Retired Investors - Do You Keep Cash For Down Years

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Ckprocker
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Retired Investors - Do You Keep Cash For Down Years

Post by Ckprocker » Mon Mar 18, 2019 10:29 am

Some retired investors keep no cash and just draw directly from investments during their retirement.
For a basic 3 or 4 fund portfolio, how does that work out when the markets go down for an extended period of time because of a recession?

Why not have some cash on hand to help make up the difference for those down times? I've read some books and articles that say to do this.

Could you please explain how you handle your investment strategy when it comes to cash especially in extended down markets?

Trying to learn from the voices of experience here :happy
Thanks

jebmke
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by jebmke » Mon Mar 18, 2019 10:32 am

I retired in December, 2007. During 2008-09 I was simultaneously withdrawing funds from my bond account to pay for bills as well as periodically re-balancing into equity to maintain my asset allocation.
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RickBoglehead
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by RickBoglehead » Mon Mar 18, 2019 10:33 am

Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
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AlohaJoe
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by AlohaJoe » Mon Mar 18, 2019 10:35 am

No, I don't keep cash.

In an extended down market I wouldn't rely on asset allocation parlor tricks to make any significant difference. The only thing that helps is cutting expenses. So I'd cut expenses.

The Casualty
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by The Casualty » Mon Mar 18, 2019 10:40 am

We keep 2 years cash in IRA, Pension and SS cover all our living expenses +. That's about 2.65% of our total portfolio which is 50/50.

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midareff
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by midareff » Mon Mar 18, 2019 10:40 am

I keep about a year of supplemental cash as SS and my pension can pay our bills. Portfolio withdrawals are to fund travel and luxuries and except for the RMD, which could be reinvested in taxable, can be discontinued. BTW, with Ally Savings paying 2.2% it's not the end of the world to hold some.

marcopolo
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by marcopolo » Mon Mar 18, 2019 10:44 am

Ckprocker wrote:
Mon Mar 18, 2019 10:29 am
Some retired investors keep no cash and just draw directly from investments during their retirement.
For a basic 3 or 4 fund portfolio, how does that work out when the markets go down for an extended period of time because of a recession?

Why not have some cash on hand to help make up the difference for those down times? I've read some books and articles that say to do this.

Could you please explain how you handle your investment strategy when it comes to cash especially in extended down markets?

Trying to learn from the voices of experience here :happy
Thanks
What do you mean by "just draw directly from investments"?
A balanced portfolio would likely have a healthy amount of Fixed Income assets, which might include cash-like instruments such as CDs, MM funds, etc.
Drawing from those asset classes when the equity side of portfolio is down to maintain desired asset allocation is a very reasonable approach.

Keeping a separate "cash" cushion outside of your portfolio for such purposes is just unnecessary mental accounting that just essentially lowers your equity allocation, which may, or may not be what you want.
Once in a while you get shown the light, in the strangest of places if you look at it right.

dkturner
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by dkturner » Mon Mar 18, 2019 10:50 am

We keep a sizeable money market fund balance for extraordinary expenses, like replacing the HVAC system, taking an unplanned vacation, or buying a new vehicle. We would prefer not having to take a distribution from an IRA or incur a capital gain from a taxable account.

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Sheepdog
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Sheepdog » Mon Mar 18, 2019 10:53 am

Because I do take withdrawals monthly for expenses I do keep in good market years an amount equal to 3 to 5 years of normal withdrawal needs in money market and short term bond funds so that I wont have to take from stock containing funds in a down year like in 2008-09. I didn't do that at the beginning of that collapse and I paid dearly for not having that protection. This is the panic thread started in October 2008 which led me to this. viewtopic.php?f=10&t=25126 That thread has been updated several times over the years since.

(edited to correct dates.)
Last edited by Sheepdog on Mon Mar 18, 2019 11:00 am, edited 2 times in total.
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BluesH
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by BluesH » Mon Mar 18, 2019 10:54 am

I agree with marcopolo. If you have 25x - 30x expenses in a 50/50 portfolio, that means you have 12x-15x in fixed income instruments. Mine is a combination of bond funds, CDs, and yes, MM. If equities are down, you would naturally draw from those fixed instruments in order to rebalance.

KlangFool
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by KlangFool » Mon Mar 18, 2019 11:00 am

OP,

Keeping one to three years of expense in cash could be useful in term of tax management. You can manage your capital gain, Roth conversion, and 401K withdrawal independent of your annual expense requirement.

That will be my plan when I retired.

KlangFool

rkhusky
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by rkhusky » Mon Mar 18, 2019 11:03 am

In a down year, you should be withdrawing from fixed income to help rebalance to your AA. And likely buying stock too.

livesoft
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by livesoft » Mon Mar 18, 2019 11:03 am

I keep no cash on hand because I am happy to sell my bond funds to buy more equities when they drop in a recession and also to pay for my expenses.

This may help you:

I treat Bond funds same as cash when the market declines.
I treat Equity funds same as cash when the market goes up.
I treat Bond and Equity funds same as cash when the market goes nowhere.
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German Expat
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by German Expat » Mon Mar 18, 2019 11:30 am

I am still a couple years away from retirement but I am curious if everybody that has 3 years or more in cash (money market etc.) available does just replenish it monthly / quarterly or let it drain to 1 year. Also there is a cash drag on your return.
Basically what I am trying to figure out what rules you use to go from 3 years back to 1 year (e.g. in case there is a downturn you will not sell, but how big does the downturn need to be, 20%, 50%?) and will you then replenish regardless how bad the market is or go down to 0 and only then sell?
I can understand the tax management perspective by moving taxable gains into low tax years but genuinely curious how you handle it now or plan to handle it when the time comes.

Dandy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Dandy » Mon Mar 18, 2019 11:35 am

retired age 71 and have at least 19 years of draw down dollars in "safe" fixed income roughly following Dr. Wm Bernstein's idea. About half of those "safe" assets are cash or cash like e.g. Savings, Money Markets, CDs, EE bonds (legacy). The other half of "safe" assets are in short term bond funds.

My withdrawals are almost all from RMDs and unless equities have a really bad year the RMDs will be from a mixture of equities and fixed income (except CDs -- since VG doesn't sell brokerage CDs to satisfy RMDs). So down years -- mostly fixed income (cash, cash-like and short term bond funds) possibly all fixed income.


edited to correct second half in short not intermediate bond funds.
Last edited by Dandy on Mon Mar 18, 2019 11:44 am, edited 1 time in total.

Broken Man 1999
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Broken Man 1999 » Mon Mar 18, 2019 11:36 am

We do not keep cash for down years, up years, any years. The only cash we have on hand is used for the monthly expenses. I hold cash for about 10-15 days for bill paying only.

We do have access to cash via our short-term bond fund, a bunch of US Savings bonds, and at the present time I am selling some individual stocks on an as-needed basis. If Mr/Ms Market cooperates, I won't run out of expense money from selling stocks for another year or so. If we get to the end on 2019 without having a stock rout, it would be nice. If we don't, I'll cross that bridge when we come to it. We are well-positioned with an AA of 50% equities, 50% bonds. Our bonds are mostly US government bonds of one type or another. We wouldn't need to sell our equities for a very long time.

OP, some retirees feel more comfortable having X number of years in CDs, individual bonds, CD/bond ladders, money market funds, brick & mortar savings accounts, etc. I am comfortable with what I do. You need to determine what your comfort level might be, it is a highly personal choice.

There are really no right or wrong answers, do what allows you to SWAN (sleep well at night)!

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GerryL
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by GerryL » Mon Mar 18, 2019 11:56 am

I have a cash stash in checking/savings/CDs that I don't officially count as part of my portfolio. During the first 4 years of retirement I spent down the stash to about a year's worth of spending. Now, with SS arriving monthly and RMDs about to kick in, I expect the stash will start building up again. Each year I will decide how much to reinvest in my taxable account based on spending plans for the coming year (e.g., new car, large home maintenance project, even more travel).

diy60
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by diy60 » Mon Mar 18, 2019 12:07 pm

I don't like watching my finances too closely, so I keep 3 to 6 months cash for bills. I use bond investments, and CD/Treasury ladders for spending in down markets, equities in up markets, and/or some other combination in between the two.

cherijoh
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by cherijoh » Mon Mar 18, 2019 12:18 pm

Ckprocker wrote:
Mon Mar 18, 2019 10:29 am
Some retired investors keep no cash and just draw directly from investments during their retirement.
For a basic 3 or 4 fund portfolio, how does that work out when the markets go down for an extended period of time because of a recession?

Why not have some cash on hand to help make up the difference for those down times? I've read some books and articles that say to do this.

Could you please explain how you handle your investment strategy when it comes to cash especially in extended down markets?

Trying to learn from the voices of experience here :happy
Thanks
I retired last spring after waffling for several years about my retirement date. During the accumulation period I maintained about a 9 mo emergency fund in a high yield savings account. For the last several years, I gradually took some money off the table out of taxable and ultimately beefed up my high yield savings to about 2 years of expenses. (While also adjusting my allocation in tax-deferred accounts).

Last year I lived off the savings. The cash cushion also dovetailed well with my desire to do some Roth conversions. As of January, I am now drawing a medium-sized pension from a former employer (not the company from which I retired). So I still have ~2 years off expenses in taxable after the pension is taken into account. If I need to take more money off the table to maintain my new retirement AA, I will probably sell out of taxable so that I leave room for more Roth conversions.

I was mostly concerned about a bad economy influencing me to not retire. The extra cash cushion helped me mentally with my worries about sequence of return risk. (All my bond index investments were in my IRA/401k. Stock index funds are in taxable, traditional, and Roth). I certainly could have sold stocks in taxable and then sold bonds in tax-advantaged to buy back the same stock index fund (since there were no worries about wash sale rules) as other posters have suggested. IMO either approach would be equally valid.

However, if you are an early retiree waiting until 59.5 to start taking distributions from your trad 401k/IRA, I do think you would need to be cognisant of whether a steep stock market decline might cause you to spend down your taxable funds too quickly. For example, if you need it to last 5 years and you only have 6-7 years of regular expenses in taxable (at current valuations), then I would favor keeping a bigger cash buffer to prevent you from having to sell off at the worst time. If you need 5 years of expenses and currently have 10-12 years of expenses in taxable, I wouldn't be worried about this concern.

There is of course the option of setting up an SEPP to avoid the 10% early withdrawal penalties, but it seems like a lot of hassle if you can reasonably figure out how to avoid withdrawals before 59.5.

cherijoh
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by cherijoh » Mon Mar 18, 2019 12:22 pm

German Expat wrote:
Mon Mar 18, 2019 11:30 am
I am still a couple years away from retirement but I am curious if everybody that has 3 years or more in cash (money market etc.) available does just replenish it monthly / quarterly or let it drain to 1 year. Also there is a cash drag on your return.
Basically what I am trying to figure out what rules you use to go from 3 years back to 1 year (e.g. in case there is a downturn you will not sell, but how big does the downturn need to be, 20%, 50%?) and will you then replenish regardless how bad the market is or go down to 0 and only then sell?
I can understand the tax management perspective by moving taxable gains into low tax years but genuinely curious how you handle it now or plan to handle it when the time comes.
With current low bond yields for short- and intermediate-term bonds, their isn't that much cash drag when you conpare it to a high-yield savings account. You take the cash into account when setting your AA.

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by knpstr » Mon Mar 18, 2019 12:28 pm

Sheepdog wrote:
Mon Mar 18, 2019 10:53 am
Because I do take withdrawals monthly for expenses I do keep in good market years an amount equal to 3 to 5 years of normal withdrawal needs in money market and short term bond funds so that I wont have to take from stock containing funds in a down year like in 2008-09. I didn't do that at the beginning of that collapse and I paid dearly for not having that protection. This is the panic thread started in October 2008 which led me to this. viewtopic.php?f=10&t=25126 That thread has been updated several times over the years since.

(edited to correct dates.)
I'm curious how you worded that, since I know you've been retired for some time: if you keep 3 to 5 years in "cash", is the rest in stocks? (disregarding social security and pensions). Or do you keep 3 to 5 years in "cash" and still have a 50/50 or 60/40, etc... portfolio on top of that?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Mon Mar 18, 2019 12:29 pm

No I do not because I don't subscribe to discredited and inferior financial management strategies.

A static AA with proportional withdrawals and periodic rebalancing is significantly superior to any common "bucket" strategy - which purports to prevent retirees from selling equity during down years. However logical and comforting a cash bucketing approach sounds, all bucket strategies do is to increase the probability of portfolio failure in retirement. Bogleheads should not be advocating a suboptimal withdrawal strategy any more than calling for market timing or signing up at Edward Jones.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?
Abstract
A bucket approach, which broadly consists of parking a few years of annual withdrawals safely in cash and investing the rest of the portfolio more aggressively, is a popular strategy often recommended by financial planners and typically embraced by retirees. Although this strategy is not devoid of merit, the comprehensive evidence discussed here, from 21 countries over a 115-year period, questions its effectiveness. In fact, simple static strategies, which by definition involve periodic rebalancing, clearly outperform bucket strategies, and they do so based not just on one but on four different ways of assessing performance.

https://www.marketwatch.com/story/do-bu ... 2019-02-12
Why are bucket strategies more likely to fail than the non-bucket strategies? The answer has to do with the periodic rebalancing transactions periodically undertaken by the non-bucket strategies. Such rebalancing, of course, involves selling a portion of outperforming assets and purchasing more of underperforming ones, in order to bring the portfolio’s allocation back in line with its intended allocation. This rebalancing means that the approach constantly is buying low and selling high, which needless to say is a winning strategy.


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Re: Retired Investors - Do You Keep Cash For Down Years

Post by retiredjg » Mon Mar 18, 2019 12:33 pm

I don't keep a stash of cash. I considered it when I first retired and decided I'd rather have all my money invested instead.

Keeping cash so you don't have to sell during a down market doesn't make as much sense as it seems - because when the stock market is down, you should be selling bonds not stocks. And buying stocks if you are able.

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305pelusa
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 305pelusa » Mon Mar 18, 2019 12:35 pm

For those who keep cash (I'm seeing some keep up to 5 years of expenses) in case of downturns during retirement:

If you use cash to pay for expenses, don't you then have to sell stocks/bonds to rebalance back to your ideal cash amount?

2015
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 2015 » Mon Mar 18, 2019 12:49 pm

I execute no strategy driven by sterile, antiseptic, and lifeless "studies", "experts", or social proof. Actions I take are all based on reality as opposed to theory. Therefore, my liability matching does involve keeping cash in various forms for down years. This is in keeping with my historical relationship with risk of all kinds.

Throughout history, for the average investor (and 99% of investors are average), behavior has always trumped attempts to maximize performance, yield, and safety. But humans never learn and financial writers gotta eat so theory will always be with us.

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Kitty Telltales
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Kitty Telltales » Mon Mar 18, 2019 12:51 pm

Sheepdog wrote:
Mon Mar 18, 2019 10:53 am
Because I do take withdrawals monthly for expenses I do keep in good market years an amount equal to 3 to 5 years of normal withdrawal needs in money market and short term bond funds so that I wont have to take from stock containing funds in a down year like in 2008-09. I didn't do that at the beginning of that collapse and I paid dearly for not having that protection. This is the panic thread started in October 2008 which led me to this. viewtopic.php?f=10&t=25126 That thread has been updated several times over the years since.

(edited to correct dates.)
Thank you for reposting this link Sheepdog. Thank you for your honesty during that rough period. Every day I open this site and learn something new and today by reading about your experience in 2008, you have quantified what we need to do to feel safe during our retirement years, which are just beginning.

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GerryL
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by GerryL » Mon Mar 18, 2019 1:24 pm

305pelusa wrote:
Mon Mar 18, 2019 12:35 pm
For those who keep cash (I'm seeing some keep up to 5 years of expenses) in case of downturns during retirement:

If you use cash to pay for expenses, don't you then have to sell stocks/bonds to rebalance back to your ideal cash amount?
I will be replenishing the cash stash from RMDs. Unless I intend to reinvest the full RMD -- and I'm not doing THAT well -- I must sell some stocks/bonds at some point. So, yeah, something needs to be sold to replenish cash, but something generally has to be sold to use the RMD. (Note: Even if you don't need the RMD to live on, you may want to do a QCD, which also requires selling something.)

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Re: Retired Investors - Do You Keep Cash For Down Years

Post by TN_Boy » Mon Mar 18, 2019 1:36 pm

RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Why? If you have a healthy allocation to fixed income, why keep money in cash? Just pull from the bonds.

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RickBoglehead
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by RickBoglehead » Mon Mar 18, 2019 2:02 pm

TN_Boy wrote:
Mon Mar 18, 2019 1:36 pm
RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Why? If you have a healthy allocation to fixed income, why keep money in cash? Just pull from the bonds.
Easy answer - what if bonds are down?

Example - in the latter half of 2018, bonds were down from what they had been. Sure, yield, blah, blah, blah - but the PRINCIPAL (spelled right :D ) value of my bond funds was down. In fact, I sold all my bonds to TLH at that point.

I'd much rather hit CDs or MMs to get cash in a downturn then hit bonds, but obviously if it was an extended period I might have to sell bonds that had lost value.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Sheepdog
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Sheepdog » Mon Mar 18, 2019 2:35 pm

knpstr wrote:
Mon Mar 18, 2019 12:28 pm


I'm curious how you worded that, since I know you've been retired for some time: if you keep 3 to 5 years in "cash", is the rest in stocks? (disregarding social security and pensions). Or do you keep 3 to 5 years in "cash" and still have a 50/50 or 60/40, etc... portfolio on top of that?
No, the rest is not stocks. I keep only 23% to 26% stock in retirement (since age 72--now age 86). All of my stocks has been in balanced funds. I started retirement at close to 60% stocks and I started the percentage down following my age in bonds and I stopped reducing it at age 77. Even so, my nest egg has continued to grow from $680K to the present $1M and living handsomely off of it and SS only.
Last edited by Sheepdog on Tue Mar 19, 2019 11:02 pm, edited 1 time in total.
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knpstr
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by knpstr » Mon Mar 18, 2019 2:42 pm

Sheepdog wrote:
Mon Mar 18, 2019 2:35 pm
knpstr wrote:
Mon Mar 18, 2019 12:28 pm


I'm curious how you worded that, since I know you've been retired for some time: if you keep 3 to 5 years in "cash", is the rest in stocks? (disregarding social security and pensions). Or do you keep 3 to 5 years in "cash" and still have a 50/50 or 60/40, etc... portfolio on top of that?
No, the rest is not stocks. I keep only 23% to 26% stock in retirement (since age 72--now age 86). All of my stocks has been in balanced funds. I started retirement at close to 60% stocks and I started the percentage down following my age in stocks and I stopped reducing it at age 77. Even so, my nest egg has continued to grow from $680K to the present $1M and living handsomely off of it and SS only.
Thanks for the reply.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Dandy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Dandy » Mon Mar 18, 2019 2:45 pm

No I do not because I don't subscribe to discredited and inferior financial management strategies.
Not every espoused strategy that recommends holding X years is cash is a bucket strategy or discredited. I don't like bucket strategies -- too much movement of assets, too many buckets, etc. It seems more like mental accounting.

Wm Bernstein's idea of having X years of draw down dollars in "safe" (my word) fixed income is just an approach to try to securely fund retirement and was directed toward those who have enough. It isn't billed as a cure all but a reasonable way to fund retirement expenses and have less worry/exposure to equity and interest rate risks. There are no buckets or movement between buckets. It really is how to allocate your fixed income when you have enough overall assets.

How you withdraw from this arrangement is up to you -- you can just use the "safe" fixed income like an ATM and just withdraw from those assets each year (and have a rising equity allocation) or not. But the idea is your retirement funding is pretty secure no matter if you do use it as an ATM. No retirement allocation or withdrawal approach is set it and forget it or without risks. Need to keep an eye on things and make good choices.

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305pelusa
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 305pelusa » Mon Mar 18, 2019 2:55 pm

RickBoglehead wrote:
Mon Mar 18, 2019 2:02 pm
TN_Boy wrote:
Mon Mar 18, 2019 1:36 pm
RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Why? If you have a healthy allocation to fixed income, why keep money in cash? Just pull from the bonds.
Easy answer - what if bonds are down?

Example - in the latter half of 2018, bonds were down from what they had been. Sure, yield, blah, blah, blah - but the PRINCIPAL (spelled right :D ) value of my bond funds was down. In fact, I sold all my bonds to TLH at that point.

I'd much rather hit CDs or MMs to get cash in a downturn then hit bonds, but obviously if it was an extended period I might have to sell bonds that had lost value.
Interesting. So you would rather not pay for expenses with money from investments that recently lost money.

Presumably because you want to give them a chance to recover? And in the mean time, you cover things with cash?

MathWizard
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MathWizard » Mon Mar 18, 2019 3:02 pm

Soon to retire, but I'll be doing Roth Conversions until 70, and I'll keep a cash cushion while I am doing that, but afterwards plan to have a SPIA which together with SS , taken at age 70, plus RMDs will fund bare bones expenses.

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Mon Mar 18, 2019 3:05 pm

2015 wrote:
Mon Mar 18, 2019 12:49 pm
I execute no strategy driven by sterile, antiseptic, and lifeless "studies", "experts", or social proof. Actions I take are all based on reality as opposed to theory. Therefore, my liability matching does involve keeping cash in various forms for down years. This is in keeping with my historical relationship with risk of all kinds.

Throughout history, for the average investor (and 99% of investors are average), behavior has always trumped attempts to maximize performance, yield, and safety. But humans never learn and financial writers gotta eat so theory will always be with us.
I seek to follow best practices in personal finance that stand up to rigorous examination and testing. Holding and spending from cash buckets for "down years" isn't one of those. Well-designed peer-reviewed studies do in fact reflect reality to a much greater degree than financial comfort food such as cash bucket withdrawal plans - that look and sound good, but in fact make portfolios worse off.

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RickBoglehead
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by RickBoglehead » Mon Mar 18, 2019 3:12 pm

305pelusa wrote:
Mon Mar 18, 2019 2:55 pm
RickBoglehead wrote:
Mon Mar 18, 2019 2:02 pm
TN_Boy wrote:
Mon Mar 18, 2019 1:36 pm
RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Why? If you have a healthy allocation to fixed income, why keep money in cash? Just pull from the bonds.
Easy answer - what if bonds are down?

Example - in the latter half of 2018, bonds were down from what they had been. Sure, yield, blah, blah, blah - but the PRINCIPAL (spelled right :D ) value of my bond funds was down. In fact, I sold all my bonds to TLH at that point.

I'd much rather hit CDs or MMs to get cash in a downturn then hit bonds, but obviously if it was an extended period I might have to sell bonds that had lost value.
Interesting. So you would rather not pay for expenses with money from investments that recently lost money.

Presumably because you want to give them a chance to recover? And in the mean time, you cover things with cash?
Yup. 2.5% Prime Money Market. Bonds that drop due to interest rates rising will rise eventually.

At this point, I'm out of bonds and into CDs and MMs only.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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305pelusa
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 305pelusa » Mon Mar 18, 2019 3:18 pm

RickBoglehead wrote:
Mon Mar 18, 2019 3:12 pm
305pelusa wrote:
Mon Mar 18, 2019 2:55 pm
RickBoglehead wrote:
Mon Mar 18, 2019 2:02 pm
TN_Boy wrote:
Mon Mar 18, 2019 1:36 pm
RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Why? If you have a healthy allocation to fixed income, why keep money in cash? Just pull from the bonds.
Easy answer - what if bonds are down?

Example - in the latter half of 2018, bonds were down from what they had been. Sure, yield, blah, blah, blah - but the PRINCIPAL (spelled right :D ) value of my bond funds was down. In fact, I sold all my bonds to TLH at that point.

I'd much rather hit CDs or MMs to get cash in a downturn then hit bonds, but obviously if it was an extended period I might have to sell bonds that had lost value.
Interesting. So you would rather not pay for expenses with money from investments that recently lost money.

Presumably because you want to give them a chance to recover? And in the mean time, you cover things with cash?
Yup. 2.5% Prime Money Market. Bonds that drop due to interest rates rising will rise eventually.

At this point, I'm out of bonds and into CDs and MMs only.
What about for stocks? Same deal? Giving them a chance to recover and not selling them when down?

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RickBoglehead
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by RickBoglehead » Mon Mar 18, 2019 3:34 pm

305pelusa wrote:
Mon Mar 18, 2019 3:18 pm

What about for stocks? Same deal? Giving them a chance to recover and not selling them when down?
I'm not planning my retirement so that I have to hit stocks for expenses in the near term. I will rebalance my investments over time, with several years of expenses held in CDs and MM, so that a downturn MAY have had time to recover before I need to sell stocks.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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305pelusa
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 305pelusa » Mon Mar 18, 2019 3:50 pm

RickBoglehead wrote:
Mon Mar 18, 2019 3:34 pm
305pelusa wrote:
Mon Mar 18, 2019 3:18 pm

What about for stocks? Same deal? Giving them a chance to recover and not selling them when down?
I'm not planning my retirement so that I have to hit stocks for expenses in the near term. I will rebalance my investments over time, with several years of expenses held in CDs and MM, so that a downturn MAY have had time to recover before I need to sell stocks.
And when a downturn does hit and you use cash, don't you have to sell stocks and bonds at a loss to replenish the cash any ways?

TN_Boy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by TN_Boy » Mon Mar 18, 2019 4:00 pm

RickBoglehead wrote:
Mon Mar 18, 2019 2:02 pm
TN_Boy wrote:
Mon Mar 18, 2019 1:36 pm
RickBoglehead wrote:
Mon Mar 18, 2019 10:33 am
Related topic here. viewtopic.php?f=10&t=276031&p=4441497#p4441497

As you retire, you want more emergency funds / cash / cds to handle downturns. Some keep 5 years worth.
Why? If you have a healthy allocation to fixed income, why keep money in cash? Just pull from the bonds.
Easy answer - what if bonds are down?

Example - in the latter half of 2018, bonds were down from what they had been. Sure, yield, blah, blah, blah - but the PRINCIPAL (spelled right :D ) value of my bond funds was down. In fact, I sold all my bonds to TLH at that point.

I'd much rather hit CDs or MMs to get cash in a downturn then hit bonds, but obviously if it was an extended period I might have to sell bonds that had lost value.
And my response is sell the bonds anyway. Otherwise you have a perpetual cash drag on the portfolio. And high quality intermediate duration bonds are unlikely to be very far down.

But obviously this is your basic bucket strategy debate. I fall on the side that believes a permanent cash allocation (of more than 1 or 2% anyway and that is just for convenience) is too much of a price to pay over a multi-decade retirement. But some people like buckets.

rixer
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by rixer » Mon Mar 18, 2019 4:16 pm

I'm retired, have a balanced fund and a three year expenses CD ladder in case of a market downturn. haven't used the CD's as of yet. They really don't amount to that much as SS, and what dividends I get, cover most of it.
Ask me in 20 years how it worked out..

jebmke
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by jebmke » Mon Mar 18, 2019 4:20 pm

TN_Boy wrote:
Mon Mar 18, 2019 4:00 pm
And high quality intermediate duration bonds are unlikely to be very far down.
and the cash pull from bonds during the period will not be long. If I recall correctly, even when bonds tanked in 2008, it wasn't for long. Actually, I was re-balancing to stocks then and to longer bonds (TIPS). It was a great time to sell lower duration stuff and go long (with TIPS).
When you discover that you are riding a dead horse, the best strategy is to dismount.

Dandy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Dandy » Mon Mar 18, 2019 4:39 pm

Almost any investment other than equities is basically a "drag" on longer term performance. I don't see much of a difference between "cash" paying 2+%, and short term bonds paying 2.5+% and the Total Bond fund paying 3.1%. For most the most part your fixed income isn't going to be much of a portfolio performance driver -- that is going to be your equities.

So maybe those who are very comfortable with only an intermediate bond allocation could almost be as comfortable with some allocation to Cash, Cash-like or Short Term bond funds-- especially those near or in retirement. It is a bit of a trade off between growth and asset preservation. Not for everyone -- but especially for those with enough not so terrible.

MnD
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by MnD » Mon Mar 18, 2019 4:42 pm

RickBoglehead wrote:
Mon Mar 18, 2019 3:34 pm
305pelusa wrote:
Mon Mar 18, 2019 3:18 pm

What about for stocks? Same deal? Giving them a chance to recover and not selling them when down?
I'm not planning my retirement so that I have to hit stocks for expenses in the near term. I will rebalance my investments over time, with several years of expenses held in CDs and MM, so that a downturn MAY have had time to recover before I need to sell stocks.
With typical Boglehead portfolios that are many many multiples of expenses and broadly diversified with equity and fixed income holdings, simply maintaining one's overall desired AA through periodic and/or band-based rebalancing results in spending from fixed income when stocks are down and spending from equity when stocks are up. It is not necessary to maintain and go through all the mental accounting of maintaining special cash buckets that are utilized whenever certain equity return sequences are experienced, along with the AA distortions that entails.

Sconie
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Sconie » Mon Mar 18, 2019 4:47 pm

To each his own. That said, what I do is keep 2 years of expenses in cash and an additional 6 years of expenses in CDs, with everything else being equities. Workz for me!
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

TN_Boy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by TN_Boy » Mon Mar 18, 2019 5:11 pm

Dandy wrote:
Mon Mar 18, 2019 4:39 pm
Almost any investment other than equities is basically a "drag" on longer term performance. I don't see much of a difference between "cash" paying 2+%, and short term bonds paying 2.5+% and the Total Bond fund paying 3.1%. For most the most part your fixed income isn't going to be much of a portfolio performance driver -- that is going to be your equities.

So maybe those who are very comfortable with only an intermediate bond allocation could almost be as comfortable with some allocation to Cash, Cash-like or Short Term bond funds-- especially those near or in retirement. It is a bit of a trade off between growth and asset preservation. Not for everyone -- but especially for those with enough not so terrible.
I don't think some cash is a terrible idea. Just not a good one.

And true, anything other than equities is "expected" to be a drag on returns, but of course, expectations are sometimes dashed While equity volatility might bother me, the volatility of something like Total bond does not, thus I feel no need for cash to cushion "bond volatility." But yeah, it's not going to make a huge difference. Probably a little over an entire retirement though. And maybe some complexity added -- when do you replenish the cash, etc.

TN_Boy
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by TN_Boy » Mon Mar 18, 2019 5:13 pm

jebmke wrote:
Mon Mar 18, 2019 4:20 pm
TN_Boy wrote:
Mon Mar 18, 2019 4:00 pm
And high quality intermediate duration bonds are unlikely to be very far down.
and the cash pull from bonds during the period will not be long. If I recall correctly, even when bonds tanked in 2008, it wasn't for long. Actually, I was re-balancing to stocks then and to longer bonds (TIPS). It was a great time to sell lower duration stuff and go long (with TIPS).
Treasuries did pretty well in 08, I think. TIPS .... were strange. Corporates (high quality) had some pain, not awful. Junk bonds got crunched.

DrGoogle2017
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by DrGoogle2017 » Mon Mar 18, 2019 5:42 pm

I always have lots of cash, not for down years, but I still beat those who are 100% in equities for one year.

2015
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by 2015 » Mon Mar 18, 2019 7:46 pm

MnD wrote:
Mon Mar 18, 2019 3:05 pm
2015 wrote:
Mon Mar 18, 2019 12:49 pm
I execute no strategy driven by sterile, antiseptic, and lifeless "studies", "experts", or social proof. Actions I take are all based on reality as opposed to theory. Therefore, my liability matching does involve keeping cash in various forms for down years. This is in keeping with my historical relationship with risk of all kinds.

Throughout history, for the average investor (and 99% of investors are average), behavior has always trumped attempts to maximize performance, yield, and safety. But humans never learn and financial writers gotta eat so theory will always be with us.
I seek to follow best practices in personal finance that stand up to rigorous examination and testing. Holding and spending from cash buckets for "down years" isn't one of those. Well-designed peer-reviewed studies do in fact reflect reality to a much greater degree than financial comfort food such as cash bucket withdrawal plans - that look and sound good, but in fact make portfolios worse off.
Human lives nest in complex adaptive systems and "rigorous" "peer-reviewed" "studies" will never effectively duplicate those systems in their entirety. Yes, I've seen the click-bait that "buckets" destroy (!!!) (lions and tigers and bears oh my) wealth. But in fact, it is human emotions that destroy "wealth" (whatever that is supposed to be) much more readily than not having the most maximized, perfected, clean-behind-the-ears withdrawal strategy. I recommend reviewing the many threads here during 2008-2009 and see how such "comfort food" such "perfected" maximization provided. People losing lots of weight. That's reality. Not some study. Not some theory. But how humans really, actually act when Satan is ringing the door bell (and Satan will come calling again).

But by all means, continue to read all these "studies" because the people who write them won't be able to put their kids through school if you don't. While you're at it, I recommend reading the book below (or many like it) which might serve to provide a reality check on the reliability of these "studies" and the industry they nest in:

https://www.amazon.com/Wrong-us-Scienti ... ooghydr-20

Almost there
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Re: Retired Investors - Do You Keep Cash For Down Years

Post by Almost there » Mon Mar 18, 2019 8:13 pm

No matter what happens with the market, everything stays the same, and I am now retired 5 years. I have $2000-$3000 in my savings which I use when I spent a little too much or an emergency arose. If I truly need money, I take it from my Roth A/C, but that I've done only twice, and then move it to my savings. Will probably stop that and just use my Money Market A/C instead. At lease it pays around 2% whereas my Savings A/C basically pays nothing.

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