My husband and I are 75. We have $1.5 million in stocks and $425,000 in savings. Is that too much cash?
Short answer: It depends on your spending, your guaranteed income, and your tolerance for risk. At 75, holding a larger cash cushion than you did in your 50s or 60s can be sensible. But $425,000 may be more than you need sitting in low-yield accounts—especially if you have no bonds—unless it’s earmarked for near-term spending or healthcare. Here’s how to decide.
Start with your “runway”
– Calculate your annual withdrawal need: your total spending minus guaranteed income (Social Security, pensions, annuities), plus taxes on withdrawals.
– Express your $425,000 in years of withdrawals. Examples:
– If you need $100,000 a year from your portfolio, $425,000 is about 4.25 years.
– If you need $40,000 a year, it’s more than 10 years.
– A common goal at 75 is 2–5 years of net withdrawals in cash and near-cash to reduce sequence-of-returns risk and to sleep well at night. If your “runway” is far longer than that, you may be carrying more cash than necessary.
What cash does well—and what it doesn’t
– Pros: stability, ready money for RMD taxes and big expenses, no need to sell stocks in a down market.
– Cons: inflation erosion and “cash drag” compared with bonds or a balanced portfolio. Even in higher-rate environments, after-tax, after-inflation returns on plain savings are modest.
A bigger issue: You’re all stocks and cash
With $1.5 million in stocks and $425,000 in savings, you essentially have high-volatility growth assets and very low-risk cash—but little in between. That can leave you exposed. A 30% stock drop on $1.5 million erases $450,000—more than your entire cash cushion.
Consider strengthening the middle with high-quality bonds
– Purpose: provide steadier income than cash, soften portfolio swings, and replenish the cash bucket without selling stocks at bad times.
– Building blocks:
– Short- to intermediate-term Treasuries and investment-grade bond funds/ETFs.
– TIPS (Treasury Inflation-Protected Securities), potentially as a ladder for known spending.
– A 2–7 year “middle bucket” can cover medium-term withdrawals while equities recover.
Right-size and upgrade your cash
– Keep:
– 6–12 months of spending in checking/high-yield savings for bill paying.
– The remainder of your 2–5 year runway in very safe, yield-conscious vehicles such as:
– Treasury bills or a T-bill ladder (direct via TreasuryDirect or through a brokerage).
– Brokered CDs and high-yield savings; government money market funds for convenience.
– Safety limits:
– FDIC/NCUA insurance is $250,000 per depositor, per bank, per ownership category. A joint account is typically insured up to $500,000 at one bank. Confirm titling and totals.
– Money market funds are not FDIC insured but are highly regulated; prefer government/Treasury funds for safety.
– Simplify: automate monthly transfers from cash to checking; refill the cash bucket annually with dividends, interest, RMDs, and strategic stock sales when markets are favorable.
How much cash is “too much” here?
– Reasonable: If your net withdrawal need is roughly $85,000–$200,000 a year, $425,000 (about 2–5 years) is in the sweet spot.
– Probably excessive: If your net withdrawal need is under $50,000 a year and you’re carrying 8–10+ years in cash, consider shifting part to high-quality bonds/TIPS for better long-run resilience and income.
– Not excessive if earmarked: If the cash is intended for a near-term home project, a new car, gifting, or to self-insure a portion of long-term care, the larger balance can be appropriate.
Taxes, RMDs, and healthcare considerations
– RMDs: At 75, you must take required minimum distributions from tax-deferred accounts. Use part of the cash to cover withholding/taxes. If you give to charity, consider Qualified Charitable Distributions (QCDs) from IRAs to reduce taxable income.
– IRMAA: Watch Medicare premium surcharges triggered by higher income; plan withdrawals across accounts to manage brackets and surcharges.
– Asset location: Hold most bonds/TIPS in tax-deferred accounts when possible; keep equities with qualified dividends and capital gains in taxable accounts; use cash/high-yield savings in taxable for liquidity.
– Long-term care: Decide whether you’re self-insuring. If so, formally earmark a portion of assets (cash/TIPS) for that purpose so it doesn’t distort the rest of your allocation.
What about annuities?
– If simplicity and guaranteed income are priorities, a plain-vanilla single premium immediate annuity (SPIA) with strong insurers can raise your “paycheck” and reduce the cash runway needed. This is not for everyone, but can be worth pricing alongside a bond/TIPS ladder. Evaluate carefully with a fiduciary; avoid complex riders you don’t need.
A simple framework you can implement
1) Clarify numbers
– Annual spending (all-in) = ?
– Guaranteed income = ?
– Net annual withdrawal need = spending − guaranteed income + taxes.
2) Set buckets
– Cash/near-cash: 2–5 years of net withdrawals.
– Bonds/TIPS: next 3–7 years of withdrawals in high-quality fixed income.
– Stocks: the rest for long-term growth. Many retirees at 75 target 30–50% equities, depending on risk tolerance, time horizon, and legacy goals.
3) Fund and maintain
– Optimize cash yield (HYSAs, T-bills, government money markets); verify FDIC/NCUA coverage.
– Build a Treasury/CD/TIPS ladder for the bond bucket.
– Rebalance annually or when bands are breached; refill cash from income and opportunistic stock trims.
4) Coordinate taxes and estate
– Plan RMDs, QCDs, and capital gains realization.
– Review beneficiaries, powers of attorney, healthcare directives, and trusts.
– If charitable, consider a donor-advised fund for appreciated securities.
Bottom line
$425,000 is not automatically “too much” cash at age 75—especially if it represents roughly 2–5 years of net withdrawals or is set aside for specific near-term needs. The bigger concern is the lack of a middle layer between stocks and cash. If your cash covers far more than five years of withdrawals, consider shifting the excess into high-quality bonds and/or TIPS to improve income and reduce the risk that a stock downturn forces painful sales. Use a bucket system, mind FDIC coverage, and integrate RMDs and taxes. A brief session with a fee-only fiduciary planner can tailor these guidelines to your exact spending, tax, and estate picture.
