Nearing Retirement? Make Sure You Can Say Yes to This Key Question.

When you’re working and contributing to a retirement plan, you’re supposed to invest your savings so your money can grow into a larger sum over time. And once you’re retired, it’s best to largely keep your nest egg invested in various assets. That way, your money can continue growing, even as you’re taking withdrawals.

You’ll often hear that it’s a good idea to shift away from stocks during retirement and invest more heavily in bonds. That’s good advice, since stocks tend to be far more volatile.

However, you don’t want to dump your stocks completely in retirement. For many seniors, a 50/50 split between stocks and bonds is a pretty good bet. That way, you’ll have a portion of your savings generating higher returns and a portion that’s more protected from intense market swings.

But no matter how you end up investing your savings as a retiree, there’s one important question you’ll want to ask yourself before you retire. And it’s a question that’s essential to your financial health once you’ve stopped working.

Do I have enough cash to cover at least a year’s worth of expenses?

You don’t want to keep all of your retirement savings in cash because if you do, your money may not enjoy much in the way of growth. And if you keep 100% of your savings in a bank account paying 1% interest, it might seriously inhibit your ability to take larger withdrawals from your nest egg, since your balance won’t be growing as much from year to year.

At the same time, you don’t want to invest all of your savings, either. Rather, you should aim to keep at least a year’s worth of expenses in cash.

The reason? You never know when the stock market might have a really bad year. And it’s possible for the bond market to tank simultaneously. So it’s important to give yourself the option to leave all of your investments alone during a period like that to avoid locking in serious losses. If you keep about a year’s worth of expenses in cash, you’ll potentially be able to ride out a 12-month period of market volatility.

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You just need cash at the ready

Chances are, a lot of the assets you opt to invest in as a senior will be fairly liquid. But still, you never know when an emergency expense might arise that has you needing a pile of cash on the spot.

That’s another reason to move a year’s worth of living expenses into plain old cash when you’re on the cusp of retirement. You might need that money to address a sudden home repair or an issue that arises with your vehicle.

It’s definitely wise to keep investing your money throughout retirement. But if that milestone is coming up, ask yourself whether you’ve moved a year’s worth of living expenses into cash yet. And if not, make that move before your retirement becomes official so that you’re adequately protected.

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Nearing Retirement? Make Sure You Can Say Yes to This Key Question. was originally published by The Motley Fool