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During your working years, it’s important to have cash savings for unplanned expenses. These could run the gamut from home repairs to medical emergencies to a period of unemployment.
But what if you’re retired and are therefore relying on your savings and investments to fund your lifestyle? In that case, the guidelines for keeping cash on hand change quite a bit.
Here’s what you need to know before you retire.
Why do retirees need cash?
In the context of retirement, cash can mean funds in a checking or savings account, or certificates of deposit (CDs) —essentially, money that’s shielded from market fluctuations.
Here are some reasons you’ll need cash as a retiree.
1. You’re living off of savings now
While Social Security offers income, the average benefit of $1,918 per month may not cover all expenses. Once that’s spent, cash allows you to handle surprises like car repairs or home maintenance without selling stocks or draining your savings.
If you want to grow your savings more efficiently, you can so just that with a high-yield cash account like the one offered by Wealthfront.
Wealthfront is a financial services platform offering a range of products, from automated investing to cash accounts. The Wealthfront Cash Account offers 5.00% APY — that’s 10x the national average.
With full access to your money at all times, Wealthfront also offers fast (and free) transfers to internal Wealthfront investing accounts, as well as external accounts
To get started, you can fund your cash account with as little as $1 and start stacking up your savings.
To compare all the best savings options, you can check out Moneywise’s Best High Yield Savings Accounts of 2024 to find some savvy savings options that earn you more than the national average of 0.4% APY.
Like the sound of high-yield account rates?
Then you might also be interested in exploring certificates of deposit (CDs). A CD is a low-risk savings option that can yield interest comparable to, or even higher than, the top savings accounts. The trade-off for this higher rate is that your money stays locked in the account for a set period.
For example, Discover offers CDs with competitive rates and terms ranging from three months to 10 years.
Currently, Discover’s 12-month CD offers a competitive 4.10% APY — significantly above the rate offered many large U.S. banks provide on similar accounts. Plus, Discover CDs have no fees, and there’s no minimum deposit required to get started.
2. You will face unplanned expenses
For workers, an emergency fund doesn’t just safeguard against a job loss. It can also be the ticket to covering surprise expenses without going into debt. And being retired doesn’t make you immune from surprises.
Many retirees face home repairs as their properties age alongside them. Your monthly Social Security check may not be enough to replace a water heater, or cover hospital expenses if you encounter a medical emergency.
If you’re concerned that Medicare might not cover your expenses, there are other insurance options you can consider.
If you’re looking for a policy that will last a lifetime, with a locked-in premium and a cash value that can be tapped into while the policyholder is still alive, a whole life insurance policy from Mutual of Omaha is the right fit for you.
With coverage amounts ranging from $2,000 to $25,000 (in WA, $5,000 to $25,000), you can rest assured that you and your family will always be ready to cover those unexpected expenses.
It only takes five minutes to fill out an online application with your personal and beneficiary information. Once you register, not only will you be guaranteed coverage, but your benefits will never be reduced due to age or health. Plus, no medical exams or health questionnaires are needed to join.
If your health is excellent, you may be able to cover your health care expenses with relative ease. If you have multiple health issues, it’s a good idea to stockpile extra cash in case your bills start to mount at a time when it’s not advantageous to tap your investments.
3. You want to protect yourself from investment losses
You may have the majority of your retirement savings in a portfolio of investments that include stocks, bonds, and mutual funds. The upside of holding these investments in retirement is that they can continue to generate growth, giving you access to more money. The downside is that their value can change based on market conditions.
If you have a riskier portfolio more concentrated in stocks, then you may want more cash on hand to balance that out. If your portfolio is largely bonds, you might get away with less cash, since bonds are less volatile than stocks and can provide predictable interest payments that you can use as income.
If you’re optimizing your investments for stability, gold is typically more stable than stocks during economic downturns and recessions. In fact, gold has increased in value sevenfold over the last 100 years.
These things are especially important for retirement planning. For instance, by opening a gold IRA with the help of American Hartford Gold, you can invest directly in physical precious metals rather than stocks and bonds.
American Hartford Gold is a leading dealer of precious metals, and offers IRAs and direct purchases of precious metals and coins.
You’ll get expert guidance to help you navigate the complexities of setting up and managing your IRA, secure storage with IRS-approved depositories, and flexible investment plans tailored to your goals — plus, transparent pricing with no hidden fees.
Sign up now for your free information guide to find out if a gold IRA is the right move for your retirement goals.
How much cash should you aim for in retirement?
Just as there are different opinions when it comes to building an emergency fund for your working years, the guidance varies over how much cash you might need in retirement.
Remember that it’s never a bad idea to speak with a qualified financial advisor.
Based on your expenses, needs, and investment portfolio, services like WiserAdvisor may help you find a financial professional who can strike the ideal balance in your portfolio so you have enough cash on hand without going overboard.
WiserAdvisor is a free service that helps you find a financial advisor who can co-create your financial goals. All it takes is a few minutes to answer some questions about yourself, and WiserAdvisor will provide you with a personalized match of two to three advisors from their database of thousands.
From there, you can book a free, no-obligation consultation to confirm if your match is right for you.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
