The cash factor

For as long as you've been working, you've been diligently socking away a good chunk of your money so you'll be set later in life. Even if you've been smart about saving, you may need to shift your thinking as you approach retirement. In particular, you'll want to know which of your assets you'll be able to convert into cash quickly.

There is a big reason you want this easy-to-access liquidity: If you find that you need to spend money on something right away—an unexpected medical bill, to care for a loved one, a natural disaster—you won't have to tap into your investments or spend down your retirement savings.

There's no set amount to aim for, but Melody Juge, a registered investment advisor and the founder of Life Income Management and RetirementSense, says that it's important that you view these liquid assets as a true emergency fund. "You shouldn't be tapping into your cash reserves for something like long-term-care insurance or a trip, or because you're not living within your means," she says. Health-care payments, cost-of-living adjustments, a vacation fund—all of these types of basic living and lifestyle expenses should be considered givens and factored into your 30-year retirement plan.

"An appropriate retirement plan will have a variety of investment accounts, which allows for money to be used for different reasons," Juge explains. "Don't cut out or overlook any financial instrument that's out there. IRAs, annuities, Roth IRAs, bonds, direct stocks, money-market accounts—there's value to all of them in the right situation."

Here's help factoring cash into your overall plan:

• Social Security and 401(k)s: Once you're eligible to begin receiving Social Security, you can tap into those monthly direct deposits to get the cash you need for an unplanned event, or set it aside and build an emergency fund. Also, if you're old enough to get Social Security, you may be able to take regular disbursements from your 401(k) without paying a penalty for early withdrawal. But check the fine print, as some 401(k) plans may not let you take money out if you're still working.
• Government bonds: Short-term and intermediate-term bonds are fairly easy to cash in on a staggered basis.
• Money-market deposit accounts and certificates of deposit: Current interest rates are low, which means you won't be earning much on your investment by keeping cash in money-market accounts and certificates of deposit (CDs). But they are low risk and protected by the Federal Deposit Insurance Corp. (FDIC), making them a good first choice to tap into. Keep in mind that if you withdraw from a CD before the term is up, you'll likely pay a penalty that cuts into the interest earned.
• Exchange-traded funds: Flexibility is one of the benefits of buying one of these funds, which track indexes like the Nasdaq 100 and S&P 500. They trade at a higher volume than individual stocks, so investors can get into and out of the investment with less risk of exposure to market fluctuations.
• Home equity line of credit: Before an emergency occurs, you can apply for a home equity line of credit (HELOC) and have it at the ready. This allows you to tap into the equity in your home and withdraw cash. Introductory interest rates on HELOCs are usually low. However, they can rise after signing.
• Annuities: Annuities are generally designed to meet long-term goals for retirement savings or income. That said, most annuities sold today allow free withdrawals up to a certain amount. Exceed that amount, and you'll likely incur charges.