You Cashed Out Close to Retirement: How Do You Get Back In?

A man looking thoughtful holds a strap of cash.

(Image credit: Getty Images)

First, I must say: I get it. The markets have been very volatile, and for anyone who is close to actually needing the money, that can make you sick to your stomach.

There probably isn’t a chart or data point I can point to that will eliminate your nausea.

Tariffs are the worst thing since Lunchables. Recently, the dollar, U.S. bonds and U.S. stocks were all falling at the same time. This time really is different, right?

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The tricky thing about volatility and bear markets is that they all feel different. In 2022, stocks and bonds both went down as we dealt with high inflation.

In 2020, we were stuck in our homes because of a global pandemic.

In 2008, there were legitimate questions about whether our financial system would collapse.

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In all cases, corporations found ways to make money (or they ceased to exist), and your 401(k) found its way to new highs.

Unless you’re überwealthy or überfrugal, cash probably won’t do the trick in retirement. The best market days often follow the worst, and missing those best days will kill your long-term returns.

Here are some ideas to get back in.

1. Pick a re-entry point

Mathematically, this can be simple. Emotionally, maybe less so. An example of this would be picking a loss target.

For example, when the S&P 500 drops 25%, I put my money back in. This will require you to watch the market every day.

Equally important, you will have to be willing to pull the trigger.

2. Get back in in stages

Let’s say you moved $2 million into cash. First, make sure that cash is earning something.

There are now several cash-like vehicles paying around 4%. That’s $80,000 per year in missed interest if the money is sitting in a 0% checking account at your big bank.

From there, pick a period over which you are going to reinvest your money. The more cautious you are, the longer this should be. We typically reinvest over three, six or nine months. Nine is reserved for the most negative Nancys.

Nine months: You are investing $222,222 per month back into whatever investments you previously had. You are hoping there are more down days in front of us and that by spreading out your purchases, you will be able to buy on sale.

Six months: $333,333 per month back into your investments.

Three months: $666,666 per month back into your investments.

3. Go back into something more conservative

Risk tolerance is what you’re comfortable losing. Risk capacity is what you can afford to lose.

As you get closer to retirement, typically, both go down. With the secular bull market we’ve experienced since 2009, you probably have more in stock (pre-sale) than you ever have had before. It’s likely that you sold because you were in an allocation beyond your risk tolerance, risk capacity or both.

If you want to try the risk tolerance tool we use, you can access it online. If it comes back saying you’re a “moderate” investor, but you were 90% in stock, it probably makes sense to reevaluate.

Perhaps you’d be more comfortable getting back into the market if you knew that only 60% of your portfolio was exposed to the bigger swings.

4. Name your dollars

When my oldest daughter started doing work around the house for money, she kept the cash in an envelope labeled “baby doll.” That money obviously could not be invested; it needed to be used for a baby doll!

If you’re not buying a baby doll, here’s what I would suggest: Keep six months of expenses in cash. Label that account “rainy day.”

Add up anything you know you will need to buy in the next 24 months. Keep that in a separate cash equivalent account. Name that “2025-2026.”

Consider investing the money that you won’t touch until at least 2027. The bet then becomes that the market will recover no later than 2027. No crystal ball here, just a safer bet than saying it will recover this month or next.

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Whenever we have volatile periods like the one we are experiencing now, I go through our financial plans just to make sure everyone is still reasonably safe.

What I know from tinkering is that very few clients would still be comfortable if I moved their investment allocation to all cash in the plan. There is some rate of return they need to maintain their lifestyle in retirement.

If you want to make sure you’re still in a sound position, you can access a free version of the software we use online.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.