Retirement: How to deal with unexpected expenses

I have long advocated an emergency fund in retirement. Many people can’t understand why someone not working and living on a more or less fixed income should establish and be able to replenish an emergency fund.

Financial emergencies happen in retirement too. And, if you do not have resources in addition to retirement income savings, a cash emergency could screw up your finances permanently…and cause you to go into debt.

So, when you set up your retirement budget, include ongoing savings.

Excerpt from USA Today.

Have an emergency fund. Typically, the first line of defense, says Whitcomb, is your emergency fund. How much should you have in that account? According to JPMorgan Chase, families ages 65-plus with income less than $29,000 need a little bit more than $2,300 set aside while those with income greater than $95,000 need a little bit more than $13,000. A middle-income family meanwhile would need about $5,000 to cover “concurrent adverse income and spending shocks.”

For her part, Sharon Carson, a retirement strategist with J.P. Morgan Asset Management, says having a cash buffer for out-of-pocket heath care expenses and long-term care expenses is also necessary. For instance, expected health care costs are projected to rise from $5,300 for a 65-year Medicare beneficiary in 2020 to $16,810 for a 95-year-old beneficiary.

The article then goes on to suggest ways to tap various assets, mostly by way of borrowing…why?

An emergency fund is not what you can borrow.

Source: Retirement: How to deal with unexpected expenses

5 comments

  1. I am 64 and now have an emergency fund with $6,000 and it is growing every month. Never ever had an emergency fund. I just leased a 2020 Ford Edge SEL. $4,107 down with $351 per month payments for 36 months. Option to purchase for $19,100 at lease end and I will have the cash to purchase at lease end. Total cost $35,492, just 232 above purchase price. I looked at the zero interest for 72 months, but I would loose $3,200 of the $4750 I received off MSRP..I have not had a car payment since 1985 and I will have this one paid off in full in 36 months. Since I drive less than $7,500 miles per year, this may be the last car I will ever own. The best thing you can do in retirement is zero credit card debt, then the emergency fund is easy to build.

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  2. Most mainstream financial advice is not well founded or substantiated. Raising four kids and assisting them through four year degrees had me running hard to provide for my family. This, running hard, was the catalyst for creating enough income to save proportionate to our long term needs. I recommend hard work and thrift.

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  3. There are other things to consider too. Before I retired, I planned for the replacement of appliances, the roof, hot water heater, and cars and how I was going to pay for them. Roofs may last up 30 yrs, most hot water heaters only have 6 yr warranties, and I get about 10 years out of a new car. My roof needed replacing 2 years before the CD I had for it came due but it will also be the last roof I’ll ever need in my lifetime. The water heater maybe on borrowed time now but I have the money for that too.

    The need for an emergency fund and just extra savings cannot be stressed enough. What has gotten me the most in retirement is trees. I have spent $3850 in tree removal since I retired due to a disease in the area. Who would have planned for such a large expense? I have 6 more oak trees that may have to come down one day. I still put money away every month into savings for the things I have not thought of that will one day come around and bit me.

    I also didn’t plan on a pandemic either but lucky for me, I have not taken a financial hit. I may have to help the kids since they can’t work and are spending down their savings. A 3 month emergency fund is not enough anymore.

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    1. Excellent points. I too was hit with a $4,000 bill to remove a tree that died in a matter of weeks just after I out my house on the market.

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