This Could Be the Single Best Way to Protect Your Retirement Savings From Market Volatility

Stock market volatility can be a tough thing to deal with at any stage of life. But during retirement, it can be downright scary.

Once you're retired, you may be using your portfolio for income. And if the market tanks, you may be forced to sell assets in your IRA or 401(k) at a loss to generate the income you need to pay your bills. That could put you at a greater risk of running out of money down the line.

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The good news? There's one key move you can make to protect your retirement savings from market volatility. And it's incredibly easy to pull off.

Make sure you have a solid cash buffer

When you're building wealth for retirement, a market crash or period of upheaval shouldn't rattle you too much. That's because you may have years, if not decades, for the market to settle down.

In retirement, you don't have the same luxury. That's why it's important for every person to go into retirement with a cash cushion. And the time to do that is while your portfolio is in good shape -- not during a market downturn.

If you convert some of your assets to cash, you may lose out on gains on that sum. But what you may get in return is peace of mind and portfolio preservation.

Unlike stocks, cash can't lose value during a market downturn. If you have $150,000 in a high-yield savings account that's FDIC-insured, the only way that sum goes down is if you take withdrawals.

Having cash on hand makes it easier to ride out a market downturn. You can leave your portfolio alone and live off your cash cushion until the market recovers.

How much cash should you have?

There's different guidance as to how much cash you should have in retirement. You don't want to go overboard, since cash savings don't tend to generate the same returns as stocks.

A good rule of thumb is to have at least two years' worth of retirement expenses in cash. While some market recoveries are quicker, that's not guaranteed. A two-year cash cushion allows you to leave your portfolio alone for quite some time to ride out a storm.

That said, your cash cushion should be based on how flexible your spending is. If you're willing and/or able to cut back on spending by about 20% to 25% during a market downturn, then you may not need two full years of expenses in cash. If you don't want to have to do that, a two-year cushion makes sense.

You can also base the decision on how much Social Security you get. If you're receiving benefits and they can easily cover 50% of your expenses, then you may be able to get away with a one-year cash cushion. That still gives you two full years of covered expenses without having to tap your portfolio.

No matter what sum you land on, make sure to have that pile of cash available at the very start of retirement. You never know when the market might start acting up, so it's best to go in prepared.

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