How much should Peg keep in cash?

What’s the ‘rule’ about keeping some funds readily accessible for emergencies?

How much should Peg keep in cash?

What’s the ‘rule’ about keeping some funds readily accessible for emergencies, such as the COVID-19 pandemic? Personal finance specialist Noel Whittaker offers Peg some guidance.


Q. Peg
What is your recommended amount, percentage wise, to keep in cash in case of a serious downturn in the economy, such as the one we are experiencing? I have heard that three years’ worth of living expenses is a suitable amount. Do you agree?

A. Three years is a good number for most people, but of course, it also depends on your goals, your risk profile and the size of your portfolio.

For example, if you have a large portfolio of quality shares and they are providing enough income to live on – as they normally would in more stable times – you could keep less in cash because you could depend on the dividend stream from that portfolio. Unfortuntely, as shown by the decisions on dividends made in recent weeks by the big banks, these are not normal times. 

As always, you should take advice that is personally geared to your needs, but a major factor in your decision to keep cash available, is how much you have in super and the extent of your other assets. Remember, the main purpose of having money in super is to save tax and if you have reached pensionable age and your total financial assets are, say $100,000, which includes $80,000 in super, you are probably better off to exit the super system and invest in your name.

It is a different matter if you have substantial assets outside super that take your income to a level where you are paying tax at a higher rate than the 15 per cent tax payable inside your super fund.

Remember that your main choices once your super preservation age is reached – and as I explained in my book, Superannuation Made Simple – are to:

  • Exit your superannuation fund, pay lump sum tax if applicable and invest elsewhere. Most people don’t do this because it’s financially unwise. What’s the point in withdrawing money from the low tax superannuation system where income tax is just 15 per cent and capital gains tax is just 10 per cent, and investing it outside the system where you are faced with paying income tax at normal (higher) rates?
  • Use all or some of the money to buy an annuity.
  • Defer lump sum tax by rolling all or part of the money into an account-based pension fund and starting a pension from that fund.
  • A combination of the above, or
  • Leave the money in superannuation.

Do you have a question you’d like Noel to tackle? Email us at

Noel Whittaker is the author of Superannuation Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.



    To make a comment, please register or login
    6th May 2020
    Does Noel understand your fund does not get taxed when Peg is on the pension
    6th May 2020
    Of course he does.

    Noel Whitaker is one of the few who points out that the tax-free perk of super in pension mode is only valuable to those who would otherwise pay income tax.

    A single person can have income of somether greater than $30,000 before paying income tax.

    Super funds charge fairly high fees in pension mode - it is in accumulation mode that they do most of their boasting.

    Directly held shares attract no fees - but you need to get the franking credits back - that's why Shorten wanted to steal them from modest investors - and most ETFs have much lower fees than super funds - even "industry" ones
    6th May 2020
    Re. "A single person can have income of somether greater than $30,000 before paying income tax.". I thought tax kicks in after $18200- for single person ?? Maybe a bit higher for aged person ??
    6th May 2020
    Shorten was not removing them from persons on the pension
    At some point in time they will be removed in stages
    6th May 2020

    People at the lower end of the self-funded retirees (uniquely Australian expression)
    spectrum - that's most ordinary Australians - get less than people on a a full age pension. Right now of course they are doing even worse.

    Shorten lost the election for Labor - the franking credits policy was only one of th ereasons but it was a"captain's call" so the rest of the party had to go along with it. A tax on very large super pots should be open. The franking credits policy was an attempt to stay with the tax-free-in-pension-mode mantra of Saint Paul er y'know Keating - whose super scheme gives huge tax breaks to the very well off and not much to ordinary folk.

    Keating and Shorten are cast in the same mould - not a Labor bone in either body - just using the party for personal advancement. Albo needs to grow a pair and distance himself from some of the inherited baggage.
    6th May 2020
    Noel didn’t really answer the question. We all need rainy day money for emergencies and not everyone has access to 3 years worth of income. We have an income stream but aim for 3 months cash at bank in case of unforeseen expenses.
    Chris B T
    6th May 2020
    No he didn't, it's about buying his books and subscribing to web sight.
    If you have money to put aside in Retirement Phase for "Rainy Days" you are doing OK.
    Depends greatly on Spending Habits over what is Really Needed.
    No Pokies,Pubs, Clubs,Restaurants to Eat In etc, at the moment should make a difference for some.
    6th May 2020
    The system is geared to help the rich and even more the super rich.
    Simple pensioners are about to be screwed by PM and his gang of thieves.

    Rob the poor to get your mates rich and then get you cozy well paid directorships!
    7th May 2020
    I repeat I believe Noel is wrong that a single person can have income of something greater than $30,000 before paying income tax. Happy to be corrected by someone here ??.
    7th May 2020
    I didn’t understand that either. He must be including low income tax offset and seniors tax offset but still 30k seems too high
    old frt
    8th May 2020
    Tax free threshold is just under $22000 now. Retirees entitled SAPTO (Seniors And Pensioners Tax Offset) can earn just over $33000 tax free.

    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles

    You May Like