Finances in Retirement - Investments

How Much Cash Should I Have on Hand in Retirement?

by Alli Thomas

Jul 10, 2022

Most financial planners will tell you that having an emergency fund to cover unexpected bills is a key to financial security.

A commonly suggested guideline for how much cash you need to have on hand 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 how much cash should you have on hand in retirement since there’s no penalty for withdrawing money from your retirement account in the event of an emergency?

Emergency Funds for Retirees

Despite the ability to access retirement accounts, many experts recommend that retirees keep enough cash on hand to cover between six and twelve months of daily living expenses. 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.

Read more: Should You Keep More Cash on Hand When the Market is Volatile? 

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.

FDIC-insured bank accounts are insured for up to $250,000. If your account size is smaller, you’re not at risk of losing 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 at a different FDIC-  insured bank as the FDIC’s insurance limit is per depositor, per FDIC-insured bank, per ownership category. 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.

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