This Is What Happens When You Don’t Have An Emergency Fund After Retirement

Most financial experts and planners agree that keeping an emergency fund for three to six months is good advice. Keeping a large amount of cash in a savings account can give you some ground when you need it most, especially when you lose your job, lose your spouse, or face a life-saving or medical emergency.

But what about retirees? Do you need an emergency fund when you retire? After all, you probably have some savings to fall back on. Do you really need a separate savings account at a bank to store emergency cash?

Yes, retirees still need an emergency fund. This is why.

An emergency fund prevents you from selling investments at an inopportune time

It’s true that retirees may have saved enough to cover most emergencies. But those savings may not be liquid cash. And for retirees who have a significant portion of their savings in investments, such as index funds and stocks, an emergency expense could force them to retire at unfavorable times, such as market dips and recessions.

In other words, When you don’t have an emergency retirement fund, you could be forced to sell investments at a loss. Depending on how poorly your investments perform, that loss could be significant enough to shorten the longevity of your portfolio.

In this case, an emergency fund could help you pay your monthly expenses, without digging deeper into your investment portfolio. It can also prevent you from defaulting on contracts, such as CDs and annuities, which can have early withdrawal penalties, as well as avoid high-interest debt, such as credit cards and loans.

How much should retirees set aside for emergencies?

The general rule of thumb is to save three to six months of living expenses as an emergency fund. However, for retirees, I would recommend having about a year or two of free cash from investments, annuities, and certificates of deposit. Most bear markets don’t last more than a year, averaging around 289 days, and a year or two of cash should give you plenty of time to start pulling back when conditions are more favorable.

Even if you don’t plan to have your retirement savings invested in investments, it’s good financial planning to put an emergency fund in an account that’s easily accessible, such as a basic checking or savings account. You could take advantage of high-yield savings accounts, but keep withdrawal limits in mind, as you want to minimize penalties to keep more money in your savings.

Fortunately, if you’ve saved enough for retirement, building an emergency fund could be as easy as moving money around. Selling investments when the time is right (ie, when you won’t be selling at a loss) could help you start or replenish an emergency fund in another account, even if the money doesn’t have a strong interest rate. return there.

In the end, this is money you’ll eventually use, emergency or not, but keeping it in a low-risk account could mean avoiding losses and penalties, effectively protecting the longevity of your retirement savings.

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