By now, most people know that financial planners recommend keeping three to six months’ expenses tucked away in case of emergency or unemployment.
This can be even more important for pensioners, given that many have not saved enough and no longer have a regular paycheck if something happens.
“Unexpected expenses are still coming up,” said Dana Anspach, founder and CEO of Sensible Money in Scottsdale, Ariz. And author of “Control Your Retirement Destiny.” “It can be a dental cost, home repair or car repair. We often see a family member who needs help – an adult child loses his job and goes through unemployment or divorce. I have seen customers who have been given custody of grandchildren. All things happen. ”
Most Americans are not prepared for an unforeseen emergency. Only 40 percent could cover an unexpected cost of $ 1,000, according to a survey by Bankrate.com, a personal finance website. Many would be forced to borrow cash or use a credit card.
Anspach says that the emergency fund will not have any impact on your Medicare or long-term care policy. the comes has an impact if you apply for Medicare, but then you spend your assets anyway, she said.
How much money should pensioners have set aside?
“If your income comes from social security or a pension that is super secure, which means that the company or government guarantees that the pension is very financially secure, you may only need a few months’ expenses,” says Ric Edelman, author, radio host and founder of Edelman Financial Engines. “But it not describe most retirees. Most have income from various sources, none of which is guaranteed. They receive pensions from shaky employers, pensions that are not stable and investments that can lose money in a market crash. ”
Nathan Boxx, head of retirement plan services at Fort Pitt Capital Group in Pittsburgh, Pa., Says a retiree’s emergency fund can be a little smaller than working people. “Hopefully your mortgage is paid off and you’m in the car. Costs tend to decrease. The biggest will be medical care, and it will be covered through your Medicare or supplemental premiums. ”
Boxx says retirees should have a credit to help pay for unexpected expenses. “Usually it costs nothing if it is there. You can write a check if you have disaster like a flooded basement. It’s very cheap money. And it gives you time to figure out which pool of money you will use to pay them off or pay them off slowly over time. ”
Where should it be invested?
It must be safe somewhere, says Anspach. “You will not get much interest, but it will be available.” She said a trap people end up using retirement accounts in emergencies. “If everything is tax deferred, you will pay tax on everything. It may bump you into another console. A money market fund or bank savings account gives you a lot of flexibility. What it really provides is peace of mind. ”
“There is a psychological part to having a healthy cash reserve outside the stock market,” says Boxx. “When we experience periods of high volatility, as we just did, it can be a peace of mind to have that cash reserve on the side.”
Rodney A. Brooks writes about pensions and personal finance issues. His column is currently running in US News & World Report. He has written columns on retirement for Washington Post and USA TODAY. He has also written for national geographicalNext Avenue and Black Enterprise journal. He retired as deputy editor-in-chief / Personal Finance and pension columnist for USA today 2015.
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