How Much Cash Savings Do I Need for Retirement?
KEY POINTS
- Retirees should generally have enough cash on hand to cover one to two years of living costs.
- Having cash could spare you from having to liquidate investments at a time when they're down.
- It's okay to put some of your cash savings into CDs, but a CD ladder is probably your best bet.
Retirement can be a bit of a scary thing. That's because you're going from earning a regular paycheck to suddenly having to live off of savings.
Now once you enter retirement, a lot of your income may come from withdrawals from an IRA or 401(k) plan. And chances are, those accounts will be loaded with different investments, as opposed to plain old cash.
That's a good thing, because you want your portfolio to keep generating returns during retirement. That opens the door to more income for you. And historically, assets like stocks have generated higher returns than savings accounts.
But it's also important to stockpile plenty of cash in the bank as a retiree. Doing so could prevent you from having to take serious losses in your investment account.
Our Picks for the Best High-Yield Savings Accounts of 2024
SoFi Checking and Savings
APY
up to 4.60%
Rate info
You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
Min. to earn
$0
|
APY
up to 4.60%
Rate info
You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
|
Min. to earn
$0
|
Synchrony Bank High Yield Savings
APY
4.75%
Rate info
Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC
Min. to earn
$0
|
APY
4.75%
Rate info
Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC
|
Min. to earn
$0
|
Capital One 360 Performance Savings
APY
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
|
APY
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
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Min. to earn
$0
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Save enough for one to two years of expenses
During your working years, you're generally told to build an emergency fund with enough cash to cover three to six months of expenses. During retirement, your cash savings should be able to cover one to two years of expenses.
How come? As a retiree, in the absence of regular income from a job, you're living off of savings, whether it's cash in the bank or your retirement account. But the investments in your retirement account could fluctuate in value.
One thing you don't want to do is liquidate investments in your IRA or 401(k) when they're down because you need income to pay your bills. If you do that, you'll lock in permanent losses in your account. If you leave those investments alone when they're down, they might recover their value in full, putting you in a better financial position.
If you have plenty of cash on hand, you'll likely be able to ride out a period when your investments are down, like a broad stock market decline spurred by a recession. But it can take time for investments to recover lost value, which is why you need so much cash on hand.
Should you put your cash into a CD during retirement?
CD rates tend to be higher than the rates you'll find in savings accounts. For this reason, it could be a good idea to put some (though not all) of your cash savings into CDs as a retiree. But what you'll want to do is set up a CD ladder so that you're not tying all of your money up at once, but rather, setting your CDs to mature at different intervals.
Also, at a minimum, you should really make sure to have at least six months' worth of cash outside of a CD and in a regular savings account. That way, you can pay your bills for half a year without running into any issues.
Fidelity suggests aiming for enough retirement savings to replace your ending salary 10 times over. The bulk of your retirement nest egg can come in the form of different investments. But make sure to keep some of that money in cash so you have the flexibility to ride out market downturns without hurting yourself financially in the long run.
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Our Research Expert
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