Fearful of Stock Market Slumps, U.S. Workers Opt for Cash in Retirement Savings

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A growing number of working Americans are adopting a cautious approach to their retirement savings, choosing to keep significant portions of their funds in cash as a protective measure against potential stock market downturns.

In fact, a recent retirement survey conducted by investment manager Schroders reveals that millennial workers have allocated approximately one-third of their retirement savings to cash, surpassing other asset classes in their investment strategy.

The survey findings indicate that for workers aged 45 and older, the percentage of retirement savings held in cash stands at 29%.

The primary reason cited by a considerable majority, over 60% of millennials and approximately two-thirds of workers aged 45 and older, was the fear of losing money in the stock market.

Consequently, they opt for cash as a perceived safe haven for their hard-earned savings.

However, this conservative approach has resulted in missed opportunities for those who have shied away from equities.

Unmoved by Recent Market Performance

Recent market rallies, such as the Nasdaq 100 entering a bull market last week and the S&P 500 posting consecutive quarterly gains, have delivered significant returns for investors.

Workers who remained primarily invested in cash may have inadvertently overlooked potential growth in their retirement portfolios.

Nonetheless, the inclination to maintain a substantial cash position presents challenges for millennials aiming to accumulate the desired retirement nest egg.

According to the survey, millennials estimate they would need approximately $1.3 million to retire comfortably, surpassing the average guesstimate of $1.1 million among older workers.

However, many millennials are not particularly optimistic about reaching this financial milestone.

Just under one-third of them expressed confidence in achieving the $1 million mark, while a worrisome 27% indicated that they might retire with savings totaling less than $250,000.

In contrast, among older workers, the survey revealed that only 21% expected to have $1 million saved for retirement.

This figure represents a decline from 24% in comparison to the previous year’s survey, indicating a growing sense of financial uncertainty among this demographic.

The survey, which was conducted from mid-February to early March, gathered insights from a diverse sample of 2,000 Americans.

Trend Sheds Light on Behavior

The findings highlight the evolving attitudes toward retirement savings among workers of different age groups, highlighting the significance of financial security and market perceptions in shaping their investment decisions.

According to a survey by Allianz Life Insurance Company, 62% of retirement savers prefer cash savings over volatile stock markets.

Moreover, nearly three-quarters of Americans do not believe they can count on Social Security to fulfill their retirement needs.

This lack of confidence in Social Security may be another reason why retirement savers are sticking with cash.

Other Key Reasons Cited for Sticking with Cash

  • Safety concerns: Pensioners may prioritize safety over potential returns, leading them to choose cash over riskier investments like stocks.
  • Downside protection: Retirees may want to avoid withdrawing from a declining portfolio, especially early in retirement, as it can deplete their assets much faster than withdrawing in an up market.
  • Liquidity: Having cash in savings provides immediate access to funds for unexpected expenses or emergencies, without having to sell investments.
  • Market timing: Some pensioners may believe they can time the market and avoid potential downturns by moving their investments to cash. However, this strategy is generally not recommended, as it is difficult to predict market movements accurately.

Disadvantages of Keeping Savings in Cash

Holding onto cash may seem like a safe option, but experts say it could potentially hurt retirement savers in the long term. Here’s why:

  • Inflation: Inflation can erode the value of cash over time. If you’re holding onto cash, you may not be keeping up with inflation. This means that your retirement savings may not go as far as you think they will.
  • Missed Opportunities: By holding onto cash, you may be missing out on potential gains in the stock market or other assets. Over the long term, this could mean that you miss out on significant growth in your retirement savings.
  • Lower Returns: Cash typically has lower returns than other assets, such as stocks or bonds. By holding onto cash, you may be missing out on potential returns that could help grow your retirement savings.

Additionally, keeping retirement savings in cash may make it harder for individuals to accumulate the amount of money they need to retire comfortably.

For example, millennials who keep a big slug of cash may find it harder to accumulate the $1.3 million they believe is needed to retire comfortably.

If You’re Asking: How Much Retirement Savings Should I Keep in Cash?

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The amount of retirement savings that should be kept in cash depends on your financial situation and goals.

However, financial experts generally recommend having an emergency fund that can cover three to six months’ worth of essential expenses.

This emergency fund should be kept in some combination of high-yield savings accounts and shorter-term CDs.

Additionally, when heading into retirement, it is suggested to have a cash buffer that could cover one to two years of spending needs.

This cash reserve can help you adjust to market turmoil and maintain control during periods of uncertainty without adding to your credit card debt or raiding your retirement savings.

It’s important to note that while having cash savings is important, relying solely on cash may not provide enough financial security in retirement.

By not investing in stocks, you may miss out on the potential for higher returns and long-term growth, which could result in a lower overall retirement savings balance.

Therefore, experts advise it’s always important to strike a balance between cash savings and investments in stocks to achieve a comfortable and secure retirement.

Prime Factors to consider

When deciding how much of your retirement savings to keep in cash, consider the following factors:

  • Spending needs: Estimate your regular expenses during retirement, including housing, healthcare, and daily living costs. A cash buffer that covers one to two years of spending needs can provide financial stability during market downturns.
  • Risk tolerance: Consider your comfort level with market volatility and potential losses in investments. If you are more risk-averse, you may prefer to keep a larger portion of your retirement savings in cash.
  • Investment horizon: The time left before retirement affects your ability to recover from market fluctuations. If you have a shorter investment horizon, you may want to keep more cash to reduce the impact of market downturns on your retirement savings.
  • Income sources: Evaluate the stability of your income sources during retirement, such as Social Security, pensions, or annuities. If you cannot rely on these sources to fulfill your retirement needs, you may need to keep more cash as a safety net.
  • Emergency fund: Ensure you have an emergency fund that covers three to six months’ worth of living expenses. This fund should be separate from your retirement savings and easily accessible in case of unexpected expenses or emergencies.
  • Inflation: Keep in mind that cash savings are susceptible to the eroding effects of inflation, which can reduce the purchasing power of your money over time. Consider balancing your cash savings with investments that have the potential to outpace inflation.

While it’s understandable to want to avoid losses in the stock market, holding onto cash may not be the best option for retirement savers.

What are Some Other Things You Can Do

Experts say if you’re worried about losing money in the stock market, there are other options to consider, including:

  • Diversify Your Portfolio: By diversifying your portfolio, you can spread your risk across different assets. This can help reduce your exposure to any one asset class, such as stocks.
  • Consider Bonds: Bonds can be a good option for retirement savers who want to reduce their exposure to stocks. Bonds typically have lower returns than stocks, but they also have lower risk.
  • Seek Professional Advice: If you’re not sure what to do, consider seeking professional advice. A financial advisor can help you create a retirement plan that meets your needs and helps you achieve your goals.

By diversifying your portfolio and considering other assets, you can help reduce your risk and potentially grow your retirement savings.

As always, if you’re not sure what to do, consider seeking professional advice to help you create a retirement plan that meets your needs.


The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

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