Retirement Savings: How Much Retirees Should Keep in Cash — On Hand and in the Bank
Written by
Crystal Mayer
Edited by
Molly Sullivan
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One of the biggest concerns for most retirees is whether they will have enough money to see them through retirement. Many times, retirement money may be placed into accounts that are not easily accessed. It can take days or even weeks to have the money in hand. This can be devastating in the event of an emergency when you need cash immediately.
Most financial experts recommend keeping some cash accessible or in cash equivalent accounts that you can easily withdraw money from. We asked financial planners and other professionals to weigh in on exactly how much money retirees should keep in cash and why. Here is what they had to say.
3 Years of Retirement in Cash or Cash Equivalent
When thinking of how much money you should have easily accessible, you’ll want to be prepared for a longer amount of time than maybe you would’ve when you were working.
“It all depends on the current assets and income of the client. Ideally, we want three years’ worth of retirement income in cash or cash equivalent (cash value, annuity, money market etc.),” said Bryan Schod, CFP®, CDFA® with Luttner Financial Group, a private wealth management firm based out of Pittsburgh.
“They need to be able to pull money from somewhere when the stock market is down without selling stocks. Selling stocks at a low kills them in retirement. It should also be there for emergencies and opportunities. As well as ‘fun stuff,'” he added.
Keeping $1,000 on Hand
What about cash you actually keep at home?
“On a day-to-day basis, retirees should keep a maximum of $1,000. If a retiree is planning to buy something or pay someone more cash than that, they can obviously keep as much cash as they’ll need. But $1,000 is a good amount to always have on hand,” according to Melanie Musson, a finance expert with Clearsurance.com,
“Cash at your house is at risk of being stolen, lost or damaged, so you certainly wouldn’t want to keep your life’s savings in cash,” she explained. “One thousand dollars is an amount that can get you by if you face an emergency, but it’s not so much that your life would be ruined if something happened to it.”
Establishing a Solid ‘Buffer’
“In addition to having a strong amount of liquid bank cash on hand for immediate goals or emergencies, retirees who are living on income from their investments should also calculate how much cash and bond assets they would be comfortable holding inside their investment accounts as a way of having a ‘war chest’ or ‘buffer’ that they can tap in a prolonged down market scenario,” said Joseph Eck, CFP®, owner and financial planner at Stage Ready Financial Planning.
“I work with my clients to determine how many years of their income would they like to keep in cash and bonds so that if the market pulls back for a period of time, we can shift how we withdraw income to only selling cash and bonds until the market recovers.
If a client is withdrawing 4.6% of their account per year in retirement and they say they want seven years of their income in their ‘war chest,’ then we might use an asset allocation of approximately 70% in stock holdings and 30% in cash and bond holdings,” he said.
What To Consider During Retirement
As our experts have explained, retirees will want to consider having at least some cash or cash equivalents in their possession in case of emergency. You never know when you will have a plumbing emergency and only be able to pay in cash. You’ll then also want to have some easily accessible cash that is sitting securely somewhere like in a high-yield savings account.
Retirement doesn’t mean that life stops happening. If all of your money is tied up in investments that can take time to sell, then you could be in trouble if you face any kind of financial hardship. Whether you stash a rainy day fund or keep a percentage of your income in an account that you can access day or night you will be more prepared for the unexpected obstacles that life throws your way.
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