How much to keep in cash in retirement?

[Anonymous]

DH is retiring this year. We have a very robust nest egg due to his being very highly compensated in the last 10 years of his career.

Currently we have about 10% of our portfolio in a money market (about $1.4M), 61% in stocks and the rest in bonds. The large cash presence is due to numerous sales of company stock through the exercise of options. Our net worth (minus projected tax expenditures for retirement and deferred comp accounts) is around $12M.

The only income we will be receiving is our social security, which amounts to about $90K gross a year.

Expenditures beyond the SS will come from our money market, which will grow significantly starting next spring due to deferred comp distributions of around $400K a year. Because of these large distributions, I feel we should start investing back into the market now to prevent being too cash heavy. The question is how much, and how is this determined?

In terms of spending, I am projecting $300K a year.

We have a financial planner, but I am asking here because the planner will most likely be more apt to want us to invest more than less. Most of our money is tied up in the deferred comp and 401K accounts, which are not managed by the planner. He is managing about $3M for us.

[Anonymous]

Are you worried about not having enough?

[Anonymous]

I’ve been retired for 11 years. Our budget is $20k a month or $240k a year. We aim to have enough cash on hand to fund 2 years of expenses. We include social security, which is only half what you get (how do you get 90k? that’s a lot). So for us, we like no more than $400k in cash. I think what you have sitting around is way too much.

[Anonymous]

“Cash” definition can be a little fluid. Are you asking about literal cash or liquid funds like CDs, TBills, MMFs and for some bond funds and brokerage? For us, we consider cash a combination of cash, savings, CDs, MMFs and bond funds. In a vacuum, we like having three years worth of spending in our “cash”. We also expect that at some times we can go lower or higher (2 or 4 years) depending on market. We also think that our preference is considered conservative by some, but it’s our comfort level.

Will you be converting those tax advantaged accounts? You’ll probably want to pay that tax bill out of “cash”.

Lots of moving parts, everyone’s answer is individual. It’s good you have planner but I would also consult your tax accountant. Hopefully they’re different people. 🙂

[Anonymous]

Keep it in cash/equivalents for the year (or 2). After that you'll have a more realistic view of what you need and want and can decide then.

[Anonymous]

Between pension plans and social security we generate about $170k a year. We also keep enough in cash type accounts to give us a two year cushion including the $170k.

[Anonymous]

Anonymous wrote:I’ve been retired for 11 years. Our budget is $20k a month or $240k a year. We aim to have enough cash on hand to fund 2 years of expenses. We include social security, which is only half what you get (how do you get 90k? that’s a lot). So for us, we like no more than $400k in cash. I think what you have sitting around is way too much.

It's 90K between two people (myself and my husband).

[Anonymous]

Anonymous wrote:“Cash” definition can be a little fluid. Are you asking about literal cash or liquid funds like CDs, TBills, MMFs and for some bond funds and brokerage? For us, we consider cash a combination of cash, savings, CDs, MMFs and bond funds. In a vacuum, we like having three years worth of spending in our “cash”. We also expect that at some times we can go lower or higher (2 or 4 years) depending on market. We also think that our preference is considered conservative by some, but it’s our comfort level.

Will you be converting those tax advantaged accounts? You’ll probably want to pay that tax bill out of “cash”.

Lots of moving parts, everyone’s answer is individual. It’s good you have planner but I would also consult your tax accountant. Hopefully they’re different people. 🙂

The cash we have is all in a money market account.

Regarding conversion of tax advantaged accounts, that's an interesting thought. Would that be a more prudent thing to do before investing? Unfortunately we will have some high tax bills due to exercising the rest of our options over the next few months, so not sure the timing is good for converting the accounts.

[Anonymous]

You will save more money with tax planning than trying to figure out where it all has to go. This tax planning should have started long ago. You SS will be taxed because of RMD and who know what else. Your LTCG will be taxes because of you RMD and SS.

[Anonymous]

I have assets similar to yours, and getting close to retirement, and have about a million in cash. At the moment it's in interest bearing accounts that aren't terrible, but as interest rates go down I may put more into the market.

[Anonymous]

Anonymous wrote:

Anonymous wrote:“Cash” definition can be a little fluid. Are you asking about literal cash or liquid funds like CDs, TBills, MMFs and for some bond funds and brokerage? For us, we consider cash a combination of cash, savings, CDs, MMFs and bond funds. In a vacuum, we like having three years worth of spending in our “cash”. We also expect that at some times we can go lower or higher (2 or 4 years) depending on market. We also think that our preference is considered conservative by some, but it’s our comfort level.

Will you be converting those tax advantaged accounts? You’ll probably want to pay that tax bill out of “cash”.

Lots of moving parts, everyone’s answer is individual. It’s good you have planner but I would also consult your tax accountant. Hopefully they’re different people. 🙂

The cash we have is all in a money market account.

Regarding conversion of tax advantaged accounts, that's an interesting thought. Would that be a more prudent thing to do before investing? Unfortunately we will have some high tax bills due to exercising the rest of our options over the next few months, so not sure the timing is good for converting the accounts.

This is a very questionable use of the term "unfortunate."

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:“Cash” definition can be a little fluid. Are you asking about literal cash or liquid funds like CDs, TBills, MMFs and for some bond funds and brokerage? For us, we consider cash a combination of cash, savings, CDs, MMFs and bond funds. In a vacuum, we like having three years worth of spending in our “cash”. We also expect that at some times we can go lower or higher (2 or 4 years) depending on market. We also think that our preference is considered conservative by some, but it’s our comfort level.

Will you be converting those tax advantaged accounts? You’ll probably want to pay that tax bill out of “cash”.

Lots of moving parts, everyone’s answer is individual. It’s good you have planner but I would also consult your tax accountant. Hopefully they’re different people. 🙂

The cash we have is all in a money market account.

Regarding conversion of tax advantaged accounts, that's an interesting thought. Would that be a more prudent thing to do before investing? Unfortunately we will have some high tax bills due to exercising the rest of our options over the next few months, so not sure the timing is good for converting the accounts.

This is a very questionable use of the term "unfortunate."

OP here...sorry if it offends you. It's all relative you know.

[Anonymous]

Agree with a PP that what you really need is tax planning. If you have kids, grandkids, you could fund significant 529s for them. Set up a charitable gift fund for ann immediate tax deduction to offset your upcoming high tax bills, etc.

[Anonymous]

Your posts comes across as a brag. Whats your plan with the MM as interest rates goes down?

[Anonymous]

I don't follow this: "Expenditures beyond the SS will come from our money market, which will grow significantly starting next spring due to deferred comp distributions of around $400K a year. Because of these large distributions, I feel we should start investing back into the market now to prevent being too cash heavy."

Why would you need to do anything now? Pick the amount or percent of cash you want and move to that now, but not because of what's coming. When when you get the deferred comp, put it in money market or stocks/bonds then to maintain your desired cash, but why are you trying to change the cash now vs. just investing (some of) the deferred comp when it comes?