Where Your Cash Should Live

A few months ago, I met with a couple who are about seven years from retirement. They’ve had strong careers, their kids are finishing college, and their investment accounts are well built. On paper, everything looked solid.

As we reviewed their accounts together, one detail stood out: They were holding more cash than they realized. It was spread across checking, savings, and brokerage accounts. Altogether, it was a meaningful amount.

When I asked what that cash was specifically set aside for, they paused. Some of it was for peace of mind. Some of it was for future plans. Some of it had simply accumulated over time.

This is common.

Turning Reserves Into Strategy

When families begin working with us, the natural starting point is investments. Allocation, risk, long-term growth. Those conversations matter, especially as retirement approaches.

But before we make investment decisions, we spend time understanding the full picture. What transitions are ahead? What responsibilities are still in motion? What does retirement look like in practical terms? Are there aging parents, business decisions, or lifestyle changes on the horizon?

Those answers shape how we invest.

They also shape how we think about cash.

At our firm, these conversations are not happening in isolation. We collaborate as a team behind the scenes, looking at planning, portfolio structure, tax optimization, and cash management together. That integrated view helps ensure reserves are aligned with the broader strategy rather than treated as a side decision.

Cash is not separate from your portfolio. It is part of your allocation. It plays a role in stability, flexibility, and timing.

Making a Plan for Cash

Many families build up cash gradually. A bonus here. A distribution there. A year of lower spending. Over time, balances grow.

There is nothing wrong with that. The real question is whether that cash is structured with intention.

In a higher-rate environment, cash can feel productive because it is earning more interest. In a lower-rate environment, it may feel idle. But the rate environment should not drive the strategy. The purpose should.

When I work with families, I often draw three simple layers to bring clarity to the conversation.

Three Types of Cash Reserves

First, we define liquid cash.

This covers monthly expenses and near-term obligations. It needs to be readily accessible and dependable. For most families, this sits in checking or savings accounts where stability and availability matter more than return.

Second, we outline strategic reserves.

This may include emergency funds or known expenses over the next one to three years. Tuition payments, a home project, or the early phase of retirement income before other sources begin.

Here, we look for balance. Some of this money may remain fully liquid in a savings account. Some may be positioned in a conservative allocation or short-term fixed income strategy to generate income while maintaining lower volatility. The goal is not to chase yield. It is to preserve flexibility while being thoughtful about positioning.

Third, we look at productive capital.

This is cash that does not have a near-term assignment. It may have accumulated slowly and does not yet have a defined role. At this stage, we evaluate whether it should remain in short-term holdings or be integrated into the broader investment strategy.

When families see their reserves structured this way, what once felt like one large number becomes more intentional.

The Cash Conversation When Nearing Retirement

Five to ten years from retirement is a transitional stage. Income is often still strong, but decisions begin to carry longer-term consequences. Cash becomes a bridge between working years and retirement years.

If liquidity is too limited, market volatility can feel more uncomfortable than it needs to be. If liquidity is too heavy, long-term growth may not keep pace with future spending needs.

The right balance is personal. It depends on your spending patterns, your timeline, and your comfort with variability. There is no universal number. There is alignment.

Building Discipline Around Cash

Interest rates rise and fall. Markets shift.

In a higher-rate environment, it can be tempting to hold more cash because it feels productive. In a lower-rate environment, it can be tempting to move quickly out of cash in search of return.

Both reactions are understandable. Neither replaces a structured approach.

The steady discipline is to assign each dollar a role based on your plan and your timeline. Here’s a look at how we put this all together for our clients:

A Practical Starting Point

If you have not reviewed your cash structure recently, consider these questions:

• How much do I truly need to be available in the next six to twelve months?
• What known expenses are coming in the next few years?
• Is there cash sitting without a defined purpose?

These answers often bring clarity to everything else.

Investments matter. But they are only one piece of the picture. When your portfolio and your cash are aligned with your goals, financial decisions tend to feel more grounded and less reactive.

A trusted advisory relationship can help map this out by bringing structure to your reserves and alignment to your broader plan.