I consider checking and savings accounts as liquid. I try to keep a year of spending money liquid.
If stocks are liquid, what would be illiquid? Real estate? Business ownership?
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Yes. This is my point. In order not to be forced to sell at a time you donāt want to, how much cash to keep on hand.
The conventional idea prior to retirement that I have always seen has been to have a 6-12 month emergency fund. Enough to sustain yourself/pay your regular bills until you can find another job should you be laid off. During the season of retirement does one stick with that amount of time to cover expenses or change it?
I guess Iām just wondering if people approach this calculation differently in retirement. The answer may very well be no difference. Iām just curious what others do.
Yes. Real estate, private equity, collectibles, probably certain kinds of debt.
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We are 10-15 years off our retirement plans, but our plan is to have 2-4 years of liquidity (cash, CDs, TIPs, iBonds, etc) so that we donāt need to sell in adverse conditions.
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This is my totally unscientific thinking. Right now dh and I technically are retired, but he has (for the next month) two PT jobs. Then heāll be down to one. Because we have his pension and we will have mine eventually, plus SS (looking at you, SS), we donāt think that we need extra months/years in cash/liquid holdings as so much of our retirement income is guaranteed, and those four sources of income total more than our monthly spend.
Our brokerage is in a high-yield savings account rather than stocks so I consider that liquid. I also have an I-bond plus about four months of expenses in our credit union.
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Target about 3 years in cash and CD ladders. But nearly everything else is in stocks with almost no bonds. The 3 years in cash is to minimize heavy selling during a downturn. If necessary we could stretch the 3 years of expenses to 4.
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How many people are planning on entering retirement still paying a mortgage/are retired with a mortgage?
We have a great rate and 26 years left on our mortgage. Also, because we live in a fairly high tax state, our P&I is only about 40% of the mortgage payment, 60% is property tax and insurance (which obviously wonāt go away even if we were mortgage free). We currently have no plans on paying the mortgage off early.
We paid our mortgage off years ago. If you have a great rate, I say keep it. My bff is planning on retiring with more than 10 years on her mortgage.
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Stocks are very liquid. ETFs are liquid. Mutual funds are liquid - but not to the minute (end of day). Bonds are liquid.
Anything you can sell with the press of a button and have the money in your account the next day is liquid.
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We also have 26 years at a 2.x rate and absolutely no plans to pay it off.
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If your rate is sub 4%, itās silly to pay off early.
Well silly is the wrong word - because some like having no debt.
But you can invest that money in a 4% municipal bond - buy at 95 - and if your mortgage is say 3.5%, then youāre making on the spread. Buy with 10 year call protection and guarantee yourself 10 years. You need to buy a bond from your state so that itās tax free in your state as well.
Or buy a federal agency bond at 5.75% taxable - but less call protection and depending upon your tax bracket, will that be worth it? If in a low tax bracket, absolutely.
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Yeah, we are below 2.5ā¦cannot imagine a scenario where it makes sense to pay even a penny extra on it.
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oh yeah - you can make the spread risk free. Because you likely canāt get a 30 year CD, I love the muni bond idea - you can buy it out 30 years or however long but find 2034/35 call protection. I invest via schwab - they have a boat load - but iām sure other brokerages will too.
I did that for years. Iām bummed my home paid off - in that sense.
No mortgage on either of our properties. We paid off our primary home well before retirement and paid cash for our cabin. No credit card or car payments either. Zero debt = SWAN for us.
SS and a small withdrawal from our investments comprise our monthly cash flow. We donāt have need for a significant slush fund, just whatās in the checking account, about four months worth of living expenses currently, but thatās only because itās been building up a bit due to low spending. We donāt think of an āemergencyā fund the way we defined it when we were working.
Our retirement planning didnāt include SS and accounted for a 20% pullback every eight years, so we donāt pay much attention to market volatility and donāt make adjustments based on uncertainty. Going to cash or holding a lot of cash is not part of our investment strategy. If we ever have need for additional funds for any reason, weāll just pull them from our investments without too much concern for the state of the market at the time.
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Mortgage wise, we did take a mortgage into retirement, but we pay it off in August. Yay! But dumb that we paid so much off in 2021, as our rate is at 2.25%.
As far as cash on hand, we keep very little in our bank account and use our HELOC as a slush fund. . If we decided to cut back, we could live off our pensions, but otherwise we have maybe ten years of additional ācashā in money market Roth funds, which I consider as easily accessible. Not purposefully trying to have cash on hand, but with how the market is, seems prudent to have a fair amount in the money market.
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We are weird ones.
We donāt have tons of cash around. Our brokerage account has a certain percentage in cash and we have a few months in the checking account. Other than that, we have credit cards that can be used in a pinch. Unless our brokerage account is disabled, which it never has been, we have a pension and can apply for social security if things get dire.
Also have a mortgage. 3%, the payment isnāt much, the payoff isnāt large. Timed to be done when we both reach our full retirement age. Have no plans on paying off early.
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We did too. Our plan was always to pay off the mortgage before the kids went to collegeā¦and thatās what we did.
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DH are retired and we had a 10-year mortgage at 2.5% interest rate that we had just about paid off, and then just before interest rates rose again, we got another 10-year mortgage at 2.5% interest rate the year DH retired. Our monthly payments are about $1400 - I kind of wish I had taken out more money (only a portion of our homeās value) but did want to keep that payment down. Then day after we locked in on that interest rate, the rates went up and have continued to climb. Wonāt see those low rates again probably ever. We were contemplating using the funds for home improvement and also being and addition to our liquid assets. We havenāt used any of it, and instead took out funds from 401k during our low tax years. Those funds are invested in brokerage firm with indexed funds. I guess we might see a roller coaster with the nervous market during lots of changes going on and how Wall Street speculates and reacts.
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Thatās not weird at all. If you have enough cash generating each month to cover the bills, and you have margin/line of credit for a dire emergency, itās normal and many would say smart.
Itās how I live.
If I know a big expense is upcoming, I stop reinvesting my monthly income earnings for a few months.
How you live shows the sophistication of someone who knows what they are doing, who maximizes the use of their money to generate money.
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