How to Manage Cash Reserves in Retirement
Vložit
- čas přidán 21. 07. 2024
- Managing your cash reserves in retirement can get complicated quickly between living expenses, multiple income streams, taxes owed, etc.
James explains how you should manage your cash reserves based on your financial plan and answers a listener’s question.
Questions Answered:
How do you incorporate cash needs and short-term assets into your bigger-picture portfolio?
How does that change from working years into retirement years?
Learn the tips & strategies to get the most out of life with your money.
Get started today → www.rootfinancialpartners.com/
Subscribe to be notified for future videos: / @rootfp
_ _
For more resources and content, check us out below!
🔔 Subscribe to our channel to learn more about all things portfolio management / @rootfp
🎧 Listen to our podcast readyforretirement.co/
🧑💻 Visit our website www.rootfinancialpartners.com to learn more about us
👥 Connect with us on Facebook / rootfinancialpartners
📷 Connect with us on Instagram / rootfinancialpartners
🔗 Follow us on LinkedIn / 18347030
_ _
⏱Timestamps:⏱
0:00 Intro
0:44 Listener question
4:09 Three “buckets”
5:30 Other tax accounts
6:57 Emergency fund
10:39 Free access to your accounts
12:45 Savings accounts
14:37 Reframing your view
16:14 Cash vs portfolio
18:05 Outro
Other videos we think you'll like:
About Root: • Financial advisors wit...
Worried about retirement? Start here: • Worried About Retireme...
![[Case Study] How to Prepare for Early Retirement](http://i.ytimg.com/vi/O_MukmITy7M/mqdefault.jpg)
![[Case Study] How to Prepare for Early Retirement](/img/tr.png)
Hi James - although Kelly did not say this, I think she may have used the phrase "emergency fund" instead of 5 years of expenses so that she could handle market ups and downs to perhaps pull from to avoid sequence in return risk. Also, I think she was looking for other alternatives to keep those types of funds in other than the ones she specifically mentioned. Just how I took the question. May be completely wrong.
Love your channels, awesome in every respect. It seems to me that having a separate account for eveey single one-off expense (property tax, vacation, insurance, etc) is unnecessarily complicated. Perhaps it's necessary for those who are undisciplined, so I'm sure it's helpful for some. But our approach is so much simpler:
1. Look at *all* total annual spending past x years. Including *everything*.
2. Divide by 12, that's monthly. Add a little vig to that, subtract social securiity and/or pensions or other income sources. That's what you take out per month.
3. Keep 3-6 months (or whatever you're comfortable with) in savings/checking cash to cover the ups & downsbfor a given month.
Done.
(I'm not getting into investment allocation, this is simply how to simply manage income/spending. Very simple. In vs out.
Cash flow is the lifeblood of a successful retirement. Part of that is cash reserves. Thanks, James, for your outstanding content!
On point as always! Thanks, JC!
Thanks again for your clear explanations and sensible advice!
I am 62 and plan to retire from my job at 65, to transition to Medicare from my employer plan, without expensive health insurance with much lower income.
As a way for me to pay plan G premiums, I plan to wait until 67 to collect SS. The difference in payments would be enough to fully fund my plan G premiums, with COLA helping keep the rising premiums at bay. I will also give me two years of $0 earnings, where I can take a lot out of my IRA (no Roth) to benefit from the low tax rate these two years will provide.
So, for my liquid asset planning between 65 and 67, I am building a two year full expenses (including part B and G premiums) liquid assets between my current checking and savings account and my retirement accounts. That way, I won’t have to worry that the market dives just before I retire.
Your videos and podcasts have helped me adjust my ideas about finances as I transition to retirement, as well as differentiating between different stages of retirement and how this affects my portfolio decisions as I (hopefully!) move the stages of retirement.
I’m so glad to hear the podcasts have helped!
Thank you. Great information.
tapping into stocks/bonds for emergency cash inc the potential of capital gain taxes, so yeah I get her point. The negative of course is we are losing about 5% on cash account on higher costs of living unless its an interest paying account
Agree, emergency fund is basically obsolete when you (fully) retire. For myself, I don't use "buckets" or bonds and maintain 97% of my investments in stocks, index funds, etf's and mutual funds. The mutual fund I'm referring to is Schwab's SWVXX. SWVXX contains 12 months living expenses. I used to keep 18 months until I turned 62. At that point, I figured I could always begin taking Social Security if things got really ugly. I plan to wait for S.S. until I'm 70. S.S. would pretty much cover all my basic expenses now but at 70, I wouldn't need any retirement money. I'm in excellent health and have longevity in my family. I've been retired 6+ years and could reasonably expect another 30 years. Why wouldn't I keep my money working? Most will go to my heirs and charity.
I'm wondering why not collect SS now (e.g. 30-40k per year), and that's 30-40k per year that can be left in your investments to grow more? Also, SS may be cut in 2033. A bird in the hand.... thoughts?
My withdrawal strategy is the barbell method. 2 years of expenses in savings account. 3 years of expenses in my 401k/IRA in cash or cash equivalent. A 60/40 stock to bonds. The cash equivalent will be included in the bonds. Years, the stock market is up I will take my expenses out of that.
We are retired no debt have aprox 14.00% in liquid/taxable cash/i bonds plus we have a pension. We have aprox. 4.5 years of cash/I bonds. It might be high but easy to sleep with volatility.
Good info. I don't have ability to pay into HSA so I'll keep growing my emergency fund. I plan to retire in four years @62 and I'm wondering what to do with my excess income after 62. I'm leaning more and more towards getting a CFP and CPA so I need to looking around and readjust my brain to accept the fees involved with hiring professionals and hope for the best outcome.
I use the separate savings acct now, at 45 y/o for planned spend. Dont wait till you are retired!
Sounds like she was looking to have cash/equivalents to cover " sequence of returns risk."
I dream of being an early-retired, pre-medicare expat living abroad in a country with affordable out of pocket medical costs. Does anyone know if HSA money can be used for that (and if so, if the process is complicated)?
I'm pretty sure that I heard that Emergency funds were generally from 3 months to 1 year of income? 5 years of cash seems a bit much - $100K a year - so $400K just sitting there not working for you earning barely any interest? Nope.
Check out “sequence of return risk” in the envelope of 5 years before and 5 years afterwards - good paper is Michael Kitces and Bond Tent. She is 5 years before 65 year old retirement age.
Sounds like she wants to retire at 65 and bridge her living expenses without using her retirement portfolio for 5 years to begin SS at 70. Not a true emergency fund but rather wanting a simple way to leverage cash for living expenses. Regardless, the money should be invested safely in an account to easily access.
We retired last year @60/59. We retired with 4 years cash, we wanted to be able to retire without having to worry about the stock market in the early years of retirement. This last year interest rates have drastically increased from approximately 1-1.5% to where you can easily get over 5% cash.
Can you do this for Canadians?! We have different accounts RRSP TFSA OAS and CPP
Pre-retirement, all of my retirement savings went into equities in my 401k, HSA and other investments as well as paying off my mortgage 10 years before retirement. I kept relatively little cash so my savings would be working for me. I did maintain at least 1.5 years of emergency funds in the form of a HELOC. If needed, I could borrow in an emergency. After my kids graduated college and my mortgage was paid, I could start focusing on additional savings and building cash reserves outside of my 401k. I wanted cash savings that I could tap to fund living expenses before I started taking 401k withdrawals and collecting Social Security. Across all accounts, I keep about 4 years of living expenses in cash. That may seem high, but if you use the 4% rule as a guide, you should have about 25 years of living expenses in retirement assets. 4 years of that 25 equals 16%. So I keep approximately 16% in cash, now earning between 4-5% and the rest in equities. If the market declines for awhile, I can ride out 2-3 years without selling my equity funds at a loss.
It sounds like you’ve done a good job thinking through all this.
I am sure the issue is not necessarily about cash "Reserves" .
I am successfully retired. And I have been building up cash. I will take a 5% + interest over the constant insecurites of stocks.
CDs, Vanguard Money Funds, MYGAS. I Bonds.
Why screw around with risk in retirement when this easy money is available?
I am 76 live off my SS and 4% of the 401K. I have $50K in Marcus savings making 4.15% right now I took $250K just 9 months ago and its in a CD at 4.2% so in 2 weeks it will be $264K cash. I am then going to put it in to a Fidelity 4 teer cd for the next 12 months at 5.20%
Just my opinion, but with money market accounts through brokerages, brokered CDs and short term treasuries all hovering at around 5% or slightly higher there's no reason not to have all of our money working for us as part as the overall strategy with the liquidity of being short term. Short term being 1, 2 or 3 month durations; money markets are immediate and the other two are available for however long a person feels comfortable. Yes, earmark the money for whatever but investing in all of the above can add to cash flow/emergencies. These didn't work in the recent past due to low interest rates and will not work in the future if interest rates fall but these things should be thought about in an individual's or couple's retirement plan.
Hi! I’m a 67 old retiree, all my income sources are guaranteed. Do I need an emergency fund?
I’ve never heard of such high amounts of liquid living expenses in retirement.
5 years?
We have one year of living expenses in a savings account.
Meaning, if social security went away, God forbid, we could pay our living expenses for one full year out of that savings account.
But, if we factor in social security, that money could sit there forever.
Because our living expenses are much lower than our 2 social security payments.
They’re lower than just one social security check.
So, I don’t know, but it seems that there’s such a thing as being TOO careful. I don’t want to have huge amounts of cash sitting there losing to inflation.
Am I missing something?
I haven’t factored into this that we both have untapped 401ks and we’re 62 and 71.
I’m with you
I believe this is for people who have expenses that are greater than SS. As JC says in the video, it’s not your total living expenses, just the amount that needs to come from your portfolio, which in your case is zero. Congrats and cheers
She wanted more specific places to put cash reserves. Some people would rather not tap into retirement accounts for extras
Recommendations for $300,000 in an emergency fund that's just sitting in brokerage account? With the Market in turmoil, I can't see investing in anything. Thoughts?
Suggest at a minimum a CD yielding 4%/yr
I am 76 live off my SS and 4% of the 401K. I have $50K in Marcus savings making 4.15% right now I took $250K just 9 months ago and its in a CD at 4.2% so in 2 weeks it will be $264K cash. I am then going to put it in to a Fidelity 4 teer cd for the next 12 months at 5.20%
You should have almost all (if not all) in a combination of high yield money market accounts and high yield CDs. This 300k “cash” should be currently earning at least 5% while still being secure, which would equate to $15k additional cash per year (I.e. free money if holding cash for an emergency fund or just a cushion).
You only need enough, what that is for you to budget… you can always sell down assets 🧐👍
🤘🏻
7 minutes before you started to answer her question!