One of the hardest retirement questions sounds simple, but it can quietly make or break your plan.

How much cash should you keep on the sidelines — and where should it actually sit?

Too little creates panic. Too much quietly erodes your future.

Why Cash Feels Safe — but Can Still Hurt You

Cash is comforting in retirement. It feels stable. It doesn’t bounce with the market. And it helps retirees sleep at night.

But holding the wrong amount of cash creates two serious risks. Too little cash forces you to sell investments during market downturns. Too much cash slowly loses buying power to inflation year after year.

Retirement planning in 2025 is about finding the balance between safety and growth. And that starts with a clear framework.

Financial planners agree that cash should have a job, not just sit there. When it’s structured correctly, cash becomes a shock absorber that protects the rest of your portfolio.

A Simple Framework for Cash in Retirement

Most retirement experts recommend keeping 12 to 24 months of essential expenses in true cash or near-cash accounts. This covers housing, food, utilities, insurance, and basic healthcare — the bills that can’t wait.

This cash buffer prevents the worst retirement mistake of all: selling stocks in a downturn just to pay monthly bills. With cash available, retirees can ride out market drops without panic.

Beyond that core buffer, the next layer of money doesn’t need to sit idle. Short-term CDs, Treasury bills, and money market funds can provide modest yields while keeping risk low. These options often pay more than standard savings accounts while remaining accessible.

High-yield savings accounts are best for immediate needs. Short-term CDs and T-bills work well for money needed in one to three years. Money market funds can bridge the gap between safety and yield for retirees who want flexibility.

What retirees should avoid is letting large sums sit in checking accounts earning almost nothing. Over time, inflation quietly steals purchasing power, turning “safe” money into shrinking money.

At the same time, retirees shouldn’t chase yield with cash meant for emergencies. The goal isn’t maximum return — it’s certainty. Growth belongs elsewhere in the portfolio.

The smartest plans separate money by purpose. Daily living cash stays liquid. Near-term money earns modest interest. Long-term money stays invested for growth. Each dollar has a role.

When retirees get this balance right, something powerful happens. Market volatility feels less threatening. Withdrawals become predictable. And decisions stop being emotional.

Cash stops being a drag on the plan and becomes a stabilizer.

Retirement works best when safety and growth are both respected. With the right amount of cash — and the right places to park it — you protect your lifestyle today without sacrificing tomorrow.