Someone recently asked online how much cash or other ‘safe/liquid’ investments did people carry into early retirement as a buffer against a market downturn.
It’s an important decision to make heading into retirement and it was the final financial preparation we put into place ourselves. About 3 years before I left MegaCorp, we started accumulating a pile of cash equal to 3 years of spending. It formed our ‘short term bucket’ for managing portfolio risk …
Related: Bucketing Strategies
Looking at the responses of about 40+ people online (and tallying them) made me surprised at how differently other early retirees had approached the same decision:
YEARS OF CASH/CDs AT RETIREMENT
– 21% – 1 year or less
– 18% – 2 years
– 24% – 3 years
– 5% – 4 years
– 32% – 5+ years
As you can see, we fell in the middle of the range. A surprising share (21%) went into retirement with less than a year’s spending in cash, while almost a third (32%) had more than 5 years spending protected. That’s quite a range. One person said they had 30 years spending in cash!
I’ve read that the average market downturn typically takes 30 months to recover. For us, having the security we need against a big market downturn is important, so our 3 year buffer covers us for that. In our situation it is more important to PROTECT what we have, rather than GROW it.
How many years of ‘safe’ cash / cds are you comfortable with?
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