Depleting cash first....to what level?

Sea_Shell

Good Morning everyone.

A debate me and the OH are having at the moment. If you have diversified retirement savings (pensions & investments), but which do currently include a fairly large proportion of cash, at what level would you set your "Emergency" cash floor, that you won't (try not to) go below?

Would you spend it all first and leave say 1,2 or 3 years of expeniture available as cash before you start drawing from other investments. Or would you keep a bit more in cash, and draw-down profit from investments (say by converting to INC from ACC) to suppliment your outgoings.

Some market slumps can take 10-15 years to recover from...so would you try and cover that whole period with cash??, so you can give your investments time to recover?

Thoughts?? :beer:

Linton

I think something like 3 years cash and 5 years in cautious investments as a minimum would be reasonable. If you currently have a larger cash pot than 3 years income perhaps you should put some of the excess into investments now.

Maximising diversification is vital. Having some of your income in interest and dividends and some from selling investments would be one way of helping achieving it.

I dont know of any global slump that has lasted 10-15 years, certainly none in my lifetime. Individual countries may have suffered such a slump, Japan comes to mind, but not the whole world. That is why diversification is essential.

OldMusicGuy

I retired last week, so here's my situation. I am very cautious and hold a large proportion of cash and near cash. Our total net worth is about 60% invested, 40% cash. The 60% invested will stay untouched and invested for probably 15 years, the 40% cash will be used to live off over the next 10 to 15 years so that we minimize tax. I'll be using a bond ladder to get some return on the cash.

That is far more than most people on here would hold as cash, but it suits my wife and I. I realized the best investment strategy is one that allows you to sleep at night and this suits us.

IanSt

Sea_Shell wrote: »

Would you spend it all first and leave say 1,2 or 3 years of expeniture available as cash before you start drawing from other investments. Or would you keep a bit more in cash, and draw-down profit from investments (say by converting to INC from ACC) to suppliment your outgoings.

I'm not a fan of bonds at the moment, so currently I'm planning to take income from my equity funds to help cover my outgoings and hence keep my cash at fullish levels.

I'm hoping that when the markets do eventually have a prolonged dive that their dividends won't crash quite as much, so we'll be able to sail through the troubles without too much effect on our retirement.

We'll only start drawing heavily on cash if the dividends from the diversified range of companies that our funds invest in have a significant drop AND we need to cut back more than we'd like to.

bostonerimus

Keep at least 3 years in cash and in the good times replenish it from investment gains; I've seen people use 3,6, or 12 month schedules. In bad times you might spend it down to a year or 6 months of spending and then replenish from the part of your portfolio that has seen the smallest losses....rinse and repeat.

Sea_Shell

thank you all

I think we'll probably go with a 5 yr cash cushion, and move a bit more into our ISA's, pensions for a few more years (not fully retired just yet)

We're currently approx. 30% cash, and 70% Pensions/Investments
that'd move us towards a more 15% / 85% split.

Sea_Shell

Linton wrote: »

I dont know of any global slump that has lasted 10-15 years, certainly none in my lifetime. Individual countries may have suffered such a slump, Japan comes to mind, but not the whole world. That is why diversification is essential.

I thought that after 9/11, the markets took almost that many years to recover back to the levels beforehand. It took about 8 years to recover fully from the banking crisis too didn't it.? Or is that my pessimistic memory failing me.;)