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Cash is Your Most Important Retirement Decision

MULTIZ321

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Cash is Your Most Important Retirement Decision - by Robert Laura/ Retirement/ Forbes.com

"I know everyone is talking about dividend paying stocks, high-yield bonds, REITs or an MLP or two, but the most important investment decisions any new or existing retiree needs to make is with their cash.

Over time, cash has been dropped from the conversation as automated models simply suggest 1-3%, or maybe 5% for those who are overly conservative. Cash conversations are generally reserved for investors who are in the accumulation phase and worried about having enough funds to cover an unexpected emergency. But what about during retirement, do the same rules apply… and what should retirees consider during a market downturn like we are experiencing now or in the future?..."

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Retirement Cash (Photo credit should read ADEK BERRY/AFP/Getty Images)

Richard
 

bogey21

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Cash is not a consideration if you have a Pension and Social Security (both annuities). If you manage cash received and cash spent carefully, your only concerns are the solvency of the entity sending you payments and inflation. This methodology has served me well for 15 years.

George
 

VegasBella

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This is a tangent.
The article says "There is no such thing as the Cash Police who come to your house late at night and arrest you for having too much cash."

Just want to point out that a number of cases recently have shown that cash - plain cash and nothing else - is enough cause to suspect illegal activity and for law enforcement to seize the cash. Traveling with amounts of cash the gov declares "large" is dangerous, even you're just going from the casino to a bank deposit box.

Google "civil forfeiture".
 

VacationForever

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We typically have no more than $200 in cash. Howeve I believe liquidity, i.e., money in savings or CDs will need to be part of retirement strategy. After excluding SS and pension, 5 years expense needs to ride throuh a down cycle. The conventional wisdom was 2 years bit recent reports are indicating that a down cycle takes abput 5 years to recover.
 

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How much cash to hold is a very personal decision since everyone has their own situation. I'm not yet retired, I hold very little cash, enough to cover every deductible if everything went wrong at once, and otherwise I'm investing and paying down the house note. There is no pension coming for me and I'm planning to hold off to age 70 to take SS.

The article makes a great point about dividend reinvestment only being possible if you don't take the divs in cash. I'm still about 10 years from retirement, but I'm planning on stopping the reinvestment about a year before retiring so the cash is sitting there already, even if at puny mm rates. Hopefully from there, only reinvest those that are undervalued and take the cash from the overvalued companies. Granted, I own a lot of companies in a Roth and trad IRA so will have many options.

Someone retiring next year that holds mutual funds or ETFs may want to switch off reinvestment before end of year cap gains payout so the $ are waiting for you already. These payouts are usually much larger than div payments and no sales commission.

One thing that has become clear to me is that I really need to beef up the taxable portfolio so I can depart work before age 59.5. I have no plans to ever pay that 10% penalty for premature withdrawal, but also don't want to take from Roth unless I really have to.

I think that most investors would do well to provide themselves as many options as possible since none of us can predict the future with any accuracy. Cover yourself for possible contingencies.
 

ronparise

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I agree with George, as long as your source of income is enough to maintain your life style and its safe, thats good enough. Whether it be a career for a younger person or an investment portfolio for someone my age, If it throws off enough income to live the lifestyle that makes you happy thats all you need

So your job becomes, as George suggests, watching those sources of income, and hedging your bets or maybe adjusting your lifestyle. I still remember when a million dollars would throw off over $120000 a year (in CDs). The guys that depended on that got a big surprise when rates crashed.

When I grow up I want to be just like George, I have a baseline of very safe income that will rise with inflation, but not go down with deflation, but my lifestyle demands more money than that... so I still work. As a hedge against the day when I cant work (or just dont want to), Im working a plan to change my lifestyle (cut back) and pay down debt to zero. And Im being real nice to my daughter who has a nice garage in her back yard.

I dont need any more cash than what a weeks groceries cost.
 
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sue1947

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One thing that has become clear to me is that I really need to beef up the taxable portfolio so I can depart work before age 59.5. I have no plans to ever pay that 10% penalty for premature withdrawal, but also don't want to take from Roth unless I really have to.

I think that most investors would do well to provide themselves as many options as possible since none of us can predict the future with any accuracy. Cover yourself for possible contingencies.

I retired at age 53. Based on my experience, a good mix of all types of accounts is essential. The tax advantage is a huge deal so max out on those as much as possible. Keep the biggest potential gainers in Roth and the least likely to gain in taxable accounts. That means the cash is available to use without tax penalty in an emergency situation and any large gains in stocks is tax sheltered in the Roth.
There are some exceptions to the 59.5 year rule. For 401K, you can get the money in the year you turn 55. The big exception, though, is rule 72t; i.e. substantially equal periodic payments; 72t.net. It's complicated, easy to screw up and, if you do, the penalties are big. However, if you have a head for math and keep it as simple as possible, it can provide a bridge to age 59.5.

Sue
 

geekette

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I retired at age 53. Based on my experience, a good mix of all types of accounts is essential. The tax advantage is a huge deal so max out on those as much as possible. Keep the biggest potential gainers in Roth and the least likely to gain in taxable accounts. That means the cash is available to use without tax penalty in an emergency situation and any large gains in stocks is tax sheltered in the Roth.
There are some exceptions to the 59.5 year rule. For 401K, you can get the money in the year you turn 55. The big exception, though, is rule 72t; i.e. substantially equal periodic payments; 72t.net. It's complicated, easy to screw up and, if you do, the penalties are big. However, if you have a head for math and keep it as simple as possible, it can provide a bridge to age 59.5.

Sue
Yeah, that substantially equal every year drawdown is a big no for me. Until I'm 70.5 I don't want to box myself in with forced withdrawals. It's more of an emergency contingency, in case my mind or body fails before 59.5.

I am considering, however, the one-time rollover at 55 so I can gain control of my current 401k to invest to my preferences vs 401k box.

Retired at 53 deserves congratulations!!!
 

ace2000

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I saw a recent article in USA Today that made good sense to me regarding saving for retirement. The tip I enjoyed the most was this one...
If you want to break your dependency on your income, you must save a higher percentage of your income every year until the day you retire. For instance, if you are saving 10% of your income at age 40, you should resolve to save at least 1 percentage point more per year of your total income, every year, until retirement. Using this strategy, at a bare minimum an investor would be living on 65% of their income at age 65.

There’s a hidden benefit to this philosophy. You will accumulate a bunch of money. But this time, you’ll have a bunch of money and no income dependency issues. What I love the most about this idea is that it gives retirement hope to many people who never thought retirement was in the cards.

http://www.usatoday.com/story/money...-income-addiction-before-retirement/71883408/
 

Passepartout

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