Just because you’ve prepared your retirement fund well doesn’t mean you no longer have to set aside an emergency fund for you and your loved-one! In fact, you will need an emergency fund now more than ever as there are many risks retirees are apparently facing.
See post: Your Top Five Retirement Risks
An ideal emergency fund would be three to six months worth of living expenses. Out of retirement, this kind of money would be set aside in case you lose your job—sort of cushion your fall. For a retiree, an emergency fund will come in handy in cases of unexpected expenses. Although retirees are no longer in danger of interrupted cash flow as that of someone who just lost their job, their monthly “income” tends to be in fixed amounts, not very flexible in cases of emergencies if you come to think of it. Best to see emergency fund as large enough to pay for the emergency itself and tide you over until you’re able to recover from it. In a way, your emergency fund should be maintained all through your life, replenish it if you dipped your hand into it. Of course, you would like your emergency fund to be big enough to accommodate your needs such that when an emergency strikes, your boat won’t tip over.
Your emergency fund should be in a “liquid asset” form. In layman’s term, it should be easily convertible to cash and it need not yield much. Unlike your retirement fund which needs to be invested in order to grow, your emergency fund should be within your reach at all times. Emergency fund can be used for unplanned expenses such as renovating your house or fixing your car which can cost thousands of dollars. Ask a retiree and he will tell you about all those financial surprises awaiting you upon crossing the retirement threshold!—and indeed there be many.
And then there’s the matter of inflation. Prices of basic commodities go up and down—usually up. Pension payments are usually not set for such sudden changes so it only means that what you have thought as “more than enough” now can actually be insufficient 15 to 20 years from now. Your emergency fund can indeed help you cope with these sudden changes as you switch from one plan to another.
Market climate is yet another foe in a retiree’s way. Years ago, your retirement fund is at its safest in stocks and bonds. Now that these areas have taken a direct hit, market climate became erratic and unstable. You need a buffer, something to absorb the impact—your emergency fund will be able to fulfill this.
