This week, I’m talking about life changing money habits.
Today, I’m talking about beefing up your emergency savings.
As you approach retirement, you’ll want to consider maintaining even more cash for emergencies because you’re no longer working. When you’re retired, you can’t just work overtime for a couple of months or easily pick up money doing a side hustle if you have a large and unexpected expense to pay for.
So paying for your emergency with a high interest credit card or having to liquidate your retirement portfolio can be devastating and can completely derail your retirement plans. Which means you’ll need lots of cash on hand in retirement. How much?
At a bare minimum, you’ll want about 6 months worth of monthly expenses on hand for emergencies.
The other reason why you want to keep a lot of cash on hand in retirement is that it can save you in times of market downturns, recession, and crisis. If your portfolio drops 10 or 20%, you make that crater in your retirement portfolio so much worse by also continuing your withdrawals.
Having cash on hand will allow you to stop some of the bleeding and suspend your portfolio withdrawals in a market downturn. When you can do this, especially if it happens in the early years of retirement, you give yourself a better shot of not running out of money in retirement and preserving more of what you have in the downturn.
To help insulate you in a stock market downturn, I recommend keeping another 12 months worth of your portfolio withdrawals on hand. Why? Well the average bear market lasts 14 months. Some are shorter, and some of the deeper ones are even longer. If you can stop your portfolio withdrawals for a year while the stock market is reeling and we’re in the midst of a recession, you can sleep better at night and not make the problem worse. That’s why I think 12 months of suspended withdrawals from your investment portfolio should be enough, even if the downturn lasts a little longer than that.
That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.
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