Author Topic: Your cash cushion during recession and coronavirus  (Read 3184 times)

moneytaichi

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Your cash cushion during recession and coronavirus
« on: March 26, 2020, 12:09:55 AM »
Since DH and I retired 2 years ago, I have been keeping 2.5 years of cash (in savings and CDs) for short-term living expenses. The rest are in Vangard Target funds (2025 and 2035) and total stock market funds (VTI and VIIIX). Now the stocks have tanked, it's so tempting to use a part of the cash to buy stocks. Then I worry about the cash flow if the recession turns out to be more than 2 years. If so, I'd be forced to sell some shares at loss to cover the living expenses. One thought is to invest my after-tax accounts into dividend-focused funds to generate some cash flow, but then dividends don't seem to be guaranteed either during recession since many companies announced to cut back or skip the dividends in Q2.

How much are you keeping your cash cushion during this time? Thank you for your thoughts!
« Last Edit: March 26, 2020, 12:11:56 AM by moneytaichi »

2Birds1Stone

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Re: Your cash cushion during recession and coronavirus
« Reply #1 on: March 26, 2020, 03:14:03 AM »
5 years of spending in a CD ladder.

soccerluvof4

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Re: Your cash cushion during recession and coronavirus
« Reply #2 on: March 26, 2020, 03:23:32 AM »
I have currently 6 years minimum in cash but that wasnt planned but part of a real-estate deal otherwise normally 3 years and in either case both could be extended by tightening up a bit. Priority one would be to make sure you rebalance. I did on 5% increments down and on the way down when it happens/happend I would along with the rebalance put some cash in even if just 2k each time. I would feel confident that at some point like the last two days if need be you could take some money out IF YOU NEEDED it . The Government is going to shoot bazookas into the market to keep it a float as they even said yesterday the 2 trillion that is about to be launched could be only part of up to 6 Trillion they are already planning. But besides that if you have extra cash then when we go down , which in theory we should again put what your comfortable with like i said if even 1 or 2k. If you cant sleep at night doing it then dont.

Rdy2Fire

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Re: Your cash cushion during recession and coronavirus
« Reply #3 on: March 26, 2020, 01:27:46 PM »
Wow those are impressive. Only about 15 months here

xbdb

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Re: Your cash cushion during recession and coronavirus
« Reply #4 on: March 26, 2020, 01:40:40 PM »
I have about a 3 year cash cushion. That said, I am going to take a year of that and dollar cost my way into the market (started today). The market WILL go back up to new highs so I am not worried about that. It looks like the virus will peak in 2-3 weeks (sooner in some places like Seattle) and the market didn't seem phased by the job numbers which were just horrible.

moneytaichi

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Re: Your cash cushion during recession and coronavirus
« Reply #5 on: March 26, 2020, 09:12:18 PM »
I have currently 6 years minimum in cash but that wasnt planned but part of a real-estate deal otherwise normally 3 years and in either case both could be extended by tightening up a bit. Priority one would be to make sure you rebalance. I did on 5% increments down and on the way down when it happens/happend I would along with the rebalance put some cash in even if just 2k each time. I would feel confident that at some point like the last two days if need be you could take some money out IF YOU NEEDED it . The Government is going to shoot bazookas into the market to keep it a float as they even said yesterday the 2 trillion that is about to be launched could be only part of up to 6 Trillion they are already planning. But besides that if you have extra cash then when we go down , which in theory we should again put what your comfortable with like i said if even 1 or 2k. If you cant sleep at night doing it then dont.
Thanks for your ideas! I am buying more stocks when 5% increments down too. Retire by 40 blogger has a similar approach:
https://retireby40.org/how-to-survive-a-stock-market-crash/?fbclid=IwAR3HRtfjBgM_alBhunN73jR7UMvzHJyi1k3DNBQhiYzoq8W0qPzFY2udzP8

I think keeping 2.5 years cash in the bank will make me feel comfortable, besides getting cash from interests and dividends.

Fishindude

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Re: Your cash cushion during recession and coronavirus
« Reply #6 on: March 27, 2020, 07:07:33 AM »
We've got approx. 7-8 years cash available in savings and CD's on our current budget.
If push came to shove, we could cut budget and go much further.

foghorn

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Re: Your cash cushion during recession and coronavirus
« Reply #7 on: March 27, 2020, 07:49:43 AM »
I have about 20 years expenses in cash.  This is mostly (85% - 90%) in CD ladders and US Treasuries.  A bit sits in some individual stocks (which have been hammered, of course) and some other investments. 

I have always felt like I kept too much on the sidelines in these super safe investments.  But, at times like this - it is comforting to know that I can ride this out and pay my bills.  Barring complete social meltdown - and if that happens, it won't really matter what I have anyway.
« Last Edit: March 27, 2020, 08:52:52 AM by foghorn »

mjr

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Re: Your cash cushion during recession and coronavirus
« Reply #8 on: March 27, 2020, 04:38:33 PM »
I too have over 20 years.  My asset allocation was set so that if the stock market had a major meltdown, I still wouldn't ever need to go back to work.

Of course, I was also hoping that it wouldn't be needed.

Loren Ver

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Re: Your cash cushion during recession and coronavirus
« Reply #9 on: March 28, 2020, 08:50:31 AM »
I run on the way other side of this, apparently :D.

Generally these down markets run on average 18 months so that is what we planned for.

I have enough near liquid in a money market for two years of mortgage payments since those aren't highly negotiable (principal and interest) and then an additional $13,800, which acts as an emergency fund (covers insurance out of pocket max and other costs).

I then have in cash the money we need for the rest of 2020, as I pulled out our living expenses for the year before the crash.  This money includes regular mortgage payments as we are not yet in an emergency. 

All combined we can stretch this out to last us a few years if needed.

I still need to pull money out to hit our ACA income minimums, but hope for some recovery before then, if not, I have a sacrificial fund to pull from that is almost all growth with very little cost basis. 

LV

waltworks

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Re: Your cash cushion during recession and coronavirus
« Reply #10 on: March 28, 2020, 12:23:01 PM »
I randomly got paranoid last year when our third child was born (and when we unFIRED by selling our house and moving to a much more expensive one) so I stuck almost 5 years of expenses in a combination of CDs and high interest savings accounts (opened those for the bonuses).

Lucky me, I guess. I'm struggling not to plow most of that money back into the market but have restrained myself to $1500 a week.

-W

spartana

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Re: Your cash cushion during recession and coronavirus
« Reply #11 on: March 28, 2020, 01:17:41 PM »
3 years base expenses in laddered CDs and bonds during the recession shortly after I FIREd. That was approx $30k total as I can easily live on less than $10k/year. Now have the same in a money market account but now get a pension (gov pension at 50) of $900/month and a VA benefit of $700/month and that will cover all my expenses with lots left over. As long as the state and feds don't go under. If that happened I could live of money in MM and not have to sell anything for several years. I also have a roommate who is moving out so could get another one if I wanted to cover most or even all my expenses.
« Last Edit: March 28, 2020, 01:22:46 PM by spartana »

Frankies Girl

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Re: Your cash cushion during recession and coronavirus
« Reply #12 on: March 28, 2020, 02:16:04 PM »
1 year's living expenses taken in pieces in December/January, that is spent down each year, rinse and repeat.

I tend to follow Dr Doom's thoughts on cushions: in theory it's a decent strategy in SOME cases, and there's plenty of real numbers that make it smarter to just draw what you need when you need it - mostly just stay on your toes and be ready to pivot if you choose wrong. The only absolute for me is there is no option of selling the entire portfolio in a panic. Even in the event of a crash or long-term recession, slow spending, eliminate extras, getting a part time job in the event I don't want to pull from a depressed portfolio... I got plans, and I'm good with low cash on hand to, as Dr Doom puts it on the 1st part of his drawdown series:

You are getting paid a higher return to deal with the emotional impact of watching your money bounce around a lot.

https://livingafi.com/2014/05/09/drawdown-part-1-the-basics/
Read all 5 parts - this is older, maybe a few references are dated, but it's pure gold.


I compromise by having one year in cash, and top it up using dividends thrown off my taxable each year. Even if I have to tap my portfolio before full recovery, I'll likely still be ahead of where I'd be if I'd been sitting on 3+ years in cash/CDs. I fully recognize and am comfortable with the risks. Others may not be. I am lucky in that I do not have dependents to depend on me, low yearly spend with lots of fat to cut if necessary. It's just me and a husband, and we're both fully capable of getting part time jobs doing whatever to cover a long gap. Or get creative (sell off personal items, downsize house/vehicles, reduce expenses to the bone, get job(s), etc).

As I age, I'll likely pull a larger cushion, but I'm relatively young right now and jobs are plentiful and pay well considering, so I can easily get a job stocking shelves, running a register or such and make a high enough salary even working part time to not reduce my yearly expenses even a dollar. And I'm not at the point where working retail for a year or two would bother me much. That will change, so I'll adjust my plans when I decide that's no longer an option.
« Last Edit: March 28, 2020, 08:04:08 PM by Frankies Girl »

moneytaichi

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Re: Your cash cushion during recession and coronavirus
« Reply #13 on: March 28, 2020, 05:38:47 PM »
3 years base expenses in laddered CDs and bonds during the recession shortly after I FIREd. That was approx $30k total as I can easily live on less than $10k/year. Now have the same in a money market account but now get a pension (gov pension at 50) of $900/month and a VA benefit of $700/month and that will cover all my expenses with lots left over. As long as the state and feds don't go under. If that happened I could live of money in MM and not have to sell anything for several years. I also have a roommate who is moving out so could get another one if I wanted to cover most or even all my expenses.
@spartana, can you share why you moved CDs/bonds to money market? Right now CDs at least earn some interests, and bonds earn some dividends, whereas MM earns almost nothing (after Fed cuts interest rates to almost zero.

moneytaichi

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Re: Your cash cushion during recession and coronavirus
« Reply #14 on: March 28, 2020, 05:44:35 PM »
Wow, this thread really opens up my eyes. Such a wide range of cash strategies. It is indeed a balance of safety (or sense of safety) vs growth (long-term safety). Thank you so much for your input! They have at least cooled me down enough to keep a decent cash cushion for 2 - 3 years.

I am thinking to keep year 4 and 5 living expenses in bonds. Maybe short-term bonds? If you have thoughts on the type of bonds for usages on 4th and 5th year, I'd appreciate to hear that. Thank you!

spartana

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Re: Your cash cushion during recession and coronavirus
« Reply #15 on: March 28, 2020, 10:29:27 PM »
3 years base expenses in laddered CDs and bonds during the recession shortly after I FIREd. That was approx $30k total as I can easily live on less than $10k/year. Now have the same in a money market account but now get a pension (gov pension at 50) of $900/month and a VA benefit of $700/month and that will cover all my expenses with lots left over. As long as the state and feds don't go under. If that happened I could live of money in MM and not have to sell anything for several years. I also have a roommate who is moving out so could get another one if I wanted to cover most or even all my expenses.
@spartana, can you share why you moved CDs/bonds to money market? Right now CDs at least earn some interests, and bonds earn some dividends, whereas MM earns almost nothing (after Fed cuts interest rates to almost zero.
I didn't move them but spent them. I used up that money (taxable) to live on for several years when I first FIREd so that I didn't need to touch investments (most in tax deferred retirement accounts like a 457, TIRAs, TSP). After that I just put some excess cash I had left over from the sale and downsizing of my house into a MM and use that as an EF.

ETA
When I first quit my job I planned to take 5 years off and the go back to work. So the laddered CDs and bonds were suppose to cover all my planned expenses for those years. But I ended up spending much less money than I thought I would (partially thanks to the recession because I wasn't spending much then) that they  lasted me much longer and my sabbatical or CoastFIRE ended up being real FIRE.
« Last Edit: March 28, 2020, 10:40:38 PM by spartana »

jim555

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Re: Your cash cushion during recession and coronavirus
« Reply #16 on: March 28, 2020, 10:42:02 PM »
Don't have a cash cushion, interest and dividends covers the expenses.

Jack0Life

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Re: Your cash cushion during recession and coronavirus
« Reply #17 on: March 28, 2020, 10:52:16 PM »
I have about $70k cash and $80k idling in MM brokerage account.
Our expenses are around $4k/month but we can definitely cut back. I'd say 4 years.
We do have 2 rental houses. Not counting those.

Bettersafe

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Re: Your cash cushion during recession and coronavirus
« Reply #18 on: March 29, 2020, 02:37:18 AM »
Just about 3 months. I recently discovered FI/RE so still in a transition fase getting everything sorted and set up. This coronavirus helpt me in a sense, it made me aware I want a very decent cash cushion so I reshaped my initial plan. Nothing more I can do at the moment than just execute the plan, step by step. Thankfully no big risk of unemployment for me and DH so hopefully it wil work out in the end.

bigchrisb

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Re: Your cash cushion during recession and coronavirus
« Reply #19 on: March 29, 2020, 04:45:56 AM »
Cash cushions are hard to measure.  I have about a years current expenses in bank accounts that is earmarked for life expenses.  However, the two biggest items in our budget are travel and childcare, both of which will reduce in a deep recession scenario.

I've been doing some post FIRE contract work three days a week, with a 2 year old in childcare for those days.  If the work dries up, or we need to cut cash costs, the childcare will become insourced.  It's a crazy amount too - approx. 1300/month. 
The travel is largely discretionary too, so that will also feel the squeeze.  If doing those, the one year cash becomes more like 3 years.

I also have other cash available that I'm currently investing - mostly by drawing down a HELOC on my house.  I've put about 60% of that in so far, and will commit the rest if things continue to go south.

On top of that, I still have some work in the pipeline, and my wife is a government employee and unlikely to lose her job.  So yes, we will probably feel some belt tightening, but unlikely that we will get into a position of running out of cash.  And if we do, there is always the (heavily discounted) stash to draw on.

bmjohnson35

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Re: Your cash cushion during recession and coronavirus
« Reply #20 on: March 29, 2020, 09:27:45 AM »
 
3- 4 yrs of living expenses in cash accounts drawing simple interest of around 1.7%.  Obamacare income requirements won't allow us to simply live fully off these accounts. Between IRA distributions, SS income, pension income and investment dividends/capital gains, we will achieve required income requirements by balancing these various sources while the economy does it's up & down thing.

BJ

Bettersafe

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Re: Your cash cushion during recession and coronavirus
« Reply #21 on: March 29, 2020, 12:17:40 PM »
Just about 3 months. I recently discovered FI/RE so still in a transition fase getting everything sorted and set up. This coronavirus helpt me in a sense, it made me aware I want a very decent cash cushion so I reshaped my initial plan. Nothing more I can do at the moment than just execute the plan, step by step. Thankfully no big risk of unemployment for me and DH so hopefully it wil work out in the end.

Cutting back to bare bones will give me a month extra.

moneytaichi

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Re: Your cash cushion during recession and coronavirus
« Reply #22 on: March 29, 2020, 04:19:01 PM »
Cash cushions are hard to measure.  I have about a years current expenses in bank accounts that is earmarked for life expenses.  However, the two biggest items in our budget are travel and childcare, both of which will reduce in a deep recession scenario.
It's a nice way to put aside big expenses.  For us, it'll be travel and the potential house-buying when the market is down. We have ACA, and California is committed to keep ACA. Medical expenses are more or less manageable. Travel will be drawn from CDs or saving. The potential house-buying will be drawn from MM or short-term bonds. That's my current thinking.

Much Fishing to Do

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Re: Your cash cushion during recession and coronavirus
« Reply #23 on: March 31, 2020, 01:54:21 PM »
Toward the end of last year I hit my FatFire number and moved to my planned RE cash allocation of about 3 years (which should last 4 years when considering dividends coming in annually) even though I hadn't (and still haven't) fully REd  This amount chosen was definitely colored by the only two downturns I've experienced in my adult investing lifetime being 2000 and 2008.  For each of those we remained 20+% below the peak for about 3-4 years, which is the place where I would plan to spend cash and not sell equities (bond allocation stays at about 10% and would be next in line to go).  Of course hoping this is a faster snap-back given the unique situation, but obviously impossible to even guess either way right now.  And for the moment I still can work from home parttime enough to cover expenses so hasn't had to go into action yet.

BPA

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Re: Your cash cushion during recession and coronavirus
« Reply #24 on: March 31, 2020, 05:21:51 PM »
It was three years for me, but more like two now that I am also supporting my son.

I do have a part-time job where I am currently laid off. I usually work one or two days a week. That's more than enough to pay my basic expenses. I shouldn't have to touch what's invested in the stock market for years assuming that I will get called back to work within two years. And I am sure I will.


ol1970

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Re: Your cash cushion during recession and coronavirus
« Reply #25 on: April 01, 2020, 11:17:09 AM »
So cash on hand from a # of years standpoint its probably longer than I have to live considering there is not anything to spend money on right now.  Maybe are expenses are 65K a year vs. the $130k.  If we never go back to normal I'm sitting on 35 years or so of cash before I need to start selling investments.  This was sort of the plan though because I'm one of those guys that makes crap returns in the market because I'm so conservative, but will have cash to purchase real estate when it gets clobbered and then blow away the annualized returns of the market.  Real estate is about to get crushed, and deals will be plentiful.  I hope I'm wrong, because that would mean a lot of people have passed away and the country/world is really hurting badly.

Dicey

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Re: Your cash cushion during recession and coronavirus
« Reply #26 on: April 02, 2020, 12:34:56 AM »
Related thread:

https://forum.mrmoneymustache.com/share-your-badassity/in-praise-of-big-fat-emergency-funds/

More kindred spirits/related info there. The more, the merrier!

waltworks

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Re: Your cash cushion during recession and coronavirus
« Reply #27 on: April 02, 2020, 02:55:47 PM »
I'll be interested to see how much money we end up spending. Like most folks here, we live well below our means most of the time. In normal times, our annual spend is around $45k, with $20k of that being mortgage. But a HUGE portion of the remainder is travel and sports memberships/passes/kids activities, etc.

Just the local climbing gym closing down saves us $2k a year, for example. Now, that's not really money I want to save, but it is what it is.

I'd bet we're on track to spend $35-40k now. For FatFIRE folks, spending might well be <50% of normal since you can't do international travel or expensive hobbies easily right now.

-W
« Last Edit: April 03, 2020, 09:24:38 AM by waltworks »

Body Surfer

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Re: Your cash cushion during recession and coronavirus
« Reply #28 on: April 02, 2020, 06:08:05 PM »
We are about to retire and have moved to mostly cash- enough to fund the rest of our lives. We have pensions (mine is small) and eventually SS. I do want to add to my equity positions but only in small amounts. Being safe and secure became way more important than potential missed equity increase opportunities.

moneytaichi

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Re: Your cash cushion during recession and coronavirus
« Reply #29 on: April 02, 2020, 09:51:42 PM »
Related thread:

https://forum.mrmoneymustache.com/share-your-badassity/in-praise-of-big-fat-emergency-funds/

More kindred spirits/related info there. The more, the merrier!
Thanks a bunch, @Dicey! Interesting stuff!

blue_green_sparks

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Re: Your cash cushion during recession and coronavirus
« Reply #30 on: April 04, 2020, 03:38:00 PM »
We are about to retire and have moved to mostly cash- enough to fund the rest of our lives. We have pensions (mine is small) and eventually SS. I do want to add to my equity positions but only in small amounts. Being safe and secure became way more important than potential missed equity increase opportunities.

Same here. There is a possibility that the economic pressure to go back to normal will coincide with the fall/winter virulent season; (only a relatively small % of population will have anti-bodies) resulting in a second incredibly deadly wave.