How Much Cash Should I Have in Retirement? A Practical Guide

How much cash should I have in retirement is a big question. People often think about this for most of their lives, they work and try to save for retirement right? This is a practical guide on retirement saving money and advice.

When you retire from your job, you also lose the money it used to bring along.

In many cases, although you are compensated with pensions, they are still not enough to suffice for your long-term needs and can put you in financial problems if you do not have savings.

Therefore, to enjoy a stress-free and fun time during retirement, you need to have a well-planned and effective retirement plan set for yourself that is sustainable and is also consistent in generating money for you. 

How much cash you should have in retirement varies from person to person because of the differences in lifestyles, families, and preferences of different people.

However, the practice and habit of saving money while working must remain constant among you to secure your future.

There are several different ways you can opt to save your money. Following are a few of them listed:

  • Emergency Funds 
  • Cash Cushions 
  • Investments 

Emergency Funds

An Emergency Fund refers to a bank account that serves you when you are hit by any unforeseen or unexpected financial expenses such as medical expenses, house repairing, urgent traveling, etc.

With the help of such an account, you are kept aloof from taking any major loan, and you can easily fulfill your requirements without fearing any fiscal crisis. 

How much money should I save as emergency funds?

It depends on how much money you can keep aside from your salary without feeling the need to excessively cut down on your regular spending.

However, it is often advised that you try to save money enough to cater to your needs for at least three to six months, which is obviously a lot.

Eventually, when you retire from your job, these funds can help you sustain much of your time being entirely at ease.

How to build an emergency fund?

To build an emergency fund that helps you in the future, you must first decide the amount of money you want to save.

You can do this by imagining yourself in different situations where you might have to spend a lot more than usual.

The next thing you need to do is set a monthly goal for your savings. You can decide a certain amount of money that you can easily deduct from your monthly income to deposit every month into your account for the sake of emergency funds. 

Try to cut down a little on your extra expenses like you can eat out a little less than usual, hangout fewer times, and buy fewer clothes than before to save more than the goal you have set. 

If you receive an incentive, a bonus amount, or an increment in your salary, try to keep most of it for your emergency fund rather than spending it on extra stuff so that you can reach your target sooner.

Make sure to allocate a separate bank account for your emergency funds. In this way, you will not mix them up with the money for your daily expenses and will be able to save the amount you have decided.

What type of bank account should I use to put my funds in?

The best account for emergency funds is the one that is easily accessible at the time of need.

Therefore, high-yielding bank accounts should be your priority for keeping emergency funds as they allow you to access your funds at any given time and also let you earn interest on them that helps you save more than your personal capacity. 

What are the cons of saving emergency funds?

There are hardly any disadvantages of saving emergency funds, but they leave less money available for your other financial obligations and require a reasonable amount of time to get saved.

Therefore, you must start by saving them quite a few years before your retirement.

However, the cons are overshadowed by the pros, and so you can also overlook them. 

Cash Cushions

Another effective and benefitting way of saving money for your life after retirement is building cash cushions; these are funds separated for expenses other than your daily expenditures.

They are established mainly to ease the pressure on your credit cards and often keep you saved from any unforeseen financial turbulence. 

Why is a cash cushion needed?

If you are planning to retire shortly, it is vitally important for you to start saving money as cash cushions to escape any crisis that can hit you in the future in terms of money.

The cash cushion will serve you during your time in unemployment, help you in times of medical emergencies, or at the time of some big spending. 

What amount should I essentially have as a cash cushion?

Although it heavily depends on your current financial status, the best way to decide the amount for a cash cushion is to calculate the money you might have to spend if you find yourself in certain unexpected situations.

This will help you get a better idea of the amount of money you must have as savings, and through this, you will then be able to fund it every month with a clearer perspective. 

Where should I keep my cash cushion?

You must keep your savings for cash cushion in a separate account that you do not access for your regular needs.

This will enable you to save a good amount without getting tempted to withdraw it before reaching the set target. 

A bank account with a higher interest rate is easily accessible and is solely for saving purposes is the ideal one for a cash cushion.

It can either be a savings account, a high yielding account, or a money market account based on your preferences. 

What is the difference between an emergency fund and a cash cushion?

The two of them appear to be similar because of their purposes but the main difference between an emergency fund and a cash cushion is the amount.

A cash cushion is not supposed to be a huge sum of money because it is mostly for the random savings that you do so you can overspend in an alternate month.

For instance, if you have a close wedding lined up or a big party you intend to throw. 

However, an emergency fund is for major spending of money and needs to be a significant enough amount.

As the name suggests, the fund serves for emergency and unforeseen expenses due to which it requires to have a little more zeroes than cash cushions.


An investment is an asset bought that could be sold in the future to acquire money when its value increases.

It is another wonderful way of saving where you keep aside a large amount of money by buying an item out of it to expect some wealth creation in the future.

However, investing in the right place at the right time requires a deep insight into ongoing business trends. Failure to do so can bring tormenting financial losses.

What are the types of investments?

There are four main types of investments: growth, bonds, cash, and defensive.

1. Growth investment includes the purchase of shares and properties. It is the type of investment that suits people who can wait for a long enough time to get their returns and can go through the ups and downs in the market trends because the value of shares and properties can also witness drastic losses. 

2. Bonds basically refer to the exchange of money from investors in return for a fixed rate of interest that they are paid. This kind of investment involves a lower level of risk in terms of market ups and downs and brings a lower level of return. 

3. The most common type of investment made by a layman is a cash investment since it does not require you to possess a huge amount of money and has a lower level of risk involved. 

4. Last but not least defensive investments are the most stable and consistently wealth-generating investments where they also involve the lowest level of risk of any potential up and down. They are the most encouraging form of investments for you if you are willing to retire and belong to a middle-income family. It is bound to generate a good amount of money to secure your future without putting you under any pressure of market difficulties. 

Where should a first timer invest?

If you are a first-timer at investments, your reluctance and fears are understandable because it is not easy to give away your money into something that apparently has no insurance and does not promise you the security of your given money. 

Since making investments is an excellent way of saving money, there are several reliable and less risky ways that you can opt for your investments as a beginner.

Some of the options include the 401(k) plan: investment applications, and mutual funds. 

The best investment options for beginners

  1. The best option for a retiring employee is the infamous 401(K) plan, which is a retirement plan managed by your employer.

    Through this plan, you can save and invest for a stress-free life after retirement.

    The best part about this plan is that you get to decide the amount of money the employer must deduct from your salary and so it can be an amount as little as just $10.

    The plan is usually tax-deferred, and the income tax will only apply once you withdraw the invested amount. 
  2. With the advancement in technology, you have the entire world at your fingertips that obviously includes the investment plans.

    There are several trustworthy and free apps available on the internet that offer the best investment options for you involving minimum risks and being flexible for the amount being invested. 
  3. Mutual funds are another way of helping beginners in gaining good returns from their investments.

    As the name suggests, a mutual fund contains money collected from a group of people who use that money to invest in properties, bonds, shares, and much more together. 

Based on your financial condition, you can choose any of the three options and benefit yourself in the future when you are retired and unemployed. 

What are the disadvantages of investments?

There are many disadvantages to making investments: 

1. Investment is a long-term process and can take years to bring you the desired return. It is thus not a solution to immediate financial problems.

2. There can be times when all of your invested money goes in loss and brings you nothing in return. This indicates the highly risky nature of this business. 

3. It is difficult to find a reliable investment application on the internet when there is so much scam going around. 

4. Acquiring retirement plans can also be disastrous if there is mismanagement of money conducted from the employer’s end that is again a risky affair. 

Hence, as mentioned earlier, to invest in the best possible manner, you must possess great insight into business trends. If you manage to do all your prior research before investing, the chance of going in a loss significantly reduces. 


You retire from your job when you are actually tired of earning money and want to sit back and enjoy the rest of your life.

You can only have that luxury when you are not surrounded by financial constraints after you retire because it can also be quite emotionally draining. 

To get rid of any such worry, it is essential to have enough cash secured for you to spend it easily without fearing any crisis.

There is no specific amount of money that can bring you this security because it completely depends on your way of living and monthly expenditures.

However, you can collect the amount of money you require through the above-mentioned easy plans that are meant to bring you enough savings.

Therefore, if you have planned your retirement some time from now, you must sit down and start looking at your available options for money saving.

About the Author: Noah Miller

Noah joined the team not so long ago after proving to be very knowledgable in the money jargon. Without a formal finance education, Noah has real life experience of handling money and investing.


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