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Building a Retirement Emergency Fund

Building a Retirement Emergency Fund
May 21, 2019 pretsrapides

Building a Retirement Emergency Fund

“Set up an emergency fund that you can turn to in case of a financial emergency.” You’ve probably heard this statement a countless number of times. The unfortunate truth is that many people believe that only those who are working need to set up an emergency fund that can help them in case they lose their jobs.

But, the truth is that even retirees need emergency funds even if their savings cover their basic living expenses.  Unexpected expenses such as a leaky roof, broken furnace, or medical bill can easily throw you off the track and disrupt your financial planning.

Even natural disasters such as floods could swipe you, leaving you in a precarious position financially. The reality of life is that there are lots of things that are going to happen that you didn’t foresee when setting up your retirement fund.

Furthermore, if your money is held up in a tax-deferred retirement account, you’ll be hit with a huge tax bill if you try to withdraw the funds for an emergency. This leaves you with no other option apart from getting an emergency loan online to help you address your financial emergency.

But, creating an emergency fund isn’t an easy thing to do. It takes a lot of planning, commitment, and patience.Read on to find out how to build an emergency fund for retirement.

How to Build an Emergency Fund for Retirement

It is never too late to start building your emergency fund for retirement. The key thing to building a successful emergency fund for retirement is knowing how to use your funds prudently and setting aside a certain percentage of your income if you are still working.

Find side gigs and start working part-time to raise more money that will go towards building your emergency fund. You might want to determine the minimum amount that you will be contributing towards your retirement emergency fund every month to stay on track.

While setting up your retirement emergency fund, make sure that you start working with the cash that you already have on hand. Deposit that money into a credit union or bank account with a reasonable interest rate to establish a “cash basket” that can help you cover any financial emergency that may arise any time. Make sure that you refill your “cash basket” occasionally to be safe.

How Much Should You Set Aside as Your Emergency Fund for Retirement?

When trying to figure out how much you need to set aside as your emergency fund, consider the actual replacement cost of big-ticket items in your home such as appliances and also estimate the amounts for other unexpected events such as car repairs. The amount of money that you set aside should be in addition to what you set aside to cover your regular living expenses. Financial experts recommend that retirees should set aside an amount of money equivalent to up to five years’ worth of their living expenses.

If you are a retiree with plenty of cash in an emergency fund, you’ll have nothing to worry about no matter the situation.

If you are still working, make sure that you address all the expensive projects before you retire. Replace that leaky roof or faulty AC if you think it will be needed soon. If you usually handle home improvement projects by yourself, it is time to acknowledge the fact that you’ll need to start paying someone to do the jobs for you.

If you don’t want to set up an emergency fund for your retirement, consider using reserves in your investment portfolio to cover unexpected costs. But, you need to be extra careful what part of your portfolio you tap to avoid running into financial problems.