How Much Do You Need for Emergencies in Retirement?

​Do you have an emergency fund? If the answer is no, you’re not alone. According to a recent survey, 24 percent of American adults said they had no savings at all. Among those approaching retirement, age 53 to 62, more than 30 percent said they didn’t have any money set aside for emergencies.1
 
An emergency fund is important at any age. During your working years, an emergency fund can help you get through stretches of unemployment or disability. You can use it to cover medical bills, home repairs or any other major unexpected costs. Common advice is to always maintain at least a few months’ worth of living expenses in a safe, liquid emergency account.
 
Retirement is different, though. Work is no longer an issue, so unemployment and disability no longer pose major threats. You’ll have Medicare to cover health care costs. And you may have significant retirement assets to pay for any other need. You might feel that a substantial emergency reserve is no longer important.

​The truth is that an emergency fund is just as important in retirement as it is during your working years. By keeping an emergency reserve, you can minimize the need to deplete your retirement savings to fund unexpected costs.
 
The real question is how much you should keep aside in an emergency fund. That largely depends on your lifestyle and your spending needs. However, there are a few important items to consider. Below are three questions to ask yourself to estimate your emergency cost needs:

How will you pay for out-of-pocket health care costs?
Do you have a plan to pay for out-of-pocket health care costs? Many retirees assume that Medicare covers all of their health care expenses. The truth is that Medicare usually covers only a portion of health care expenses in retirement. There are some costs, such as long-term care, that Medicare doesn’t cover at all. In fact, Fidelity estimates that the average retired couple will spend nearly $275,000 on out-of-pocket health care costs in retirement.2
 
An emergency fund can help you pay for treatment and care not covered by Medicare. You also may need your emergency reserve to pay for long-term care, which is often needed for seniors who suffer from Alzheimer’s, Parkinson’s or other cognitive disorders. Long-term care can be provided in the home or in a facility, but either way, it can often cost thousands of dollars per month. Your emergency reserve can help you pay for care without draining your retirement savings.

Will you need to support your children?
Think you’re done paying for your children just because they’re grown. Not necessarily. A recent study from Fidelity found that almost half of all millennials rely on their parents to pay at least one bill.3 Many retirees are seeing their adult children return home or ask for financial support. In fact, this trend is so common that it’s prompted its own term: “boomerang kids.”
 
While financial support for your kids may not be in your retirement plans, it’s a very real possibility. All it takes is one job loss, divorce or medical emergency. You may want to think of your emergency fund as a reserve not only for you, but also for your adult children and their families.

What other emergencies could you face?
Of course, there are any number of emergencies you might face in retirement. You could need a costly home or car repair. You may be forced to relocate. You may have to help family members. Life is unpredictable, and nearly anything is possible. You may find it helpful to make a list of possible threats and their potential cost. That could help you better estimate your emergency reserve needs.
 
Ready to build your retirement emergency reserve? Let’s talk about it. Contact us at J. Harris Financial. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

 
1https://www.cnbc.com/2017/06/20/about-57-million-americans-have-no-emergency-savings.html
2https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise
3https://www.glamour.com/story/how-much-do-your-parents-help-you-get-by
 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
17280 - 2018/1/17