Cash feels safe.
After decades of saving and investing, retirement brings a natural shift. Many people find themselves wanting more stability, fewer surprises, less volatility. And cash – sitting quietly in a bank or money market account – delivers that feeling immediately.
No market swings.
No headlines to react to.
No uncertainty.
But while cash brings comfort, it can also come with a hidden cost.
The question isn’t whether you should hold cash in retirement. You absolutely should.
The real question is: how much?
Why Cash Feels So Reassuring
In your working years, your paycheck acted as a buffer. If markets dropped, income kept coming. If an expense popped up, there was another paycheck around the corner.
In retirement, that buffer changes. Without employment income, people often want a larger safety net.
Holding one to three years of living expenses in cash is a common starting point. If annual spending is $80,000, that might mean keeping $80,000 to $240,000 readily accessible.
That cushion can be powerful. It allows you to pay bills without worrying about selling investments during a downturn. It helps you sleep at night.
And sleep matters.
When Comfort Turns into Excess
Where things become less clear is when cash balances quietly grow beyond what’s necessary.
It’s not unusual to meet retirees who are holding $500,000, $1 million, or more in cash because it “feels safer.” Especially after periods of market volatility.
But here’s the trade-off.
If inflation averages 3% per year, $500,000 sitting in low-yield cash loses roughly $15,000 of purchasing power in the first year alone. Over 10 years, that erosion compounds significantly.
Meanwhile, retirement may last 25 or 30 years.
Cash protects against short-term volatility. It does not protect against long-term inflation.
That distinction matters.
For many people, deciding how to structure income and cash flows – and how long your money needs to last – benefits from a broader retirement strategy.
The Opportunity Cost No One Talks About
For retirees with significant portfolios, the bigger risk often isn’t market swings. The bigger risk is falling too far behind inflation over decades.
If someone has $3 million invested and moves $1 million into cash earning modest returns, that decision may reduce overall portfolio growth in a meaningful way over time.
The goal in retirement isn’t aggressive growth. It’s sustainable support.
Many balanced retirement portfolios continue to include meaningful exposure to equities, even after 65, depending on income needs and comfort with risk.
Cash is a stabilizer.
It isn’t a growth engine.
And in a long retirement, growth still plays a role.
A More Balanced Way to Think About Cash
Rather than asking, “Is this safe?” it can be helpful to ask:
- How many years of expenses do I truly need in stable assets?
- What purpose does this cash serve?
- Is this amount based on a plan – or on anxiety?
For many retirees, one to three years of expenses in cash or conservative investments creates enough stability to avoid selling during downturns.
Beyond that, the conversation becomes more nuanced.
Because while cash feels calm, too much of it can quietly reduce flexibility later.
The Emotional Side of Holding Cash
It’s important to acknowledge something here.
Cash decisions are rarely purely mathematical.
They’re emotional.
After decades of building wealth, protecting it can feel more important than growing it. Especially if you’ve already reached a level where you feel “comfortable.”
There’s nothing wrong with that instinct.
But retirement isn’t just about protecting principal. It’s about preserving lifestyle – and lifestyle requires purchasing power.
The balance between safety and growth is rarely fixed. It evolves as health, spending, and markets change.
There Is No Universal Number
There isn’t one correct percentage of cash for everyone.
Someone relying heavily on portfolio withdrawals may structure cash differently than someone with a large pension and Social Security covering most expenses.
What matters most is alignment.
Cash should support your plan, not replace it.
A Few Questions to Consider
- How much cash are you currently holding – and why?
- Does that amount reflect a clear strategy, or simply a desire to feel safe?
- Would adjusting it slightly increase your confidence – or your long-term flexibility?
Retirement decisions are rarely black and white. But understanding the trade-offs can make them feel steadier.
And steadiness, more than anything, is what most retirees are looking for.
Let’s Talk About It:
Cash can feel like security, but sometimes it’s also a way of managing worry.
Have you increased your cash holdings since retiring – or as retirement approaches? Do you feel calmer seeing a larger number in your bank account, even if you know it may cost you growth over time? If you’re already retired, how many years of expenses do you keep in stable assets? And if you’re comfortable sharing – has that amount changed since you stopped working?
Retirement decisions are rarely purely mathematical. They’re personal.
I’d love to hear how you’re thinking about this balance between comfort and cost.