Here’s how much money retirees need to weather a stock market downturn

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Amid high inflation and rising interest rates, there are fears of a prolonged stock market downturn, and some retirees could be vulnerable without a cash cushion, financial experts say.

However, there is also a risk of eroding purchasing power, with annual inflation rising 8.5% in March, the US Department of Labor reported.

Meanwhile, average savings account returns are still below 1% as of May 4, according to, making cash less attractive.

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The right amount of cash depends on each retiree’s situation, said certified financial planner Brad Lineberger, president of Seaside Wealth Management in Carlsbad, Calif.

“There is no silver bullet or magic answer,” he said.

Counselors may suggest keeping three months to six months of cash living expenses during a client’s working years.

However, the number could increase as they transition into retirement, said Marisa Bradbury, CFP and wealth advisor at Sigma Investment Counselors in Lake Mary, Florida.

The worst thing you want to do is sell your wonderful investments when they are at rock bottom prices.

Brad Lineberger

President of Seaside Wealth Management

Many advisors recommend that retirees keep a larger cash reserve to cover an economic downturn. A retiree with too little cash may have to dip into their portfolio and sell assets to cover living expenses.

“The worst thing you want to do is sell your wonderful investments when they’re at rock bottom prices,” Lineberger said.

Bradbury suggests retirees keep 12 to 24 months of cash living expenses. However, the amount may depend on monthly costs and other sources of income.

For example, if their monthly expenses are $4,000, they receive $2,000 from a pension and $1,000 from Social Security, they might consider keeping between $12,000 and $24,000 in cash.

Asset allocation

Another factor is the percentage of stocks and bonds in a portfolio.

The research shows how long certain allowances may need to recover after stock market corrections, said Larry Heller, CFP based in Melville, New York and president of Heller Wealth Management.

For example, a portfolio of 50% stocks and 50% bonds can take 39 months to recover in a worst-case scenario, according to FinaMetrica research. This is why Heller may suggest holding 24 months to 36 months in cash.

Yet some retirees are reluctant to hold large sums of money in today’s low interest rate environment.

“It’s much easier to leave that money in the bank when it’s earning 3%, 4%, or 5%,” Bradbury said. However, advisors can remind their clients that growth is not the goal of short-term reserves.

“Think of money as the safety hedge that allows you to invest in the most incredible wealth-creating machine, which is the stocks of wonderful companies,” Lineberger said.

Reduce cash

While some advisors suggest retirees hold 12 to 36 months of cash, others may recommend less cash.

“The way we view cash is that it’s a drag on long-term performance,” said Rob Greenman, CFP and chief growth officer at Vista Capital Partners in Portland, Oregon.

“Absent tomorrow’s paper, there’s really no reason to sit around on cash and wait for a better opportunity,” he said.

Retirees who need quick access to funds can consider other sources, such as a home equity line of credit, health savings account, pledged asset line of credit and more. Greenman said.

Of course, the ideal amount of cash depends on the particular situation of each retiree. Those who have trouble deciding may benefit from weighing the consequences of more or less money with a financial advisor.

“Retirement isn’t a cookie cutter, and it’s not just a one-stop shop,” Lineberger said. “It’s very personalized, and our emotions can really affect our decision-making.”

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