This is part of Across the Table, the series where I answer the questions clients actually ask me, the way I would if we were sitting across from one another. These five came straight from my inbox this month, and every one of them is really the same question underneath: is my money in the right place? How much cash to keep in retirement?
Deciding how much cash to keep in retirement, and what to do with the rest, is where most of that worry lives. So here are my answers.
1. Why are my accounts “low” on cash, and what is cash actually for?
Your accounts look low on cash because cash doesn’t earn what your investments earn, so I keep only as much of it as your plan needs. The way I think about it: you have one overall cash amount for your whole household, spread across all of your accounts, and the right size depends on whether you’re still working or already retired.
If you’re working, you need less. Your salary keeps arriving, so a market dip doesn’t touch your day-to-day life. If you’re retired, I like to keep one to two years of spending in cash. That is your grocery money, sitting safely to the side, so when the market does its normal thing, including its normal lows, you have time for it to recover without changing your daily life. Most market dips have recovered within 12 to 24 months. The 2008 financial crisis was exceptionally large and lasted longer, which is exactly why the reserve is measured in years rather than months. Markets have dips. I can’t control that, but I can plan for it so we both can sleep at night… assuming a pet or child doesn’t wake us up!
2. Should my portfolio be more aggressive?
The client who asked this was looking at one account that happened to be mostly bonds. Her overall household allocation was right where it should be. So my first answer was: don’t worry about what one account is doing. Look at the big picture of how all your accounts work together, and ask two questions.
- Is the overall risk in line with what you can handle?
- Does your retirement actually require more risk to work? Is it worth staying more conservative so you don’t have to ride out the wilder dips and swings when the market corrects?
So I typicallly ask across the table how comfortable would you feel waiting for the market to come back?
Then we look at some numbers. A traditional retirement portfolio is 60% stocks and 40% bonds. From 2000 through 2024, that mix averaged 7.23% a year, and its worst single calendar year was –24.05%.¹ Both numbers matter. I need you to be comfortable with the worst year, and I need to know what return your plan actually requires to succeed. More aggressive is only the right answer when both of those line up.
Time to recovery is the other way to see it. In the 2008 financial crisis, a 60/40 portfolio fell 33% at its worst and took about 38 months to get back to where it started. The S&P 500 fell 53% and took about 65 months.² The same pattern held in the 1973–74 bear market and the 2000 dot-com bust: the balanced portfolio recovered in a little over three years each time, while all-stock investors waited five and a half to seven and a half years. More than two extra years of waiting is a real cost, especially if you’re drawing income the whole time.
I can model how your specific portfolio would have behaved during the crises of the past, and what that would have meant for your monthly spending, so you can see exactly how much an event like that changes what you can spend each month in retirement. Past performance doesn’t predict what the next downturn will look like, but it does tell you what kind of patience each portfolio has asked of its owners before.
3. Can I hold onto cash while I deal with unexpected home repairs?
Absolutely. That is exactly what your cash is for in that moment, and I’m here for you.
What I’ll ask next comes from experience: my husband owns a construction company, and I know that most projects don’t get paid in a single big bill. There’s a down payment, progress payments along the way, and a final payment at the end. A big job can easily span several months. So the money is going to sit somewhere while your roof gets redone or the dry rot gets fixed. Most checking accounts pay little or nothing on it. A high-yield savings or taxable account holding a short-term Treasury fund can pay meaningfully more while you wait.
My job is to show you the options and what each one costs. It’s your money; my goal is for you to feel fully informed when you decide.
4. When can I access my 457(b)?
Once you’ve left the employer, you can take withdrawals at any age without the 10% early withdrawal penalty that hits IRAs and 401(k)s before 59½. You’ll owe ordinary income tax, but not the penalty.
What I’d ask is how the withdrawal fits your plan. If we’re doing Roth conversions, I’d rather delay 457(b) payments until those are done, because both add taxable income in the same year. If most of your assets are in taxable accounts and there’s room left in your tax bracket, pulling some that year might be exactly right. Same account, different plan, different answer.
5. I have excess cash. Can you help me invest it?
I’d love to!! It’s literally one of my favorite things; just ask my husband. However, even the most excited savers amongst us must first stop and ask a few questions.
- Do you have an emergency fund of three to six months of expenses already set up?
- Any high-interest debt, student loans, or other balances where the interest rate is higher than what we’d reasonably expect from the market? Those get paid down before anything gets invested.
- Are you capturing every dollar of employer match in your retirement plan at work?
Not sure which of those comes first? I made a one-page flowchart that walks through it calmly and in order, from emergency fund to extra retirement savings. Sign up at the bottom of my homepage, and it will land in your inbox. You’ll also get a short series of notes from me about how I work and who I help.
Once those boxes are checked, yes. I love opening a taxable account and putting those dollars to work, because right now in your checking account they aren’t working very hard for you. I believe every dollar should have a job. If that dollar’s job is to make you more money, let’s give it a better place to do it.
Start with whatever question is loudest
Every one of these emails came from someone organized enough to notice something and ask. That’s the whole skill. If you’ve been looking at your own accounts and wondering whether the cash, the risk, or the extra money is in the right place, start with the short form on my contact page. It asks what you’re hoping for, which lets me show up to our first conversation already prepared for you.
¹ Source: Dimensional Fund Advisors, “How Asset Allocation Impacts Risk and Return,” calendar-year returns 2000–2024 for a 60% stock / 40% bond allocation of Dimensional and Bloomberg indices. Index performance is hypothetical, does not reflect fees or an actual portfolio, and past performance is no guarantee of future results.
² Source: Dimensional Fund Advisors, “Grizzly Bear Markets.” Hypothetical 60/40 blend of S&P 500 (32%), CRSP Deciles 6–10 (8%), MSCI EAFE net dividends (20%), and Bloomberg US Government Bond Index (40%), rebalanced monthly, compared with the S&P 500 price-only index. Indices are not available for direct investment; past performance is not a guarantee of future results.
This article is for general educational purposes only and is not personalized financial, tax, legal, or investment advice. Your situation is unique and may call for different strategies than those described here. Please consult with a qualified professional who can provide guidance tailored to your specific circumstances. All investing involves risk, including potential loss of principal.
