Here’s how much cash retirees need to withstand a downturn in the stock market

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Between high inflation and rising interest ratesthere are fears of a prolonged decline in the stock marketand some retirees could be vulnerable without a cash cushion, financial experts say.

However, there is also the risk of crumbling purchasing power with annual inflation up 8.5% in Marchthe United States Department of Labor reported.

Meanwhile, average savings account yields are still below 1% as of May 4, according to, making cash less attractive.

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The right amount of money depends on each retiree’s situation, said certified financial planner Brad Lineberger, president of Seaside Wealth Management in Carlsbad, California.

“There is no silver bullet or magical answer,” he said.

Consultants may suggest keeping three months to six months of living expenses in cash during a client’s working years.

However, the number could increase as you transition into retirement, said Marisa Bradbury, CFP and wealth advisor at Sigma Investment Counselors in Lake Mary, Florida.

The worst thing you want to do is sell your wonderful investments while they are at rock bottom prices.

Brad Lineberger

President of Seaside Wealth Management

Many advisors recommend retirees to keep a larger cash reserve to cover an economic downturn. A retiree with insufficient liquidity may need to tap into their wallet and sell assets to cover living expenses.

“The worst thing you want to do is sell your wonderful investments while they are at rock bottom prices,” Lineberger said.

Bradbury suggests that 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 get $ 2,000 from a pension and $ 1,000 from Social Security, they might consider keeping $ 12,000 to $ 24,000 in cash.

asset allocations

Another factor is the percentage of stocks and bonds in a portfolio.

Research shows how long it may take for some allocations to recover after stock market corrections, said Larry Heller, CFP based in Melville, New York and president of Heller Wealth Management.

For example, a portfolio with 50% shares and 50% bonds could take 39 months to recover in the worst-case scenario, according to research by FinaMetrica. That’s why Heller might suggest keeping 24 months to 36 months in cash.

However, some retirees refuse to hold large amounts of money in the current low interest rate environment.

“It’s a lot easier to leave that cash in the bank when it makes 3%, or 4% or 5%,” Bradbury said. However, advisors can remind their clients that growth is not the purpose of short-term reserves.

“Look at money as the security blanket that allows you to invest in the most incredible machine for creating wealth, which is the stock of wonderful companies,” Lineberger said.

Reduce cash

While some advisors suggest that retirees hold 12 months to 36 months of cash, others may recommend less liquidity.

“The way we look at liquidity is that it is a drag on long-term performance,” said Rob Greenman, CFP and chief growth officer at Vista Capital Partners in Portland, Oregon.

“Absent from having tomorrow’s paper, there’s really no reason to sit on cash and wait for a better opportunity,” he said.

Retirees who need quick access to funds can consider other sources, such as a home equity line of credit, a health savings account, a busy business line of credit, and more, Greenman said.

Of course, the ideal cash amount depends on each retiree’s unique situation. Those struggling to decide can benefit from weighing the consequences of more or less cash with a financial advisor.

“Retirement isn’t a stencil and it’s not just a one-stop shop,” Lineberger said. “It’s very personalized and our emotions can really influence our decision making.”