Too much cash?

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Steve Smith V
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Joined: Sun Jan 10, 2010 4:47 pm
Location: Missouri

Too much cash?

Post by Steve Smith V » Mon Apr 15, 2019 11:59 am

I have been a longtime forum reader and have learned a lot over the years. I got good advise here when I retired the end of 2019. Thanks to that advice and a nice sequence of returns thus far, I find myself, almost ten years, later in a pretty good place but in need of a little advice or at least opinions.

I was fortunate to qualify for the SS "file and suspend" option before it disappeared. I just turned 70 in January and started receiving checks in February. My wife has been receiving spousal benefits for a couple of years. Fortunately the two SS payments pretty much pay for our normal monthly living expenses including some entertainment and dining out. What they don't cover are income taxes, property taxes, vacation/travel or any big ticket items (auto purchase, new roof, etc.)

Turning 70 was the nudge I needed to clean up our portfolio(s). My wife and I both had our last parent pass in the last few years and inherited one account at Wells Fargo and one at Edward Jones. :shock: I have just completed the transfer of both accounts to Vanguard and have sold most of the "junk" you would expect to be in those accounts. There are a few bonds with decent returns and a couple funds that selling would result in more capital gains tax than I want this year, so I will keep them for now.

The proceeds form the "junk" sales all went to cash (prime MM). That cash plus my emergency fund cash have now left me "cash rich". My desired asset allocation is 50/50 which I am basically at, but on the fixed side I'm about 2/3 bonds and 1/3 cash (~$350K). My natural instinct is to move the cash to total bond VBTLX. But then I look at the 30 day SEC yield of VBTLX at 2.93% compared to prime MM VMMXX 7 day SEC yield of 2.45% and wonder if it's worth it right now.

RMD's plus typical dividends and capital gains from my taxable side more than pay for the expenses not covered by SS. I guess I'm looking for opinions on is there such a thing as "too much cash"..........in my situation?

Thanks in advance!

barnaclebob
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Re: Too much cash?

Post by barnaclebob » Mon Apr 15, 2019 12:07 pm

I'd probably put it in VMMXX like you said. 2.5% is good enough.

k3vb0t
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Re: Too much cash?

Post by k3vb0t » Mon Apr 15, 2019 12:11 pm

If you're worried about tax brackets you could also consider a bond fund that gives you a tax break like a muni fund or something like that; depends on your state and what you really need out of it.

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RickBoglehead
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Re: Too much cash?

Post by RickBoglehead » Mon Apr 15, 2019 12:11 pm

I would agree with Prme MM unless your state tax is high like California. Also, how do you inherit accounts recently and have any gains that matter? With cost basis adjusted to day of death, the gains can't be that much.
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carmonkie
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Re: Too much cash?

Post by carmonkie » Mon Apr 15, 2019 12:24 pm

If your desire AA is 50/50 and the cash is part of that AA, then you are not cash rich. You are where you want to be. The cash component just happen to make it look that way. I'd just leave it as well on Prime MM.

Someone might give some insight about TIPS for retirees, but with inflation under control, I would not think it is necessary at this point, but I could be mistaken and would love to hear forum experts on that subject.

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midareff
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Re: Too much cash?

Post by midareff » Mon Apr 15, 2019 12:27 pm

k3vb0t wrote:
Mon Apr 15, 2019 12:11 pm
If you're worried about tax brackets you could also consider a bond fund that gives you a tax break like a muni fund or something like that; depends on your state and what you really need out of it.
Very much so.... as I recall VWIUX has out performed VBTLX on a pre let alone post tax basis regardless of SEC. Look at the distribution yield for yourself.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Too much cash?

Post by delamer » Mon Apr 15, 2019 12:39 pm

carmonkie wrote:
Mon Apr 15, 2019 12:24 pm
If your desire AA is 50/50 and the cash is part of that AA, then you are not cash rich. You are where you want to be. The cash component just happen to make it look that way. I'd just leave it as well on Prime MM.

Someone might give some insight about TIPS for retirees, but with inflation under control, I would not think it is necessary at this point, but I could be mistaken and would love to hear forum experts on that subject.
I agree.

You might want to consider increasing your stock allocation though. If your RMDs and income from taxable are more than enough, then maybe you should be investing for legacy purposes.

btenny
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Joined: Sun Oct 07, 2007 6:47 pm

Re: Too much cash?

Post by btenny » Mon Apr 15, 2019 12:40 pm

I split my bond allocation into intermediate muni bonds in taxable and intermediate investment grade bonds in my IRA. I also keep 10% or so of my bond funds (my cash) in short term treasuries (BIL) instead of a money market fund. I find this is very low risk and tax friendly. When I draw spending money and take my RMDs I draw from this cash. I rebalance near year end and replenish the cash as needed.

Good Luck.

inbox788
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Re: Too much cash?

Post by inbox788 » Mon Apr 15, 2019 12:53 pm

Sounds like you're in a good place, paying taxes and not in need of extra cash. Is this found money? Are you going to spend it now, later or is it additional inheritance? Move thing around to optimize for taxes. With all your perpetual income sources pretty much active, what is your minimum tax bracket and how much room do you have to the next major hike? What tax bracket will you be in 10-20 years when RMDs kick in full force? If these funds are more likely to end up as inheritance, you can try to advance the transfers and/or invest them for the heirs age appropriate AA.

As far as just looking at bonds, I think the best thing to do is keep them in tax deferred (Total Bond is great) and bringing out equities to taxable (or even better Roth if you still can) for the step up basis. If you must hold bonds in taxable, and you're in a higher tax bracket, state tax exempt munis are something to consider for similar after returns (especially if you're paying high state tax) as well as reducing your taxable income, which may help in other ways.

https://personal.vanguard.com/pdf/INBST_012019.pdf

If you're not in California or New York, it may not matter and stick with the Fed Tax Exempt options.

Not sure about Illinois or Texas.
https://www.municipalbonds.com/tax-educ ... ome-taxes/

S_Track
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Re: Too much cash?

Post by S_Track » Mon Apr 15, 2019 3:52 pm

Steve Smith V wrote:
Mon Apr 15, 2019 11:59 am
Turning 70 was the nudge I needed to clean up our portfolio(s). My wife and I both had our last parent pass in the last few years and inherited one account at Wells Fargo and one at Edward Jones. :shock: I have just completed the transfer of both accounts to Vanguard and have sold most of the "junk" you would expect to be in those accounts. There are a few bonds with decent returns and a couple funds that selling would result in more capital gains tax than I want this year, so I will keep them for now.
First off, sorry about your loss. Curious if you have any tips when transfering an inhertance from WF or EJ over to Vanguard. Anything you would have done differently now that it is over? My understadning is you get a step up in basis with an inheritance. So if true, why would some of the funds have large capital gains? Thanks

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