Unless you are happy with 6000 views, you're going to have to water your content down a smidge. I tuned you out about the time you started bringing out the graphs.
If a person has enough there is no need to take significant risks. Peace of mind is invaluable. Money markets, bonds, and dividend stocks to fund expenses is my approach.
Thanks for your channel, Rob. You explain things very well. I'd like to offer up a counterargument to your idea that it's best to keep a minimal amount of cash in retirement. I have about 3 years worth of expenses in cash, and my expenses are fairly high since I still have school-age kids at home. While this cash is basically losing value due to inflation, it's enabled me to invest my other assets more aggressively than I would have otherwise. There's no way to know what might have happened if I had kept a smaller amount of cash. But I'm pretty sure the overall value of my portfolio is greater now because I have this cash "buffer." In some ways I think a large buffer is the flip-side of what you mentioned at the end of your video: that in a worst case scenario you would reduce your expenditures to deal with a market downturn. What I'm suggesting, and what I don't think academic studies take into consideration, is that having a financial and psychological buffer makes it possible to do better with your other investments. A pile of cash goes a long way toward making the downs of the stock market, etc., easier to stomach. And I think a strong stomach is 90% of the key to investing success.
It's about how one sleeps at night. I don't sleep well under most circumstances. I also have a few more years before retirement. I plan to have about 3-5 years in a savings account as a "sleeping aid". At 68-70 - which I will be -- I'm not too concerned with having too much money in a savings account that doesn't yield much interest. I'm concerned about rest and relaxation.
That is why fixed index annuity‘s are great because of principle protection and I can get to 10% of my money at any time all along earning from 4 to 6% interest I never really understood why so many of the gurus say to have up to five years in cash at no interest when you can get a fixed index annuity or a multi year annuity earning over 4% This bucket one thing is way too simple
@@missouri6014 My mother had a annuity that gave her 2.5% on one and 3.0% on another. I thought they were a pain: every time she needed more than the RMD she had to call the insurance guy to request the money--then it took a few days to hit her account. But she was OK with them because she felt secure. Again, it's about how one sleeps at night.
For people who retired early, cash reserves is directly proportional to how much they disliked the job they retired from. If a person really really hated their job, they won’t sleep very well unless they have multiple years+ living expenses set aside in cash 💰 !
Not in all cases. I love my job but I believe in a balanced portfolio. I have 5yrs of cash living expenses, Roth, 401K and HSA. Also cash is very good especially when markets tanks, it gives you lots of options to buy things very low and take advantage of it.
Don’t risk what you have and need for what you don’t need. If you’re 70 and you lose half your life savings in a market crash, there is no do-over. Looking at market averages over a hundred years is a foolish way to plan your retirement strategy. You don’t have a hundred years. I know people that retired in 1999 and had all their savings in tech stocks. They thought they had a brilliant strategy. They went back to work in 2001 and worked into their late 70s.
That’s awful for them - it happened to me in 1987 a bit too, but I was young and buying, so fine.....but markets still took 11 years to wipe their face, so to speak. Most tech stock took 13 years to get back from the 1999 crash (Nasdaq analysis used eg 3500 in 99 and 3500 reached again in 2012 some stocks of course hitherto worthless too). If you are retiring and not buying, another big crash is a real bummer and I worry that everyone’s ‘oh just keep 4 or 5 years in cash (or f.n.a’s - fast negotiable assets) and don’t sell/ride it out’ is a tad optimistic (as people tend to suffer recency syndrome) if it hits the market fan big style !
When I retire at 61 or 62 Im putting my money into Vanguard Wellington fund, grabbing the dividends and average return in retirement. Plenty of cash on hand and keep a 60/40 Asset allocation. Most importantly is I am completely debt free which is key
Why do you not take into account taxes? The cash "buffer" is already after-tax money that is ready to be spent. Both rebalancing and selling stocks or bonds for living expenses is a taxable event.
I retired 21 years ago at 45 and only had cash. Checking and savings account. My house is my only other investment. For me there's 2 problems with investing. #1 I hate it. #2 I suck at it. I loved my career as a software engineer, love greater freedom more though. For me I'd rather go back to earning by writing code than have to learn and do investing in financial instruments. Not my idea of retirement.
Great video, as always. I find it helpful to simply think of cash simply as "insurance" and not focus on it not generating anything beyond peace of mind.
Just have the "cash" buffer (in something safe, like t-bills, bonds, CDs, whatever) outside of the funds used to calculate your 4%. It won't drag down the performance, and yet it's there for your peace of mind. You could start with 1-2 years, and even add to it over time (in years you don't spend a full 4%, or by using some extra income from whatever source: RUclips channel, mowing neighbors' yards, selling veggies from a garden, etc.). Best of both worlds.
not retired yet, but i'd keep 1 year of minimum expenses in anything that wouldn't lose value in a black swam type event. I wouldn't go under 3 months in the bank account. I don't want to have to pull out any of my money if the market is down 50% also interesting the idea in this video is living off dividends, and other videos talk about how living off the dividends could be a bad idea. I still like the idea of not worrying about selling the principle living off dividends, and reinvesting some portion to continue to grow the principle
in the 4 years from 1929 to 1932 the total loss was approx. 90% so if one had 5 years of cash & had to start selling stocks from the portfolio even after the almost 50% increase in the next year the portfolio would still be about 85% in the red so the portfolio could be just about completely depleted the first year once the person sells enough to meet expenses for that one year
Don’t other sources of income such as pensions, Social Security etc provide the same benefit as bonds (stability in a down market)? In other words, if my living expenses are $100k a year, I have a $30k pension, in 10 yrs my spouse and I will start receiving $45kyr in Social Security, that only leaves a $25k gap to fill. In that case I would suppose bonds become redundant and unnecessary. I guess the counter argument would be why take unnecessary risk on stocks if your needs are already being met by your portfolio.
hmm I have an issue with those studies, they assume that bonds are very different than cash. With current low yields I tend to try bonds and cash like if they were the same.
I actually keep approx 20 yrs worth of basic survival funds, in a combination of laddered standard, and inflation-protected treasuries. In these frothy times in the stock market..it's easy to forget, that bear markets, have lasted for up to 25 yrs!! (1929-1953). The remainder of my money, is in a total market index fund.
This might also depend on if you are doing Roth conversions. You might want to have 3-5 years of cash and live on that while you do Roth conversions to take the greatest advantage of tax efficiency. My struggle is as I get closer to retirement and we get to the tail end of this secular bull market and move into a longer period of a secular bear (not for 5 years I think) when should I take some money off the table, move to bonds, and how much should I have there because I hate bonds, but I know that they can be a good ballast against a down environment.
Mom and pop investors move to bonds too late. They wait until a bear market, sell equities after the price has fallen, and buy bonds after the price is up. If you feel comfortable with 25% fixed-income securities, you should be there now.
Rob - new suscriber (69 yr old/retired 60 yr) and enjoyed your video. You nailed it at the end with a "3% withdrawl rate option" vs more than what I believe is a year in cash. You run more of a risk with excess cash due to higher than planned inflation as we are currently experiencing. I am fortunate that my fixed income covers my base expenses between SS and pension. I will review some of your other videos and assume you cover the what I believe is the #1 retirement plan risk - sequence of returns.
I just found you and started watching your videos. Thank you! I was wondering if you have done a video about attempting to move as much money from pre-tax accounts to Roths before RMD’s kick in to try to avoid them. Thanks again looking forward to going back through your library of helpful information.
I keep part of my investment in a money market account and then I sell cash-covered puts on SPY or something similar. I use a strike price as low as possible to get 1% a month. If I need cash, I can easily reverse back to cash from the put.
I absolutely agree with everything Rob says here, assuming we are going to live in the same capitalistic system that the country had for the last 150 years or so. But it is a bold assumption to make. There is always a small chance of a black swan event, for example a large scale nationalization. I have lived through the fall of the Soviet union and a dizzily fast spin from socialism to capitalism. Even a few years before it happened, nobody , neither those who loved the system nor those who hated it, could imagine this turn of events. The general feeling was, this system was around for 80 years, we were born in it and we'll die in it. In black swan events, depending on their nature, other assets may become profitable, like cash, gold, salt, tobacco and alcohol, clean water and so on... So having a small cash bumper maybe prudent, since it works both for good and bad times.
It's interesting to me the idea of retirement. If you work a job that has no 401k or retirement plan, you use your check just to pay rent and food how do you ever thinking of retiring?
There are many other ways to save for retirement if your job does not provide a 401K. You can contribute on your own to a Roth IRA up to $6.000/yr, $7,000 if over 50. Open a brokerage account and start investing on your own into it. Open your own 401 IRA and invest in that. Don't get stuck on my employer doesn't offer anything, therefore, I can't have a retirement plan.
4% rule is old and assumed wrong assumptions. He also updated that old paper too. Bond yields are not the same and spending is diminished as time goes by in retirement.
I suspect the argument against a cash buffer depends on the overall returns of stocks and bonds. Now it's hard to argue against historical data but will we see %8+ CAGR for stocks over the next 20-30 years, ditto for bonds? I am highly doubtful. I would like to see studies which assume far less stock and bond returns and compare them with the buffer approach.
Rob, I am a recent retiree and need you to clarify a point, please. I understand what you have recommended in this video, to minimize cash holdings. But in another video, you recommend holding 5 years of living expenses in cash or cash-equivalents. The market was down 30% six months after I retired. I stuck to my plan and am glad I did, but it was nerve- wracking. Sequence of return risk is not an abstract theory, it's real! Please advise on the discrepancy. Thank you.
This is exactly what I was about to comment. In a video right at the start of the pandemic, Rob stated you should have 5 years of cash. Here, it is 6 months. What is it that I am not understanding?????
Convertible cash equiv' 5 yr holdings like bonds, Nfts and assets like Vintage Wine, Art, Cars, Watches, B.coin, Rugs, Stocks, Gold always trumps cash imho and takes only 30 days to convert at at least 90% mkt value. Only commercial and domestic property and Classic Cars/bikes takes years to shift at appropriate return.
@@paulthorpe766 Not all alt investments you listed are safe and a few volatile so not appropriate for emergency savings. Also 30 days in some cases can be too long.
An on-line bank up here in the Great White North is offering federally insured savings accounts and retirement accounts that pay 1.25 points on cash. With T bills paying nothing it's pretty attractive as a place to park cash. I'm looking into moving about 20% of my portfolio into it because I'm convinced of a deflationary crash very soon.
Remember you have multi year annuities paying over 4% he also had fixed index annuity‘s paying From 4 to 6% so there are plenty of ways out there and I don’t understand why these you tubers don’t explore all the different ways
If you've "made it" in retirement, what is the point of taking big risks and chasing more growth when your goal should be preserving what you have accumulated?
I think the definition of “big risks” is subjective. Is investing in a diversified portfolio of index funds a “big risk”? I suppose that would depend on the individual investor.
Rob, I have been watching your videos and enjoy them. Good work. On the cash topic, seems like there is no doubt that cash underperforms over a long period compared to market or market and bond returns, as in the Bengen example. But we are in a negative market now with others sure to come randomly in the future. I understand and agree no one can time the market. But suppose I was lucky and converted 50% of my 401(k) to cash in mid-2021. I want to hold some amount in cash as an emergency fund. For us, I want to be very conservative, say 3-5 years, to survive the next bear market. I will still have substantial cash left and am planning to dollar cost average back into index funds over the next year or so. And/or I may do some substantial Roth conversions with the cash--which will then be invested in a S&P 500 index fund, probably VOO, to grow tax free in the Roth. Seems like a sensible strategy, but open to your comments and the comments of your followers. As background, I am 66.5 years old, married to my wife of 36 years who is 63, and 2023 will be my first fully retired year from an income standpoint. Keep the content coming.
Rob, what about large emergency expenses such as needing another vehicle or roof needs replaced or some other unplanned large expense. Seems like I would like to have some cash on hand to cover those potential emergencies.
It's a good question. I see things like a roof as being something I can plan for, at least to a point. And yes, if I know I'm going to have a big expense in the next 12 months, I hold cash for it. That's the case for me as I'm buying a new car next month. In terms of unexpected emergencies, I generally don't hold more than the case I described in the video, however, some of my bond funds are in money market funds, which is effectively cash. That's temporary, however.
Depends on your lifestyle. I will be selling my house and moving to different locations around the globe for a while where a car isn't needed and renting throughout most if not all my retirement. Rent in many places around the globe will be less or equal to the expenses I pay for my house after it's paid off (tax, insurance, maintenance, HOA).
If cash = checking acct/money market I have roughly 1 year's worth. But if cash also includes a CD ladder and deferred annuities(cd like) I have several years in cash. I also have money in bonds and TIPS plus some alternative investments like REITS and gold etfs. Equities only account for 20% of my portfolio. I know this guy is frowning as he reads this but I couldn't care less. I sleep well and my portfolio continues to grow over what I had when I retired 14 years ago. I not married or have kids Fwiw.....
I suggest you maintain an opportunity cost spreadsheet, so you can track how much $ you missed out on. I retired at the same time. A friend of mine retired at the same time and she has 20% equity & 80% bonds. Her opportunity cost since retirement is $1.4 million.
@@larryjones9773 I'm not concerned about running up the number at this point. I have a house on the golf course and a small condo at the beach. No debt whatsoever. I have all the toys I want. I was heavily in the market in my working years but more concerned about capital preservation and a good night sleep at this point. If you want more.....go for it.
Question: If you perform an in kind RMD to a taxable brokerage account, is that RMD calculated in the combined income formula for social security benefits? Since no income was actually realized (but taxes were paid on the RMD), is that RMD no longer calculated in the combined income definition?
Kevin, no question that stocks are expensive. What do you see as the alternative? Bonds are very expensive, too. And with cash, you are guaranteed to earn a rate of return below inflation.
My plan is to have 7 years of cash funded from sell of some property in a high yield savings account , and live off of that. Let my IRA account grow until I start taking SS at 67. I will be poor on paper and qualify for obama care for health care. Possibly not even pay any premiums.
What if you want to retire a few years before Medicare kicks in. Isn’t it smart to build a cash reserve large enough to pay for healthcare out of pocket?
10,000 dollar cash saver still has 10,000 10,000 dollar SPY investor the past 12 months has 14,000+ now.... 40%+ return Factor in inflation... sitting cash in my experience has done nothing but technically lose value.
@@akwolf1434 No the market is up the past 16 months big time + dividends learn how to read a chart... pull up a SPY 2 year and look from March of 2020 to now...... enormous growth
Nice piece Rob. So in a pre 59 1/2 scenario where the person has lets say 5-7+ years prior to "retirement" dollars available to cover expenses how would you apply the cash buffer portion given the breakdown of tax vs. tax sheltered dollars? Structure your taxable and tax sheltered with the same ratios, ex. 70/30 so you don't end up to cash heavy?
my concept of keeping 12 months cash in an emergency fund (retiring in 3 months at 60 years old) is to have cash to buffer spending in the eventual stock drop that will come. I moved to 46 percent treasuries (and 10 % bonds) with rest in s&p fund. i plan on moving back to 60% stocks after next 20 - 30 stock pull back and then running with that long term. Is that a bad plan?
I use quicken , real simple and easy for a decade. I just reinvest dividends in all accounts. No need to ever rebalance just buy more then another if percentages are you game. I’m 56 and I have at least 5 years cash which is a small percentage of overall investments
Ha! Cash will return 3.5%. Unbelievable! I guess your wish was more than granted. I'm very happy with my 1-2 year buffer. I sleep well at night. Of course, more in other fixed income for longer term downturns.
I certainly wouldn't keep five years of expenses in a checking account, but a five year ladder of CD's sounds reasonable for someone who is risk averse. A portion of your bond allocation in a CD ladder guarantees your principle when they mature.
Rob, I could swear you mentioned in one of your previous videos that you recommended that we don’t invest money we’ll need within the next 5 years. Consequently, that leads me to think that you advocated a 5-year buffer in cash. Now, in this video, you mention something else…
I don't want to invest money in stocks or stock funds I'll need in the next 5 years. But that doesn't mean I need 5 years worth of cash. Some of that can be in bonds. And with say a 70/30 portfolio, you'll have more than 5 years in fixed income. Some of that may be in cash (checking, CDs, money market accounts).
@@rob_berger Hi Rob! Luv your show. Fair enough. However, I believe interest rates are about to start rising over the next year or two. Consequently, I’m not planning on buying bonds. Cheers.
This subject isn't or shouldn't be about historical performance over how various portfolios performed, but rather risk mitigation. Our world is much more volatile to the financial markets than ever before. You need to have a plan that has multiple layers ("tranches") that will give you acceptable performance, but also be able to absorb and handle adverse conditions that you cannot control the severity nor the timing.
Cash reserves is a very difficult question…. in this conversation I would hold only 6 months of essential costs in cash. I thought the reason for bonds was to cover a withdrawal during a bear market. Then when the market recovers you rebalance to replenish your bonds. Am I missing something?
I'm retired. I'm 68. My wife is 50 and still working. We keep 6 months in cash in the bank and all my extra money goes in Physical gold and silver. If the market crashes, then I only lose what's in my checking and savings. If I had it in investments (cough,cough) and the market takes a dump, which in today's political blunder, It Will happen. It's not a if, it's a when? When it does collapse Your investments and cash will be your new toilet paper. I, on the other hand, will be able to use my gold and silver to carry on. When it does go belly up, your cash and investment will not be accessible PERIOD. and if you had a wheel barrow of cash you couldn't buy a loaf of bread, Same as last market crash. That's my plan. To each their own.
How exactly will you dole out your gold and silver? What kind of change will you get, when you need a bag of flour, and gold is at 1800? I guess you'll have to use your silver...... But if everything crashes- you'll find barter is the way it'll be. Bartering for goods and services. Nobody is really going to be working for gold. I've had the rug pulled out from under me. I've experienced an apocalypse. It doesn't work the same way as survivalist magazines tell you. Or whatever your middle class mind is telling you. It's barter, barter barter.
Don't be fearful. Hold only 45-60 days cash tops and the next few months thereafter in (fast) negotiable assets like gold, vintage watches, etc...etc...pure cash is wasteful.
Article: robberger.com/how-much-cash-should-retirees-keep-on-hand/
Unless you are happy with 6000 views, you're going to have to water your content down a smidge. I tuned you out about the time you started bringing out the graphs.
I like the graphs. Some of us are visual learners.
@@raymonddeflaviis2306 Well now it's up to 95,000 views. With graphs.
@@Fred2-123 If you leave hieroglyphics with a catchy title long enough- on RUclips you’ll get 100 thousand views too!
If a person has enough there is no need to take significant risks.
Peace of mind is invaluable.
Money markets, bonds, and dividend stocks to fund expenses is my approach.
Thanks for your channel, Rob. You explain things very well. I'd like to offer up a counterargument to your idea that it's best to keep a minimal amount of cash in retirement. I have about 3 years worth of expenses in cash, and my expenses are fairly high since I still have school-age kids at home. While this cash is basically losing value due to inflation, it's enabled me to invest my other assets more aggressively than I would have otherwise. There's no way to know what might have happened if I had kept a smaller amount of cash. But I'm pretty sure the overall value of my portfolio is greater now because I have this cash "buffer." In some ways I think a large buffer is the flip-side of what you mentioned at the end of your video: that in a worst case scenario you would reduce your expenditures to deal with a market downturn. What I'm suggesting, and what I don't think academic studies take into consideration, is that having a financial and psychological buffer makes it possible to do better with your other investments. A pile of cash goes a long way toward making the downs of the stock market, etc., easier to stomach. And I think a strong stomach is 90% of the key to investing success.
It's about how one sleeps at night. I don't sleep well under most circumstances. I also have a few more years before retirement. I plan to have about 3-5 years in a savings account as a "sleeping aid". At 68-70 - which I will be -- I'm not too concerned with having too much money in a savings account that doesn't yield much interest. I'm concerned about rest and relaxation.
"I'm concerned about rest and relaxation" Great response..lol
That is why fixed index annuity‘s are great because of principle protection and I can get to 10% of my money at any time all along earning from 4 to 6% interest
I never really understood why so many of the gurus say to have up to five years in cash at no interest when you can get a fixed index annuity or a multi year annuity earning over 4%
This bucket one thing is way too simple
@@missouri6014 My mother had a annuity that gave her 2.5% on one and 3.0% on another. I thought they were a pain: every time she needed more than the RMD she had to call the insurance guy to request the money--then it took a few days to hit her account. But she was OK with them because she felt secure. Again, it's about how one sleeps at night.
It would be cheaper to take a sleeping pill...
Good response, in a previous video Rob recommended having a 5 year cash buffer..
For people who retired early, cash reserves is directly proportional to how much they disliked the job they retired from. If a person really really hated their job, they won’t sleep very well unless they have multiple years+ living expenses set aside in cash 💰 !
Not in all cases. I love my job but I believe in a balanced portfolio. I have 5yrs of cash living expenses, Roth, 401K and HSA. Also cash is very good especially when markets tanks, it gives you lots of options to buy things very low and take advantage of it.
Don’t risk what you have and need for what you don’t need. If you’re 70 and you lose half your life savings in a market crash, there is no do-over. Looking at market averages over a hundred years is a foolish way to plan your retirement strategy. You don’t have a hundred years. I know people that retired in 1999 and had all their savings in tech stocks. They thought they had a brilliant strategy. They went back to work in 2001 and worked into their late 70s.
Exactly. At age 70, my horizon is shorter term with less time for recovery.
They should have invested in an index fund. It’s a no brainer.
@@drewbaughman7129 most people don't know about that in 1999
That’s awful for them - it happened to me in 1987 a bit too, but I was young and buying, so fine.....but markets still took 11 years to wipe their face, so to speak. Most tech stock took 13 years to get back from the 1999 crash (Nasdaq analysis used eg 3500 in 99 and 3500 reached again in 2012 some stocks of course hitherto worthless too). If you are retiring and not buying, another big crash is a real bummer and I worry that everyone’s ‘oh just keep 4 or 5 years in cash (or f.n.a’s - fast negotiable assets) and don’t sell/ride it out’ is a tad optimistic (as people tend to suffer recency syndrome) if it hits the market fan big style !
@@paulthorpe766 yeah my strategy is to invest in s&p 500 and growth stocks while I am still young and switch to more dividend stocks as I get older
When I retire at 61 or 62 Im putting my money into Vanguard Wellington fund, grabbing the dividends and average return in retirement. Plenty of cash on hand and keep a 60/40
Asset allocation. Most importantly is I am completely debt free which is key
Why do you not take into account taxes? The cash "buffer" is already after-tax money that is ready to be spent. Both rebalancing and selling stocks or bonds for living expenses is a taxable event.
If you have no eared income you can sell up to $88k tax free
I retired 21 years ago at 45 and only had cash. Checking and savings account. My house is my only other investment. For me there's 2 problems with investing. #1 I hate it. #2 I suck at it. I loved my career as a software engineer, love greater freedom more though. For me I'd rather go back to earning by writing code than have to learn and do investing in financial instruments. Not my idea of retirement.
I appreciate this video, it’s making me question some dogma thrown out by radio financial experts for years.
Great video, as always. I find it helpful to simply think of cash simply as "insurance" and not focus on it not generating anything beyond peace of mind.
Just have the "cash" buffer (in something safe, like t-bills, bonds, CDs, whatever) outside of the funds used to calculate your 4%. It won't drag down the performance, and yet it's there for your peace of mind. You could start with 1-2 years, and even add to it over time (in years you don't spend a full 4%, or by using some extra income from whatever source: RUclips channel, mowing neighbors' yards, selling veggies from a garden, etc.). Best of both worlds.
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not retired yet, but i'd keep 1 year of minimum expenses in anything that wouldn't lose value in a black swam type event. I wouldn't go under 3 months in the bank account. I don't want to have to pull out any of my money if the market is down 50%
also interesting the idea in this video is living off dividends, and other videos talk about how living off the dividends could be a bad idea.
I still like the idea of not worrying about selling the principle living off dividends, and reinvesting some portion to continue to grow the principle
in the 4 years from 1929 to 1932 the total loss was approx. 90% so if one had 5 years of cash & had to start selling stocks from the portfolio even after the almost 50% increase in the next year the portfolio would still be about 85% in the red so the portfolio could be just about completely depleted the first year once the person sells enough to meet expenses for that one year
Ha! Cash is the top performer of my portfolio this year.
Don’t other sources of income such as pensions, Social Security etc provide the same benefit as bonds (stability in a down market)? In other words, if my living expenses are $100k a year, I have a $30k pension, in 10 yrs my spouse and I will start receiving $45kyr in Social Security, that only leaves a $25k gap to fill. In that case I would suppose bonds become redundant and unnecessary. I guess the counter argument would be why take unnecessary risk on stocks if your needs are already being met by your portfolio.
hmm I have an issue with those studies, they assume that bonds are very different than cash. With current low yields I tend to try bonds and cash like if they were the same.
I actually keep approx 20 yrs worth of basic survival funds, in a combination of laddered standard, and inflation-protected treasuries. In these frothy times in the stock market..it's easy to forget, that bear markets, have lasted for up to 25 yrs!! (1929-1953). The remainder of my money, is in a total market index fund.
This might also depend on if you are doing Roth conversions. You might want to have 3-5 years of cash and live on that while you do Roth conversions to take the greatest advantage of tax efficiency. My struggle is as I get closer to retirement and we get to the tail end of this secular bull market and move into a longer period of a secular bear (not for 5 years I think) when should I take some money off the table, move to bonds, and how much should I have there because I hate bonds, but I know that they can be a good ballast against a down environment.
Mom and pop investors move to bonds too late. They wait until a bear market, sell equities after the price has fallen, and buy bonds after the price is up. If you feel comfortable with 25% fixed-income securities, you should be there now.
Rob - new suscriber (69 yr old/retired 60 yr) and enjoyed your video. You nailed it at the end with a "3% withdrawl rate option" vs more than what I believe is a year in cash. You run more of a risk with excess cash due to higher than planned inflation as we are currently experiencing. I am fortunate that my fixed income covers my base expenses between SS and pension. I will review some of your other videos and assume you cover the what I believe is the #1 retirement plan risk - sequence of returns.
I just found you and started watching your videos. Thank you! I was wondering if you have done a video about attempting to move as much money from pre-tax accounts to Roths before RMD’s kick in to try to avoid them. Thanks again looking forward to going back through your library of helpful information.
I keep part of my investment in a money market account and then I sell cash-covered puts on SPY or something similar. I use a strike price as low as possible to get 1% a month. If I need cash, I can easily reverse back to cash from the put.
I absolutely agree with everything Rob says here, assuming we are going to live in the same capitalistic system that the country had for the last 150 years or so. But it is a bold assumption to make. There is always a small chance of a black swan event, for example a large scale nationalization.
I have lived through the fall of the Soviet union and a dizzily fast spin from socialism to capitalism. Even a few years before it happened, nobody , neither those who loved the system nor those who hated it, could imagine this turn of events. The general feeling was, this system was around for 80 years, we were born in it and we'll die in it.
In black swan events, depending on their nature, other assets may become profitable, like cash, gold, salt, tobacco and alcohol, clean water and so on...
So having a small cash bumper maybe prudent, since it works both for good and bad times.
Thanks for showing what you do as well as what others may do.
Excellent content. Thanks for the insights. We're looking at a similar plan starting at 55 in a few years. You got a new subscriber!
It's interesting to me the idea of retirement. If you work a job that has no 401k or retirement plan, you use your check just to pay rent and food how do you ever thinking of retiring?
There are many other ways to save for retirement if your job does not provide a 401K. You can contribute on your own to a Roth IRA up to $6.000/yr, $7,000 if over 50. Open a brokerage account and start investing on your own into it. Open your own 401 IRA and invest in that.
Don't get stuck on my employer doesn't offer anything, therefore, I can't have a retirement plan.
4% rule is old and assumed wrong assumptions. He also updated that old paper too. Bond yields are not the same and spending is diminished as time goes by in retirement.
It's true that William Bengen has updated his analysis. He now puts it closer to 4.5%, particularly if you add small-cap stocks to your portfolio.
I suspect the argument against a cash buffer depends on the overall returns of stocks and bonds. Now it's hard to argue against historical data but will we see %8+ CAGR for stocks over the next 20-30 years, ditto for bonds? I am highly doubtful. I would like to see studies which assume far less stock and bond returns and compare them with the buffer approach.
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Rob, I am a recent retiree and need you to clarify a point, please. I understand what you have recommended in this video, to minimize cash holdings. But in another video, you recommend holding 5 years of living expenses in cash or cash-equivalents. The market was down 30% six months after I retired. I stuck to my plan and am glad I did, but it was nerve- wracking. Sequence of return risk is not an abstract theory, it's real! Please advise on the discrepancy. Thank you.
This is exactly what I was about to comment. In a video right at the start of the pandemic, Rob stated you should have 5 years of cash. Here, it is 6 months. What is it that I am not understanding?????
Convertible cash equiv' 5 yr holdings like bonds, Nfts and assets like Vintage Wine, Art, Cars, Watches, B.coin, Rugs, Stocks, Gold always trumps cash imho and takes only 30 days to convert at at least 90% mkt value. Only commercial and domestic property and Classic Cars/bikes takes years to shift at appropriate return.
@@paulthorpe766
Not all alt investments you listed are safe and a few volatile so not appropriate for emergency savings. Also 30 days in some cases can be too long.
An on-line bank up here in the Great White North is offering federally insured savings accounts and retirement accounts that pay 1.25 points on cash. With T bills paying nothing it's pretty attractive as a place to park cash. I'm looking into moving about 20% of my portfolio into it because I'm convinced of a deflationary crash very soon.
Remember you have multi year annuities paying over 4% he also had fixed index annuity‘s paying From 4 to 6% so there are plenty of ways out there and I don’t understand why these you tubers don’t explore all the different ways
If you've "made it" in retirement, what is the point of taking big risks and chasing more growth when your goal should be preserving what you have accumulated?
I think the definition of “big risks” is subjective. Is investing in a diversified portfolio of index funds a “big risk”? I suppose that would depend on the individual investor.
Because inflation will eat away the value of your cash
Rob,
I have been watching your videos and enjoy them. Good work.
On the cash topic, seems like there is no doubt that cash underperforms over a long period compared to market or market and bond returns, as in the Bengen example. But we are in a negative market now with others sure to come randomly in the future. I understand and agree no one can time the market.
But suppose I was lucky and converted 50% of my 401(k) to cash in mid-2021. I want to hold some amount in cash as an emergency fund. For us, I want to be very conservative, say 3-5 years, to survive the next bear market. I will still have substantial cash left and am planning to dollar cost average back into index funds over the next year or so. And/or I may do some substantial Roth conversions with the cash--which will then be invested in a S&P 500 index fund, probably VOO, to grow tax free in the Roth.
Seems like a sensible strategy, but open to your comments and the comments of your followers.
As background, I am 66.5 years old, married to my wife of 36 years who is 63, and 2023 will be my first fully retired year from an income standpoint.
Keep the content coming.
Rob, what about large emergency expenses such as needing another vehicle or roof needs replaced or some other unplanned large expense. Seems like I would like to have some cash on hand to cover those potential emergencies.
@@situated4 oh ok. Sinking funds. This would be cash would it not. How much cash should retirees have?
It's a good question. I see things like a roof as being something I can plan for, at least to a point. And yes, if I know I'm going to have a big expense in the next 12 months, I hold cash for it. That's the case for me as I'm buying a new car next month. In terms of unexpected emergencies, I generally don't hold more than the case I described in the video, however, some of my bond funds are in money market funds, which is effectively cash. That's temporary, however.
Depends on your lifestyle. I will be selling my house and moving to different locations around the globe for a while where a car isn't needed and renting throughout most if not all my retirement. Rent in many places around the globe will be less or equal to the expenses I pay for my house after it's paid off (tax, insurance, maintenance, HOA).
@@situated4 So, cash
Brevity Rob, brevity..
If cash = checking acct/money market I have roughly 1 year's worth. But if cash also includes a CD ladder and deferred annuities(cd like) I have several years in cash. I also have money in bonds and TIPS plus some alternative investments like REITS and gold etfs. Equities only account for 20% of my portfolio. I know this guy is frowning as he reads this but I couldn't care less. I sleep well and my portfolio continues to grow over what I had when I retired 14 years ago. I not married or have kids Fwiw.....
I suggest you maintain an opportunity cost spreadsheet, so you can track how much $ you missed out on. I retired at the same time. A friend of mine retired at the same time and she has 20% equity & 80% bonds. Her opportunity cost since retirement is $1.4 million.
@@larryjones9773 Hey.....might as well go 100% equities. Don't want to miss out on those gains! I'm perfectly happy as is. Sleep very well.
@@MSDOGS1976 What about the $1.4 million (estimate) you missed out on? That would pay for a new house, new cars, house cleaner and lawn care.
@@larryjones9773 I'm not concerned about running up the number at this point. I have a house on the golf course and a small condo at the beach. No debt whatsoever. I have all the toys I want. I was heavily in the market in my working years but more concerned about capital preservation and a good night sleep at this point. If you want more.....go for it.
Rob, thought you were not fond of dividends. Surprised they’re used in your Budget Dividend Strategy.
Dan, I love dividends. What I don't love is the idea that they are somehow free. As such, you should never reach for dividend yield IMO.
Hi Rob, can you tell me what funds in your taxable account are giving you the dividends which you transfer into your checking account?
Question: If you perform an in kind RMD to a taxable brokerage account, is that RMD calculated in the combined income formula for social security benefits? Since no income was actually realized (but taxes were paid on the RMD), is that RMD no longer calculated in the combined income definition?
Strongly Disagree, especially for those close to retirement (< 3 years). PE Ratios at all time high.
Kevin, no question that stocks are expensive. What do you see as the alternative? Bonds are very expensive, too. And with cash, you are guaranteed to earn a rate of return below inflation.
@@rob_berger have you looked at annuities?
@@VETERANPREPPER1 Have you looked at a 10 year graph on gold and silver prices? Better to buy short or buy puts rather than go long.
My plan is to have 7 years of cash funded from sell of some property in a high yield savings account , and live off of that. Let my IRA account grow until I start taking SS at 67. I will be poor on paper and qualify for obama care for health care. Possibly not even pay any premiums.
Five years cash? What do these people live on. Who can afford that
I noted that you rebalance once a year. How often do you think retirees should rebalance?
How about holding more cash in the first 7 years of retirement and then reduce it later to reduce initial risk of return
Sequence of returns risk
What if you want to retire a few years before Medicare kicks in. Isn’t it smart to build a cash reserve large enough to pay for healthcare out of pocket?
It's certainly one approach, and similar to what some call the Social Security bridge--cash to cover expenses between retiring and when you claim SS.
10,000 dollar cash saver still has 10,000
10,000 dollar SPY investor the past 12 months has 14,000+ now.... 40%+ return
Factor in inflation... sitting cash in my experience has done nothing but technically lose value.
Factor in the past 16 months and tell me what it was worth? It was 30% down last March, so technically you're only up 10%.
@@akwolf1434 No the market is up the past 16 months big time + dividends learn how to read a chart... pull up a SPY 2 year and look from March of 2020 to now...... enormous growth
When you mention "keeping 10% of cash in bonds", does this include Bond ETFs?
Nice piece Rob. So in a pre 59 1/2 scenario where the person has lets say 5-7+ years prior to "retirement" dollars available to cover expenses how would you apply the cash buffer portion given the breakdown of tax vs. tax sheltered dollars? Structure your taxable and tax sheltered with the same ratios, ex. 70/30 so you don't end up to cash heavy?
Follow up time! How does this strategy feel in Oct 2022? Thanks,
Terrible, of course. And if every year were like 2022, we'd all hold nothing but cash. But I haven't changed a thing.
my concept of keeping 12 months cash in an emergency fund (retiring in 3 months at 60 years old) is to have cash to buffer spending in the eventual stock drop that will come. I moved to 46 percent treasuries (and 10 % bonds) with rest in s&p fund. i plan on moving back to 60% stocks after next 20 - 30 stock pull back and then running with that long term. Is that a bad plan?
Thank you
I like having dry powder
100% in cash!
Even with CDs at 5%?
I use quicken , real simple and easy for a decade. I just reinvest dividends in all accounts. No need to ever rebalance just buy more then another if percentages are you game. I’m 56 and I have at least 5 years cash which is a small percentage of overall investments
Any thoughts on CD Laddering, as short term buffer strategy?
Ha! Cash will return 3.5%. Unbelievable! I guess your wish was more than granted. I'm very happy with my 1-2 year buffer. I sleep well at night. Of course, more in other fixed income for longer term downturns.
I certainly wouldn't keep five years of expenses in a checking account, but a five year ladder of CD's sounds reasonable for someone who is risk averse. A portion of your bond allocation in a CD ladder guarantees your principle when they mature.
Excellent thought.
Open a brokerage account and invest it there. TIPS.
Rob, I could swear you mentioned in one of your previous videos that you recommended that we don’t invest money we’ll need within the next 5 years. Consequently, that leads me to think that you advocated a 5-year buffer in cash. Now, in this video, you mention something else…
I don't want to invest money in stocks or stock funds I'll need in the next 5 years. But that doesn't mean I need 5 years worth of cash. Some of that can be in bonds. And with say a 70/30 portfolio, you'll have more than 5 years in fixed income. Some of that may be in cash (checking, CDs, money market accounts).
@@rob_berger Hi Rob! Luv your show. Fair enough. However, I believe interest rates are about to start rising over the next year or two. Consequently, I’m not planning on buying bonds. Cheers.
This subject isn't or shouldn't be about historical performance over how various portfolios performed, but rather risk mitigation. Our world is much more volatile to the financial markets than ever before. You need to have a plan that has multiple layers ("tranches") that will give you acceptable performance, but also be able to absorb and handle adverse conditions that you cannot control the severity nor the timing.
Cash reserves is a very difficult question…. in this conversation I would hold only 6 months of essential costs in cash. I thought the reason for bonds was to cover a withdrawal during a bear market. Then when the market recovers you rebalance to replenish your bonds. Am I missing something?
I'm retired. I'm 68. My wife is 50 and still working. We keep 6 months in cash in the bank and all my extra money goes in Physical gold and silver. If the market crashes, then I only lose what's in my checking and savings. If I had it in investments (cough,cough) and the market takes a dump, which in today's political blunder, It Will happen. It's not a if, it's a when? When it does collapse Your investments and cash will be your new toilet paper. I, on the other hand, will be able to use my gold and silver to carry on. When it does go belly up, your cash and investment will not be accessible PERIOD. and if you had a wheel barrow of cash you couldn't buy a loaf of bread, Same as last market crash. That's my plan. To each their own.
How exactly will you dole out your gold and silver? What kind of change will you get, when you need a bag of flour, and gold is at 1800?
I guess you'll have to use your silver...... But if everything crashes- you'll find barter is the way it'll be. Bartering for goods and services. Nobody is really going to be working for gold.
I've had the rug pulled out from under me. I've experienced an apocalypse. It doesn't work the same way as survivalist magazines tell you. Or whatever your middle class mind is telling you. It's barter, barter barter.
Don't be fearful. Hold only 45-60 days cash tops and the next few months thereafter in (fast) negotiable assets like gold, vintage watches, etc...etc...pure cash is wasteful.