Too much cash

[LivingAlmostLarge]

Everything is dropping. But what can you do? Corrections and bears happen.

[kork13]

Well there goes the money on fire...

Lol yep, I had an initial traunch of $5k from savings go into the market on Friday. Then I get to work this morning & my phone blows up with notifications that all of my "bad day" purchase limit orders have executed, and well below my limit price. I was busy, but looked enough to realize that my investment on Friday might just disappear (on paper) for a little while.

It seems that the sharp drop brought some interest from buyers though... Much of the market actually closed "up" today.

[LivingAlmostLarge]

Well there goes the money on fire...

[Scallywag]

We have a decent pile of cash - our downpayment fund. A smaller pile is our 4 month emergency fund. I think there will be buying opportunities this year in the stock market but we unfortunately won't have a war chest to take advantage of that. Anything we save this year will go to the downpayment fund. Every dime is going to matter fron here on out.

[corn18]

My 401k is all bonds. Actually it’s a stable value fund paying 1.7% right now. Taxable is all stock and Roth is mostly stock. I would have sold some in my taxable to get to 50/50 but the capital gains tax would have been 23.4% last year. I’ll fix that this year since I can sell in my taxable account at 0% LTCG tax.

[LivingAlmostLarge]

That's exactly what I am thinking. I think if I were living off my investments alone, I would maintain 3 years cash. And I think you are correct. Cash and bonds are about the same thing right now. That's why I include the cash in my AA. I actually have $100k cash sitting in my Roth because I had to rebalance last year back to 50/50. Couldn't find any bonds worth buying so it is just sitting in a MM account. If the market keeps tanking, I can buy some stock index funds with it and put it back to work. Or just do that now and accept a 55/45 AA.

You want bonds in 401k and stocks in Roth for balancing and allocation purposes. Also probably you want more bonds in taxable depending on size of things or stocks that you buy and hold that are growth and don't produce dividends.

[corn18]

You also have a military pension so I doubt holding tons of cash is necessary. how much do you have now? I think that holding cash in lieu of bonds is not a bad play to make. At least right now with savings and bonds paying peanuts. If they were paying something real then maybe the argument would be to hold bonds.

I would also argue depends on your spending. If SS And pension cover spending and you don't need the dividends or capital gains of portfolio then it shouldn't matter how much cash.

That's exactly what I am thinking. I think if I were living off my investments alone, I would maintain 3 years cash. And I think you are correct. Cash and bonds are about the same thing right now. That's why I include the cash in my AA. I actually have $100k cash sitting in my Roth because I had to rebalance last year back to 50/50. Couldn't find any bonds worth buying so it is just sitting in a MM account. If the market keeps tanking, I can buy some stock index funds with it and put it back to work. Or just do that now and accept a 55/45 AA.

[corn18]

You could have your investment income replenish your cash. Our portfolio threw off 100K in income last year. It mostly got reinvested but in retirement, we can have it paid out to us instead. We'll use that to live on and it will steadily get replenished throughout the year from interest, dividends, and capital gains.

I don't reinvest investment income in my taxable account. I average about $11k/year from that and would just prefer not to get any. I am going to tax gain harvest and do Roth conversions from my 401k and that investment income mucks things up. The problem is one year I have $10k of qualified dividends and the next year it is $10k of non-qualified dividends. What's up with that? Huge difference in how they are taxed. Would just prefer none of my taxable investments spun off any income.

[disneysteve]

Retired last Mar with 3 years cash. Now I am trying to justify why I have any cash. I used a lot of it to fund 2021 expenses so I didn't have to sell anything and pay huge taxes (had a giant severance). For 2022, we will spend more of the cash and have some left over. But now what? Do I sell and replenish the cash? That seems silly. Now I just have a huge cash drag all the time. Do I only sell at market highs? That is market timing which I suck at. So I think I am going to only have 3-6 months cash. Maybe a year's worth. Might pay myself every month, quarter or annually.

You could have your investment income replenish your cash. Our portfolio threw off 100K in income last year. It mostly got reinvested but in retirement, we can have it paid out to us instead. We'll use that to live on and it will steadily get replenished throughout the year from interest, dividends, and capital gains.

[disneysteve]

You also have a military pension so I doubt holding tons of cash is necessary. how much do you have now? I think that holding cash in lieu of bonds is not a bad play to make. At least right now with savings and bonds paying peanuts. If they were paying something real then maybe the argument would be to hold bonds.

I would also argue depends on your spending. If SS And pension cover spending and you don't need the dividends or capital gains of portfolio then it shouldn't matter how much cash.

LAL beat me to it. I was coming on to say the same thing. How much cash to hold in retirement is highly dependent on your income situation. If you have a pension and SS or any other guaranteed income, a large EF is less important and you're less concerned with market performance.

I, on the other hand, will be completely self-funding retirement (until SS starts) so having a large cash position makes more sense.

Also, holding cash will give us more flexibility when it comes to controlling our taxable income. That could be super important when we switch to ACA coverage. We've got 8 and 9 years before we each go on Medicare. The cost difference with and without the subsidy is significant.

[LivingAlmostLarge]

Retired last Mar with 3 years cash. Now I am trying to justify why I have any cash. I used a lot of it to fund 2021 expenses so I didn't have to sell anything and pay huge taxes (had a giant severance). For 2022, we will spend more of the cash and have some left over. But now what? Do I sell and replenish the cash? That seems silly. Now I just have a huge cash drag all the time. Do I only sell at market highs? That is market timing which I suck at. So I think I am going to only have 3-6 months cash. Maybe a year's worth. Might pay myself every month, quarter or annually.

It was nice starting retirement with boatloads of cash, though. One thing I did was include the cash in my AA. That way I wasn't overly conservative with the rest of my portfolio. I will say that life without a paycheck is different.

You also have a military pension so I doubt holding tons of cash is necessary. how much do you have now? I think that holding cash in lieu of bonds is not a bad play to make. At least right now with savings and bonds paying peanuts. If they were paying something real then maybe the argument would be to hold bonds.

I would also argue depends on your spending. If SS And pension cover spending and you don't need the dividends or capital gains of portfolio then it shouldn't matter how much cash.

[kork13]

For 2022, we will spend more of the cash and have some left over. But now what? Do I sell and replenish the cash? That seems silly. Now I just have a huge cash drag all the time. Do I only sell at market highs? That is market timing which I suck at. So I think I am going to only have 3-6 months cash. Maybe a year's worth. Might pay myself every month, quarter or annually.

I don't recall where/with who I was discussing this recently, but my thought toward it would be to keep probably at least 2 years of cash at all times to protect yourself from selling when the markets are in the pits (and SORR while you're at it). You spend out of the cash, then every quarter (or whenever) assess your market returns. If returns are at least 5% (for example--set the line based on your SWR + 1%) above the value from your most recent withdrawal, then sell assets to refill your cash bucket up to 2yrs expenses. If below that line, defer your withdrawal until values recover. That gives you at least 2 years of deferral space to wait out a down market.

[jenn_jenn]

We’re targeting one year of expenses.

We have more than that and we’re still trying to figure out what we do with it.

[corn18]

Retired last Mar with 3 years cash. Now I am trying to justify why I have any cash. I used a lot of it to fund 2021 expenses so I didn't have to sell anything and pay huge taxes (had a giant severance). For 2022, we will spend more of the cash and have some left over. But now what? Do I sell and replenish the cash? That seems silly. Now I just have a huge cash drag all the time. Do I only sell at market highs? That is market timing which I suck at. So I think I am going to only have 3-6 months cash. Maybe a year's worth. Might pay myself every month, quarter or annually.

It was nice starting retirement with boatloads of cash, though. One thing I did was include the cash in my AA. That way I wasn't overly conservative with the rest of my portfolio. I will say that life without a paycheck is different.

[srblanco7]

I've actually been actively building our cash war chest in preparation for retirement. I want to have 2-3 years of cash on hand which means at least 200K.
We also have some large expenses looming - new roof, replacing DW's' car, etc., so I want to be prepared to pay cash for those things.

We're in a similar boat - targeting two years of expenses at ER. Currently sitting on about $200k in cash with the intent to build it up this year to $300k+. Will have to buy a car in December 2022 as I transition out of a company vehicle, as well as new roof, and perhaps new furnace and a/c as well.