Personal Finance

How Much Cash Should Retirees Keep on Hand?

by Alli Thomas

May 16, 2021

Most financial planners will tell you that having an emergency fund to cover unexpected bills (like major car or home repairs or a trip to the emergency room) is a key to financial security. 

The most commonly cited rule of thumb for how much you need in an emergency account is three to six months’ worth of living expenses. This buffer can help keep you from dipping into your retirement savings and incurring early withdrawal penalties if an unexpected large expense comes up. 

But what if you’re retired and there’s no penalty for hitting up your retirement account in the event of an emergency? 


Emergency Funds for Retirees 

Many experts recommend that retired folks keep between six and twelve months of daily living expenses in cash. Some even suggest keeping up to three years’ worth of living expenses in cash. 

Your emergency fund must be easy for you to access at any time. You should also avoid putting it in any account that could lose value, like stocks or a stock mutual fund. 


Why Should You Keep Your Emergency Fund in Cash? 

First things first: your emergency fund must be easy for you to access at any time. 

Assuming most of your retirement savings is invested in various stock funds, if you withdraw money from those accounts during a severe market downturn, you will realize a loss. It’s just better for your bottom line to live off cash than to sell out of stocks at a low point. 

Bank accounts are insured for up to $250,000, so you won’t lose up to that amount of money if your bank goes under. 


My Savings Exceed $250,000. What Now? 

If you have more than $250,000, you can put it into another savings account as the FDIC’s insurance limit is per account, not per person. 

There are also other savings vehicles that could provide higher returns, helping protect you from inflation. 

A money market account is one possibility. Be aware that some charge high fees that will deplete the value of your savings. 

You may also consider buying a certificate of deposit (CD). Getting money out of a CD isn’t always easy, though, so look carefully before you leap. 

Whatever you do, don’t stash it all under your mattress. Keep enough cash at home to buy a tank or two of gas for your car, plus a few days of groceries and water. 

If you aren’t sure how much cash you need to keep on hand, or where to keep it, a financial advisor can help you find the right answer for your situation. Request a complimentary, no obligation conversation with one of our advisors today to get started! 

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

2 Responses

  1. Susan Miller says:

    I was thinking of putting approximately $10,000.00 into a CD to buy a car at some future date. Can a CD be bought to last only 1 year long and then continue to renew each year? If so, that might be a good way to save for a newer car when mine wears out. If my car holds it’s value, I should be able to buy a newer car for a little above $16,000.00 shouldn’t I? I was thinking so anyway? Any ideas on how to save for a new car in retirement?

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