Retirement is the time when we start withdrawing from our retirement accounts we’ve been contributing to for so many years. But there is a risk. What if when we first retire, the market takes a big hit? This was a problem in 2008. People saw their portfolios drop 30% or more. Yes they recovered (and then some) over the next several years. But if they’d had to sell stocks at low prices to fund their retirement, that money was lost forever.
So retirees, especially new retirees, should have savings that can easily be liquidated to cover every day expenses. Those funds can be in short term CDs, money market accounts or short term bonds or bond funds. They should probably have a year’s worth of savings equal to their retirement account withdrawals. That way if there is a big hit to their stock portfolios, they can weather the storm. They can draw on their cash savings until there is a market recovery before they start selling stocks again to fund their retirement.