[Sarah]

Thoughts on % or amount (x months expenses?) to keep in cash (money market VMFXX) during retirement, versus invested in the market?

As I approach retirement, I’m trying to find the right balance between keeping cash in a money market fund (such as VMFXX) and investing in the stock or bond market.

On one hand, having cash offers safety, liquidity, and stability, but on the other hand, market investments could provide higher returns over time.

What do others think is the right mix of cash versus market investments in retirement? Should I aim for a larger cash buffer in case of market volatility, or is it better to lean more into investments to ensure growth for the long term?

I’d love to hear about any strategies or approaches others have taken, and how you’ve adjusted your allocation as you’ve moved further into retirement.

Looking forward to hearing your thoughts and experiences!

[Michael]

That answer will be pretty much an individual one. One of the many “rules of thumb” is to have one year of expenses not covered under other forms of income (SS, pension, rental income) held in cash or equivalents.

[Frank]

You should consider cash as one of your overall allocations in your retirement portfolio. In this context, cash includes money market funds, CDs, t-bills and other short-term bonds or other similar instruments.

For the highest safe withdrawal rates, cash should be kept at 10% or LESS of your overall invested holdings.

This fact — which has been known since Bengen’s original study in 1994 and confirmed over and over again — is frequently ignored these days in favor of all kinds of window dressing nonsense involving buckets, ladders, hoses and flower pots filled with various forms of cash and arranged in neat little rows, as if there were prizes to be awarded in the category of Aesthetic Bucketeering.

Much of what I hear financial advisors talking about involves creative and cutesy labelling exercises for this dubious practice.

In fact, the only way that “works” is if you reduce your spending rate anyway.

One to two years worth of cash or cash equivalents is sufficient in most cases, with the exception being if there are known additional expenses upcoming.

In fact, Harold Evensky’s original “bucket strategy” involved only one years worth of cash because he recognized that cash is otherwise just a drag on long term portfolio performance.

[Rick]

As little as needed to cover the following
1. Your dividend and/or asset selling timing. If annually, you will need more cash and it’s drag.

2. Tax timing as you need cash to pay taxes unless you find a way to do otherwise and then let me know.

3. Any major expense absolutely for sure coming in the next 12-24 months. Like a new roof, car replacement, kids wedding, anniversary big amazing cruise, etc.

[Author]

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