How Much Should Retirees Have in their Checking Account?

Once you leave the workforce, Social Security benefits are going to cover about 40% of your pre-retirement income. You'll have to come up with the remainder of the money you need for a comfortable retirement. 

Typically, you'll be taking money out of your 401(k) or other brokerage account to help fund your retirement. But you obviously don't want to sell stock and wait for a withdrawal from your brokerage account every time you have an expense. As a result, you'll need to keep some money in your checking account so you can pay bills and cover everyday living expenses. 

Just how much money should you have though? Here's how to figure it out. 

This is how much you should have in checking

Your checking account is the place where you should keep your day-to-day funds. This is the account you'll use to pay bills like rent or a mortgage and utilities. You'll also be paying for expenses like doctor copays and grocery costs out of this account.

Typically, you'll have your Social Security check deposited into checking as a retiree, as well as money from a pension that comes in monthly, if you're receiving one. And, when you take a distribution from a retirement account or get money from an annuity, you'll usually put it into checking as well. 

Since you'll likely have money coming into and out of this account each month, you don't necessarily want to keep a ton of extra cash in it. After all, these funds are meant to be spent and you'll access them regularly. You don't want to keep a ton of money in your checking account that isn't meant to cover your routine expenses.

Typically, it's a good idea to have enough in your account to cover the upcoming month or two of expenses, along with a cushion to avoid getting hit with overdraft fees. This cushion could be around an extra $500 to $1,000, so even if you forget about a check you wrote or a payment that's being withdrawn, you won't go into negative territory in your account.

Don't forget to keep some money in savings as well

While you don't want to keep a lot of money in your checking account where there is a risk the funds could be spent, you do want to have a pretty substantial amount of money outside of brokerage or investment accounts. This is where a savings account comes in. 

In fact, retirees should aim to have about two to five years of living expenses in a savings account, so they don't have to take withdrawals from the stock market during a downturn. This money can help see you through until the market recovers. 

A savings account is a better place for this money than a checking account, because you won't be tempted to just spend the money if it's earmarked for living expenses in case of a bad market year. Plus, you'll earn a higher interest rate in a savings account than in a checking account in most situations. 

By carefully considering how much to have in reserves and choosing the right account for it, you can ensure you don't end up with too much -- or too little -- in your checking account when you need the cash after you've retired and your paychecks have stopped coming.