This week, I’m talking about the What To Do Before You Retire In 2021. 

Today’s must-do checklist item you’ll need to tick off before retirement is to squirrel away 6-18 months of expenses in savings.

First of all, you’ll want to maintain 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 for emergencies. 

The other reason why you want to keep a lot of cash on hand is because it can save you in times of market downturns, recession, and crisis.

If your portfolio drops 10 or 20%, you’ll make that drop significantly worse by continuing to take money out, and exacerbate the downturn in your portfolio. 

Having enough 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.

Just how much cash should you set aside for this scenario? At a bare minimum, you’ll want about 6 months worth of monthly expenses on hand 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. 

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’ll not make the problem worse and you’ll make your portfolio much more likely to last over your retirement years. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.

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