Will You Still Need An Emergency Fund When You Retire?

Preparing for retirement is mostly about building up a very large portfolio to carry through your golden years. But will you still need an emergency fund when you retire? The answer to that question is most definitely yes. In fact, you may even need a larger emergency fund when you retire than what you maintained earlier in your life.

For one thing, you don’t want to be using your retirement portfolio as an emergency fund. You’ll need that money to live on for a very long time, so large unexpected expenses will need to be covered from another source.

In addition, there may actually be more situations that qualify as emergencies – or at least as events that require a significant amount of money – when you’re retired. Here are some examples of the bigger ones.

Car Repair Or Replacement

Since you’ll be retired, you’ll probably do what most retirees do and keep your car for much longer than you would have when you had to drive to work every day. When you do that, it opens up a greater likelihood that you’ll have to make emergency repairs.

There will also be a greater chance that one day the car will just die and be beyond repair. Normally, replacing a car is not an emergency situation, but the definition of emergency tends to change as you get older. The consideration here may be avoiding a car loan, and when you are retired and trying to stretch your money, taking on a new loan is the last thing you want to do. Even worse will be draining funds from your retirement portfolio for the purchase of a new car.

Uncovered Medical Expenses

As you get older, you’re reliance on the health care system increases. That raises the possibility of uncovered medical expenses, and that is an expense category that you will surely want your emergency fund to be available to cover.

It can be close to impossible to make a reasonable estimate of how large the uncovered portion of a very large medical event will be. But by having a large emergency fund you will have time to raise additional funds, if needed.

Major Home Repairs

If you have lived in your home long enough to payoff the mortgage, the house probably contains any number of components that could fail at any time. Your roof could begin leaking in several places, or your furnace or air conditioner can suddenly fail. Either situation would qualify as an emergency.

Helping Your Children

You are retired, so you’re home free, right? Not necessarily. While you personally may be on easy street, the people in your life may not be. And that starts with your adult children.

The last few decades have given rise to phenomenon known as “boomerang kids”. These are adult children who after being out on their own, sometimes for many years, face a crisis in life and have to return home to mom and dad. The reason could be caused by a divorce, career crisis, serious legal issues, or a medical disaster.

The onset such an event can be a severe setback even for an adult child who was well-established financially just a few years earlier. There be may be no reasonable alternative to either seeking monetary assistance from you, or even moving back home with you.

Absorbing that kind of change into your life during retirement will take time. But at the very beginning, it will be a certified emergency and will require a significant amount of money up front. A well-stocked emergency fund will keep you from having to dip into your retirement portfolio too early in the process. That will buy you time to make longer-term provisions.

Keep Restocking Your Emergency Fund After Retirement

Since you will be living primarily on retirement investment income, Social Security, and any pension income you might have, the old emergency fund rule-of-thumb of having X number of months living expenses in reserve will not apply. You’ll have to think more in terms of potential emergency situations in order to arrive at a reasonable emergency fund balance.

For example, you may decide that your emergency fund needs to be large enough to replace your car. It’s not that you will be replacing your car every year, but that doing so is probably the best example of a single, very large outlay. That can be used to establish the upper range of your emergency fund balance. It will more than cover lesser emergencies, as well as provide plenty of cash for unexpected contingencies.

When you have that emergency fund balance established, and you enter retirement, it will be important that you have space in your budget to regularly replenish the fund. You’ll want to do this on an ongoing basis so that you’ll always have money available when needed, and you will not be forced to make large lump sum withdrawals from your retirement portfolio.

In this way, your emergency fund can serve as a buffer that will keep you from having to drain your retirement plan as emergencies arise.

Do you plan on making provisions for an emergency fund for your retirement?

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Reader Comments

  1. says

    Every single person living will always need financial assistance as we grow older. Even if we are retired from work, we will still need emergency funds if such an incident occurs. To be prepared, it is important to get ready years beforehand. Having said that, investments like insurance policy, business or personal savings should be enough to provide us financial assistance whenever we need.

    • says

      That’s so true Alberta. When it comes to retirement though there may be the thought that we’re covered by a retirement savings plan. But that’s for income generation, not for emergencies. We need both.

  2. says

    None of those seem like emergencies except the medical. If you have a house, you should have a repair fund, same goes for the car. Those are not emergencies but expected expenses. And frankly, I can even imagine why you would classify helping your ADULT child as and emergency. If you want to do so, make that part of your budget, but it certainly is not an emergency.

    • says

      Hi Ginger, you’re absolutely right, most aren’t true emergencies. But when you’re walking into retirement tightly – as a lot of people do and will – there may be a tendency to over-rely on retirement savings to cover those costs. A giant emergency fund – or what ever you want to call it – will help get the job done and keep you from tapping retirement money.

      On that helping adult children point – sometimes that can be an emergency (ie, child loses a job or incurs a large medical expense they can’t cover).