Vanguard Says YOU Are Holding Too Much Cash

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How much cash should you keep in retirement?

Many retirees hold several years of expenses in cash to protect themselves from a stock market crash, but Vanguard’s retirement-income research shows that holding too much cash could significantly reduce your long-term wealth.

In Vanguard’s hypothetical example, two 60-year-old retirees each start with a $250,000 portfolio and withdraw $20,000 annually.

One keeps one year of portfolio withdrawals in cash, while the other keeps three years.

By age 80, they are projected to have $58,385 and $8,936 remaining, respectively, a difference of more than six times.

This video examines Vanguard’s recommended retirement cash reserve, cash drag, inflation, sequence-of-returns risk, money market funds, emergency savings, and retirement withdrawal strategies.

Vanguard generally recommends holding approximately 12 months of planned portfolio withdrawals, not 12 months of total expenses.

The right amount ultimately depends on your Social Security and pension income, portfolio allocation, spending flexibility, risk tolerance, and retirement plan.

Is your cash protecting your retirement, or quietly limiting how long your money will last?

Source:
https://corporate.vanguard.com/content/dam/corp/research/pdf/vanguard_principles_retirement_income.pdf

00:00 – Intro: Vanguard Says You’re Holding Too Much Cash
01:41 – Why Retirees Hold So Much Cash: 4 Real Reasons
03:24 – What Vanguard Actually Recommends: 12 Months of Withdrawals, Not Spending
05:04 – Making Medicare Simpler With Chapter
06:09 – Vanguard’s Exact Numbers: 1 Year vs. 3 Years of Cash
08:16 – Why More Cash Can Create Less Security
09:47 – The Important Counterargument: When 3 Years Still Makes Sense
11:43 – Separate Your Two Cash Buckets: Spending vs. Contingency
13:27 – How Much Cash Should You Actually Hold?
15:58 – Managing the Spending Fund
17:21 – Closing: Give Every Dollar a Job
18:12 – Bloopers

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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship with Root Financial. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation. The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
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