• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

What kind of cash reserve do retirees need to carry?

#1
Being retired for 14 years, with most monthly income from the IRA, I've always tried to maintain at least one year to eighteen month's cash to avoid having to sell equities into a bad market. This has been backed up with another year of government securities (US Bonds, many paying 4-6%), plus various readily-convertible assets, creating a 3 year 'cushion.'

Recently I dumped a mediocre bond fund (FMSFX), upping the reserve to 5 years. Presently this is about 8% of portfolio). Some of that I am putting back into the market in international/emerging markets (OAKIX mainly). The question is; what are other retirees doing in this regard?  What is your opinion on the cash a prudent retiree should carry?
  Reply
#2
None. That's my opinion.
Multi-year cash reserves are a waste of resources.
Typical investment portfolios have plenty of liquidity.
  Reply
#3
I keep 3 years of living expenses (amount i need at minimum when combined with ssn and annuity) available in liquid form.   I like to be at 60 40 stock, fixed income, but am currently holding cash from taking gains, and pondering where to reinvest, as prices are still pretty high.  Age 70, retired since 2010.
  Reply
#4
Yeah, I think it depends.
If you have income from other sources like SSN, Pensions, Real estate income(rentals/business), I think you can carry less cash.
If you are fully funding your retirement from accumulated assets, a different perspective would apply.
The most recent seminar I attended specified a 4 bucket approach but it's based on those variables I mentioned.
I'll be following up with that Planner next week to get a more individualized answer for myself.
As always, I think you could do the same exercise to get a better answer for yourself.
  Reply
#5
I agree with (and apply) that analysis.
 
It depends on how your retirement is funded. If you have a secure income stream (e.g., reliable pension, Social Security, reliable annuity, government bonds) funding part (or preferably all) of your necessary and foreseeable expenses, your cash cushion (to be tapped in lieu of selling investments in a falling market) only needs to cover the shortfall not covered by the secure income stream.  If some of the shortfall can be avoided by careful budgeting (e.g., eating out less frequently), you may decide not to cover those (discretionary) expenses in calculating your minimum cash cushion.  And in calculating the cash you'll need, don't forget to factor in any Required Minimum Distributions from IRAs and 401(k)s because you'll be forced to take that whether you "need to" or not.
 
Ideally your retirement planning would have assured a secure income stream sufficient to handle all necessary and foreseeable expenses as well as providing a bulge for discretionary indulgence and emergencies.  Your planning ought also have provided for foreseeable potential expenses such as long-term care, but that need not be in cash; insurance or other reasonably secure sources -- not susceptible of significant fluctuation due to market vagaries -- should suffice.
 
So, like most important questions, the answer is "It depends."   With successful planning you won't need much of a cash cushion after all.
  Reply
#6
I keep less than 1% in cash in a 98% equity portfolio and each year I look at what I made vs what I would have in a more traditional 60/40 mix. When I need extra money beyond SS and pension I sell something and my brokerage company has the money for me in 3 days. As far as not wanting to sell in a down market I would rather look at how much more money is in my account and not worry about current market conditions.
  Reply
#7
Retired 4 years ago.   I keep cash of about 3-4 months' expenses in checking and savings accounts.  Everything else is invested in something, from 3mo. CDs to fairly risky stocks.   The 3-4 month 'pot' is also used for surprise large expenses/purchases, like new house air-conditioning or major car repair.  Then I recharge the 'reserve' as least disruptive to my portfolio; like maybe upcoming CD proceeds just go to it.   For large playable discretionary purchases,  I plan accordingly with no borrowing.   As someone said above- you can always sell something if you have to.

I try to keep enough cash in my brokerage accounts to buy something 'good' when it presents itself.  But rarely more than 1% of my portfolio.
  Reply


Forum Jump:


Users browsing this thread: 1 Guest(s)