973/1974 where it was down 50% for 5 years. Maybe you could.

 

[tulak]

Let say you put 100k in the s&p 500. A bear comes and it goes down 50%. The dividend of .6k is payed out. You are losing about .6k because if you left it in the market it would have time to go back up to 1.2k

This doesn’t make sense to me. What is .6k?

For starters, s&p 500 is the last index I would choose if I’m trying to max dividend income. Better to choose SCHD, which currently has a 2.9% yield.

But using the s&p 500, it currently yields 1.3% right now (ouch). On a 100k invested, that’s 1.3k. If s&p 500 drops 50%, then the yield doubles to 2.6% and you still get 1.3k. Not a problem.

The only issue is if companies start cutting their dividends, but historically this rarely happens with any significance after a market drop. What’s more worrisome is a company having to cut their dividend because they are poorly run, but if you’re diversified, the hit you will take is minimal.