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Why You Still Need an Emergency Fund in Retirement

Filed under: Retirement

An emergency fund is a key component of any sound financial plan. As you likely know, life can change quickly. You could suffer a costly medical issue. Or you may suffer home or car damage that requires an expensive repair. You may go through a stretch of unemployment that busts your budget.

These kinds of unexpected emergencies, and others, can damage your financial stability and limit your ability to reach your long-term goals. An emergency reserve can help you tackle these challenges as they arise.

Many retirees assume they no longer need an emergency reserve in retirement. The possibility of unemployment is no longer a threat. You may feel that Medicare will cover your health care expenses. You also may have a large sum of retirement assets available.

However, the truth is that an emergency fund is just as important for retirees as it is for those who aren’t retired. In fact, it could be even more important. Below are a few reasons why you should keep funding that emergency reserve after you retire:


Market Volatility

It’s likely that your retirement assets will still have some risk exposure after you retire. It may be tempting to move all your assets into conservative, risk-free investments. However, you’ll likely need some level of growth to fund your withdrawals and to combat inflation.

The last thing you want is to dip into your retirement assets to fund an emergency during a downturn. A sizable withdrawal will only compound the loss and limit your ability to recover. Instead, keep a separate emergency reserve specifically for those large unexpected costs.


Health Care

Think Medicare will cover all your health care costs? Think again. Medicare doesn’t cover every form of care. Even if a treatment is eligible for coverage, Medicare usually pays only a portion of the bill. That means you’re on the hook for the balance.

An emergency fund can help you pay for treatment and care not covered by Medicare. You also may need your emergency reserve to pay for long-term care, which is often needed for seniors who suffer from Alzheimer’s, Parkinson’s and other cognitive disorders. Your emergency reserve can fund in-home care or even care provided in a facility.


Boomerang Kids

Think you’re an empty nester because your kids are grown? Not necessarily. Many retirees are seeing their adult children return home or ask for financial support. In fact, this trend is so common that it’s prompted its own term: “boomerang kids.”

While financial support for your kids may not be in your retirement plans, it’s a very real possibility. All it takes is one job loss, divorce or medical emergency. You may want to think of your emergency fund as a reserve not only for you, but also for your adult children and their families.



Inflation is a subtle threat that’s easy to ignore. It’s the gradual increase in prices from year to year. Often, inflation is modest. However, even annual inflation of a few percentage points can add up over the long term. Consider that an average annual inflation rate of only 3 percent would lead to a doubling in prices over a 24-year period.

Hopefully you’ll see growth in your retirement assets, which will allow you to increase your income over time. However, there may be times when your income doesn’t increase and you may need some additional funding help. An emergency reserve can come in handy to help you get through those periods in which your expenses are greater than you’d expected.

Ready to build your retirement emergency reserve? Let’s talk about it. Contact us at Ambrose Financial and Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.


Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

17280 – 2018/1/17