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  • Writer's pictureW. Scott Hurt, CFP®, CPA

How Much Cash Should Retirees Have On Hand?

Updated: Jun 3

How much cash should a retiree have on hand?

As a retiree, one of the most crucial aspects of financial planning is ensuring you have enough cash on hand to cover your expenses and emergencies.

While having a well-diversified investment portfolio is essential, it's equally important to maintain an adequate cash reserve.

You just never know what life will throw your way. As a result, you'll want to make sure that you manage your cash prudently.

This begs the question, how much cash should retirees have on hand?

The broad answer can range from six months to two years or more. But, the right answer for you depends on your monthly retirement expenses, sources of income, and what level of cash allows you to sleep at night.

Here's what you need to know.

Why Having a Substantial Cash Reserve is Crucial in Retirement

Four reasons for having a cash reserve in retirement

Having an adequate cash reserve is crucial for several reasons:

  • Emergency fund: Unexpected expenses can arise at any time, such as home repairs, car maintenance, or medical bills. These costs can be more frequent and substantial during retirement. Having a larger cash reserve ensures you can cover these expenses without having to dip into your investments or take on debt.

  • Market fluctuations: The stock market can be volatile, and during a downturn, you may not want to sell your investments at a loss to cover your expenses. A larger cash reserve allows you to ride out market fluctuations for a longer period without jeopardizing your long-term investment strategy. This is especially important in retirement when you have less time to recover from market losses.

  • Liquidity: Cash is the most liquid asset, meaning it can be easily accessed and used for any purpose. In contrast, investments such as stocks, bonds, or real estate may take time to sell and may not always be sold at a favorable price. Having a larger portion of your assets in cash ensures you have easy access to funds when needed.

  • Retirement lifestyle: In retirement, you may have more flexibility to travel, pursue hobbies, or enjoy other leisure activities. Having a larger cash reserve allows you to comfortably engage in these activities without worrying about the short-term performance of your investments.

How Much Cash Reserve Should Retirees Have On Hand?

How much cash reserve should retirees have on hand. Depends on different factors.

Let's explore this question through the examples of two hypothetical clients.

Example 1: Sarah, 65, Single

Sarah is a 65-year-old single retiree with a $1.2 million investment portfolio. She has no pension and relies primarily on her investments and Social Security for her income. Sarah's monthly expenses are around $5,000, including her mortgage payment, utilities, groceries, and leisure activities.

For Sarah, a reasonable cash reserve would be to have 1.5 to 2 years of living expenses in cash. This would amount to $90,000 to $120,000.

This cash reserve would provide Sarah with a substantial cushion to cover her expenses in case of a prolonged market downturn, unexpected expenses, or any unforeseen circumstances that may arise during retirement.

Example 2: John and Mary, 70, Married

John and Mary are a 70-year-old married couple with a $2 million investment portfolio. They both receive modest pensions and Social Security benefits, which cover most of their monthly expenses. Their total monthly expenses are around $7,000, including their mortgage, utilities, groceries, travel, and healthcare costs.

For John and Mary, having 1 year of expenses in cash might be a good game plan. This would amount to $84,000. They have more stable sources of income from their pensions and Social Security, and thus don't relay as much on their portfolio for living expenses. However, having a 1 year cash reserve provides them with added financial security and peace of mind during their retirement years. It also allows them flexibility from a tax perspective in the even they need to purchase a vehicle on go add a patio to their home.

Where to Keep Your Cash Reserve

Where to keep your cash reserve

When it comes to storing your cash reserve, you'll want to choose accounts that are safe, liquid, and easily accessible. Some options include:

  • High-yield savings accounts: These accounts offer higher interest rates than traditional savings accounts, allowing your money to grow while still being readily available. For example, we provide access to Flourish Cash for our clients to help them get a competitive yield on their cash.

  • Money market accounts: Similar to savings accounts, money market accounts offer competitive interest rates and easy access to your funds.

  • Short-term certificates of deposit (CDs): CDs typically offer higher interest rates than savings accounts but require you to lock up your money for a set period. Short-term CDs (e.g., 3-12 months) can be a good option for a portion of your cash reserve.

It's important to note that these accounts are FDIC-insured (or NCUA-insured for credit unions) up to $250,000 per depositor per institution [1], ensuring the safety of your cash reserve.

There are options available to increase FDIC insurance beyond the standard $250,000 limit. Talk to a financial advisor at Covenant Wealth Advisors in Richmond, Williamsburg, or Reston VA to learn more.

Determining Your Optimal Cash Reserve

The amount of cash you should have on hand depends on several factors, including your monthly expenses, sources of income, risk tolerance, and overall financial situation.

A financial advisor, such as those at our firm, Covenant Wealth Advisors, can help you determine the appropriate cash reserve for your unique circumstances.

At Covenant Wealth Advisors, we offer free retirement assessments to help you evaluate your financial readiness for retirement. Our experienced advisors can analyze your income, expenses, investments, and other factors to determine if you have an adequate cash reserve and make recommendations based on your specific needs.


Having an appropriate cash reserve is a critical component of a solid retirement plan.

It provides a buffer against unexpected expenses, market volatility, and ensures you have readily accessible funds when needed. For most retirees, having 1 to 2 years of expenses in cash is a prudent guideline, offering greater financial security and flexibility during retirement.

If you're unsure if you have the right amount of cash reserves or want a comprehensive review of your retirement plan, consider reaching out to Covenant Wealth Advisors for a free consultation.

Our knowledgeable advisors are here to help you navigate the complexities of retirement planning and ensure you have the resources you need to enjoy a comfortable and secure retirement.


Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.


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