Knowing this figure can help you stretch your savings as far as possible.
You've spent your career investing for your future and now's the time to put that money to good use. But you don't want to withdraw too much at once. For one, it would send your tax bill for the year skyrocketing. And for another, it would also shortchange you because the savings you don't need right now wouldn't have a chance to grow further.
To help your money last longer, it's best to spread your withdrawals out over time. Here's a closer look at how much cash you want to keep on hand.
Image source: Getty Images.
How much cash should you keep in retirement?
Generally, you want to keep a year or two's worth of expenses in cash when you're retired. Your investments will probably fluctuate over time. If you left all your savings invested until you needed the money, you'd run the risk of withdrawing your funds when your portfolio was down.
With cash on hand, you have a little more flexibility. You could hold off a year or longer and hopefully your portfolio will have rebounded by then. Having a cash reserve also makes withdrawals much faster and easier. There's no need to sell off your assets. You just log on to the computer or head over to your local bank and take the money out.
In most situations, one to two year's worth of living expenses will be enough cash. But you may want more cash on hand in some situations. If you have a large planned expense coming up, like a major surgery or replacing the roof on your home, you may want to withdraw extra cash in advance so you're prepared when you get the bills.
But otherwise, resist the temptation to stockpile too much cash. Your savings probably won't earn nearly as much in a bank as when it's invested, so you'd only be costing yourself the potential for further gains.
Where should you keep your cash in retirement?
You can keep your retirement cash in a bank or credit union, just like you did when you were working. But choosing a savings account carefully is key to helping your money go the furthest. Ideally, you want a high-yield savings account with a competitive annual percentage yield (APY) and no maintenance fees.
Most of the time, this means working with an online bank. These banks don't have branches, which reduces their overhead costs. They pass those savings along to you through fewer fees and higher rates. But their lack of brick-and-mortar locations can make it difficult to access actual cash when you need it.
You may want to have at least a checking account at a traditional bank or credit union in your area. Then, when you know you have an expense coming up, you can transfer some cash from your savings account here and then make a withdrawal in person.
No matter which institution you choose, the process to open a bank account is pretty much the same. You'll have to fill out an application form and provide identification to the bank, like a driver's license or passport. You'll also need your Social Security number or Individual Taxpayer Identification Number (ITIN) and a U.S. mailing address. Many banks require some sort of minimum deposit as well. Check with the institution to find out what its requirements are.
Look over the account's fee schedule before you open a savings account to house your hard-earned retirement funds. And reach out to the bank if you have any questions about its charges or services. It's possible to move your money later if it turns out you don't like your current bank. But switching can be a hassle, so it's best to make your decision carefully the first time.
FAQs
Ideally, we want three years' worth of retirement income in cash or cash equivalent (cash value, annuity, money market etc.),” said Bryan Schod, CFP®, CDFA® with Luttner Financial Group, a private wealth management firm based out of Pittsburgh.
What is a good amount of cash to retire with? ›
By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.
How long will $400,000 last in retirement? ›
With $400,000, if you buy an annuity at age 62 and then retire, you might expect monthly payments of around $2,400 for the rest of your life. This comes to about $28,800 per year in guaranteed income according to one estimate.
What is the 90 10 rule Warren Buffett 1 money savings tip for retirees? ›
Follow the 90/10 Strategy.
Buffett wrote to his shareholders in 2013: “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard's).
How much cash does the average 70 year old have? ›
Key takeaways. The average amount of retirement savings for 70-year-olds is $113,900, according to our 2023 Planning & Progress survey. The ideal retirement plan involves generating multiple streams of income to provide both stability and tax flexibility in retirement.
What is a good amount of cash to keep on hand? ›
While you're working, we recommend you set aside at least $1,000 for emergencies to start and then build up to an amount that can cover three to six months of expenses. When you've retired, consider a cash reserve that might help cover one to two years of spending needs.
What net worth is considered rich in retirement? ›
Wealthy: To be considered well off, a person must be in the 90th percentile, possessing a household net worth of $1.9 million. This level of wealth affords trips, charity donations and college funds for children.
How much money do most people retire with? ›
The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances.
How long will 700k last in retirement? ›
How long will $700k last in retirement? $700k can last you for at least 25 years in retirement if your annual spending remains around $40,000, following the 4% rule. However, it will depend on how old you are when you retire and how much you plan to spend each month as a retiree.
What is a good monthly retirement income? ›
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
Can I retire at 62 with 300k in my 401k? ›
If you earned around $50,000 per year before retirement, the odds are good that a $300,000 retirement account and Social Security benefits will allow you to continue enjoying your same lifestyle. By age 55 the median American household has about $120,000 saved for retirement, and about $212,500 in net worth.
What is the golden rule of retirement savings? ›
Retirement may seem like a distant dream, but it's never too early or too late to start planning. The “golden rule” suggests saving at least 15% of your pre-tax income, but with each individual's financial situation being unique, how can you be sure you're on the right track?
What is the rule #1 of money? ›
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”
What is the 80 20 retirement rule? ›
Better investment choices: According to the Pareto Investment Principle, 80% of investment returns can be expected from 20% of investments. Concentrating your investment decisions on the 20% of investments that are likely to generate the biggest returns may help you grow your savings faster.
How much should a retiree hold in cash? ›
In retirement, you should hold 1 to 3 years' worth of essential expenses. It's a sizeable amount, but once you're retired and typically living on a lower income, it's harder to top up your pot if you need to access it. We've used ONS data to show the average household expenditure for people aged 60 and over.
How much money should a retiree have in savings? ›
Key takeaways
Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement. If you're behind, don't fret.
How much money does the average 75 year old have in savings? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 45-54 | $313,220. |
| 55-64 | $537,560. |
| 65-74 | $609,230. |
| 75 and older | $462,4100. |
2 more rowsMay 7, 2024
During your working years, you should aim to have enough cash in an emergency fund to cover three months' worth of living costs at a minimum. For retirement, you'll really want more like one to two years' worth.
