Key Takeaways
- Usually talking, in case you’re holding more money than you want to save for an emergency fund or a big buy, then you will have an excessive amount of money readily available.
- Having an excessive amount of money is unhealthy for a long-term saving technique, akin to for retirement, as a result of inflation can eat into yields vastly.
- As an alternative, contemplate investing a few of your money into shares, bonds, and fixed-income funds.
How A lot Money Is Too A lot?
Having money readily available is necessary to pay payments and have cash stashed away in case of damage, sickness, or lack of employment. However how a lot money must you even have saved?
“Having six months’ [worth of expenses] of money in a checking account to cowl residing bills is enough. For individuals who need to be conservative, 12 months will also be an choice,” says David Rosenstrock, director at Wharton Wealth Planning.
In line with Rosenstrock, there are solely three the explanation why somebody ought to maintain money of their checking account:
- To save lots of for these talked about above six- to 12-month emergency fund
- To save lots of for a big, deliberate future expenditure (like a down fee on a house)
- To have additional money reserves to steadiness out dangerous investments
Rosenstrock cautions that particular person buyers shouldn’t overallocate in money or cash-like funding merchandise, akin to certificates of deposit (CDs).
The Hidden Price of Money
The principle motive why buyers ought to be cautious of an excessive amount of money or cash-like funding merchandise is as a result of inflation can largely eat away at features, particularly over the long term, which is why carrying an excessive amount of money might be so catastrophic for retirement financial savings.
“Money and its equivalents—CDs, cash markets, high-yield financial savings [accounts]—don’t typically outpace inflation over time, so they need to be thought of financial savings moderately than investments. Whereas saving cash is necessary, it alone received’t result in monetary freedom. You want the ability of compound curiosity, your cash incomes extra money, to attain your full monetary potential,” says Rosenstrock.
Past inflationary dangers, there’s additionally the chance price of protecting your wealth in money. If invested correctly, the funds could possibly be incomes about 7% yearly within the inventory market—the inflation-adjusted long-term annual common for the S&P 500 since 1957, for instance, was 6.68%, which is larger than the curiosity supplied on most financial savings accounts and CDs, as of September 2025.
Why Retirees Gravitate Towards Money
Retirees gravitate towards money as a result of it feels protected. You possibly can see the cash in your account—and in case you wanted to spend it tomorrow, you could possibly. It received’t go anyplace.
Investing, in the meantime, can really feel like a chance. Positive, over the long run, cash invested in dependable funding merchandise akin to shares and bonds will yield a constructive dividend. However there could also be down years—and that’s scary.
To make it even scarier, that preliminary level when somebody invests cash can really feel like they’re spending it. In a single occasion, money is of their checking account. Within the subsequent, it’s gone.
And for retirees, the concern of spending is actual. About one-fourth of retirees really lower their spending in retirement.
Higher Options to Extra Money Holdings
Getting over the concern of spending and placing money to work are essential for wholesome retirement financial savings—however how ought to retirees make investments?
“Given the place money rate of interest yields are, there’s a sturdy case to spend money on bonds proper now. One is that whenever you buy bonds and longer-maturity fixed-income investments, you’ll be able to lock in the next yield for longer. So, in case you purchase a five-year bond or a 10-year bond, that signifies that the rate of interest will prevail over your holding interval,” says Rosenstrock.
He provides that fixed-income devices and inventory index funds are additionally at all times a very good guess.
“As we consider charges probably going decrease sooner or later, the fixed-income investor stands to profit probably from some appreciation in such an atmosphere,” Rosenstrock says.
The Backside Line
It’s tempting for retirees to carry onto money of their financial savings account, because it feels safer than “spending” the cash. However fixing your mindset and realizing that spending money and investing it aren’t the identical will reap long-term rewards.
Look into merchandise like inventory index funds, bond funds, and fixed-income autos. When you recover from your concern of spending, you’ll perceive simply how a lot inflation was consuming into your money financial savings and know the reality: Money isn’t at all times king.
