How much cash?

[corn18]

I don't believe that the PO ever gave us enough information to judge where he/she is in the accumulation/decumulation/retirement phases. We can assume that he/she has saved 25x expenses, but we do not know that. The fact that the target fund is 2035 suggests that he/she is some ways away from retiring.

If that is the case, the OP should have no cash.

 

[Lorenzo]

If not yet near retirement, conventional wisdom says you only really need enough cash (or similarly liquid assets) to cover major emergency expenses that you couldn't cover using your current income from working. If you're retired, and you're drawing your living expenses from your nest egg, the conventional wisdom is you need enough stable, liquid assets to enable you to avoid having to tap more volatile, beaten-down investments during a recession. At least that's how I understand it. Obviously there are scenarios in between that one may want to consider, such as the likelihood of losing one's job in a recession. Maybe the less job security one has, or less reliable a stream of income from work, the more of those stable, liquid assets you might want to have on hand.

 

[InTheBasement]

I don't believe that the PO ever gave us enough information to judge where he/she is in the accumulation/decumulation/retirement phases. We can assume that he/she has saved 25x expenses, but we do not know that. The fact that the target fund is 2035 suggests that he/she is some ways away from retiring.

I am turning 58 this year and will retire in December. I have accumulated just short of 25X at the moment. My company put me in the 2035 target fund only because they assume standard retirement age. But the men in my family don't tend to last long so I figure I should plan for the worst and retire early

 

[Time2]

How much Cash?I

How big is you mattress?

 

[ponyboy]

We have approx 7 years expenses in checking/HYSA...most being in the high yield savings.

That represents 16% of of our portfolio. But, in potentially less than 10 years from now, we may pull the plug on working so we want to have a cash stash. That way we can pay all our expenses and taxes in Roth conversions. We'll see.

 

[corn18]

I am turning 58 this year and will retire in December. I have accumulated just short of 25X at the moment. My company put me in the 2035 target fund only because they assume standard retirement age. But the men in my family don't tend to last long so I figure I should plan for the worst and retire early

So that means your asset allocation is around 85/15 overall for your portfolio?

 

[Koolau]

I am turning 58 this year and will retire in December. I have accumulated just short of 25X at the moment. My company put me in the 2035 target fund only because they assume standard retirement age. But the men in my family don't tend to last long so I figure I should plan for the worst and retire early

Is that 25X expenses and THEN Social Security kicks in down the road? If so, that sounds like plenty though I personally would reduce equities to maybe 60%.

I think 5 years cash is fine if it's not preventing you having enough to retire when you desire.

Good luck!

 

[InTheBasement]

Is that 25X expenses and THEN Social Security kicks in down the road? If so, that sounds like plenty though I personally would reduce equities to maybe 60%.

I think 5 years cash is fine if it's not preventing you having enough to retire when you desire.

Good luck!

Yes, 25X right now not considering social security.

 

[Koolau]

Yes, 25X right now not considering social security.

I'd say you're golden, but YMMV.

 

[RetireBy90]

I started retirement with 5 years in cash, MMFs and CDs. That along with pensions was to allow us to avoid any draw from retirement accounts for first 5 years.
Now I usually put about what I plan to spend in MMF when I rebalance end of the year. I have 70/30 AA with MMF, CDs and treasury funds to make up the 30. So I figure planned draws and then AA rebalance the remainder. Almost all of out nest egg is in TIRA/Roth.
I would suggest you need to consider how much of your required expenses you will cover with pensions or other “guaranteed “ sources and then set aside your required draws and then figure a number of years that makes you sleep easy.
Like I said we started with 5 years but I am comfortable with say 2 years. I would expect your tolerance to change as you get used to retirement funding. Lots of it for me was the unknown. Err on overly cautious but be prepared to change what ever number you choose after a couple years.

 

[Route246]

Doesn't it depend on how much total savings (investable assets) you have? If you have barely enough to qualify for FI then you need more cash and if you have many times FI then you can afford to take more risk and hold less percentage in cash. Seems like a combination of risk tolerance coupled to how far into FI you are to make that call.

 

[SnowballCamper]

OP, have you done any planning? Thought about a personal investment policy? Read any books on investing? Used an asset allocation calculator, (or five, as many of us have)? It seems that you haven't been very deliberate in your planning. As an engineer you surely have the aptitude... I think it starts with doing several asset allocation calculators to get a feel about what you want yours to be. Then since treasuries are pretty good now, the whole bond allocation could be in a treasury ladder, and see how many years of expenses that turns out to be. If you want an explosion proof box to put it in, that would be the TIPS ladder that runs to age 100...but almost no one does that because it's too expensive.

 

[rk911]

Rather than stick a lot of cash into a bank account (we do have cash accounts but in the low 6-figures) we have low 7-figures in a municipal bond ladder. We buy only top rated, quality munis and generally hold them to maturity. At maturity we buy another at the top of the ladder, generally for 4 or 5 years. IMO, quality munis are about as safe an investment as you can get without govt. insurance.

 

[Flieger]

Is that 25X expenses and THEN Social Security kicks in down the road? If so, that sounds like plenty though I personally would reduce equities to maybe 60%.

I think 5 years cash is fine if it's not preventing you having enough to retire when you desire.

Good luck!

I think the SS part of the equation is often overlooked.

Flieger

 

[TickTock]

Related question - how does one decide when to tap the emergency cash fund? Do you look at net worth changes for the year and if it's negative, use some cash instead of selling stock? Do you keep doing this until net worth comes back to where it was (perhaps over many years)?

I'm currently reading Wade Pfau's Retirement Planning Guidebook. His suggestion for using this kind of "buffer asset" to manage SORR is - IF the nominal value of the portfolio is larger than at the start of retirement (the buffer asset is not included in the portfolio value) THEN draw from the portfolio ELSE draw from the buffer asset.

IF the portfolio later recovers to larger than starting amount THEN you have discretion on whether to refill the buffer asset.

 

[Koolau]

I'm currently reading Wade Pfau's Retirement Planning Guidebook. His suggestion for using this kind of "buffer asset" to manage SORR is - IF the nominal value of the portfolio is larger than at the start of retirement (the buffer asset is not included in the portfolio value) THEN draw from the portfolio ELSE draw from the buffer asset.

IF the portfolio later recovers to larger than starting amount THEN you have discretion on whether to refill the buffer asset.

Sounds a bit like "buckets" but with only 2 buckets. It should w*rk.

 

[Cujet]

I feel like this would have already been discussed at some point but I could not find it in a search. Presently I have a cash account that will last me almost 5 years in such case as there were a market downturn. All the rest of my investments are 90% stocks. I feel like having a large cash account that is not subject to market volatility is a good thing. I'm getting 4% return on that cash account right now. Am I overdoing it with a 5 year cash cushion?

I'm the other way. 80% of my funds are in insured CD's and the rest is invested with UBS. Gambling performance has been spotty, even in the up market and their 1.5% house 'vig' takes a righteous bite out of the 5% gains.

I don't like the idea of gambling with a higher percentage of my savings. What it took to earn that money was an excessive number of hours, putting up with zero support and tons of hard physical work. Put another way, very little of my life so far, has been mine. Retirement is glorious.

I guess my life long aviation career has my Safety Consciousness trickling down into my money management.

 

[engineernerd]

I feel like this would have already been discussed at some point but I could not find it in a search. Presently I have a cash account that will last me almost 5 years in such case as there were a market downturn. All the rest of my investments are 90% stocks. I feel like having a large cash account that is not subject to market volatility is a good thing. I'm getting 4% return on that cash account right now. Am I overdoing it with a 5 year cash cushion?

I think feelings can lead us astray. Cash is not actually zero-risk. Inflation can destroy quite a lot of its purchasing power. The last time inflation was over 10% was a long time ago so it's easy to forget this.

Have you used FIRECalc enough to know its ins and outs, including all the tabs (not just "Start Here" but also "Other Income/Spending" through "Investigate")? Note that the other tabs may only work after you've hit the "Submit" button on the "Start Here" page and then closed that results window.

I have found the "Investigate changing my allocation" option on the "Investigate" tab to be quite illuminating. All your cash, cash-equivalent, and bond holdings belong in "fixed income" in FIRECalc.

What FIRECalc shows you when you do this analysis is how "fat" or "lean" your retirement is likely to be. If you get 100% chance of success over a wide range of asset allocations, you don't have much to worry about unless you live much longer than you assumed (or the world changes radically, which IMHO is not out of the question nowadays). But the lower your highest "chances of success" is, the higher will be your optimum stock allocation.

Note that your odds of success in FIRECalc are governed by the WORST historical outcomes. FIRECalc awards no bonus points for your average outcome being in the multimillions. So there is no need to shy away from any asset class based on gut feelings or unease over short-term volatility.

 

[Drake3287]

Having met my financial retirement goals long ago, you and others would be stunned at how much cash I have sitting around making 4% to 5.50%. The rest of my investments could tank tomorrow but I'd still be fine the rest of my life. Nothing wrong with cash depending on both your age and investment strategy over the past years. I also sleep much better than a few others around here because of it.

 

[COcheesehead]

A year of expenses, but that is almost too much for me. As long as your cashflow satisfies expenses, you don’t need much, but if you are equity heavy, could be different story.

 

[youbet]

Having met my financial retirement goals long ago, you and others would be stunned at how much cash I have sitting around making 4% to 5.50%. The rest of my investments could tank tomorrow but I'd still be fine the rest of my life. Nothing wrong with cash depending on both your age and investment strategy over the past years. I also sleep much better than a few others around here because of it.

I found going to a sleep doc and now using a CPAP machine helped me sleep much better than any fiddling with my AA ever did. If you're having trouble sleeping, consider a sleep study. Much more effective than AA adjustments!

BTW, I'm roughly 65/30/5 and the usual retirement calculators say I could go for many years in a down market without selling equities. Likely far longer than my life expectancy.

 

[youbet]

. Inflation can destroy quite a lot of its purchasing power. The last time inflation was over 10% was a long time ago so it's easy to forget this.

Yeah, inflation is an under-considered component of portfolio survival. FireCalc says that the worse failures occurred due to inflation rather than market downturns which I've always found very interesting.

 

[Koolau]

Yeah, inflation is an under-considered component of portfolio survival. FireCalc says that the worse failures occurred due to inflation rather than market downturns which I've always found very interesting.

Yes, inflation has always been my top concern. There are plenty of other black swans out there (an asteroid hitting the pacific, for instance) but I lived through the inflation of the '70s so I know what it's like and it's my greatest financial fear. YMMV

 

[DrRoy]

I start the year with 2 years of spending cash, then refill in Dec.

 

[mrfeh]

Yes, 25X right now not considering social security.

I still don't think we have a complete picture of your portfolio.

We (and you) need to know:

• total portfolio value
• percentage in equities
• percentage in fixed income (this includes cash)
• percentage in alternatives (not equities or fixed income)
• annual expenses

Do not include value of possessions/home.