Income

What's The Right Amount of Cash to Hold for My Retirement?

Life can throw little surprises at you. For that reason, it’s important to include an emergency fund when you’re determining how much cash to retire. The big question is how much extra cash you’ll actually need. Here are some tips to help you figure it out.

Stephanie Faris

Stephanie Faris

Published July 29th, 2021

Table of Contents

Key Takeaways

Financial emergencies don’t end when you retire. In fact, it’s even more important in retirement to have extra cash.

A well-funded emergency fund can help you get through tough economic times.

It’s important not just to determine how much to set aside, but also to put the funds in the right type of account.

Life can throw little surprises at you. Whether it’s unexpected car repairs or an extended illness, there are just some expenses that aren’t included in your monthly budget. Throughout your working years, you likely heard about the importance of having an emergency fund, but emergencies don’t stop once you retire. For that reason, it’s important to include an emergency fund when you’re determining how much cash to retire. The big question is how much extra cash you’ll actually need. Here are some tips to help you figure it out.

What's The Right Amount of Cash to Hold for My Retirement?

There’s no magic number for how big an emergency fund should be. Conventional wisdom has you setting aside three to six months of income for an emergency. But that wisdom applies to adults who are still working.

That same rule may not apply as you get older. You’ll need bigger cash reserves in retirement for a couple of reasons. One, you have a reduced income so if you have a big expense, you’ll be less likely to be able to handle this month’s overage next month. Two, the emergency expenses in retirement can be bigger, especially when it comes to medical bills.

Which Account Should I Use?

The next, very important question is, what accounts are best for retirees to invest their money?” There are several options:

  • Checking or savings: The funds will be accessible, but you’ll earn little to no interest on your money.
  • Taxable brokerage account: You’ll have accessibility and interest, but fees and taxes will cut into that.
  • Roth IRA: You’ll earn tax-free dividends, but you must have earned income to contribute to a Roth IRA.
  • Traditional IRA: The interest you earn in this account will be taxed, but you can withdraw at any time after age 59½.
  • 401(k): Similarly to a Traditional IRA, the interest earned in this account will be taxed, and you can start withdrawing any time after age 59½.

Reasons to Hold Cash in Retirement

When considering how much cash should retirees keep, it can help to understand the benefits of having some cash in reserves during retirement. Here are a few of those benefits.

Safety During Stock Market Downturns

When you’re looking at how much cash should I have in retirement, you should consider how much of it is vulnerable to economic tough times. You can have funds in the stock market, but make sure you have some emergency cash to cover any losses if things take a bad turn.

Peace of Mind

The answer to, “How much cash should you have in retirement?” can vary from person to person. In the end, though, it’s all about what gives you peace of mind. Just knowing you have funds in the bank to cover you if something goes wrong can be a relief as you navigate the economic challenges of retirement.

Higher Returns with More Risk Tolerance

A great thing about having extra cash in retirement is that you can make it work for you. Having that extra padding means you might be able to keep more of your money in slightly riskier, but higher-reward, investments. If you can put your extra cash in an interest-bearing account, you’ll also benefit from those dividends.

Final Thoughts

Managing your finances in retirement can be stressful, but having a little cash set aside can help. We recommend working with a certified financial planner to determine the best emergency fund size for your unique situation.


Share this advice


Stephanie Faris

Stephanie Faris

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a writer for a credit card processing service and has written about finance for numerous marketing firms and entrepreneurs. Her work has appeared on Money Under 30, The Motley Fool, MoneyGeek, E-commerce Insiders, and GoBankingRates.

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Income

What's The Right Amount of Cash to Hold for My Retirement?

Life can throw little surprises at you. For that reason, it’s important to include an emergency fund when you’re determining how much cash to retire. The big question is how much extra cash you’ll actually need. Here are some tips to help you figure it out.

Stephanie Faris

Stephanie Faris

Published July 29th, 2021

Table of Contents

Key Takeaways

Financial emergencies don’t end when you retire. In fact, it’s even more important in retirement to have extra cash.

A well-funded emergency fund can help you get through tough economic times.

It’s important not just to determine how much to set aside, but also to put the funds in the right type of account.

Life can throw little surprises at you. Whether it’s unexpected car repairs or an extended illness, there are just some expenses that aren’t included in your monthly budget. Throughout your working years, you likely heard about the importance of having an emergency fund, but emergencies don’t stop once you retire. For that reason, it’s important to include an emergency fund when you’re determining how much cash to retire. The big question is how much extra cash you’ll actually need. Here are some tips to help you figure it out.

What's The Right Amount of Cash to Hold for My Retirement?

There’s no magic number for how big an emergency fund should be. Conventional wisdom has you setting aside three to six months of income for an emergency. But that wisdom applies to adults who are still working.

That same rule may not apply as you get older. You’ll need bigger cash reserves in retirement for a couple of reasons. One, you have a reduced income so if you have a big expense, you’ll be less likely to be able to handle this month’s overage next month. Two, the emergency expenses in retirement can be bigger, especially when it comes to medical bills.

Which Account Should I Use?

The next, very important question is, what accounts are best for retirees to invest their money?” There are several options:

  • Checking or savings: The funds will be accessible, but you’ll earn little to no interest on your money.
  • Taxable brokerage account: You’ll have accessibility and interest, but fees and taxes will cut into that.
  • Roth IRA: You’ll earn tax-free dividends, but you must have earned income to contribute to a Roth IRA.
  • Traditional IRA: The interest you earn in this account will be taxed, but you can withdraw at any time after age 59½.
  • 401(k): Similarly to a Traditional IRA, the interest earned in this account will be taxed, and you can start withdrawing any time after age 59½.

Reasons to Hold Cash in Retirement

When considering how much cash should retirees keep, it can help to understand the benefits of having some cash in reserves during retirement. Here are a few of those benefits.

Safety During Stock Market Downturns

When you’re looking at how much cash should I have in retirement, you should consider how much of it is vulnerable to economic tough times. You can have funds in the stock market, but make sure you have some emergency cash to cover any losses if things take a bad turn.

Peace of Mind

The answer to, “How much cash should you have in retirement?” can vary from person to person. In the end, though, it’s all about what gives you peace of mind. Just knowing you have funds in the bank to cover you if something goes wrong can be a relief as you navigate the economic challenges of retirement.

Higher Returns with More Risk Tolerance

A great thing about having extra cash in retirement is that you can make it work for you. Having that extra padding means you might be able to keep more of your money in slightly riskier, but higher-reward, investments. If you can put your extra cash in an interest-bearing account, you’ll also benefit from those dividends.

Final Thoughts

Managing your finances in retirement can be stressful, but having a little cash set aside can help. We recommend working with a certified financial planner to determine the best emergency fund size for your unique situation.

Retirement Income Guide

Decumulation


Paycheck


Lifestyle Planning


Income Sources


Strategies


Taxes


Risks


Share this advice


Stephanie Faris

Stephanie Faris

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a writer for a credit card processing service and has written about finance for numerous marketing firms and entrepreneurs. Her work has appeared on Money Under 30, The Motley Fool, MoneyGeek, E-commerce Insiders, and GoBankingRates.

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Retirable, Inc. ('Retirable') is an SEC registered investment advisor. By using this website, you accept our Terms and Conditions and Privacy Policy. Retirable provides holistic retirement planning services, which are available only to residents of the United States. You must be at least 18 years of age to become a Retirable Premium user. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities.

Investing involves risk and past performance is not indicative of future results. Increased spending increases the risk of depleting your savings and performance is not guaranteed. It is very important to do your own analysis before making any decisions based on your own personal circumstances.

For more information, see our Form ADV Part II and other disclosures.

© 2022 Retirable Inc. All rights reserved.

We're accredited and certified by

Legal

Retirable, Inc. ('Retirable') is an SEC registered investment advisor. By using this website, you accept our Terms and Conditions and Privacy Policy. Retirable provides holistic retirement planning services, which are available only to residents of the United States. You must be at least 18 years of age to become a Retirable Premium user. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities.

Investing involves risk and past performance is not indicative of future results. Increased spending increases the risk of depleting your savings and performance is not guaranteed. It is very important to do your own analysis before making any decisions based on your own personal circumstances.

For more information, see our Form ADV Part II and other disclosures.

© 2022 Retirable Inc. All rights reserved.

We're accredited and certified by