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Do You Have Enough Cash on Hand?

Whether you're working or retired, here's how to think about your liquid reserves.

The following is an excerpt from Christine Benz's recent webcast, Tune Up Your Portfolio in Uncertain Times. Watch the full webcast.

Christine Benz: The next step in the process is to evaluate the adequacy of liquid reserves. So, of your cash assets, the baseline for people who are working is three to six months' worth of assets set aside in liquid reserves. I think sometimes people are put off by how high those numbers seem--that seems like a lot of cash. And I think the issue is that you really want to think about how much you could get by on in a pinch, rather than thinking about how much you're spending today while you're employed. The idea is that you're building yourself an emergency cushion of the expenses that would be absolutely essential if for whatever reason you were not able to earn an income or if you were to become disabled, the idea is that you're building yourself an emergency buffer. For people who are retired, I like the idea of holding one to two years' of living expenses in cash investments. If you wanted to run with a lower cushion, you could potentially take that down to six months' worth of living expenses. But I think you would want to probably be a little closer to the one to two years' worth of living expenses.