Emergencies in Retirement

First, sorry for the gap yesterday. I got caught up doing other projects--my bad.

Many times, I'm afraid we think of an emergency fund in terms of younger peoople with less job stability, less money in savings, and more monthly bills. However, emergency funds aren't only for the young. Do you need an emergency fund during retirement? Yes, you do. Even if your house is paid off, you pay cash for cars, and you don't carry a credit card balance, you still need an emergency fund during retirement. Two areas loom over your plans--healthcare and a stock market decline.

A reserve fund for healthcare can assist if an unexpected illness has treatments not covered by insurance or if your out-of-pocket is high. If you rely on your investments for monthly income, the worst thing that can happen is the need to sell securities to generate monthly cashflow in the middle of a market turmoil. (Now, by this, I am not saying that buying and holding through anything is correct. A buy and hold strategy actually needs to be implemented as carefully as a trading strategy, but that's a conversation for another day.) Not holding enough cash forces the selling of stocks, bonds, or funds at times you might not want.

How much reserve fund do you need? Well, the healthcare component has a lot to do with the quality of your current insurance (both health and long-term care). Holding at least the deductibles might be wise. The investment emergency fund is much more complicated. I like to hold at least a year of monthly distributions in cash, but I cannot advise you what would work for you in this blog. Everyone's needs are different, and you might need two or three years. I recommend you talk with a CERTIFIED FINANCIAL PLANNER (TM) certificant to help you with this decision.

Retirees are often looking at their life savings in front of them and a significant number of quality years ahead. Planning for financial emergencies at this time can help with your quality of life and your ability to sleep at night.

Be prosperous!
Peggy Doviak