Transcript

[00:00:00] Voiceover: Welcome to Retirement Unlocked with Larry Heller, your life Your Way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode. 

[00:00:20] Matt Halloran: Hello and welcome to another Retirement Unlocked podcast with your host Larry Heller.

[00:00:24] Matt Halloran: Today we’re gonna answer the question, how much cash should you have in retirement? Alright, Larry, where do we begin? 

[00:00:30] Larry Heller: Yeah, so I mean, the first thing I actually talk about when we are talking about this is there’s the financial decision and there’s a sleep factor, and a lot of people have different versions of this and how well they can sleep by knowing how much cash they have, but also trying to figure out how to ride out when we go through an economic downturn, a stock market downturn.

[00:00:51] Larry Heller: So everyone loves cash when we have a market correction, but when the market is doing really well. Eh, they’re not so happy with [00:01:00] cash ’cause they think they can earn a lot more money. So how do we come up with the right amount of cash? And especially if you guys are close to retirement, I don’t care how much money you have when you first cross over and you don’t no longer have that spigot of earning money coming in, and you get that jolt from a stock market and maybe even interest rates going up.

[00:01:22] Larry Heller: You see on your paper that your value of your account is down. You get, you kind of get a little, you know, a little antsy about that. So how can we make sure that you have enough cash? You don’t have to worry about those times. We’re gonna talk about some of the steps that you can put in place so you don’t have to worry about that.

[00:01:39] Matt Halloran: And worry is a huge emotion that I know that you deal with all the time when it comes to helping people prepare for retirement. And so there’s emotion surrounding cash too. Yeah. 

[00:01:50] Larry Heller: Yes. So again, when the stock market is going down, people are like, eh, I wanna have some more cash. And when it’s going up, they’re like, why do I have so much cash there?

[00:01:59] Larry Heller: And [00:02:00] you know, I I, I just was thinking about this and I’m like, some of the sayings that, that I hear from people during these times when the market is down. And you know, some people say, well, I wanna wait for things are better before I start investing the cash. Or I need to stop the bleeding so I’m gonna sell more to P in cash.

[00:02:19] Larry Heller: Or I just, I just wanna protect my principle. And then, you know, the, when the market’s going up. People are like, why do I have so much in cash earning very little interest when the smart stock market is doing well? Or what do you, why should I sell these? They’re doing so well. Why should I sell this and put it into cash?

[00:02:38] Larry Heller: And again, this is all psychological and we kind of want to do just the opposite. So we’re gonna, we’re gonna get into that a little bit, a little bit more. So how do we determine the proper cash amount in retirement? Well, there’s a systematic way that we do this. Well, the first thing that we ask is we ask everyone to determine what your [00:03:00] expenses are.

[00:03:00] Larry Heller: I’m still flabbergasted. People are about to retire and they don’t know how much money they’re, they’re gonna spend. So we’ve talked about some of the tricks and trades in a previous podcast and how you can determine that, but we really wanna find out what are your expenses gonna be on an annual basis?

[00:03:15] Larry Heller: So. Not only just the monthly, but any big ticket items, what are they gonna be annually? So that’s the first thing we want to do. So just hold that thought for a second. And then we also wanna talk about the risk tolerance, so we know kind of how much risk and what they’re comfortable with. And then when we start, we start with what we call communication and education.

[00:03:34] Larry Heller: So I thought today I would actually pull up a chart Yeah. That we use to explain some of these, some of these scenarios. So this is a chart of the bull and bear market. Long-term benefits of stock investing. You may say, Matt, why are we talking about stock investing? What does that have to do with cash? So here’s how it has to do with cash.

[00:03:57] Larry Heller: So this is a performance of the bull and bear [00:04:00] market. So a bull market means a rise of 20% in a bear market means a fall of 20%. So going back to 1945. Right here on the bottom here. And by the way, if you’re listening to this, we’ll, we’ll include the, uh, map as part of the show notes. So on the bottom here, you can see all the times that the market has fallen more than 20% from 1945, and some of them have to do with some events.

[00:04:25] Larry Heller: The oil crisis, the global pandemic COVID, the tech bubble. So Matt, what do you notice here that’s kind of similar with all these kind of bubbles up down here? They’re short. There you go. They’re short. They’re two years, seven months. There’s one year, six months. And if you notice, the bull markets, just by looking at these green charts are much longer.

[00:04:51] Larry Heller: So that’s the reason why kind of we want to be investing and of course. You know, past performance, no guarantee of future results, but if you look at the short re [00:05:00] returns right here, that’s kind of what we start to talk about and we start to kind of figure out, well, how much cash do I need to ride out these?

[00:05:10] Larry Heller: Bear markets. So if, if we, if we looked at these and we were showing that, you know, they’re less than three years, somewhere between two and three years at the worst case, yeah. If you go back to the depression, that’s a little bit different. But you know, from 1945 on, they’re less than three years. So that’s what we really start to, is we wanna start to kind of figure out.

[00:05:33] Larry Heller: What w how much cash we want to do so we can stay. The cost, so the, the worst case scenario from 1945 to now is 31 months. So therefore we start to look at a cash caveat somewhere between 24 and 36 months to ride it out. And if the market is. Is kind of really high. We may kind of want to be on the higher end of the cash if the market has already had a correction and was spending down [00:06:00] some of the cash, maybe on the lower end of the cash.

[00:06:03] Larry Heller: So what, what does this kind of allow us to do? It allows us to write out those downturns. Mm-hmm. So. When you add the cash and maybe you wanna add some big ticket items or emergency funds in there, we’re starting to have a conversation of what you’re comfortable in cash, because I know that eventually we’re gonna go through one of those bear markets.

[00:06:24] Larry Heller: Again, I don’t know when the bear market is gonna happen, but it is going to happen at some particular time, and that’s when we really wanna be prepared for it. So when you’re about to retire. You have this amount in cash and then we actually put together our res reservoir strategy. So for those of you listening episode one 19, we talk about more about the the reservoir strategy, but here’s where we talk about the short term investments in our reservoir strategy that we’re having that cash reservoir.

[00:06:55] Larry Heller: To ride out those downturns and from that cash reservoir each [00:07:00] month, money is going to you, just like you receiving your paycheck from when you were working. So each month you’re getting your regular paycheck. That cash reservoir is filled back with dividends. And interest. And when the stock market is doing well, we’re gonna replenish that cash reservoir by selling some of their stocks when it’s high and, and putting that into the cash.

[00:07:27] Larry Heller: So we’re always replenishing that. So psychologically what are, what is now happening? What is happening is that you no longer have to kind of worry about where your next money is coming. You’re not thinking, oh, it’s down and I’m pulling money when it’s down. So that’s kind of how we put together these cash decisions and by determining kind of what your.

[00:07:54] Larry Heller: Education, what the calculation is. What the communication [00:08:00] is, is really putting together a nice strategy for your cash. 

[00:08:04] Matt Halloran: And, and when you say cash, I, I should have asked you this right at the beginning, are, are you literally saying just money in a checking account, or can you define what cash means before we wrap up today’s show?

[00:08:14] Larry Heller: Yep. So cash is actually could, it could be in a money market, maybe in a short-term, short-term bond fund, but basically something that’s not going to fluctuate very much when we don’t want to, just in checking, making no money. But you can want something that that is not gonna fluctuate all at all. So there’s no variability and not have to worry about that.

[00:08:35] Larry Heller: So. When we kind of put together all of this between kind of educating and then calculating the amount, calculating what your reservoir strategy is going to be, because that’s different for everyone else. Everyone is different on what their expenses are, people are different, and what their risk tolerance are.

[00:08:54] Larry Heller: So we put together the reservoir strategy and then the communication. One of the things that I start [00:09:00] telling people right from the start is when the going these through these downturns is, don’t listen to the headlines in the media. Don’t listen to the markets. ’cause now even a thousand point drop in the market is not very much.

[00:09:12] Larry Heller: So don’t listen about because you can say, Larry said, between our cash and our reservoir strategy, we’re well prepared. Doesn’t make a difference what’s happening in in the market because the money that’s in vested in the stock market is that long-term reservoir. So we don’t really care what’s happening in the short term yet.

[00:09:32] Larry Heller: We don’t like seeing it down on paper, but we are not going to have to sell when it’s down. And that’s really the key to this whole thing, is not having to sell when we’re going through those bare markets, those timeframes that we showed about over the cost of the last. Close to a hundred years. So, uh, and I’m happy to say we really get called because of this, ’cause we’ve already had these conversations prepared.

[00:09:57] Larry Heller: Someone, especially someone going through it for the [00:10:00] first time, they’re prepared that this is going to happen at some time during their lifetime. 

[00:10:05] Matt Halloran: Now you just said something that, and I actually haven’t heard you say this before, but you just really hinted toward it before we wrap today up, which is.

[00:10:13] Matt Halloran: What a lot of people are doing is they want to buy stocks when things are on the way up and they wanna sell stocks when they’re on the way down. But that’s not, it’s, it’s the old school lesson of buy low, sell high. Right. And that’s a huge part. And especially when you’re talking about replenishing the cash accounts.

[00:10:31] Matt Halloran: Yes. 

[00:10:32] Larry Heller: No, it’s a, it’s a huge part. So again, that’s what we talk about, the risk tolerance. So we kind of see how much, how much equities makes sense for you in retirement. Remember, if you’re retiring at 65 and you’re married, there’s a good chance that one of the two of you are gonna live to age 90. That’s.

[00:10:49] Larry Heller: 25 years. Yeah. So we wanna have some equities, but the right amount of equity exposure that we have to stay ahead of inflation depends upon your particular situation. But when that [00:11:00] equity grows above that target allocation, we wanna sell some of the profits. Maybe we don’t time the high, but we wanna sell at the high.

[00:11:07] Larry Heller: And there are times if we do have a major correction that we’re taking some from the intermediate reservoir and we’re buying some of the, the equities and we’re buying low. Again, that’s just totally opposite of human nature. When they’re seeing things that are, why are we buying something? This fund or this ETF is down, been down for a year, why are we buying it?

[00:11:29] Larry Heller: And that’s the whole idea of buying low and selling high. It’s on 

[00:11:33] Matt Halloran: sale. 

[00:11:34] Larry Heller: Exactly. 

[00:11:35] Matt Halloran: Uh, I’m sorry, just so you know, to, to put that into the, you know, you can buy something that you want when it’s 40% off, you don’t hesitate to do that, but when the stock is down 40% you’re freaking out or the etf. So. Alright.

[00:11:46] Matt Halloran: Uh, so Larry, if somebody wants to reach out, where do they go? 

[00:11:48] Larry Heller: Yeah, so they can go to our website at hellerawealthmanagement.com or feel free to give us a call at (631) 248-3600. 

[00:11:57] Matt Halloran: Well, thank you for tuning into this Retirement Unlocked podcast. [00:12:00] If you found this episode helpful, please make sure that you like, subscribe, and of course share it with somebody.

[00:12:04] Matt Halloran: Big picture. Question for this one is, if you don’t have this strategy or if you know your friends don’t have a strategy like this in place, this is the perfect podcast for you to share. And if you want to take the next step, uh, in the episode description below, you’ll find the link to Heller Wealth Management website and resources, and the option to schedule a free.

[00:12:21] Matt Halloran: Complimentary 20 minute call with one of the people on Heller Wealth Management’s team. So your ideal retirement starts with a conversation. Let’s get started. We’ll see you next time on Retirement Unlocked.