Unleashing the power of cash in retirement planning

Cash has become a vital part of savings portfolios for retirees and those nearing retirement. In our comprehensive cash report, we asked more than 250 Financial Advisers and Wealth Managers for their opinion on everything cash.

 

On average, soon-to-retire or retired people hold almost 17% of their savings as cash. And this figure is expected to rise. Advisers found that 66% of people in this age group wanted to increase their cash savings, and 73% of advisers confirmed this number was growing.

 

Security and liquidity

 

There are several reasons why retiring or retired people favour cash.

 

First and foremost, it provides a sense of security as retirement approaches. In today's volatile markets, cash acts as a reliable safeguard against potential losses. It also offers investors the flexibility to seize buying opportunities during market downturns and sell when the market bounces back. Additionally, cash serves as a convenient reserve to dip into for emergencies and significant expenses.

 

Personalising cash use

 

How people use their cash in retirement is highly personalised, tailored to individual needs and pension arrangements. Our report revealed that retirees tend to keep a portion of their day-to-day funds easily accessible, with 82% choosing bank accounts. Advisers typically recommend holding a cash cushion covering six months to two years' expenses.

 

People with defined benefits pensions often look for greater growth opportunities, making the most of the flexibility provided by a fixed income. Retirees with defined contribution pensions benefit from keeping a robust cash reserve to offset potential losses during market downturns.

 

Navigating market volatility

 

Even without the recent financial upheavals, the stock market can be unpredictable. Bear markets (characterised by sustained price declines) usually last around nine months, though impacts from events like 2008’s financial crisis can last years. In such cases, the market can take up to five years to fully recover.  Where even a balanced portfolio of equities and bonds can experience simultaneous declines, like in 2022, a diversified portfolio that includes cash as a strategic asset is a must.

 

To find out the whole story about harnessing the power of cash in retirement, and adviser insights on everything from the cash agenda to missed opportunities, read our report – 'The cash conundrum'

 


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