I’m retired. Do I still need an emergency fund?

While an emergency fund is important during your working years, it’s also essential once you retire. Just because you retire, unexpected expenses won’t just disappear. Unforeseen events can still occur and derail your carefully planned retirement. In fact, in retirement, you might have less flexibility to deal with unexpected expenses as you might not have the option to earn extra income to cover them. Having an emergency fund can better prepare you to overcome whatever life sends your way, while also giving you more freedom to live the retirement you want.

How much should I keep in an emergency fund?

Maintaining three to six months of total expenses in an emergency fund is appropriate for most retirees. Having three months’ worth of total expenses is a good starting point, as this amount can typically cover a few medium or one or two large, unexpected expenses.

If your risks are too high or your comfort with risk too low, you may benefit from saving more than three months of expenses in your emergency fund. When determining if your risk is higher, consider these factors:

• Insurance coverage and utilization — If you’re underinsured (e.g., for health, home or auto coverage) or if you are more likely to use your insurance (e.g., poor health or live in an area prone to natural disasters)
• Expense flexibility — If most of your expenses are fixed or you’re unwilling to cut discretionary spending after an emergency
• Condition of property — If you’re likely to pay for repairs or replacement costs
• Dependents — If you have others, like aging parents, to support financially
• Access to additional sources of funds — If, after your emergency savings are exhausted, you don’t have investments that you’re willing to use or financial support from family

To calculate the amount to save, use your total rather than your necessary expenses. Using total expenses provides you with an extra cushion to absorb unexpected costs. Even if an emergency doesn’t result in higher expenses, using total expenses as a benchmark can make your emergency fund last longer.

How can I build my emergency fund?

The prospect of saving three to six months of total expenses can seem daunting at first, particularly if you currently have little or no emergency savings. But don’t get discouraged. Even a few hundred dollars can go a long way toward creating more financial stability. By setting up a plan that includes achievable milestones, you can stay focused and make this task more manageable.

Find ways to save in your budget. For example, cancel subscriptions that you don’t use or shop around to lower insurance costs. You can be strategic with large, planned purchases by taking advantage of sales. Also, look to save a portion of any amount budgeted for but not spent — for instance, if your medical or home maintenance expenses for the year were lower than anticipated.

Keep your emergency fund in a separate account. This can mitigate any desire to use these funds for everyday spending or to fund other goals. Also, it allows you to easily know how much you have saved. We recommend holding your emergency funds in cash and cash equivalents that have very low risk and are easily accessible — without fees, penalties or having to sell at a discount. Look for accounts that earn interest.

When should I use my emergency savings?

As important as having an emergency fund is knowing when to use it. Some might be tempted to regularly tap into their emergency fund to pay for nonemergencies, depleting their savings. Others might be reluctant to use their emergency fund, even after an emergency occurs. These opposite behaviors can lead to the same outcome: Even though you’ve set aside specific funds for emergencies, you might end up having to resort to alternatives (e.g., using high-interest debt or tapping into funds that you’re planning to leave to loved ones), which can disrupt your goals.

After using any excess cash, one-time necessary expenses that are unexpected (like a broken car, malfunctioning heating/cooling system or medical expense) should be covered with your emergency funds. Essentially, this is any expense that, if not addressed, would substantially disrupt your daily life. Note that if the expense was not unexpected or necessary, you shouldn’t use your emergency fund to pay for it. As much as you want to upgrade your TV for a larger model, you should save up for that rather than use your emergency savings.

How Edward Jones can help

An emergency fund is an important piece of your plan. It prevents unexpected events from derailing your retirement. Talk to an Edward Jones financial advisor to start building an emergency fund or, if you already have one, to make sure it’s appropriate for your needs.