Retirement brings exciting possibilities but also requires careful financial planning to ensure long-term stability. In a recent Women & Money podcast episode, financial expert Suze Orman responded to a listener named Linda, who asked whether retirees should keep one year or five years' cash in an emergency fund. Orman's advice offered insights into navigating market fluctuations during retirement.

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According to Orman, most retirees depend on their retirement accounts, such as Roth or traditional IRAs, to fund their monthly living expenses. These accounts often hold investments in stocks, bonds or mutual funds. While these assets grow over time, their value fluctuates with the market.

Orman says the problem arises when retirees need to withdraw money from their accounts during a market crash. Selling stocks or bonds during a market downturn can cut into retirement savings, potentially jeopardizing future financial security.

To address this risk, Orman recommends that retirees keep a cash reserve with three to five years of living expenses. "If you really wanna be on the safe side, it's five years," she said.

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This cash reserve acts as a safety net, allowing retirees to withdraw the funds they need rather than selling and withdrawing from their investment accounts during a market slump.

Orman explains that keeping three to five years’ worth of expenses is important because that's how long it often takes the markets to recover from significant downturns. Having enough cash for that time minimizes the need to sell at a loss, ensuring retirees can leave their investments alone long enough to regain their value.

It usually takes the markets longer to recover during a recession. According to Invesco, the average decline during the "more mild" recessions in the '80s and '90s was around 20% and the stock market recovered from these within one to two years.

The more extreme recessions, like the 2008 financial crisis, extend that recovery time. 5 paisa, an online investing and trading platform, states it wasn't until 2013 that the market recovered to its precrisis levels.