Knowing this figure can help you stretch your savings as far as possible.
You've spent your career investing for your future and now's the time to put that money to good use. But you don't want to withdraw too much at once. For one, it would send your tax bill for the year skyrocketing. And for another, it would also shortchange you because the savings you don't need right now wouldn't have a chance to grow further.
To help your money last longer, it's best to spread your withdrawals out over time. Here's a closer look at how much cash you want to keep on hand.
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How much cash should you keep in retirement?
Generally, you want to keep a year or two's worth of expenses in cash when you're retired. Your investments will probably fluctuate over time. If you left all your savings invested until you needed the money, you'd run the risk of withdrawing your funds when your portfolio was down.
With cash on hand, you have a little more flexibility. You could hold off a year or longer and hopefully your portfolio will have rebounded by then. Having a cash reserve also makes withdrawals much faster and easier. There's no need to sell off your assets. You just log on to the computer or head over to your local bank and take the money out.
In most situations, one to two year's worth of living expenses will be enough cash. But you may want more cash on hand in some situations. If you have a large planned expense coming up, like a major surgery or replacing the roof on your home, you may want to withdraw extra cash in advance so you're prepared when you get the bills.
But otherwise, resist the temptation to stockpile too much cash. Your savings probably won't earn nearly as much in a bank as when it's invested, so you'd only be costing yourself the potential for further gains.
Where should you keep your cash in retirement?
You can keep your retirement cash in a bank or credit union, just like you did when you were working. But choosing a savings account carefully is key to helping your money go the furthest. Ideally, you want a high-yield savings account with a competitive annual percentage yield (APY) and no maintenance fees.
Most of the time, this means working with an online bank. These banks don't have branches, which reduces their overhead costs. They pass those savings along to you through fewer fees and higher rates. But their lack of brick-and-mortar locations can make it difficult to access actual cash when you need it.
You may want to have at least a checking account at a traditional bank or credit union in your area. Then, when you know you have an expense coming up, you can transfer some cash from your savings account here and then make a withdrawal in person.
No matter which institution you choose, the process to open a bank account is pretty much the same. You'll have to fill out an application form and provide identification to the bank, like a driver's license or passport. You'll also need your Social Security number or Individual Taxpayer Identification Number (ITIN) and a U.S. mailing address. Many banks require some sort of minimum deposit as well. Check with the institution to find out what its requirements are.
Look over the account's fee schedule before you open a savings account to house your hard-earned retirement funds. And reach out to the bank if you have any questions about its charges or services. It's possible to move your money later if it turns out you don't like your current bank. But switching can be a hassle, so it's best to make your decision carefully the first time.
