Do retirees need to have savings for emergencies? This may sound a very common question, but any financial planner will tell you how important it is. An emergency fund serves those in youthful employment and the retirees. Unfortunately, the Federal Reserve survey explains that a majority of adults cannot cover an emergency of $400 in cash.
The general rule of thumb states that a person’s savings after retirement should take them through for at least three to six months. This should indeed be a good amount. However, putting it together at once and especially when you have other financial obligations is tough.
The primary purpose of an emergency fund and the retirement expenses it should cover
More often, an emergency fund covers unexpected costs. Meaning you neither have to borrow or use the regular cash flow. It also takes you through in case of a job or a temporary disability. However, this may not be necessarily the same with retirement, given that there is no longer the flow of steady income. For retirees, an emergency fund covers their monthly premiums of health insurance costs. They are eligible for Medicare as of 65years. However, not all medical expenses are covered by insurance.
Pays their homeowners and car insurance, especially when a disaster strikes. Say, for example, when a car is involved in an accident, the insurance may not pay all the repair costs. This also applies when a house is damaged by flooding water.
It is a financial cushion to any retiree whose investments have been hit by plummeting financial markets. In old age, not many retirees can keep up with the activities of market fluctuations. Hence, the need for an emergency fund.
It is a source of support for adult kids or grandchildren living with them. You do not have to use your retirement to do so if you have a hefty chunk of emergency savings.
Finally, don’t wait to approach retirement age to start creating an emergency kitty. If necessary, draw up your monthly budget, which will guide you into how much you need to put aside for that anticipated retirement lifestyle.