Retirement Done Right w/ David & Pat
Retirement Cash Strategy: How Much to Hold and Where to Put It
How much cash should you keep in retirement? Most retirees hold too much, or hold it in the wrong place, and quietly lose money to inflation and taxes. In this episode of Retirement Done Right, David Rath, CFA, CMT and Pat Kalish, CFP break down how much cash retirees actually need, where to keep it, and how the interest you earn on it can push up your tax bill. In this episode you'll learn: - The rule of thumb for cash: 3–6 months for pre-retirees, 12–24 months for retirees, and why most people think in round numbers instead. - Why cash is one of the few "investments" almost guaranteed to lose purchasing power - How Social Security and pensions reduce the amount of cash you need - Where to keep cash: checking vs. high-yield savings vs. CDs vs. money market funds vs. Treasury bills - Why T-bill interest is exempt from state and local income tax - How taxable interest can increase Social Security taxation and trigger Medicare IRMAA surcharges - Using a home equity line of credit (HELOC) as a backup emergency fund - A simple 5-step cash review you can do this year QUICK ANSWERS How much cash should a retiree keep? A common guideline is 12–24 months of expenses, but the right amount depends on how much of your income is guaranteed (Social Security, pensions) versus coming from your portfolio, and how much cash you need to sleep at night. Where should retirees keep their cash? Keep a minimal amount in checking for bills, your emergency fund in a high-yield savings or money market account, and money for known expenses 6–12 months out in CDs or Treasury bills. Is interest on cash taxed? Yes. Bank and money market interest is taxed as ordinary income, which can raise your bracket, make more of your Social Security taxable, and increase Medicare premiums. Treasury bill interest is federally taxable but exempt from state and local tax. CHAPTERS 00:00 Welcome back, Pat 01:13 How much cash should a retiree keep? Rules of thumb 02:27 Pros and cons of holding cash (the inflation problem) 04:20 The "head on a pillow" strategy 05:31 How Social Security and pensions change your cash needs 08:19 Why cash decisions can't be made in a silo 10:41 Where to hold cash now that it pays interest 13:51 Checking vs. high-yield savings vs. emergency fund 14:54 Treasury bills: state tax benefits and price fluctuation 17:09 Online banks vs. brick-and-mortar banks 18:45 Hidden fees and withdrawal limits on savings accounts 19:55 Taxes on cash interest: Social Security, IRMAA, Roth conversions 22:17 Using a HELOC as a safety net 25:40 Give every dollar of cash a job 26:22 Your 5-step retirement cash checkup Learn more: https://contwealth.com ABOUT THE HOSTS David Rath, CFA, CMT is CIO at Continuum Wealth Advisors. Pat Kalish, CFP is a financial planner at Continuum. Continuum is a fee-based fiduciary RIA in Saratoga Springs, NY, helping people within a few years of retirement make it work. Follow Us YouTube LinkedIn Our Home Base Continuum Wealth Advisors Disclosure The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor. Continuum Wealth Advisors, LLC (“Continuum”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Continuum and its representatives are properly licensed or exempt from licensure.
