How many months expenses held in cash in reirement

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chrismckay
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How many months expenses held in cash in reirement

Post by chrismckay »

I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
KlangFool
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
chrismckay,

My plan is to keep 2 years of expense in cash when I early retired. The main reason would be it gives me maximum flexibility in terms of tax management. When I withdraw and when I spend my money would be totally disassociated from each other.

You should read the following thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
Dandy
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Re: How many months expenses held in cash in reirement

Post by Dandy »

A lot depends on your assets, your retirement income and your age. I'm almost 72, have enough assets and our retirement income almost equals our normal expenses. You might think I would hold little cash -- but I'm also thinking of the income needs of my wife should I die first. She will get 1/2 my pension, lose her SS (mine is higher) and will be filing single instead of joint. That will require a decent withdrawal from our assets and she and my heirs are not investment savvy.

In my late 60's I couldn't decide what my allocation should be in retirement. I read Dr. Wm. Bernstein's idea for those who have enough -- put X years worth of drawdown dollars in "safe" products and invest the rest anyway you want. For me that was FDIC products, Short Term Bond funds and money markets. I put enough assets into those "safe" products to fund retirement needs to age 90. I also take my RMD from a combination of "safe" and "risk" assets so that tends to make the "safe" assets grow. The "excess" can be invested, spend or gifted. A few times a year I make sure my "safe" assets are appropriate.
My overall allocation is 45/55.

I sleep well and don't worry much about the downs of the market. I think this approach could work for fewer "safe" years then I'm using. I think you would want the "risk" assets to at least equal the "safe" assets to provide some inflation protection. I think this is an excellent early and mid retirement investment approach.
chipperd
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Re: How many months expenses held in cash in reirement

Post by chipperd »

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Last edited by chipperd on Wed Feb 05, 2020 6:46 pm, edited 1 time in total.
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Sandtrap
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Re: How many months expenses held in cash in reirement

Post by Sandtrap »

2-3 years
Sleep factor
Why? : relative to my financial structure, size, and income streams, that include R/E holdings, R/E income, etc.
(*everyone is different in month's expenses held in "cash" like accounts because of: asset size, income streams, diversification, etc)
IE: if assets are 50X annual retirement expenses and income streams outside of one's portfolio cover expenses, then there's minimal need for cash held.

J๐Ÿ

Edit:
*Cash = High Yield Accounts, Short Term CD's, Treasuries, etc. (Not Bond Funds)
(thanks "thetimelord" :D )
Last edited by Sandtrap on Mon Jan 20, 2020 1:24 pm, edited 3 times in total.
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
Can you explain what you consider cash (cash, checking accounts, saving accounts, money markets, I Bonds, short term bonds?) and how that differs from other Fixed Income assets in your thinking? I personally often struggle with the usefulness of really restrictive definitions of "cash" I sometimes see.
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dbr
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Re: How many months expenses held in cash in reirement

Post by dbr »

None, but I have significant income from pensions and Social Security.

There is no general answer to this question because it depends on your age (which affects SS and the process of taking RMDs) and it depends on how your assets are distributed across taxable and tax deferred accounts. In the ages between retirement and forced withdrawal from tax deferred plans there are logistics to consider that change when you start RMDs. If you postpone SS to age 70 the same applies. You can take withdrawals from retirement plans earlier without tax penalty, but you still have tax cost.

One thing you don't do is try to time markets. It is better to select an asset allocation and a rebalancing plan. From that point of view cash is not different from any other fixed income and not very relevant on its own. Whether you hold cash during a stock market downturn or a selection of bond funds is not important. A person holding a 50/50 asset allocation lasting a minimum of thirty years has 15 years withdrawals in fixed income. It is also true that by the nature of transactions coming and going cash will exist here, there and everywhere. My target for cash is zero. My actual holding of cash fluctuates between 1% and 2% of my portfolio, including money market funds, out checking account, etc.
dbr
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Re: How many months expenses held in cash in reirement

Post by dbr »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:19 am
chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
Can you explain what you consider cash (cash, checking accounts, saving accounts, money markets, I Bonds, short term bonds?) and how that differs from other Fixed Income assets in your thinking? I personally often struggle with the usefulness of really restrictive definitions of "cash" I sometimes see.
I have the same question. Why it should matter at all that one has one-two-three years of expenses in a cash savings account while holding 30 or 40 years of spending in a balanced portfolio of stocks and bonds completely escapes me. If you are worried about selling stocks in a taxable account while the market is down, you would just sell bonds in your retirement account and buy stocks there. You would do that anyway to rebalance during a market decline. If you are already 100% stocks having a couple years spending in cash is pretty irrelevant. There might be some special case, but hopefully common sense identifies what that is.
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

dbr wrote: โ†‘Mon Jan 20, 2020 11:25 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:19 am
chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
Can you explain what you consider cash (cash, checking accounts, saving accounts, money markets, I Bonds, short term bonds?) and how that differs from other Fixed Income assets in your thinking? I personally often struggle with the usefulness of really restrictive definitions of "cash" I sometimes see.
I have the same question. Why it should matter at all that one has one-two-three years of expenses in a cash savings account while holding 30 or 40 years of spending in a balanced portfolio of stocks and bonds completely escapes me. If you are worried about selling stocks in a taxable account while the market is down, you would just sell bonds in your retirement account and buy stocks there. You would do that anyway to rebalance during a market decline. If you are already 100% stocks having a couple years spending in cash is pretty irrelevant. There might be some special case, but hopefully common sense identifies what that is.
dbr,

It matters especially for those people that try to generate the right amount of taxable income in order to qualify for the ACA subsidy. Spending cash generate zero taxable income.

Cash is essential for tax management.

KlangFool
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

dbr wrote: โ†‘Mon Jan 20, 2020 11:25 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:19 am
chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
Can you explain what you consider cash (cash, checking accounts, saving accounts, money markets, I Bonds, short term bonds?) and how that differs from other Fixed Income assets in your thinking? I personally often struggle with the usefulness of really restrictive definitions of "cash" I sometimes see.
I have the same question. Why it should matter at all that one has one-two-three years of expenses in a cash savings account while holding 30 or 40 years of spending in a balanced portfolio of stocks and bonds completely escapes me. If you are worried about selling stocks in a taxable account while the market is down, you would just sell bonds in your retirement account and buy stocks there. You would do that anyway to rebalance during a market decline. If you are already 100% stocks having a couple years spending in cash is pretty irrelevant. There might be some special case, but hopefully common sense identifies what that is.
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
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earlyout
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Re: How many months expenses held in cash in reirement

Post by earlyout »

Almost 20 years into retirement and I keep only the cash needed for the next 2-3 months. When cash available gets below my needs for the next 30 days I sell something in a taxable account or take a distribution from an IRA. Why this? First of all, I want my funds invested and having idle cash sitting around is a wasted resource. The other reason for doing this, it forces me away from trying to guess what the market is going to do. Keeping a cash "bucket" creates the situation where one is trying to guess when to refill the "cash bucket" which to me is another form of market timing.
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

KlangFool wrote: โ†‘Mon Jan 20, 2020 10:59 am
chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
chrismckay,

My plan is to keep 2 years of expense in cash when I early retired. The main reason would be it gives me maximum flexibility in terms of tax management. When I withdraw and when I spend my money would be totally disassociated from each other.

You should read the following thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
Am I correct you see nothing in a Tax Deferred account as "cash"? That by your definition "cash" can only be held in after tax and Roth accounts?
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

earlyout wrote: โ†‘Mon Jan 20, 2020 11:38 am Almost 20 years into retirement and I keep only the cash needed for the next 2-3 months. When cash available gets below my needs for the next 30 days I sell something in a taxable account or take a distribution from an IRA. Why this? First of all, I want my funds invested and having idle cash sitting around is a wasted resource. The other reason for doing this, it forces me away from trying to guess what the market is going to do. Keeping a cash "bucket" creates the situation where one is trying to guess when to refill the "cash bucket" which to me is another form of market timing.
May I ask what your definition of cash is and what types for fixed income assets it includes?
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dbr
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Re: How many months expenses held in cash in reirement

Post by dbr »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:32 am
dbr wrote: โ†‘Mon Jan 20, 2020 11:25 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:19 am
chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
Can you explain what you consider cash (cash, checking accounts, saving accounts, money markets, I Bonds, short term bonds?) and how that differs from other Fixed Income assets in your thinking? I personally often struggle with the usefulness of really restrictive definitions of "cash" I sometimes see.
I have the same question. Why it should matter at all that one has one-two-three years of expenses in a cash savings account while holding 30 or 40 years of spending in a balanced portfolio of stocks and bonds completely escapes me. If you are worried about selling stocks in a taxable account while the market is down, you would just sell bonds in your retirement account and buy stocks there. You would do that anyway to rebalance during a market decline. If you are already 100% stocks having a couple years spending in cash is pretty irrelevant. There might be some special case, but hopefully common sense identifies what that is.
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
Right. That is what is always at issue in these discussions. For example, if the problem to be solved is to know that one can leave stocks and bonds untouched for a few years no matter what the market is doing, then one might hold three years spending in a savings or checking account. Of course, that leaves unresolved how or when to replace that money as it is spent. At this point begins the slippery slope into buckets. That also presumes that part of the problem is that somehow money in a savings account is different from money in a bond fund.

I don't have much fear that I can obtain a small fraction of my holdings in a Vanguard total bond market fund in short order if I need it. In fact that is probably more certain of being obtained than getting money from a savings account in a bank that for some reason has an IT glitch or has been hacked and not able to supply cash for a few days. As far as that goes there is almost nothing I spend money on from day to day that can't be charged on a credit card and there are actually a lot of things that have to be charged on a credit card, anything ordered online for example, or an airplane ticket if you aren't going to drive to the airport with a pocket stuffed with Benjamins.
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:41 am
KlangFool wrote: โ†‘Mon Jan 20, 2020 10:59 am
chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
chrismckay,

My plan is to keep 2 years of expense in cash when I early retired. The main reason would be it gives me maximum flexibility in terms of tax management. When I withdraw and when I spend my money would be totally disassociated from each other.

You should read the following thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
Am I correct you see nothing in a Tax Deferred account as "cash"? That by your definition "cash" can only be held in after tax and Roth accounts?
TheTimeLord,

The only exception is HSA. As far as I know, it generates no taxable income too. The key answer/question is tax management. If someone does not care how much taxes he/she pays in retirement, then, it won't matter. For the rest of us, cash helps a great deal in terms of tax management. And, the impact could be very significant. For example, the ACA cliff.

KlangFool
Stoic9
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Re: How many months expenses held in cash in reirement

Post by Stoic9 »

I lean toward those that say why have cash reserves. I have 46K in cash when entering my 3rd year of retirement. My passive income far exceeds my expenses. So why 46K? Not sure, it's grown over the past 2 years. I should probably just invest it but wifeiod keeps saying we'll spend more this year, no really this year....My financial retirement plan involved 4 pillars: Passive income, portfolio, rental property, zero debt. My Passive ended up much higher (put us in higher tax bracket) than planned mostly due to some changes in tenants that allowed us to place rents more in line with market thus increasing our passive income more than expected.
KlangFool
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:32 am
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
TheTimeLord,

But, you generate taxable income in the process. Meanwhile, someone with a bit more cash could liquidate the fixed income and/or stock in a new calendar year and pay fewer taxes. Or, the person could just move the stock and/or fixed income from the tax-deferred account into Roth/Taxable account independent from when the money is spent.

2 years of cash is good enough to take care of all the time-shifting needed for tax management.

KlangFool
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

Sandtrap wrote: โ†‘Mon Jan 20, 2020 11:14 am 2-3 years
Sleep factor
J๐Ÿ
Sandtrap is an excellent poster and a very level headed investor from my observations so I am going to take his post to illustrate my question. By his definition of "cash" he has 2-3 years of cash, but I don't really know what that means to him or what "cash" means to the OP. I on the other hand would answer the question more like 2-3 decades. That is because to me "cash" includes Savings Accounts, Checking Accounts, Money Markets, CDs, I-Bonds, High Quality bonds funds and so on. In fact, there is almost nothing in my Fixed Income portfolio that in my mind that I don't view as "cash". That is mainly because I pretty much only hold very safe shorter duration assets most of which are backed by government guarantees in my Fixed Income allocation as I preferred to take my risk through equity investment. And the problem I am trying to solve with my "cash" is to guarantee (as best one can) a certain standard of living through the remainder of my life. I would also point out that when calculating years of "cash" (expenses) the amount I use for the years pre-FRA is substantially higher than the years post-FRA because of income streams like SS, pensions, annuities and the like. So the amount I set aside to cover year 1 is significantly larger than the amount I set aside to cover year 20. The more consistent the definitions used by those who respond to you and the closer they are to your definitions the more useful the responses.
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

KlangFool wrote: โ†‘Mon Jan 20, 2020 11:52 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:32 am
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
TheTimeLord,

But, you generate taxable income in the process. Meanwhile, someone with a bit more cash could liquidate the fixed income and/or stock in a new calendar year and pay fewer taxes. Or, the person could just move the stock and/or fixed income from the tax-deferred account into Roth/Taxable account independent from when the money is spent.

2 years of cash is good enough to take care of all the time-shifting needed for tax management.

KlangFool
So what is your definition of "cash" because it sounds like stacks of bills under a mattress if it is not generating any income. Not saying there is right or wrong answer just saying to under responses you have to understand the responder's definition.
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Re: How many months expenses held in cash in reirement

Post by beehivehave »

The UST yield curve is 1.5% cash, 1.8% 10 year bond, 2.3% 30 year bond. Under current market conditions, it makes sense to underweight longer term fixed income, as it is paying little more than cash. Even if you think that lower or higher interest is equally likely, the bigger risk in terms of negative impact on future net worth is now more than usually inflation. Err on the side of cash.
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Re: How many months expenses held in cash in reirement

Post by ruralavalon »

chrismckay wrote: โ†‘Mon Jan 20, 2020 10:55 am I would be grateful to hear from retirees about how many months/years expenses are held in cash accounts.

Your thought process behind your cash reserve.

When do you top up your cash reserve ?, is it when markets present themselves favourably, or is there a set time frequency or some other method?

Chris... :D
We usually have a couple of months worth of expenses, net of Social Security, in our joint checking account. We have no cash, money market funds or CDs at all in our investing or retirement accounts. We have no savings account.

I take Required Minimum Distributions (RMDs) automatically every month from my rollover IRA proportionally from every fund in that account, paid to our joint checking account. The RMDs plus Social Security produce about what we require for expenses monthly.
Last edited by ruralavalon on Mon Jan 20, 2020 12:15 pm, edited 1 time in total.
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:09 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 11:52 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:32 am
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
TheTimeLord,

But, you generate taxable income in the process. Meanwhile, someone with a bit more cash could liquidate the fixed income and/or stock in a new calendar year and pay fewer taxes. Or, the person could just move the stock and/or fixed income from the tax-deferred account into Roth/Taxable account independent from when the money is spent.

2 years of cash is good enough to take care of all the time-shifting needed for tax management.

KlangFool
So what is your definition of "cash" because it sounds like stacks of bills under a mattress if it is not generating any income. Not saying there is right or wrong answer just saying to under responses you have to understand the responder's definition.
Physical cash, Checking account and Money Market fund. Something that always worth exactly $1. When you sell, it generates zero taxable income.

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dbr
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Re: How many months expenses held in cash in reirement

Post by dbr »

Stoic9 wrote: โ†‘Mon Jan 20, 2020 11:47 am I lean toward those that say why have cash reserves. I have 46K in cash when entering my 3rd year of retirement. My passive income far exceeds my expenses. So why 46K? Not sure, it's grown over the past 2 years. I should probably just invest it but wifeiod keeps saying we'll spend more this year, no really this year....My financial retirement plan involved 4 pillars: Passive income, portfolio, rental property, zero debt. My Passive ended up much higher (put us in higher tax bracket) than planned mostly due to some changes in tenants that allowed us to place rents more in line with market thus increasing our passive income more than expected.
It is invested. It is invested wherever you are holding it, be that a savings account, CDs, a checking account, or currency in a safe. The only issue is what is the risk and what is the return. If it is cash in a safe the real return is negative inflation and the variability of the return is the variability of inflation. If it is in a savings account the real return is probably near zero right now and the risk is the variability in checking account interest rates.

Note a retirement plan would include all the things you mention, but one might put income items in one sentence and assets in a second sentence. The two things are very different. Also risk and return for assets and cash flow analysis of income and expenses are two different things. The point is whether you are accruing your expenses and that 46k is already spent on your books or you are identifying assets and that 46k is invested in currency in a safe, or something. There is also accounting to be done for your business of owning rental real estate. That cash could also be a legitimate reserve for real estate contingencies, but it is still invested. You would probably have to educate me on how you do accounting across a personal investment portfolio and holding and managing rental real estate.
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

KlangFool wrote: โ†‘Mon Jan 20, 2020 12:15 pm
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:09 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 11:52 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:32 am
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
TheTimeLord,

But, you generate taxable income in the process. Meanwhile, someone with a bit more cash could liquidate the fixed income and/or stock in a new calendar year and pay fewer taxes. Or, the person could just move the stock and/or fixed income from the tax-deferred account into Roth/Taxable account independent from when the money is spent.

2 years of cash is good enough to take care of all the time-shifting needed for tax management.

KlangFool
So what is your definition of "cash" because it sounds like stacks of bills under a mattress if it is not generating any income. Not saying there is right or wrong answer just saying to under responses you have to understand the responder's definition.
Physical cash, Checking account and Money Market fund. Something that always worth exactly $1. When you sell, it generates zero taxable income.

KlangFool
Does your Checking account and Money Market not bear interest?
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Re: How many months expenses held in cash in reirement

Post by Ged »

Usually about 2-3 months. The 50% of my investments in fixed assets provides me a substantial ability to convert into cash at will without selling equities should the market decline.

I don't see a reason to keep a pile of cash around when bonds return more.

Yes I do incur a bit more tax liability as a result, but income avoidance to reduce tax liability doesn't make sense to me unless you are on the edge of a tax cliff.
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:20 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 12:15 pm
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:09 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 11:52 am
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:32 am
Agree, as long as the fixed income asset is high quality can be liquidated and settled in a short period of time it can function pretty much the same as cash as long as you have say 1 month's expenses in your checking account. Doesn't the answer really depend on what is the problem you are trying to solve with the "cash"?
TheTimeLord,

But, you generate taxable income in the process. Meanwhile, someone with a bit more cash could liquidate the fixed income and/or stock in a new calendar year and pay fewer taxes. Or, the person could just move the stock and/or fixed income from the tax-deferred account into Roth/Taxable account independent from when the money is spent.

2 years of cash is good enough to take care of all the time-shifting needed for tax management.

KlangFool
So what is your definition of "cash" because it sounds like stacks of bills under a mattress if it is not generating any income. Not saying there is right or wrong answer just saying to under responses you have to understand the responder's definition.
Physical cash, Checking account and Money Market fund. Something that always worth exactly $1. When you sell, it generates zero taxable income.

KlangFool
Does your Checking account and Money Market not bear interest?
Checking account ~ 0%. of 15K

MMA ~ 2% of 65K

The interest income is too small to matter in terms of tax management.

KlangFool
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TheTimeLord
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Re: How many months expenses held in cash in reirement

Post by TheTimeLord »

KlangFool wrote: โ†‘Mon Jan 20, 2020 12:24 pm
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:20 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 12:15 pm
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:09 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 11:52 am

TheTimeLord,

But, you generate taxable income in the process. Meanwhile, someone with a bit more cash could liquidate the fixed income and/or stock in a new calendar year and pay fewer taxes. Or, the person could just move the stock and/or fixed income from the tax-deferred account into Roth/Taxable account independent from when the money is spent.

2 years of cash is good enough to take care of all the time-shifting needed for tax management.

KlangFool
So what is your definition of "cash" because it sounds like stacks of bills under a mattress if it is not generating any income. Not saying there is right or wrong answer just saying to under responses you have to understand the responder's definition.
Physical cash, Checking account and Money Market fund. Something that always worth exactly $1. When you sell, it generates zero taxable income.

KlangFool
Does your Checking account and Money Market not bear interest?
Checking account ~ 0%. of 15K

MMA ~ 2% of 65K

The interest income is too small to matter in terms of tax management.

KlangFool
Have your considered replacing MM with I-Bonds?
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RetiredAL
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Re: How many months expenses held in cash in reirement

Post by RetiredAL »

I do not separate 'cash' from 'fixed income'. to me, it's all one bucket. Getting money out the the retirement accounts is quite simple to do, thus that is where I keep most of it. Wife has full POA to these accounts.

My primary withdrawal is from my 'lump sum IRA' which I run basically use a self-run annuity with a monthly withdrawal. Within that IRA, the withdrawal comes from a S/T Treasury fund that twice a year I rebuild to 18 months of withdrawal, thus it is usually never below 12 months of withdrawals. This gives me the option skip or delay funding. Fido automatically sells part of that fund monthly then transfers to my checking that amount sans taxes. Totally hands free to me. This Treasury fund is about 20% of the total fixed income in that IRA.

Additionally, I have my '401K IRA' which I occasionally dip into. It has some money in the core account which part of the fixed income AA and I can always sell something if I need more. Fido's core interest is about the same as the S/T Treasury.

My bank/checking reserves are about 2x my monthly expenses. S/T and Core interest is not great, but beats the bank by a mile, thus my reserves are at Fido.

When RMD's start, that will go into a joint taxable account at Fidelity. I had expected to start that this year, but now it's 2 years out.

We do have substantial Roth's at both Schwab and Fidelity, but those will be the last to spend money in the far future.
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Re: How many months expenses held in cash in reirement

Post by MathWizard »

Almost in retirement, but giving this lots of consideration.

To weather a 2 year downturn without touch the portfolio, all that is needed is 2 years of expenses beyond what is guaranteed.

So if I need 70K/yr and 60K/yr is guaranteed, I only need $10K/yr or $20K to meet my base need for income.

This is beyond short term potential expenses like a new roof or fridge or car,but those are already built into the $70K.

I expect to have at least $20K in CDs plus a month it two in savings for cash flow, so $30 to $40K.
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Re: How many months expenses held in cash in reirement

Post by KlangFool »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:27 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 12:24 pm
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:20 pm
KlangFool wrote: โ†‘Mon Jan 20, 2020 12:15 pm
TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:09 pm

So what is your definition of "cash" because it sounds like stacks of bills under a mattress if it is not generating any income. Not saying there is right or wrong answer just saying to under responses you have to understand the responder's definition.
Physical cash, Checking account and Money Market fund. Something that always worth exactly $1. When you sell, it generates zero taxable income.

KlangFool
Does your Checking account and Money Market not bear interest?
Checking account ~ 0%. of 15K

MMA ~ 2% of 65K

The interest income is too small to matter in terms of tax management.

KlangFool
Have your considered replacing MM with I-Bonds?
No. I am not an excessive optimizer. Why work so hard to reduce less than 2K of interest income? I have a life to live.

KlangFool
chw
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Re: How many months expenses held in cash in reirement

Post by chw »

4 years of expenses held in cash, S-T Bonds, but only to the extent expected cash flows during this time period do not cover expenses. Rationale is that 4 years is generally the longest time period for markets to begin to recover from a recession when one occurs.
Last edited by chw on Mon Jan 20, 2020 8:16 pm, edited 1 time in total.
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Sandtrap
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Re: How many months expenses held in cash in reirement

Post by Sandtrap »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 12:07 pm
Sandtrap wrote: โ†‘Mon Jan 20, 2020 11:14 am 2-3 years
Sleep factor
J๐Ÿ
Sandtrap is an excellent poster and a very level headed investor from my observations so I am going to take his post to illustrate my question. By his definition of "cash" he has 2-3 years of cash, but I don't really know what that means to him or what "cash" means to the OP. I on the other hand would answer the question more like 2-3 decades. That is because to me "cash" includes Savings Accounts, Checking Accounts, Money Markets, CDs, I-Bonds, High Quality bonds funds and so on. In fact, there is almost nothing in my Fixed Income portfolio that in my mind that I don't view as "cash". That is mainly because I pretty much only hold very safe shorter duration assets most of which are backed by government guarantees in my Fixed Income allocation as I preferred to take my risk through equity investment. And the problem I am trying to solve with my "cash" is to guarantee (as best one can) a certain standard of living through the remainder of my life. I would also point out that when calculating years of "cash" (expenses) the amount I use for the years pre-FRA is substantially higher than the years post-FRA because of income streams like SS, pensions, annuities and the like. So the amount I set aside to cover year 1 is significantly larger than the amount I set aside to cover year 20. The more consistent the definitions used by those who respond to you and the closer they are to your definitions the more useful the responses.
+14
Great points and clarification.

Same here: edited my original post to include your same dispersion. (minus bond funds)
Yes: if including Bond Funds and equiv. in a LMP, then 2-4 decades.

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retired@50
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Re: How many months expenses held in cash in reirement

Post by retired@50 »

I hold about 2 years worth of expenses in cash (i.e. money market fund). As an early retiree, I'm not yet accessing Rollover IRA or Social Security money, so I sell when the time is right and manage my capital gains as needed.

It would appear Klang Fool and I are in a somewhat similar position.

Regards,
Last edited by retired@50 on Mon Jan 20, 2020 2:21 pm, edited 1 time in total.
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Leif
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Re: How many months expenses held in cash in reirement

Post by Leif »

I keep about 1 year worth of expenses, less income sources, in cash at the time I replenish the cash. To calculate that number I use a cash flow spreadsheet with my estimated expenses and income. I'm retired, but not yet withdrawing SS nor RMDs. I have a CD ladder bridge to SS@70 then RMDs. So I replenish my cash when my CDs mature. At SS time I'll keep less cash, but I'll still aim for 1 year of standby cash. Once I reach RMD age I'll top off my cash from that.

Cash for me is money market and savings accounts.
Stoic9
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Re: How many months expenses held in cash in reirement

Post by Stoic9 »

dbr wrote: โ†‘Mon Jan 20, 2020 12:17 pm
Stoic9 wrote: โ†‘Mon Jan 20, 2020 11:47 am I lean toward those that say why have cash reserves. I have 46K in cash when entering my 3rd year of retirement. My passive income far exceeds my expenses. So why 46K? Not sure, it's grown over the past 2 years. I should probably just invest it but wifeiod keeps saying we'll spend more this year, no really this year....My financial retirement plan involved 4 pillars: Passive income, portfolio, rental property, zero debt. My Passive ended up much higher (put us in higher tax bracket) than planned mostly due to some changes in tenants that allowed us to place rents more in line with market thus increasing our passive income more than expected.
It is invested. It is invested wherever you are holding it, be that a savings account, CDs, a checking account, or currency in a safe. The only issue is what is the risk and what is the return. If it is cash in a safe the real return is negative inflation and the variability of the return is the variability of inflation. If it is in a savings account the real return is probably near zero right now and the risk is the variability in checking account interest rates.

Note a retirement plan would include all the things you mention, but one might put income items in one sentence and assets in a second sentence. The two things are very different. Also risk and return for assets and cash flow analysis of income and expenses are two different things. The point is whether you are accruing your expenses and that 46k is already spent on your books or you are identifying assets and that 46k is invested in currency in a safe, or something. There is also accounting to be done for your business of owning rental real estate. That cash could also be a legitimate reserve for real estate contingencies, but it is still invested. You would probably have to educate me on how you do accounting across a personal investment portfolio and holding and managing rental real estate.
I'll ignore the first paragraph on semantics (I believe the OP was asking about cash reserves), as for the second; Consider my pillars as subchapters of a book (I had three chapters {Finance, health, relationships}). I could go into detail on each of how they work and interact to tell a successful financial retirement story (that was not the question asked). My real estate is not a business, I'm an active owner but not a professional. I maintain my rents in a separate account that holds funds for maintaining the properties. With almost 30 years experience I'm able to gage repairs and emergency funds needed. Above that I transfer monies from that account to my personal account and track under passive income (usually quarterly).
earlyout
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Re: How many months expenses held in cash in reirement

Post by earlyout »

TheTimeLord wrote: โ†‘Mon Jan 20, 2020 11:43 am
earlyout wrote: โ†‘Mon Jan 20, 2020 11:38 am Almost 20 years into retirement and I keep only the cash needed for the next 2-3 months. When cash available gets below my needs for the next 30 days I sell something in a taxable account or take a distribution from an IRA. Why this? First of all, I want my funds invested and having idle cash sitting around is a wasted resource. The other reason for doing this, it forces me away from trying to guess what the market is going to do. Keeping a cash "bucket" creates the situation where one is trying to guess when to refill the "cash bucket" which to me is another form of market timing.
May I ask what your definition of cash is and what types for fixed income assets it includes?
Certainly. Cash to me is what is available in a checking account, either at the local B&M bank or at Schwab Bank. When I need cash I sell whatever keeps me close to my target AA of 50:50.
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Re: How many months expenses held in cash in reirement

Post by Jack FFR1846 »

I've got about $53k in various bank/credit union/high yield accounts. I tend to flow a modest amount of cash in and out, so there's lots there.

I also have about $370k of US Savings Bonds which can be cashed and available as quickly as I can walk the paper bonds into the credit union. I consider this also part of my Bond allocation.
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celia
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Re: How many months expenses held in cash in reirement

Post by celia »

This is a strange question. What do you mean by "month's expenses"? All of our retirement living expenses are covered by our income streams, so I guess our answer is 0.

But what if we only need to spend $1,000 of savings each month to supplement our income? Then the answer would be the multiple of how many thousands we have.

I think a more relevant question would be "How much of your assets do you need to spend each month in retirement to supplement your monthly retirement income (SS, pensions, annuities)?"
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quisp65
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Re: How many months expenses held in cash in reirement

Post by quisp65 »

I'm retiring in 4-8 months and I'm using roughly 1-3 years in Short Term corporate bond funds as my living expense account (CASH). I need about a couple of years in liquid short term funds due to the rest of my fixed income is floating in a couple of CDs stretched over 3 years. This combo of bank CDs & short term corporate bond fund should give me the liquidity and safety I need. Corp bond funds has a rare risk but I figure I'm just mimicing something like BND being mostly CDs and a little of corporate.
Last edited by quisp65 on Mon Jan 20, 2020 4:14 pm, edited 1 time in total.
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Re: How many months expenses held in cash in reirement

Post by jebmke »

Typically 2-6 weeks of cash depending on dividend schedules etc.
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Re: How many months expenses held in cash in reirement

Post by heerekj1 »

I have been retired for 4 years and I find that my budgeted expenses are mostly covered by pension and social security. I add another $1,500/month from cash to cover that. I have enough cash in the bank and taxable brokerage account to cover that.

However, I have other expenses which are not very predictable: money to pay taxes on Roth Conversions, money to help kids purchase homes, money for a new car, money for remodeling home, possible money for building a new home, etc..

So which number do I use? Average actual expenses for the last 2 years or budgeted expenses.

I have decided to put in place a cash cushion to cover at least 2 years of actual expenses. Most of that is already in my taxable account but I will buy some short-term bonds in my Roth IRA and hope not to need. I will also buy some short term bonds in my tIRA which I really hope not to need. I think I will sleep better. All forms of cash will represent about 10% of our portfolio.
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Re: How many months expenses held in cash in reirement

Post by remomnyc »

I keep 12 months of expenses in a savings account (cash). I keep 12 years in fixed income (CDs and bond funds), but that's all in tax deferred accounts that I won't access until 59-1/2. After dividends and when my cash is below 6 months of expenses, I sell in taxable whatever has the least gains. I rebalance in tax deferred if the sale triggers my asset allocation bands.
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Re: How many months expenses held in cash in reirement

Post by Christine_NM »

To answer literally, I have 10 years current expenses in cash in FDIC accounts. To me, trying to execute a retirement plan, this means nothing. I use monthly and quarterly income to pay monthly expenses. RMD pays safe harbor income tax amount.

The cash is for the unexpected or irregular expenses, like new car, appliances, home maintenance, gifts, donations that would overwhelm my pension, annuity, and SS (PASS). Enough is left over from PASS after monthly expenses to replenish cash to the 10 year level every few months.

I never expect to be relying on the portfolio to pay the light bill or buy food. If that happens, my plan will have failed. :(

Things are different for those without pensions and annuities... then the portfolio is more than a comfy cushion.
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UpperNwGuy
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Re: How many months expenses held in cash in reirement

Post by UpperNwGuy »

None.
Rudedog
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Re: How many months expenses held in cash in reirement

Post by Rudedog »

One year in Vanguard Prime Money Market. Then I have CDs maturing every June 30 for seven years, if I need cash, I'll tap those CDs each year.
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Re: How many months expenses held in cash in reirement

Post by hulburt1 »

I'll be 67 this year. I have 3 years in mm with vanguard. I have 780 every week to my checking. When the next cash come in I move what I did not spend to savings for tax's and car or house repair. I will take SS at 70. Every year around the first I'll put 50000 to 60000 in MM selling funds. I have been putting 40000 in Roth on the first of each year. Right now have 100000 in MM. If my savings get to big I just stop taking money out of MM.
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Re: How many months expenses held in cash in reirement

Post by goodenyou »

The answer to this question is prompting a lot of discussion on the concept of utilizing buffered assets. The idea of "waking" dormant assets such as home equity or cash value of life insurance can be a strategy to minimize the drag of excessive cash positions on portfolio performance. The idea of holding cash to mitigate sequence risk can also be mitigated by utilizing annuity mortality credits. It is an interesting approach that has piqued my interest of late. I am not at retirement age or mindset yet, but i am trying to consider all possible strategies including probability-based (stock/bond) and safety-first (insurance-based) approaches. I am currently reading Wade Pfau's newest book, "Safety-First Retirement Planning, An Integrated Approach to a Worry-Free Retirement". I am enjoying it so far.
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