How Much Cash Should Retirees Have?
There is a lot to think about when retiring and figuring out one's financial plan. Part of this plan should include cash, according to an article published here. Additionally, two factors are particularly contributing to the need for cash: the current high rate of inflation and last year's strong investment returns. While there is no one answer to this question, financial advisors do have recommendations on how much cash retirees should have on hand.
Most financial advisors typically recommend that folks in their working years have 3 to 6 months living expenses in cash. However, many advisors are saying they recommend this number be even higher once folks hit retirement. The reason: to cover an economic downturn. Having the extra cash on hand can help prevent a retiree from dipping into their portfolio or selling assets to cover living expenses. According to the article, "'The worst thing you want to do is sell your wonderful investments while they are at bargain-basement prices,' said Lineberger.
Bradbury suggests retirees keep 12 months to 24 months of living expenses in cash. However, the amount may depend on monthly costs and other sources of income.
For example, if their monthly expenses are $4,000, they receive $2,000 from a pension and $1,000 from Social Security, they may consider keeping $12,000 to $24,000 in cash."
The article points out that this number could also be even higher depending on the retiree's portfolio's percentage of stocks and bonds. Depending on one's portfolio make-up, advisors may recommend keeping 24 to 36 months in cash. It is also important to note that some financial advisors recommend retirees keep less cash on hand, depending on their individual financial situation. If there's any hard and fast rule about cash and retirement, it is the importance of speaking with a professional about what is best for your particular situation.