Emergency Cash Is A Good Idea At Every Age

Emergency Cash Is A Good Idea At Every Age

A basic tenet of managing your finances is to have a cash reserve equal to three to six months of your basic fixed expenses – mortgage or rent, insurance premiums, car payment, etc. – as well as variable expenses such as food and gas, in the event that you lose your job, become ill or injured, or experience any other crisis that interrupts your ability to earn your salary.

When you retire, your need for a cash reserve continues but the reason changes. Your income in retirement comes from assets you accumulated during those earning years, from Social Security (depending on your age), and possibly from a pension. So while you don’t have to worry about job loss disrupting your income stream, you may need cash to cover unexpected expenses such as car or home repairs and health needs that may not be covered by Medicare or your insurance, such as dental work, vision care, hearing aids or medical tests.

If you don’t have a pension plan, and your retirement income depends heavily on your own accumulated assets, how you meet emergency cash needs can be even more critical. You may not be able to sell long-term assets like bonds, CDs or real estate quickly. Or you may be forced to sell investments during a market downturn, when you may get less for them than you planned. You may then have more ground to make up to get back on track when the market rebounds.

Having a cash reserve – or the flexibility of instruments like a credit card or home equity line against which you can draw cash – plus paring expenses during an emergency may help you avoid withdrawals from your portfolio to meet unexpected costs during retirement. But remember, your cash reserve needs can also change over time. If you or a loved one has had a change in circumstance that requires you to reconsider your emergency funds, you may want to consult with a financial professional to discuss potential options.

FINANCIAL FACTS

Half The Folks – Fifty percent of the U.S. population accounts for just 2.9 percent of all health care expenditures (source: National Institute for Health Care Management, BTN Research).  

Their Biggest Concern – Sixty-two percent of American adults believe the greatest risk to the success of their retirement years is living too long (source: MetLife Mature Market Institute, BTN Research).

Pay It Off – Twenty-five percent of American families headed by a retired person do not pay off their outstanding credit card balance each month. Forty-six percent of families headed by an individual that works as an employee of a firm (i.e., not a business-owner) do not pay off their outstanding credit card balance each month (source: Federal Reserve, BTN Research).