This week, we’re talking about cash savings in retirement. Deciding how much cash you should have on hand at all times in retirement is more important in you might think. Having enough cash on hand will help prevent you from liquidating your investments for emergencies and will help stabilize your portfolio during the inevitable stock market downturns, since you’ll be able to curtail your portfolio withdrawals if and when that happens if you have enough cash on hand. 

In addition to setting aside plenty of cash for emergencies and the next recession, how should you handle those upcoming major purchases? 

Let’s assume you’re already retired, and you want to remodel your kitchen next year, your car only has 2-3 years worth of life left in her, and your daughter seems to be getting pretty serious about this guy she’s dating. You promised her $20,000 for her wedding and it looks like she’ll be cashing that check soon as well. 

How do you handle these bigger planned purchases. 

The answer here isn’t so black and white. If you know you’re going to need the money soon - like within the next year or 2, it’s not a bad idea to set that aside in cash now. 

You could also set aside enough each month in a separate savings account earmarked for that purchase, so that by the time you need a new car or your daughter gets married, you’ve saved enough, but done so gradually over time. 

If it’s been a good year for your retirement portfolio and you have some big gains like you’ve hopefully had this year, then you could also just pull the money from your investment portfolio when you need it. The problem with this strategy though, is that if your portfolio drops 10% this year, you wouldn’t want to make the problem worse by pulling out additional money. 

So it’s best to set aside at least some cash for major planned purchases. But the amount and timing of setting aside that cash is based on how much you need, how soon you need it, and how your investment portfolio is doing. 

That’s it for today. Thanks for listening. Tomorrow, we’re going to recap the week and I’m going to give you a little preview of next week’s theme. 

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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