Amid problems like high interest rates promoting withdrawal of money deposited in savings accounts as well as financial constraints, many people are expanding their cash holdings. In fact, money control used to be the asset class where retail investors had the greater stake, according to a global study via eToro that parked at the end of 2023.
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However, the study showed that younger investors were more likely to increase their cash stakes than those aged 55+. But some retirees may be underestimating the amount of money available in stocks for 2024 and beyond.
Stu Sneen, founder of Broken Making Plans and a fiscal planner, believes that retirees need to pay more attention to how much of a situation is in addition to the math than to someone who is dependent on what happens at the tide times. Money has to be deposited in quantity.
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how much money to keep with you
“I personally don’t think world events should dictate liquidity levels. Essentially it becomes a game of predictions as to when to increase or decrease cash levels. No one can reliably predict the future, be it markets, economics, politics, or inflation. Adjusting cash levels based on world events will only increase stress and anxiety levels, which could be harmful,” he said.
In turn, according to Sneen, it’s important to be confident in your own situation – especially your expenses – and accumulate a money buffer accordingly.
“A common approach is to keep 2-3 years of expenses in cash,” he said. “A simple calculation can be done to determine the inflation-adjusted amount over that period.”
“This could be a good starting point for initial cash allocation. If a retiree is concerned about unexpected expenses that may arise soon, he or she may want to consider adding an additional buffer of cash. The whole point is to reduce the possibility of not having enough cash to cover their expenses,” he said.
reduce anxiety
This amount of money is much more than a standard emergency savings – even making conservative plans typically develops an emergency savings equal to about 9-365 days’ worth of bills, a more familiar method of the month. Bills have a utility of 3-6 months.
“In short, anxiety management requires a retiree to spend 2-3 years’ worth of cash,” Sneen said. “The cash buffer prevents the customer from making a big mistake – panicking and selling, leaving little chance of recovery.”
In turn, having a heavy money cushion may prevent you from receiving lower promotions.
“Let’s say the typical equity/fixed breakdown for a retiree is 60%/40%, or maybe even 50%/50%. This is a relatively conservative allocation,” Sneen said. “If the retiree is making systematic withdrawals from the portfolio every year, and the portfolio falls 20-25%, they will likely panic. This happened in 2008.”
“However, if the retiree knows they have 2-3 years of expenses in cash, the financial planner may consider this a reason to hold off and let the equity/fixed portfolio recover over time. Retirees can also ‘put off’ withdrawals for a few years – and rely on cash – so they are not drawing withdrawals from declining portfolio value. This gives the investments time to recover, and then the retiree can turn the spigot back on,” he explained.
In other words, as retirees increasingly rely on their escape portfolio for their source of income, they will need to be extra cautious about how they handle market downturns.
“A non-retired person doesn’t have this worry because they still have income from their job. They don’t have to worry as much as retirees do about where the money is going to come from to pay the bills,” Sneen said. “Once income from work stops, it’s about managing withdrawals from the portfolio wisely – except for Social Security or pension income – to provide the highest chance of not outliving the nest egg “
final thoughts
Lyft Sneen does not believe that global events will put pressure on money issues, with interest rates moving much higher, just as tidal rates push more of the community towards money.
“Another consideration for the current times is that savings and money market rates are significantly higher now than in the past 20+ years. Higher rates on these short-term instruments are attractive for cash holders,” he said.
And if you undoubtedly want to earn a modest balance return for your money, possibly leaving some liquidity, you might consider putting the money in a certificate of deposit (CD).
“Some retirees may also consider taking a portion of their short-term needs and purchasing laddered CDs, which come with a one- to three-year term. This can provide an additional level of confidence and security that funds will be available when needed,” Sneen said.
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This newsletter originally appeared on GOBankingRates.com: I’m a financial planner: Here’s how much money retirees should have in 2024
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