Having an emergency fund is vital no matter your stage of life, even heading into your retirement, says an article from The Balance, “How Much Emergency Savings Do Retirees Need?”. In retirement, having money set aside for emergencies is useful especially if you don’t want to be dipping into your nest egg when unexpected costs pop up.
Okay, so having an emergency fund is important, but how much should retirees have?
Typically, this fund is used to pay expenses that come up without warning when you have cash flow changes or your debt increases because of a loan or something else. In retirement though, an emergency fund is geared more towards paying unexpected health care expenses. A retiring 65-year-old couple can expect to spend $280,000 on healthcare, states Fidelity, and this does not include the cost of long-term care! In life and especially retirement, the unexpected can happen when it comes to health, you could have a serious fall or be diagnosed with a severe illness. Bills could pile up if your insurance or Medicare doesn’t cover the entire cost. This is where your emergency fund would come in.
To answer the “how much” question, there are two things you need to consider: your normal monthly spending and how conservative you want to be in saving for emergencies.