Am I holding too much cash?

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Topic Author
bushy9277
Posts: 4
Joined: Wed Jun 24, 2020 8:57 pm

Am I holding too much cash?

Post by bushy9277 »

Debt: No Debt

Tax Filing Status: Single

Tax Rate: 24% Federal, 5% State

State of Residence: MA

Age: 64

Current retirement assets

Taxable
$1.1M in brokerage

Her Roth IRA at Vanguard
$225,000

Her Traditional IRA at Vanguard
$350,000K

Pension
Also have a Massachusetts Teachers Retirement System Pension that is around $3,000 a month currently. Plan to retire in 2 years. Also will have social security- see #2 below.

Net worth Approx. $1.6M

Questions:
1.) I have accumulated a large portion of cash, as I currently have about $105K. Is this too much to have in cash for me? Should I be investing it, and if so how much? I was thinking I can use some for an emergency fund (i.e. 3 months work of expenses of $15-20K or so)
2.) When should I elect social security? I saw there was a rule in MA where you can have a pension and also claim social security if you had paid in it for 10 years, which I have done so I think I can claim SS as well
3.) For MA pension for teachers - should I be contributing to the max for the pension? Or is there a set fixed amount that you contribute and you can’t change it?
Grt2bOutdoors
Posts: 25089
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Am I holding too much cash?

Post by Grt2bOutdoors »

bushy9277 wrote: Mon Jan 23, 2023 9:48 pm Debt: No Debt

Tax Filing Status: Single

Tax Rate: 24% Federal, 5% State

State of Residence: MA

Age: 64

Current retirement assets

Taxable
$1.1M in brokerage

Her Roth IRA at Vanguard
$225,000

Her Traditional IRA at Vanguard
$350,000K

Pension
Also have a Massachusetts Teachers Retirement System Pension that is around $3,000 a month currently. Plan to retire in 2 years. Also will have social security- see #2 below.

Net worth Approx. $1.6M

Questions:
1.) I have accumulated a large portion of cash, as I currently have about $105K. Is this too much to have in cash for me? Should I be investing it, and if so how much? I was thinking I can use some for an emergency fund (i.e. 3 months work of expenses of $15-20K or so)
2.) When should I elect social security? I saw there was a rule in MA where you can have a pension and also claim social security if you had paid in it for 10 years, which I have done so I think I can claim SS as well
3.) For MA pension for teachers - should I be contributing to the max for the pension? Or is there a set fixed amount that you contribute and you can’t change it?
Cash - do you have or do you anticipate any large cash expenditures between now and the time you retire?
Social Security - have you created an account at www.ssa.gov and seen what your expected social security benefit will be at your full retirement age and age 70? How is the longevity in your family history? How's your health? All of these things play a role in what time is optimal for receiving it.
Retirement - how much do you estimate you need to live on monthly/annually? Will your pension and assets support that living expense or will you need Social Security to bridge the gap?

Teachers pension - what does your plan require to obtain the maximum payout, usually the formula is years of service times some multiplier of your salary. Have you gone to the pension website or read the publications to determine what Tier you are in? Unless there are members on this forum who have specific knowledge of the MA teachers pension system it will be difficult to answer those questions for you.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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SmileyFace
Posts: 7831
Joined: Wed Feb 19, 2014 9:11 am

Re: Am I holding too much cash?

Post by SmileyFace »

for Question 1:

Will you be able to live off of your pension+SS in retirement?
Are you a homeowner (requiring periodic maintenance and therefore a potentially larger emergency fund?

If answer to first question is "Yes" and second is "No" I wouldn't hold much cash.
Last edited by SmileyFace on Tue Jan 24, 2023 8:48 am, edited 1 time in total.
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SmileyFace
Posts: 7831
Joined: Wed Feb 19, 2014 9:11 am

Re: Am I holding too much cash?

Post by SmileyFace »

For Question 2:

I have heard the rules on Pension and SS in MA are complex. I heard they consider it double-dipping such that your SS will be reduced by some percentage of your Pension. Someone told me that they were left with a Social Security check of about $5 monthly after it was reduced by pension amounts. HOWEVER - I am not an expert - this is all hearsay from a friend. You should definitely look into this.

EDIT ADD:
Reference to get started: https://mtrs.state.ma.us/service/social-security/
brad.clarkston
Posts: 1546
Joined: Fri Jan 03, 2014 7:31 pm
Location: Kansas City, MO

Re: Am I holding too much cash?

Post by brad.clarkston »

That's roughly 7% of your net worth so no I wouldn't think it's to much.
10%+ might be a different story.
-- Only a Sith deals in absolutes --
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cbox
Posts: 120
Joined: Mon Dec 19, 2022 3:52 am

Re: Am I holding too much cash?

Post by cbox »

bushy9277 wrote: Mon Jan 23, 2023 9:48 pm I have accumulated a large portion of cash, as I currently have about $105K. Is this too much to have in cash for me?
No.

Just put it in something that has some yield (but is still accessible if you need it).
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WoodSpinner
Posts: 2955
Joined: Mon Feb 27, 2017 12:15 pm

Re: Am I holding too much cash?

Post by WoodSpinner »

OP,

Do you or your spouse (both employed?) pay into Social Security in addition to your MA pension?

If not, you may find this calculator helpful ..
https://www.ssa.gov/benefits/retirement ... pjs04.html

Unfortunately WEP and GPO will not be your friends….

WoodSpinner
User avatar
gatorking
Posts: 1333
Joined: Tue Feb 20, 2007 5:15 pm
Location: MA

Re: Am I holding too much cash?

Post by gatorking »

WoodSpinner wrote: Tue Jan 24, 2023 9:36 am OP,

Do you or your spouse (both employed?) pay into Social Security in addition to your MA pension?

If not, you may find this calculator helpful ..
https://www.ssa.gov/benefits/retirement ... pjs04.html

Unfortunately WEP and GPO will not be your friends….

WoodSpinner
Tax filing status = single
radiowave
Posts: 3023
Joined: Thu Apr 30, 2015 5:01 pm

Re: Am I holding too much cash?

Post by radiowave »

Cash is fungible so if you have an immediate need , e.g., a new car because the old one broke down, have unexpected medical bills, need to cover the high insurance deductible to replace a roof after a hail storm, purchasing a new house, or [fill in your common emergency or unexpected expense] then cash and cash equivalents can be a benefit over selling investments.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
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nisiprius
Advisory Board
Posts: 48485
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Am I holding too much cash?

Post by nisiprius »

This is always, always, always a personal choice.

Three major institutions are competing. They all want to hold your money. The three are: banks, investment firms, and insurance companies. They will all have reasons to give your money to them and not to the others.

I don't personally see any problem with having $105,000 in cash. (As you'd guess, that's because I have more).

Here are a couple of pro-cash talking points. There are also anti-cash talking points but I'll just mention some pro-cash ones because you hear them less often.

1) From an investing point of view, assuming the cash is in an interest-bearing account, the difference between cash and bonds is much less than the difference between bonds and stocks.

For example, even in a 60/40 portfolio, if we replace bonds with "cash" (PortfolioVisualizer represents "cash" with Treasury bills, which is not too different from good bank savings accounts), the difference is there, but it's not huge. I definitely don't recommend doing this, but the point is it wouldn't be all that bad.

Source

Image

The same thing is even more true of safe withdrawal rates. Using Vanguard's calculator, and setting the withdrawal rate by trial and error to produce a 5% failure rate, the safe withdrawal rate was 3.6% for 60/40 stocks/bonds, 3.4% for 60/40 stocks/cash.

2) People play games with the word "cash." Literal cash--physical currency or a non-interest-bearing bank account will get savaged by inflation (even at 2%!) and isn't a good idea. But things that are often called "cash," including Treasury bills, good competitive bank accounts, and money market mutual funds, have historically kept up with inflation--with some exceptional periods when interest rates were capped by law. Still, long-term, even including those periods, they've kept up. Holding cash isn't the financial disaster some would have you believe.

3) In a crisis, it would be easier for my spouse to deal with money in a joint account at a bank, then to transfer money from (say) Vanguard. Yes, she has transact rights on my account. But if you don't log into an account several times a year it is hard to "keep the picture" of what's there. You forget procedures. You forget the mechanics of withdrawing. Websites notice they haven't seen you for a while and put you through the authentication wringer ("Did I say we had honeymooned in 'Niagara Falls,' 'niagarafalls,' or 'niagara?'") She would need to decide whether to draw from her account or mine, which of the three accounts (her Roth, my Roth, my rollover TIRA) and which mutual funds. And, in fact, Vanguard has revamped the website for a fresh, new, contemporary look (gag blargh hate hate hate) since the last time she's logged on.
4) You will hear the phrase "100% invested," as if only securities were investments and bank accounts were not. This is factually incorrect, I think. I've been told by a financial economist that "savings" means whatever you don't spend, and "investments" means wherever you put your savings. A bank account is an investment. It's just an investment that investment firms don't want you to make.

It's nice to have big chunks of cash handy, and it's not a crime.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
WoodSpinner
Posts: 2955
Joined: Mon Feb 27, 2017 12:15 pm

Re: Am I holding too much cash?

Post by WoodSpinner »

gatorking wrote: Tue Jan 24, 2023 9:43 am
WoodSpinner wrote: Tue Jan 24, 2023 9:36 am OP,

Do you or your spouse (both employed?) pay into Social Security in addition to your MA pension?

If not, you may find this calculator helpful ..
https://www.ssa.gov/benefits/retirement ... pjs04.html

Unfortunately WEP and GPO will not be your friends….

WoodSpinner
Tax filing status = single
Okay, so have YOU been pay8ng into SS?
secondopinion
Posts: 4058
Joined: Wed Dec 02, 2020 12:18 pm

Re: Am I holding too much cash?

Post by secondopinion »

nisiprius wrote: Tue Jan 24, 2023 11:05 am This is always, always, always a personal choice.

Three major institutions are competing. They all want to hold your money. The three are: banks, investment firms, and insurance companies. They will all have reasons to give your money to them and not to the others.

I don't personally see any problem with having $105,000 in cash. (As you'd guess, that's because I have more).

Here are a couple of pro-cash talking points. There are also anti-cash talking points but I'll just mention some pro-cash ones because you hear them less often.

1) From an investing point of view, assuming the cash is in an interest-bearing account, the difference between cash and bonds is much less than the difference between bonds and stocks.

For example, even in a 60/40 portfolio, if we replace bonds with "cash" (PortfolioVisualizer represents "cash" with Treasury bills, which is not too different from good bank savings accounts), the difference is there, but it's not huge. I definitely don't recommend doing this, but the point is it wouldn't be all that bad.

Source

Image

The same thing is even more true of safe withdrawal rates. Using Vanguard's calculator, and setting the withdrawal rate by trial and error to produce a 5% failure rate, the safe withdrawal rate was 3.6% for 60/40 stocks/bonds, 3.4% for 60/40 stocks/cash.

2) People play games with the word "cash." Literal cash--physical currency or a non-interest-bearing bank account will get savaged by inflation (even at 2%!) and isn't a good idea. But things that are often called "cash," including Treasury bills, good competitive bank accounts, and money market mutual funds, have historically kept up with inflation--with some exceptional periods when interest rates were capped by law. Still, long-term, even including those periods, they've kept up. Holding cash isn't the financial disaster some would have you believe.

3) In a crisis, it would be easier for my spouse to deal with money in a joint account at a bank, then to transfer money from (say) Vanguard. Yes, she has transact rights on my account. But if you don't log into an account several times a year it is hard to "keep the picture" of what's there. You forget procedures. You forget the mechanics of withdrawing. Websites notice they haven't seen you for a while and put you through the authentication wringer ("Did I say we had honeymooned in 'Niagara Falls,' 'niagarafalls,' or 'niagara?'") She would need to decide whether to draw from her account or mine, which of the three accounts (her Roth, my Roth, my rollover TIRA) and which mutual funds. And, in fact, Vanguard has revamped the website for a fresh, new, contemporary look (gag blargh hate hate hate) since the last time she's logged on.
4) You will hear the phrase "100% invested," as if only securities were investments and bank accounts were not. This is factually incorrect, I think. I've been told by a financial economist that "savings" means whatever you don't spend, and "investments" means wherever you put your savings. A bank account is an investment. It's just an investment that investment firms don't want you to make.

It's nice to have big chunks of cash handy, and it's not a crime.
Cash is knocked quite a bit but I am glad that someone is speaking of the positives of cash. Another thing I might add is that it is probably one of the only asset classes where it is possible to beat the market (if that market is defined as 3-month treasury bills); between all the competition for your business, good offers can exist to beat the index (if not, it is simple enough to buy the treasury bills). I take the ignoring of <1 year maturity bonds in total bond market fund as a hint that I should do this part myself. :wink:
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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