How Much Cash Should You Hold in Retirement?

Many things change when we retire. There’s the obvious change–we stop working. And there’s a less obvious change–how we approach cash.

Before retirement, we might have an emergency fund of three to six months’ worth of living expenses. After retirement, we need cash for so much more. The ideal cash reserve depends on individual circumstances, including income stability, potential emergencies, and comfort level during market volatility.

In this video, I’ll walk through the seven main reasons retirees hold cash. For each, we’ll look at how much cash one should have for each reason and the type of account best suited to hold the cash.

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Timestamps

0:00 - How Much Cash Should You Hold In Retirement
1:33 - Cash Investments
2:20 - Monthly spending
3:30 - Emergency fund
5:11 - Short term savings
6:19 - Taxes
7:18 - Income gaps
9:08 - Peace of mind
11:17 - Stock market crash
15:39 - Episode recap
16:15 - Financial Freedom

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ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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[Greggsberdard]

I believe investors should prioritize putting their cash to work instead of letting it sit in banks. This quarter, we'll likely see greater market diversification. I plan to invest approximately $350K of my retirement savings in stocks for the coming year, with the aim of generating significant returns and potentially millions.

[educatedwanderer]

I'm 55, and not retired yet. So far, I have a 6 month emergency fund in a high yield savings, one paycheck ahead in checking, plus our current budget checking. I have sinking funds for 6 common recurring expenses including taxes, insurance, car repair / replace, etc... I have a another 6 months invested in a CD ladder. I have 6 years worth of expenses invested in index funds in a taxable brokerage. Another 20 plus years worth of expenses are in Roth and Traditional IRA's. I have a small pension and SS which I plan on taking at age 67 or 70.

[davidrogers]

Rob has a video on his thoughts about the bucket strategy. I encourage anyone wanting more analysis on this to go find it. He just touched on this towards the end of this video.

[thomasbruner]

Given the actuary tables, being in my 70s, everything is now in CDs and money mkt. funds. It just makes sense at this point.

[PaulaHannan]

I think you have to do the math. I am early in my retirement, and I am using a cash buffer to mitigate sequence of returns risk. IOW, holding cash to buffer a stock crash. I run my portfolio through portfolio analyzer with the cash as cash and with the cash distributed according to my asset allocation and I am losing .2 percentage point on the sample portfolio. (my Annualized Return (CAGR) for the with cash portfolio is 5.96 and my CAGR is 6.2 for the distributed portfolio). I am totally fine with this cost for my peace of mind.

[pensacola]

I am retired and hold a lot of cash. At 5% plus, I am happy to do so.

[kenm]

One additional place I keep cash is in the safe, the goal is to keep about 4-5k in a mix of bills. The reasoning is the bank has a 1k ATM withdrawal limit and I do not have a local bank. This cash has come into play a few times when a deal pops up on the local 4-sale boards. And most recently when having the house window trim repainted. Cash is still king when bartering over items for sale and in dealing with some small independent contractors.

[BSimons-ug]

Great advice Rob, especially about not keeping a large hoard of cash to weather a market downturn. It makes perfect sense to just rebalance at least yearly when you’re retired just like you did while working. Your videos have been a TREMENDOUS help and I am sincerely thankful for your common sense insights.

[dh]

Regarding Bonds going down with stocks only once in a 100 years....
In 2008 and 2009, Bond returns were mixed and down a little at the same time as stocks. Not as much as 2022, but still, it happened less than 20 years ago...

It feels like "once in a blue moon" events are happening more frequently as of late...

That all being said, I agree that timing never works and the best thing you can do is set up your portfolio using the metrics you described and hang on tight. Its gonna be what it is...

[dancurran]

Thanks for the video. I am retired with a 55/45 split. Your perspective on rebalancing vs. socking away cash for down markets is different from other advice that I have heard. I think I will stick with 3-4 years of cash for living expenses, Roth conversion taxes, and home projects.

[BiggMo]

I’m in a volatile industry that has long periods of lows. I keep the equivalent of a years salary in cash. My credit union is paying 5.25% yield

[oceansunsetak]

I've always kept 1 to 5 years of living expenses in cash $80k in 1990. 500k in 2024. It was a mistake when interest rates tanked after 2008. Now that I'm old, I'm getting 5% . It makes more sense. Some people do not have enough cash to last year

[rightwingprofessor]

Excellent video Bob, and I am on board with your recommendations. The only other thing I have is $5K-$10K in cash, in my Gun Safe. I bank with Capital One, and they have no brick & mortar in my area, so I keep cash handy, in case I need to deposit it in our local bank (where I maintain $500-$1, 000 balance) to get a Bank Check or something similar. Some purchases I make (like my local Gun Store and my dentist) give cash discounts for not using credit cards.

[todddunn]

How much you hold in cash changes as you age. We currently are looking at about 15 years to plan for (that takes us into our mid 90s). We no longer need much or any return since we do not have children to leave anything to. So we are about 99% cash with only about 1% in dividend stocks. As far as that stock goes, it is so little money that we could have it go to zero with no significant impact. The result is that we can ignore the market.

[dforrest]

I think a lot of this depends on how much money you have. For example, having $80k in cash may seem like a horrible decision, but if that’s only 3% of your portfolio and it gives you the peace of mind to invest more aggressively with the rest of your money, that’s very different than someone with the same amount of cash but it’s 40% of their portfolio.

[paulhorvat]

1st class content as usual - thanks for sharing!

[mapmanlxii]

I work in the oil and gas industry which is very cyclical many folks who have been up and down with price crashes have 4 to 5 years living expenses in cash CDs or MYGAs…just in case 🤞

[michaelschiemer]

Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.

[fstlniw]

Cash and cash equivalents are not “investments” even if they earn interest. The interest on cash is largely just to keep up with inflation. No real (inflation-adjusted) growth.

Love your show!

[mikeflair]

To each their own. Even in retirement, my planning model is 97% USA ETF Stock and 3% cash. I manage (take advantage?) volatility by a 'sell one year of expense at each 10% gain' in bull markets, hopefully that is enough to cover through bear markets. If it is not, I 'sell one month of expense at current market price' to mitigate the asset damage. It becomes a game of managing forward time through the bull / bear market cycle.