Cash in Retirement

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jcjc
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Cash in Retirement

Post by jcjc »

How do you use the cash portion of your portfolio? We have a 50/50 stock/bond&cash allocation with 3 years in of the bond side in bank accounts and the rest of the bonds in intermediate duration. So at the beginning of the year when it is time to draw that years money I'm wondering do you use the bank account cash first or do you sell bond or stocks keeping allocations in mind (50/50) if market is up and leave bank account alone for times when the markets are down and you don't want to sell anything if possible.

How do most of you do this?
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Sheepdog
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Re: Cash in Retirement

Post by Sheepdog »

jcjc wrote:How do you use the cash portion of your portfolio? We have a 50/50 stock/bond&cash allocation with 3 years in of the bond side in bank accounts and the rest of the bonds in intermediate duration. So at the beginning of the year when it is time to draw that years money I'm wondering do you use the bank account cash first or do you sell bond or stocks keeping allocations in mind (50/50) if market is up and leave bank account alone for times when the markets are down and you don't want to sell anything if possible.

How do most of you do this?
I am not most of you. I am just one of you, and with a unique process which I will try to describe even though few would try it.
We are different and have different "cash" mixes in our in-retirement allocation. I'm in a late retirement (age 83) allocation of 22% stock and 78% bonds. I have a checking account which is my only real cash. Feeding that checking account now are monthly SS and fixed term SPIAs deposits to cover all normal expenses. Before the SPIAs (2 years old), I had scheduled monthly deposits to checking from my taxable Admiral short term investment grade bond account (I call a cash account because of low risk.).
I also have a short term investment grade bond fund within our traditional IRAs from which RMDs are scheduled and deposited in the above taxable short term bond fund. How is that tIRA short term bond fund maintained? The income mutual fund in the tIRA (Wellesley mostly today) has quarterly dividends and capital gains and those are transferred automatically to it. When large special expenditures like new automobiles, cruises, etc. are needed, that money comes from that taxable Admiral short term fund.
So far, that has worked for me very well to fund a complete retirement with growing investments. It has only worked because taxable investments were disposed of in the early years for expenses, to fund back door Roth conversion taxes, and purchase I Bonds.
Extra note: It has been a good number of years since I had "cash" like money market or savings accounts.
Last edited by Sheepdog on Sun Aug 14, 2016 12:29 pm, edited 3 times in total.
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livesoft
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Re: Cash in Retirement

Post by livesoft »

I don't know what most people do. I hate cash since it is a non-performing asset. I try to have as little cash as possible.

So I pay expenses with a credit card, then pay off the credit card with money in a checking account. Usually the checking account balance is about one month of expenses. I sell some shares of something and transfer to my checking account only as needed. Some dividends from fund shares also go into the checking account.

So one can say I keep about 4 weeks of cash around.
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dbr
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Re: Cash in Retirement

Post by dbr »

livesoft wrote:I don't know what most people do. I hate cash since it is a non-performing asset. I try to have as little cash as possible.

So I pay expenses with a credit card, then pay off the credit card with money in a checking account. Usually the checking account balance is about one month of expenses. I sell some shares of something and transfer to my checking account only as needed. Some dividends from fund shares also go into the checking account.

So one can say I keep about 4 weeks of cash around.
My situation is fairly similar. Sometimes you adjust things to plan for specific situations. Last year I dumped my 401K RMD into cash and bought a car a couple of months later. This year I didn't do it that way.

Cash is a transfer medium and not an asset. Well it is an asset, part of "fixed income" or whatever you call it (neither fixed nor income), but there is no asset allocation objective for holding cash. There is an objective to keep enough cash around to make cash flow transactions, such a paying off credit cards, paying taxes, buying a car, etc. By the time you add up depositing SS, collecting dividends, paying for things, etc. my cash holdings probably fall around 1% up to at most 2% of assets.
jebmke
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Re: Cash in Retirement

Post by jebmke »

livesoft wrote:I don't know what most people do. I hate cash since it is a non-performing asset. I try to have as little cash as possible.

So I pay expenses with a credit card, then pay off the credit card with money in a checking account. Usually the checking account balance is about one month of expenses. I sell some shares of something and transfer to my checking account only as needed. Some dividends from fund shares also go into the checking account.

So one can say I keep about 4 weeks of cash around.
This is basically what I do. Using credit cards makes cash management very easy. I have a few things on direct debit that hit at the beginning of the month so by the time the credit cards close the month (normally around the 25th), I have a pretty good estimate of the cash required for the next month.
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Peter Foley
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Re: Cash in Retirement

Post by Peter Foley »

So far in retirement(4 years) I haven't had an "average year." I started out retirement with about 2 years of cash. It lasted about 2.5 years. I replenished some of the cash with an IRA withdrawal, paring back a little of my Roth conversion that year and cashed in a long held EE bond that had reached final maturity. This year we sold an income producing property that we have owned for almost 30 years so we replenished our cash accounts with some of the proceeds. We had a second EE bond reach final maturity so that went into our checking account too.

Next year I think it will be with an IRA withdrawal. Unlike some of the other posters, I prefer to hold a year's expenses in cash.

How we replenish cash is based on what we do for Roth conversions and exercising control over our marginal tax rate.
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cfs
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Re: Cash in Retirement

Post by cfs »

Good questions.

All our money at Vanguard is invested in equity and bond mutual funds. Cash reserves in a money market from my credit union. Checking account to pay all our bills online via ACH. I write ONE check every quarter, my quarterly tax payment to the IRS, sent via snail mail because I refuse to send anything in electronic form to the federal and state tax offices, my next check will be written in four weeks. Military pension and SS are enough to pay all the bills and our travels. Day to day purchases using credit card, and we pay the credit card in full at the end of the month without carrying a balance. Good luck with your investments.

Thanks for reading.
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Toons
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Re: Cash in Retirement

Post by Toons »

I have enough shares in mutual funds and individual stocks,
that if I want more cash I take div,cap gains,etc in cash .
From taxable account.
I do not sell shares to access cash.
:happy
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sperry8
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Re: Cash in Retirement

Post by sperry8 »

Toons wrote:I have enough shares in mutual funds and individual stocks,
that if I want more cash I take div,cap gains,etc in cash .
From taxable account.
I do not sell shares to access cash.
:happy
This is what I do as well. I live off the cap gains/div/interest income of my cash. Don't need to sell anything. But of course being able to do this depends on ones asset levels and spend. If I couldn't do it - I would sell whatever had the lowest cost basis (i.e., lowest tax liability).
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Topic Author
jcjc
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Re: Cash in Retirement

Post by jcjc »

Answers so far sort of surprised me (little cash). I just read Jane Bryant Quinn and she recommended I believe 2 yrs in cash and some in s/t bonds as well when starting retirement. Seems like cash earning 1% is as good if not better than s/t bonds now. I am worried about selling bonds at a loss when rates rise. I know when municipals went down a few years ago it bothered me a lot more than our stocks going down!

Of course if you can live on interest/dividends then I wouldn't hold cash either! Thanks for your comments!
furwut
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Re: Cash in Retirement

Post by furwut »

I recall that Vanguard has a paper recommending 1 - 2 years cash for retirement. I keep just 2 to 9 months.

My portfolio is a 60/40 stock/bond split. I include the value of several CDs in the bond (e.g., fixed income portion). I don't include cash kept in my spending account(s) - it would be a decimal rounding error anyway.

I have a goal to replenish my spending accounts at the end of the year. That way I have a better idea of my tax situation and can adjust the withdraw amount if it is favorable to do so.
SQRT
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Re: Cash in Retirement

Post by SQRT »

Our dividends and pensions generally cover our expenses. So pretty simple. The divs/pensions go into a savings account and we transfer funds periodically to our chequing accounts to pay credit cards and other expenses. The savings account fluctuates over time but generally holds 6 months to a year of basic expenses. Retired 10 years. Age 66
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cfs
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Re: Cash in Retirement

Post by cfs »

jcjc wrote:. . . Answers so far sort of surprised me (little cash) . . .
As explained above, some of us have pensions and social security checks to cover for our bills and then some . . . so, no need to be holding mucho cash. Good luck with your investments [with or without mucho cash].

Thanks for reading.
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livesoft
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Re: Cash in Retirement

Post by livesoft »

jcjc wrote:[...] Seems like cash earning 1% is as good if not better than s/t bonds now. I am worried about selling bonds at a loss when rates rise. I know when municipals went down a few years ago it bothered me a lot more than our stocks going down!
The way I look at it is that my bond funds have made so much money over what cash would have earned that if the bond funds drop in value, I would still be way ahead of where I would have been if I had that money in cash instead.

I also "cheat" a little bit. I will switch some of the bond funds to equity funds on really bad days (RBDs) and pick up some extra gains. I might switch more than one or two years of expenses a few times a year doing that. Sure, I could lose money temporarily, but I have made so much more such that losing money would still have the portfolio way ahead of cash.

That is, I don't care if my bond funds fluctuate in value. To give specific number, total bond index is up 5.8% so far this year. That is many multiples of what cash has paid in 7.5 months so far.
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magneto
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Re: Cash in Retirement

Post by magneto »

jcjc wrote:Answers so far sort of surprised me (little cash). I just read Jane Bryant Quinn and she recommended I believe 2 yrs in cash and some in s/t bonds as well when starting retirement. Seems like cash earning 1% is as good if not better than s/t bonds now. I am worried about selling bonds at a loss when rates rise. I know when municipals went down a few years ago it bothered me a lot more than our stocks going down!
Of course if you can live on interest/dividends then I wouldn't hold cash either! Thanks for your comments!
Seem to be a number of investors/posters with an Allergy to Cash?
Or what is sometimes described as 'Rhinophobia' ("the dread of ever having any cash")!

Frank Armstrong tackles this retirement (bond/cash) issue head-on in 'The Informed Investor', chapter 18.
Think you will find his recommendations chime with your present thoughts.
Good all round investment book!
On BH recommended reading list.

But moving on; it is worthwhile not forgetting that there are after all four main income producing Asset Classes;
namely Stocks/Bonds/Real Estate/Cash.
Why limit ourselves as private investors to just two Asset Classes in all seasons?
'There is a tide in the affairs of men ...', Brutus (Market Timer)
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