Why an Emergency Fund Is an Overlooked Retirement Asset

Retirement is often painted as a time of leisure, but it can come with unexpected financial surprises. A surprise medical bill, a major home repair or even helping out a family member can derail your plans if you’re not prepared. That’s why an emergency fund is one of the most important – and most overlooked – assets in retirement.

Yet, many people don’t have one. According to a Bankrate survey, a third of U.S. adults have more credit card debt than emergency savings, and quarter have no emergency savings at all. And among those who do, more than half don’t have enough to cover three months’ worth of expenses.

In retirement, where a steady paycheck is no longer coming in, this gap can be especially risky.

Key Takeaways

• Stuff (retirement emergencies) happen! Medical expenses, home repairs and family needs can quickly derail your finances if you don’t have a cash reserve.
• Aim for 12–24 months of essential expenses. A larger emergency fund in retirement helps you avoid selling investments at the wrong time or taking on unnecessary debt.
• Start building your fund before retirement. Automate savings, cut unnecessary expenses and consider keeping your emergency fund in a high-yield savings account or money market account for easy access.

What’s an Emergency Fund and Why Do Retirees Need One?

An emergency fund is a cash reserve set aside for unexpected expenses. It acts as a financial cushion, ensuring that you don’t have to dip into long-term investments – especially when markets are down – to cover surprise costs.

While working, an emergency fund helps protect your income. In retirement, it protects your lifestyle. Unexpected expenses don’t stop once you leave the workforce. In fact, they can become even more frequent.

Common retirement emergencies include:

• Medical expenses – Even with Medicare, out-of-pocket costs add up. Fidelity estimates that a 65-year-old couple retiring today will need $315,000 for healthcare expenses alone.
• Home repairs – Replacing a roof, fixing plumbing or updating an aging HVAC system can run into the thousands.
• Long-term care needs – A sudden need for in-home care or an assisted living facility can create a major financial burden.
• Helping family – Many retirees find themselves financially supporting children or grandchildren in emergencies.

Without a solid emergency fund, these expenses could force you to sell investments at the wrong time or take on debt.

How Much Should Retirees Have in an Emergency Fund?

The standard rule of thumb for emergency savings during your working years is three to six months’ worth of living expenses. In retirement, you might need more.

It may be worth considering a target of one to two years’ worth of essential expenses in liquid savings, depending on your financial situation. That may sound like a lot, but remember, this money isn’t just sitting there collecting dust. It’s providing you with peace of mind and flexibility.

If a major expense pops up, you won’t have to sell investments in a market downturn or withdraw from tax-advantaged accounts at an inopportune time.

Factors to consider:

• Your fixed vs. discretionary expenses – Focus on covering necessities like housing, food and medical costs.
• Your income sources – If you have steady pension or annuity payments, you may need less. If you’re relying on market-based withdrawals, a larger cushion could be smart.
• Your health and family history – If long-term care is a potential concern, extra savings can help.

How to Build an Emergency Fund Before Retirement

If you’re still working, now is the time to build up your emergency fund so it’s ready when you retire. Here’s how to do it:

1. Determine Your Target Amount

Start by estimating your essential monthly expenses – mortgage or rent, utilities, food, insurance and healthcare costs. Multiply that by 3 to 6 months, or if you want to go bigger 12 to 24 months, to set a goal for your emergency fund.

2. Automate Your Savings

Make saving easy by setting up automatic transfers from your paycheck or checking account into a high-yield savings account. Even small, consistent contributions add up over time.

3. Cut Unnecessary Expenses

If you’re struggling to save, look at your discretionary spending. Can you trim dining out, streaming subscriptions or impulse purchases? Redirecting even $100-$200 per month into your emergency fund can make a big difference.

4. Allocate Bonuses, Raises and Tax Refunds

Any unexpected income – such as work bonuses, raises or tax refunds – can provide a quick boost to your emergency savings. Instead of spending it all, allocate a portion toward your fund.

5. Keep It in the Right Place

Your emergency fund should be liquid and accessible, but it also can earn more interest than a traditional savings account without taking on risk. Potential options include:

• High-yield savings accounts – These offer better interest than standard checking accounts while keeping your money safe and easily accessible.
• Money market accounts – These typically provide higher interest rates than savings accounts with check-writing privileges.
• Short-term CDs (Certificates of Deposit) – If you don’t need immediate access to a portion of your emergency fund, a laddered CD strategy can provide better returns while keeping funds available at staggered intervals.

The Bottom Line

Unexpected expenses don’t stop in retirement, and without an income stream, covering them can be challenging. The best time to build an emergency fund is before you retire.

If you haven’t started yet, begin today. The more you prepare now, the smoother your retirement will be.

How prepared are you for unexpected expenses in retirement? If you’d like help structuring your financial plan, reach out to a financial adviser today for a free consultation.