Personal Finance

I'm 61 and just retired for the second time with a $6.2 million in net worth - I have always been money-conscience but am I holding too much cash?

Joey Frenette

Published: November 13, 2024 10:45 am

Everybody’s path to retirement is unique and sure to have more than its fair share of twists and turns. In this piece, we’ll check in on the case of a Chubby FIRE (a somewhat lavish form of early retirement) poster on Reddit who hit the retirement button for the second time but has some doubts about whether her allocation is optimal (perhaps a bit too much cash on hand?).

Indeed, it’s not hard to imagine a chunk of the folks who retired far earlier in life (think one’s 50s) will return to the labor force. In most cases, the choice to return to work has more to do with want than need. Early retirement may not be all it’s made out to be, especially for the select fortunate few who weigh the opportunity costs of not rolling up their sleeves in what may very well be their prime earnings years.

In any case, the Reddit poster, 61, married to a 57-year-old, decided to retire at the start of 2024 but is seeking advice on what to do with her cash hoard as she looks to cap off her first golden year.

Key Points About This Article

• Second-time retiree is coming back with a huge nest egg and perhaps too much cash.
• Perhaps putting a portion of one’s cash pile to work in defensive, income-producing, and hedging assets makes sense.
• Also: Are You On Track to Retire? Take This Quiz and Find Out ^(Sponsored) 

This second-time retiree has a massive nest egg but a swollen cash pile.

Indeed, she’s built up a great deal of wealth in her second running in the labor force, more than enough to fund a comfortable retirement with the odd splurge. Indeed, $6.2 million banked isn’t just enough to finance a comfy retirement (their annual expenses are expected to be around $180,000 but could be a lot lower later on), but perhaps enough to leave a nice sum to loved ones and charities. 

With annual expenses representing less than 3% of their nest egg, the couple is ready to live a high life. However, they have a bit of a cash problem — something that could hold many retirees back later in life. Undoubtedly, $375,000 is a lot to have just sitting around in a savings account that’s likely scoring a negative real return (earnings at a rate less than the pace of inflation at any given time).

The good news is the couple has more than enough assets, so hoarding the cash won’t cause the poster to return to work for a third time. This second time will likely be the last time unless the poster’s reason for going back to work is completely unrelated to the financials. But just because the potentially problematic cash pile won’t affect the retirement trajectory does not mean it’s not worth addressing. 

There’s no shame in CDs, even as rates fall.

On the one hand, putting the funds in certificates of deposit (CDs) seems wise, especially if the couple is worried about the possibility of a stock market crash. Unlike savings, CDs allow for a low single-digit real return in most environments. Arguably, it’s better to land a 3.85% rate on a risk-free investment in a 2% inflation world than have a 5% rate in a more than 6% inflation world!

Of course, if one locks in a rate today and inflation flies higher (let’s say in response to tit-for-tat tariffs under Trump), CDs could still land a real return of zero or less.

While it’s always good to have liquidity, there is such a thing as having too much. And while I have no idea if the couple is willing to invest a chunk of the cash in stocks, given they’ve already got $1.38 million in an IRA and a regular brokerage account with a 63-37 stock-to-bond allocation, I do think it’s worth considering alternative investments. Such investments can withstand a second coming of inflation, a severe downturn, or even stagflation. I’d urge the poster to consult with a wealth planner so that they can put a portion of their six-figure cash mountain to work.

The bottom line

Personally, I’d consider putting around half ($187,500) of the cash position to work in a mix of low-beta defensive dividend stocks, REITs (real estate investment trusts), short-duration CDs, and even gold. These are pretty rewarding ways to play defense in a market environment that may be turbulent in one’s earlier retirement years.

As for the other half, I have no issue leaving the sum sitting in a high-yield savings account (HYSA) for liquidity purposes. At the end of the day, $375,000 is a lot to have in cash. However, relative to the couple’s overall net worth, it’s not too large a sum that requires urgent action or an increase in risk-taking for a shot at more return, at least in my opinion.

As always, if you find yourself in a similar situation, don’t be afraid to reach out to a financial planning pro. They can understand your needs better than anyone out there!