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? 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? 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, you could keep less in cash because you could depend on the dividend stream from that portfolio.

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 of 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.

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    7th Aug 2019
    The above was very simplistic and superficial advice. Really just a comment and nowhere near an in-depth analysis
    Chris B T
    7th Aug 2019
    Going By The Other Post about Elder Abuse, None.
    To easy To Be Conned Out Of There Money, especially when it is Known and Where It Is.

    7th Aug 2019
    Right on Chris B T - do tell them nothing. Keep mum and what's left when you are gone won't worry you none.

    7th Aug 2019
    Emergency cash - for me it would be about 20 to 30 $100 notes tucked safely away just in case there is no power to operate cash machines etc. I have lived in Africa for quite a few years and everyone has to have cash handy. For us over here everything seems so easy with electronics but then we always had reliable power. With solar panels and windmills in future will power be that constant?
    7th Aug 2019
    I totally agree there. Australians as a society are building a nasty perfect storm scenario by relying increasingly on cashless transactions coupled with electricity supply and internet services to handle everything. It's so easy, too easy. Then someone pulls the plug and we meltdown: no cash, no fuel, no phones, no food and so on. We really are living in a fools paradise.
    8th Aug 2019
    I did a terrific shop last Sunday at Aldi and actually managed to find one of the beef eye fillet specials. Three times we went to an empty tray and finally found a few. So happy. Then the power went out and so no purchase was possible.

    With unreliable power we are in big trouble. No communications, no retail, no banking on and on.

    This is a direct result of LNP privatisation and population policy. Let's see how they fix it.

    Very disappointed by Aldi too. Why do they never have the item you go to buy from their specials?
    11th Aug 2019
    .....I always thought it was well known that many, many pensioners have quite a bit stashed away to avoid the assets test...heavy help them if there is a fire and up goes the mattress ;)
    7th Aug 2019
    Peg, get hold of the Barefoot Investor's book (it will be in your local library, although you may have to wait as it's popular). After you've read all Scott Pape's advice, and adjusted it for your situation, you will have a pretty good answer to your question (and many other questions as well).
    7th Aug 2019
    Who the hell has a spare amount of three years living expenses?! Pensioners don’t for a start!
    7th Aug 2019
    I Agree. That is a lot of money. If Noel means you should be able to access that amount of cash quickly as opposed to having to sell an Asset or drawdown super he should clarify. Not feasible advice for many
    8th Aug 2019
    He means cash as a part of a Superannuation or investment portfolio of shares, bonds, property and cash funds. When liquidity dries up you can't sell some assets so need cash to get you through the crisis.

    Aged pensioners don't have to worry as the Government pays you fortnightly.

    Although the sensible pensioners on the aged pension I know do save around 10% or so each fortnight for special needs like house maintenance or car repairs or a new washing machine. Just makes life a little easier. They save first and pay the bills and only spend what's left after that.

    Anyone relying on investments for income should have 2 to 3 years cash available in case of a major correction or liquidity crisis. Sometimes selling an asset isn't possible or advisable.
    7th Aug 2019
    What is the rationale for setting aside three years living expenses. Why not six months, one year or five years? Like Paddington, I say who has three years cash to set aside in any case?!
    7th Aug 2019
    54-12 thanks for the tip about the Barefoot Investor. I just had a quick Google and found a website also. I'm hoping it has current advice and information about superannuation.
    7th Aug 2019
    Sorry - 54-11 not 12!
    7th Aug 2019
    Is this keeping reserves advice, just for successful investors?
    Because just to pay bills over a year and food, nothing else, you 'd be looking at maybe
    3X $35,000, to keep three years in case the economy of the world falls over.
    That's $105,000 dollars in reserve, well I'd be starving way before three years!
    8th Aug 2019
    For ordinary people I'd say $2000 to $3000 in cash reserves is a good way as I explained above. Even $35'000 a year would not be enough for us without letting go of private health insurance. That and rates, body corp (mostly insurance again) and power amount to $12000 annually.
    Had a look around my neighborhood and there is a 2-bed unit for sale for $595'000. All outgoings are $7100 per year, body corp, water rates, council rates (body corp $4000, water $1500, council rates $1600). And then people expect reasonable rental prices. Without negative gearing even wealthy people would shy away from an investment like that.
    A lease of a place for 5 year duration would be a better way to go, as there is rental assistance available. I have not been able to find anything more than 12 months' lease. Our unit is only worth $380'000 tops (body corp and council rates with pension discount $5000). Have the bills in front of me.
    Chris B T
    8th Aug 2019
    As Peg's Wealth Decreases wouldn't Part OAP to Full OAP Come IN TO REPLACE the Short Full.
    The need for such amount for 3 years would exclude most Individuals.
    Nothing Short of a Total Collapse of the economy, then no OAP Haven forbid.
    Not a Thought To Have.
    8th Aug 2019
    The OAP will still be paid. Governments can issue currency. They do not use cash reserves or tax to pay for anything.

    It's people living on investment incomes that can easily become illiquid( can't be sold) that need the cash buffer.

    Big market falls can take 2 to 3 years to return to something vaguely resembling normal.

    In a Super fund large enough to pay the $50 000 a year that stops them getting an aged pension a cash portion of around $80 000 to $100 000 just in case is advised by all the advisers.

    Of course hundreds of thousands of over 65s would suddenly be eligible for part or full pensions but can you imagine how long it would take to process the applications.

    That's why Independent retirees need such cash backup systems.
    Chris B T
    8th Aug 2019
    There are No Guarantees With Any Investment/Annuity Products.
    Once collapsed can claim Part/Full OAP.
    GFC comes to mind, further back Great Depression.
    Having a Lazy $80,000 plus as Back Up wouldn't be overly concern about anything.
    This amount of $80,000 plus would be a minority that could put it aside as well as having investments to provide a income to live off.
    Might be they would have to Spend Less.