The S&P 500 plummeted 14.6% in five days in April 2025, leaving retirees vulnerable to forced selling due to market downturns. Debt-free retirees require $160k-$240k in liquid reserves to withstand such volatility without selling stocks.

Retirees need a cash buffer of 2-3 years of living expenses in cash or short-term bonds to avoid tapping into investments during market downturns. This strategy protects against unexpected expenses and preserves gains when stocks rebound.

Age 67, a retiree with a $1 million portfolio and zero debt faces a precarious situation with only $15,000 in cash reserves. A recent market crash showed the risk of selling investments at a loss due to insufficient liquid reserves.

Retirees should maintain a cash buffer of 2-3 years of living expenses separate from their investment portfolio. This strategy allows for covering unexpected costs without touching investments and avoiding selling during market downturns to preserve gains.

Consider a bucket strategy with high-yield savings and short-term bonds for 1-2 years of expenses, while leaving the rest of the portfolio invested in growth stocks for long-term gains. Calculate a target of $200,000 in liquid reserves for essential expenses and unexpected costs.

Gradually build up cash reserves by redirecting portfolio withdrawals into savings during strong market years. Avoid the mistake of assuming debt-free status means keeping most assets invested – having a cash buffer is crucial for financial security during retirement.

A recent study revealed a single habit that doubles Americans’ retirement savings, unrelated to income or frugality. Adopting this simple habit can significantly improve financial security in retirement, offering a straightforward and powerful way to boost savings.

Read more at Yahoo Finance: A $700,000 Stock Portfolio Lost $146,000 in Five Days, Showing Exactly Why Retirees Need Cash