This week’s theme on the Retirement Quick Tips Podcast is: 10 Things You Must Do Before Retirement - Part 2

Today, I’m talking about one of the most important things you can do to protect yourself financially in retirement, and that is beefing up your cash savings. You’ll want more cash on hand in retirement than you might have needed while working, but you want to take advantage of the fact that you’re still working and still have income coming in to beef up that bank account balance BEFORE you retire. It’s going to be a lot harder to increase your cash savings post-retirement, since you’ll be needing to use your assets to live on at that time. 

So why do you need more cash in retirement? Why isn’t a few thousand dollars or 3-6 months worth of expenses in the bank enough? Well, those rules no longer apply when you’re retired for a couple of reasons: 

First of all, you’ll want to consider maintaining even more cash for emergencies in retirement because you’re no longer working. When you’re retired, and the older you are, the harder it is to go out and find a part-time job or a side gig. So if you have a sudden and unexpected expense or medical bills, paying for your emergency with a high interest credit card or having to liquidate your retirement portfolio, can be devastating and can completely derail your retirement plans. So we need lots of cash on hand in retirement. 

The other reason why you want to keep a lot of cash on hand that can save you in times of market downturns, recession, and crisis, is so you can reduce or suspend all together your portfolio withdrawals. If your portfolio drops 10 or 20%, you make that drop significantly worse but also taking money out, and exacerbate the downturn in your portfolio. So having cash on hand will allow you to stop some of the bleeding and suspend your portfolio withdrawals in a market downturn. When you can do this, especially if it happens in the early years of retirement, you give yourself a better shot of not running out of money in retirement and preserving more of what you have in the downturn. 

Now that I’ve addressed the why behind needing more cash than the standard 3-6 months of cash on hand, let’s talk about how much cash you should have. 

At a bare minimum, you’ll want about 6 months worth of monthly expenses on hand for emergencies. So if you spend $5,000/month, you’ll want $30,000 in cash, just for emergencies. 

In addition, to protect yourself in the next market downturn, you’ll want to keep another 12 months worth of your portfolio withdrawals on hand. Why? Well the aveage bear market lasts 14 months. Some are shorter, and some of the deeper ones are even longer. So if you can stop your portfolio withdrawals for a year while the stock market is reeling and we’re in the midst of a recession, you can sleep better at night and not make the problem worse. So 12 months of suspended withdrawals from your investment portfolio should be enough, even if the downturn lasts a little longer than that. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.   

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance