Yes, really.
An emergency fund is a good idea at any stage of life.
You have reached or are nearing retirement!
Congratulations!
But wait!
What happens if your car breaks down?
According to a recent article in Fox Business, titled “What Nest Egg? Two-Thirds of Americans Can't Cover $1,000 Emergency,” you will need an emergency fund if you want to leave those retirement accounts mostly untouched.
Why?
Emergency funds are particularly important in retirement.
You are probably living off of savings and have a more "fixed" income.
In fact, you are probably relying on Social Security and investments rather than a salary.
In addition to having no money coming in, your health care costs and needs will rise as you age.
You cannot rely on retirement savings alone.
Yes, you could make do without an emergency account per se.
Still, you would be wise to have a separate account.
How much should you have?
On average, six to 12 months of living expenses is appropriate.
More would not hurt.
While you do not need to have an emergency fund in a separate bank account than your savings, be sure to "maintain" it.
Although you cannot predict exactly how much money you will need in this account, you can start by calculating based on what you know.
What should you consider?
- Current insurance
- Total monthly cost of living
- Current or future dependents
- Current health
- Anticipated health insurance costs
- Estate planning costs
- Assisted living
- Skilled nursing
- Home health care
- Hospice
You should use your IRA only when necessary.
Your IRA funds may be more than enough to cover these expected expenses and any potential emergencies, but they still have limitations.
How so?
They will take a bit longer to liquidate, making these assets less readily available for use in an emergency.
Instead, use IRA funds only as a backup plan—not your first response.
You worked hard and planned well, do not jeopardize it by neglecting an emergency fund.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Fox Business (August 14, 2016) “What Nest Egg? Two-Thirds of Americans Can't Cover $1,000 Emergency”
