How much in cash and equivalents during long retirement?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
JacobTeach
Posts: 74
Joined: Thu Jul 18, 2019 1:19 am

How much in cash and equivalents during long retirement?

Post by JacobTeach »

Please assume the following:

1) 50+ year retirement
2) Enough per FIRE calc and other calcs in equity (70/30 domestic/international)
3) Rental net income of 1x monthly expenses (including everything: tax, maintenance, healthcare, etc)

How much in cash and cash equivalents should we hold? We are thinking 6-12 months of expenses given our cash flow from real estate, which is solid but not guaranteed. If it weren’t for the potential of major repairs, we would be closer to 6 months.
AlohaJoe
Posts: 6609
Joined: Mon Nov 26, 2007 1:00 pm
Location: Saigon, Vietnam

Re: How much in cash and equivalents during long retirement?

Post by AlohaJoe »

$0.

Why do you need to hold cash?
User avatar
bhwabeck3533
Posts: 462
Joined: Thu Sep 21, 2017 6:25 am
Location: Baldwin County, AL

Re: How much in cash and equivalents during long retirement?

Post by bhwabeck3533 »

JacobTeach wrote: Fri Nov 26, 2021 12:30 am
How much in cash and cash equivalents should we hold? We are thinking 6-12 months of expenses given our cash flow from real estate, which is solid but not guaranteed. If it weren’t for the potential of major repairs, we would be closer to 6 months.
You've got your first ZERO reply, and there will be more.

The answer is different for everyone. Since you are part of a "we", ask the other half if they have an opinion on this matter. My wife would say 100% cash in a volatile investment market. I would prefer near zero. We compromised at two years living expenses in the IRA money market account. She's happy, and it's been a good compromise for us.
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: How much in cash and equivalents during long retirement?

Post by jebmke »

If you have a reasonably balance portfolio with some high quality bonds (funds) then no cash needed.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: How much in cash and equivalents during long retirement?

Post by KlangFool »

JacobTeach wrote: Fri Nov 26, 2021 12:30 am Please assume the following:

1) 50+ year retirement
2) Enough per FIRE calc and other calcs in equity (70/30 domestic/international)
3) Rental net income of 1x monthly expenses (including everything: tax, maintenance, healthcare, etc)

How much in cash and cash equivalents should we hold? We are thinking 6-12 months of expenses given our cash flow from real estate, which is solid but not guaranteed. If it weren’t for the potential of major repairs, we would be closer to 6 months.
What happened if you can't rent out the place? How much mortgage do you need to pay each month?

Please don't assume everything will go well all the time. When it goes bad, it tends to go bad at same time. In the coming recession, how much cash do you need to wait for recovery?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
MikeG62
Posts: 5065
Joined: Tue Nov 15, 2016 2:20 pm
Location: New Jersey

Re: How much in cash and equivalents during long retirement?

Post by MikeG62 »

OP, I think what you are planning sounds reasonable. I am not in the zero in cash camp, unless people are talking about amounts sitting in non-interest bearing checking accounts - I do think that should be close to zero.

I view online savings accounts and no-penalty CD's as the very short end of my fixed income exposure. I have way more there than I should (in part a product of the current environment), but do think it's more than OK to hold some funds in these type of accounts.

FWIW, I am retired six years now.
Real Knowledge Comes Only From Experience
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

You hold cash necessary to manage cash flow efficiently. There is no special reason to invest in cash as such.

That does not mean assets such as CDs, I bonds, stable value funds, or even MGYAs that people could classify as cash because the value is held at a stable dollar value are not helpful investment assets. You could even classify bonds held to maturity as cash depending on how you rate liquidity. I don't classify those things as cash because it confuses the issue to do that. For me cash is what the checking account balance is and I don't have money market funds, etc. One might choose whether or not credit cards constitute cash either as balances being accrued negative cash or credit limits as a cash reserve.


Fixed income generally can be assessed based on the factors of term and credit risk and whatever you call cash fit into that.
User avatar
Sandtrap
Posts: 19591
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: How much in cash and equivalents during long retirement?

Post by Sandtrap »

JacobTeach wrote: Fri Nov 26, 2021 12:30 am Please assume the following:

1) 50+ year retirement
2) Enough per FIRE calc and other calcs in equity (70/30 domestic/international)
3) Rental net income of 1x monthly expenses (including everything: tax, maintenance, healthcare, etc)

How much in cash and cash equivalents should we hold? We are thinking 6-12 months of expenses given our cash flow from real estate, which is solid but not guaranteed. If it weren’t for the potential of major repairs, we would be closer to 6 months.
A.
The elephant in the room (from a business (vs employee) point of view which is vital in your case) is "working capital" IE: business cash reserves.
Why?
B.
1. You lose rental income for a short period (normal working capital) due to vacancy, damage, repair, remod, etc.
2. You lose rental income for a longer period (IE tenant lawsuit, etc) (large cash reserves to cover R/E income property expenses, living expenses (IE: the 1x you speak of).
C.
So, while many might view the "rental income" as an adjunct, at best, to employment income as an employee (with that point of view and mindset perhaps), in your case (and only you), since it covers all of your monthly expenses (personal and business), it is the "first priority).
D.
Thus, consider your investment portfolio (returning interest and dividends) as the 3rd leg of your personal investment (business is an investment) long term comprehensive strategy.

See?

So, there's not enough data given on your "personal rental business assets and income" to give input as to what your; "Personal" cash reserves and/or emergency fund, and your "business" working capital, should be.

IMHO: just as you do not (hopefully) commingle your business cash flow with personal cash flow, et al, so perhaps it is in your best interest overall to at least mentally, compartmentalize the two when it comes to "personal cash reserves" and "business working capital". Normally (big dis laimer): this is the common approach for those with personally owned businesses whether R/E residential income property (from 1 rental to 300 rentals) to those owning IE: several drug stores, or IE: 8 laundromats, etc.

*As to the very specific question: 6 or 12 months of business working capital. There's not enough information about your business to input that without a lot of assumptions or generalizations.

I hope this is helpful to you.
PM me as you wish.
j :D

*dis laimer: there are zillions of paths and options and opinonions on zillions of things by zillions of people. This is just one.
Last edited by Sandtrap on Fri Nov 26, 2021 9:50 am, edited 1 time in total.
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
AnnetteLouisan
Posts: 7261
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: How much in cash and equivalents during long retirement?

Post by AnnetteLouisan »

KlangFool wrote: Fri Nov 26, 2021 7:20 am
JacobTeach wrote: Fri Nov 26, 2021 12:30 am Please assume the following:

1) 50+ year retirement
2) Enough per FIRE calc and other calcs in equity (70/30 domestic/international)
3) Rental net income of 1x monthly expenses (including everything: tax, maintenance, healthcare, etc)

How much in cash and cash equivalents should we hold? We are thinking 6-12 months of expenses given our cash flow from real estate, which is solid but not guaranteed. If it weren’t for the potential of major repairs, we would be closer to 6 months.
What happened if you can't rent out the place? How much mortgage do you need to pay each month?

Please don't assume everything will go well all the time. When it goes bad, it tends to go bad at same time. In the coming recession, how much cash do you need to wait for recovery?

KlangFool
+1
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: How much in cash and equivalents during long retirement?

Post by Grt2bOutdoors »

Banks are required to hold 90 days equivalent of expenses in High Quality Liquid Assets. That could be cash but most often they hold U.S. TBills that mature as they need the cash. You however do not have a line of credit with the Federal Reserve Bank. I would not count rental income as a source of liquidity in any circumstance, especially since it appears to come from one single source as opposed to 8 laundromats in 8 distinct and varied geographical regions.

A year to two years worth in liquid assets, 4-6 years in US Treasuries, the remainder at risk. Never underestimate the value of peaceful sleep.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
Sandtrap
Posts: 19591
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: How much in cash and equivalents during long retirement?

Post by Sandtrap »

Grt2bOutdoors wrote: Fri Nov 26, 2021 9:33 am Banks are required to hold 90 days equivalent of expenses in High Quality Liquid Assets. That could be cash but most often they hold U.S. TBills that mature as they need the cash. You however do not have a line of credit with the Federal Reserve Bank. I would not count rental income as a source of liquidity in any circumstance, especially since it appears to come from one single source as opposed to 8 laundromats in 8 distinct and varied geographical regions.

A year to two years worth in liquid assets, 4-6 years in US Treasuries, the remainder at risk. Never underestimate the value of peaceful sleep.
Great points
Well said and on target.

OP: print this out and tape to office door.
j🌺
Wiki Bogleheads Wiki: Everything You Need to Know
Joylush
Posts: 82
Joined: Fri Jun 05, 2015 7:47 am

Re: How much in cash and equivalents during long retirement?

Post by Joylush »

Wouldn’t it depend on how much you have in the first place?

I have enough cash to last for the rest of my life. I’d say it’s roughly 1/5th of my portfolio. The remainder is split about equally between real estate and stocks/bonds. So there is no need to risk the cash and if there are big swings in the other investments it doesn’t much matter. Plus having a large amount of cash in hand allows me to take advantage of opportunities that come up without fear.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

I have to apologize that I read past the ownership of real estate, so I take back my no cash comment. There are so many mindless posts about holding cash that one has knee jerk reaction.

For the specific case of real estate investing I would defer to someone with experience such as Sandtrap.

I will point out, however, that the issue is not investing but rather cash flow, which is a different problem.

I would also add that liquidity can defined in different ways. Stock and bond assets are usually highly liquid but volatile. I would not equate volatile to not being liquid.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

Joylush wrote: Fri Nov 26, 2021 10:05 am Wouldn’t it depend on how much you have in the first place?

I have enough cash to last for the rest of my life. I’d say it’s roughly 1/5th of my portfolio. The remainder is split about equally between real estate and stocks/bonds. So there is no need to risk the cash and if there are big swings in the other investments it doesn’t much matter. Plus having a large amount of cash in hand allows me to take advantage of opportunities that come up without fear.
With that much wealth big swings in investments would also not matter if you had no cash. What does matter is the expected risk and expected return of the whole and the calculation of the chance of running out of money based on your spending, your return, and your risk -- this chance is zero at any risk or return for you.

The assessment of opportunities is more complex and you know your own businesses for sure, but there is opportunity cost in holding cash that has to be taken into account.
User avatar
Sandtrap
Posts: 19591
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: How much in cash and equivalents during long retirement?

Post by Sandtrap »

Joylush wrote: Fri Nov 26, 2021 10:05 am Wouldn’t it depend on how much you have in the first place?

I have enough cash to last for the rest of my life. I’d say it’s roughly 1/5th of my portfolio. The remainder is split about equally between real estate and stocks/bonds. So there is no need to risk the cash and if there are big swings in the other investments it doesn’t much matter. Plus having a large amount of cash in hand allows me to take advantage of opportunities that come up without fear.
1. Yes. % cash is dependent on % total assets and what is the makeup of that. IE: % hard assets, % portfolio investments, etc.

2. Investment "swing" or "margin" depends on what the investments are, IE: volatility, economic vulnerability, etc.

3. Yes. If, for example: I had 2.5 million in a cash business working capital account post 2008/10, then I would be able to take advantage of the crash in R/E residential multi unit apartment buildings in Scottsdale/Tempe. (this has nothing do with fear/emotion).
If that is your business metric, and part of your well thought out business plan for expansion, then yes.

3b. However, if the "taking advantage of opportunities without fear" applies to the "stock/bond/index fund/et al" arena, then that's a big Tomato can of potential worms.

4. If you are 50/50 with 50% in R/E income earning and 50% market portfolio, and 1/5 of the total is in cash and that 1/5 represents 25X your expenses in retirement for 25 years from age 65 to 90, then. . . "for you". . . you have far less to "fear" than someone without those extensive total assets, per se.

j :D
Wiki Bogleheads Wiki: Everything You Need to Know
Jack FFR1846
Posts: 18502
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: How much in cash and equivalents during long retirement?

Post by Jack FFR1846 »

Personally, I have 6 or 7 years spending in US Savings bonds in paper form, so I know on any business day, I can drive the 5 miles to my credit union, cash a bond and have the funds immediately available. So for me, I'll keep enough cash to pay my auto-payments and a bit beyond. Let's say 1 month spending.

If I didn't have the bonds, or when I spend those, I'll keep 2 years in cash.
Bogle: Smart Beta is stupid
User avatar
AnnetteLouisan
Posts: 7261
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: How much in cash and equivalents during long retirement?

Post by AnnetteLouisan »

Things tend to spring up out of the blue that are not your fault but that you have to deal with.

Illness can show up. A fire. Some other circumstance like a lawsuit, cost overrun, market downturn or gas leak. A careless bicyclist can jump into your path. A friend can need help or a relative can. Resolving things can take longer than one expects. Cash helps a lot in such times. Like insurance, you don’t need it until you need it and when you do you’re glad it’s there. I keep over 5 years in cash plus a lot in treasuries, but that’s overkill - residue from a time when 5 year CDs paid 7 percent, at which point it was a great strategy.
babystep
Posts: 775
Joined: Tue Apr 09, 2019 9:44 am

Re: How much in cash and equivalents during long retirement?

Post by babystep »

Assets as multiple of expenses? more than 50x? 6-12 months seems reasonable. At those assets level, the difference between 6 months and 12 months is negligible.
I would have a line of credit as backup option.
TheDogFather
Posts: 200
Joined: Sun Jul 14, 2019 11:02 am
Location: Virginia

Re: How much in cash and equivalents during long retirement?

Post by TheDogFather »

I can understand retirees holding several years in cash for the benefit of sleeping well at night, but for those with taxable equity and bond accounts generating significant amounts of dividends, does this cause you to hold a lower amount in cash? And when pensions or SS kicks in, does the cash holding reduce further?
hvaclorax
Posts: 598
Joined: Mon Nov 21, 2016 5:01 pm

Re: How much in cash and equivalents during long retirement?

Post by hvaclorax »

My dear departed father always said, if you have a problem that can be solved by money then you really don’t have a problem. Crude but it does have validity.
Respectfully HVAC
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

TheDogFather wrote: Sat Nov 27, 2021 11:10 am I can understand retirees holding several years in cash for the benefit of sleeping well at night, but for those with taxable equity and bond accounts generating significant amounts of dividends, does this cause you to hold a lower amount in cash? And when pensions or SS kicks in, does the cash holding reduce further?
I'm pretty sure that some people without a monthly deposit of cash into the checking account from SS and pensions find psychological security in having an amount of cash at hand. Whether or not it is just as good to have a brokerage account of stocks and bonds from which withdrawals can be taken is up to the individual. People might be nervous about needing to withdraw frequently in significant amounts from a portfolio of variable value. Other people can just set up a monthly withdrawal amount from a broker or can take withdrawals at will and those people go on with no anxiety.

A different question is whether allocating significant fixed income to cash per se makes any significant financial difference.

Another distinction is between holding large fractions of assets exactly in cash compared to holding some cash in reserve for cash flow management.
livesoft
Posts: 86077
Joined: Thu Mar 01, 2007 7:00 pm

Re: How much in cash and equivalents during long retirement?

Post by livesoft »

I wonder if folks who "lived paycheck to paycheck" much of their lives find it easier to be virtually cashless in retirement?

In essence, we lived paycheck to paycheck, but not in its traditional hardship meaning simply because we made sure all stray cash was invested in equities and bond funds. We were using automated monthly investing in mutual funds during our working lives such that there was only enough leftover to pay bills. If we had an unexpected or expected major expense, then we had to sell some shares to pay for it (or the credit card bill that it created). We always have our money working for us instead of the other way around.
Last edited by livesoft on Wed Dec 01, 2021 9:51 am, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

livesoft wrote: Wed Dec 01, 2021 9:48 am I wonder if folks who "lived paycheck to paycheck" much of their lives find it easier to be virtually cashless in retirement?

In essence, we lived paycheck to paycheck, but not in its traditional hardship meaning simply because we made sure all stray cash was invested in equities and bond funds. We were using automated monthly investing in mutual funds during our working lives such that there was only enough leftover to pay bills. If we had an unexpected or expected major expenses, then we had to sell some shares to pay for it.
Our experience during working years is that we also lived "paycheck to paycheck" in the same sense. I am also comfortable not having years in cash somewhere.
TheDogFather
Posts: 200
Joined: Sun Jul 14, 2019 11:02 am
Location: Virginia

Re: How much in cash and equivalents during long retirement?

Post by TheDogFather »

dbr wrote: Wed Dec 01, 2021 9:36 am

I'm pretty sure that some people without a monthly deposit of cash into the checking account from SS and pensions find psychological security in having an amount of cash at hand. Whether or not it is just as good to have a brokerage account of stocks and bonds from which withdrawals can be taken is up to the individual.
Right … the point I was trying to make is that those with significant taxable accounts are receiving monthly and quarterly dividends (that are not so much withdrawn but need to be reinvested) much like SS and pensions. Granted, not guaranteed, but there is an income stream there that is pretty reliable and certainly not as fickle as equity prices.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

TheDogFather wrote: Wed Dec 01, 2021 11:29 am
dbr wrote: Wed Dec 01, 2021 9:36 am

I'm pretty sure that some people without a monthly deposit of cash into the checking account from SS and pensions find psychological security in having an amount of cash at hand. Whether or not it is just as good to have a brokerage account of stocks and bonds from which withdrawals can be taken is up to the individual.
Right … the point I was trying to make is that those with significant taxable accounts are paying out monthly and quarterly dividends much like SS and pensions. Granted, not guaranteed, but there is an income stream there that is pretty reliable and certainly not as fickle as equity prices.
I think what happens in practice is that having a lot of taxable dividends people would naturally just have the dividends paid to cash, but the reason is convenience rather than any special property of dividends. Taxation also becomes a little simpler without reinvesting dividends if one wants the cash anyway. One should keep in mind that almost any broker will arrange to sell assets and send cash in a fixed monthly amount. It is also true that people can need different amounts of cash at different times and be selling assets or not anyway.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: How much in cash and equivalents during long retirement?

Post by Marseille07 »

Try to think how much fixed income, including cash, you need.

Be very careful listening to those saying $0 because these people usually hold 30~40% in fixed income. You're indicating AA of 100/0, a very different situation. This is why you want to think in terms of fixed income allocation as a whole.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How much in cash and equivalents during long retirement?

Post by dbr »

Marseille07 wrote: Wed Dec 01, 2021 11:41 am Try to think how much fixed income, including cash, you need.

Be very careful listening to those saying $0 because these people usually hold 30~40% in fixed income. You're indicating AA of 100/0, a very different situation. This is why you want to think in terms of fixed income allocation as a whole.
Right, this debate is supposed to be about cash and most people saying zeero mean zero cash but hardly zero fixed income. There is lots of debate about what cash means because from an investment point of view there are lots of assets fixed in cash value that are not really cash, such as a stable value fund. On the other hand people mean cash in the cash flow sense. I, for example, don't hold any cash except what is in the checking account, my wallet, a cup full of coins on my desk, but also importantly what can be spent or drawn from an ATM on credit cards. Some people can write checks on mutual fund accounts though, and cash from selling assets can be in a checking account in a few days.

Exactly what people see as useful in holding lots of cash for the longer term and what instruments that really means is open to a lot of choices and preferences.
Post Reply