Any retirees get through Covid crisis without large cash reserve?

[Dick D]

I think the question is premature as I do no think that we are close to being through the COVID crisis.

[heyyou]

No need for a cash reserve here. As a retiree with some income and low expenses, like any good BH, just living within my means in a low cost area with reliable used cars and a small, no-mortgage residence.

Pray tell, what could happen, that having a large cash reserve would matter, when shares from a bond fund can be sold as needed since the stock index shares are down? Perhaps, some own only combined funds like Wellington or Wellesley?

[Random Poster]

Pray tell, what could happen, that having a large cash reserve would matter, when shares from a bond fund can be sold as needed since the stock index shares are down?

Well, what do you do when the shares of the bond fund are down at the same time as the stock index shares are?

[Doom&Gloom]

There is nothing about the current (COVID) situation that has required me to have more cash-on-hand than before.

+1

If anything, our expenses have decreased due to less travel and less dining out.

[hudson]

As a retiree with some income and low expenses, like any good BH, just living within my means in a low cost area with reliable used cars and a small, no-mortgage residence.

YES!
What's not to like!

https://www.alsintl.com/resources/poetr ... -the-road/

[ruralavalon]

Pray tell, what could happen, that having a large cash reserve would matter, when shares from a bond fund can be sold as needed since the stock index shares are down?

Well, what do you do when the shares of the bond fund are down at the same time as the stock index shares are?

Not a likely event.

More likely one or both will be up if a large cash need arrives. Currently our bond fund is up 6.30% year to date, and up 11.62% in the last 12 months.

And a large cash need may not arise.

We have stayed at home since March 11, so spending is down not up.

[FelixTheCat]

What did you guys do in 2008 and you lost 40% in equities? Did you simply draw off your bond funds?

[Random Poster]

Not a likely event.

Not likely doesn’t mean an event “can’t” or “won’t” occur.

Besides, didnt both bonds and stocks drop at the same time during the middle of March? A mere 2 months ago?

More likely one or both will be up if a large cash need arrives.

Honestly, that seems like sheer speculation to me.

[22twain]

Besides, didnt both bonds and stocks drop at the same time during the middle of March? A mere 2 months ago?

Vanguard Total Bond Market ETF (BND) dropped about 7%. Five weeks after the pre-dip high, it had pretty much recovered.

Vanguard Total World Stock ETF (VT) dropped about 33%. It's still down about 12% from the pre-dip high.

I'm actually drawing off Total Bond Market for my expenses, until I start Social Security in about 3.5 years. But I always keep at least a few months in cash, and in fact had more than a year's worth of cash at the end of February before the dip started, so temporary dips in BND don't bother me.

[ruralavalon]

Not a likely event.

Not likely doesn’t mean an event “can’t” or “won’t” occur.

Besides, didnt both bonds and stocks drop at the same time during the middle of March? A mere 2 months ago?

And then bonds promptly recovered, and stocks are by now almost fully recovered.

When we took our monthly Required Minimum Distributions over the last few months it did not bother us one bit if stocks and bonds were down that month. As mentioned before I do understand that other retirees like a large cash reserve in order to to feel comfortable and sleep well at night. I just say that is not necessary for us.

On the other hand we would have lost considerable returns had we kept a large cash reserve over the years since retiring.

Think about opportunity cost when thinking about keeping a large cash reserve.

More likely one or both will be up if a large cash need arrives.

Honestly, that seems like sheer speculation to me.

Is it not sheer speculation that when a large cash need has materialized that everything will drop at once?

More often than not both bonds and stocks are up, why else would anyone invest in them.

Why assume that stocks and bonds will be down when a large cash need materializes?

Remember we are talking about retirees with no loss of employment to worry about, we are already unemployed.

[Wanderingwheelz]

We haven't had significant cash reserves in decades. Retired in 2007. I think I unwound our EF in the mid-90s.

Bogleheads:

Like others, I haven't had significant cash reserves in decades. If an emergency arrives I know I can get money from my bank, credit card, portfolio, etc..

I think it is usually a mistake to hold a separate low-yielding "emergency fund" that may never be needed.

The current pandemic is a good test.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success."

I have to disagree with you in that point Taylor. I think it has to do with what stage of life you are at, more than anything else. If we were retired, collecting our SS checks and pension checks, and they covered most of our expenses, then I can see a reduced need for a separate EF. However, if a person is still in the accumulation stage ( along with a mortgage and/or other bills) and seeing how many people were laid off (same feeling from 2008), I think having at least 6 months of cash on hand for bills, etc and not have to worry about taking money from their 401 accts or start getting into credit card debt gives people a little piece of mind and reduced stress in their lives, even if it creates a little bit of a drag on their total return.

Well said. When I read the comment I was unsure that it applied to many of us who’s lives are more volatile than some others when it comes to earned income and expenses.

I never in a million years thought my wife and I would go from earning $250,000 In 2019 to perhaps having a loss this year. Never in a million years.

[Random Poster]

And then bonds promptly recovered, and stocks are by now almost fully recovered.

Government intervention can be a wonderful thing.

Is it not sheer speculation that when a large cash need has materialized that everything will drop at once?

More often than not both bonds and stocks are up, why else would anyone invest in them.

It just seems to me that it may be overly optimistic to think that, at the precise moment that one needs to generate some cash, the prices of one’s holdings will be higher than they once were (or, alternatively, high enough to take care of the cash need, and presumably without too much—or, better yet, any—negative effects on one’s future investment outcomes).

[JaneyLH]

We didn’t really do anything. Have comfortable asset allocation.

[ruralavalon]

And then bonds promptly recovered, and stocks are by now almost fully recovered.

Government intervention can be a wonderful thing.

Is it not sheer speculation that when a large cash need has materialized that everything will drop at once?

More often than not both bonds and stocks are up, why else would anyone invest in them.

It just seems to me that it may be overly optimistic to think that, at the precise moment that one needs to generate some cash, the prices of one’s holdings will be higher than they once were (or, alternatively, high enough to take care of the cash need, and presumably without too much—or, better yet, any—negative effects on one’s future investment outcomes).

I guess I am optimistic, I am generally comfortable with our asset allocation. Overly optimistic? Time will tell.

Right now our 50/50 portfolio is down about 2.11% year to date, that's disappointing but not a catastrophe. I am much more concerned about health issues than any financial issues.

I do understand that other people are more comfortable with a large cash reserve. Everyone has to use the allocation that is comfortable for them.