How Much Should Retirees Have in Their Savings Account?

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Retirees need to have enough cash savings to cover daily expenses for a while, in case of a market downturn. Learn more in this guide. 

When you are retired, you need to be smart about how you manage your finances so you can make your money last for the rest of your life. This means making informed choices about the amount of money to keep in your savings account.

So, how much should you have in savings? This guide will help you decide what amount of cash you should have set aside in this type of account.

Money to cover daily expenses for several years

When you leave the workforce, Social Security will replace about 40% of pre-retirement income. That’s not enough to live on, so you’ll need money to supplement your retirement benefits. Most often, this money will come from your brokerage account or 401(k) plan. But you may not necessarily want to take money out during a market downturn, as this could lead to locking in losses.

You don’t want to be forced to sell stocks at a bad time just because you need the money to cover daily living expenses. To avoid this fate, it’s a good idea to keep enough money in savings to cover your basic expenses for a while as you wait out a downturn and delay withdrawals until the market recovers.

Generally, having enough money in savings to cover two or three years of living expenses should put you in a pretty good position to avoid having to sell investments at a bad time.

Funds for big purchases

When you are a retiree, your need to make big purchases doesn’t come to an end. You will likely still need to buy things like cars and home appliances. But borrowing for these items can eat into your fixed income due to interest costs. And you probably don’t want to take a huge amount of money out of your retirement investment accounts all at once every time you need to buy something large.

To make sure you have the money to fund bigger purchases, create a savings account where you set aside money for these planned expenses. For example, if you know you want to buy a car in a few years, you may want to save $250 or $500 a month toward its purchase based on your buying timeline and desired vehicle price.

Money for emergencies

Finally, the need for an emergency fund doesn’t disappear when you’re a retiree. While you’re less likely to suffer an interruption in income from something like a job loss, you may actually be more likely to suffer a costly health emergency due to your advancing age.

To make sure you can cover surprise expenses without having to go into debt or pull a huge amount of money out of your retirement investment accounts, it’s a good idea to have an emergency fund. This can be earmarked for surprise expenses that come your way, and you should leave the money in there until you really need it.

RELATED: Emergency Fund Calculator

By making sure you have the money for these three things in savings, you can protect your financial security as a retiree.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

 Read More