The theme this week on the Retirement Quick Tips Podcast is: Listener Case Study: One Year To Retirement. About a month ago, a listener of the podcast emailed me with some questions about her upcoming retirement and this week, I’m addressing the multitude of issues she’s facing as she nears retirement. 

Today, I’m addressing another question from Monica’s email. She wrote: “I read about a philosophy of setting aside 5 years worth of required retirement investment withdrawals to use during a strong and long market downturn, allowing the market to recover without making withdrawals during this time.”

I’ve actually talked about this before on the podcast as it’s a common question I receive from clients: How much cash should you keep on hand for income needs and emergencies when retired? I actually think 5 years is too excessive, as it will be a drag on your long-term returns and although it sounds counter-intuitive, it could actually cause you to run out of money in retirement because you had too much cash. What if 5 years of cash represented 30% of your portfolio? That’s 30% of your retirement assets that’s essentially losing money, because it’s likely not going to keep pace with inflation.

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 average 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