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How much savings do you need in retirement? – The Motley Fool




Life has a fun (OK, not so funny) tendency to throw unwanted surprises our way, and many of these surprises are economical in nature. You never know when your roof can cause a leak, your car can break down, or your clumsiness can land you in the hospital with a broken bone and a proper bill.

Therefore, we all need emergency savings for protection against the unknown of life. Worker-Americans are generally recommended to have an emergency fund with enough money to cover three to six months of living expenses. The logic is that this type of cushion could not only pay for an unplanned bill, but a longer period of unemployment.

But what if you are retired and therefore not accustomed to collecting a paycheck? You still need emergency savings, but is it really necessary to spend six months in a bank account? The answer is: It depends on what your expenses look like and how much security you are looking for.

  An admired senior woman looks closely at a document while sitting on a chair

PICTURE SOURCE: GETTY IMAGES. 19659006] Emergency savings: A must for retirees

The purpose of an emergency fund is to bridge the gap when a paycheck alone is not sufficient to cover whatever financial situation. But when you don't get a paycheck, it's definitely your emergency system that provides protection against having to sell losses.

Many pensioners live off their social security benefits along with their IRA or 401 (k). If you are one of them, you are no doubt aware that your IRA or 401 (k) will not only be in cash; Rather, it should remain invested in stocks and bonds to generate more income over the golden years. The problem, however, is that market conditions can cause the value of your investments to go up or down. And in the latter scenario, there may be big losses if you need money for an emergency if you are forced to liquidate assets at a time when they are less valuable than what you paid for them.

Therefore, you need an emergency fund in retirement – to avoid taking losses that increase your finances. However, whether you really need up to six months of living expenses in the bank, it depends on what your current costs are. If you own a home and a vehicle and you have a number of health problems that tend to land you in the hospital, then having a six-month pillow is not a bad idea. On the other hand, if you are a tenant who trusts public transport, it means that other than health care, you can generally avoid financial surprises that throw your budget of course. In that case, a three-month emergency fund will probably suffice, considering that you (most likely) have regular social security schemes that are guaranteed income.

Having said that, you can use your emergency finance fund to empty yourself if the market is taking a catastrophic turn to worse – in that case having close to one year's cost of living is not a bad idea. Imagine a drop in hits, and the portfolio's value decreases significantly. If you are able to live off your emergency fund for a year, wait for the downturn and get away completely. While if you are forced to withdraw during that time, you will probably lose money no matter what.

Therefore, the question of how much savings you need in retirement, in the end, how much flexibility and calm the mind you want to give yourself. If you want the opportunity to leave your nest alone for long periods of volatility, then make a mistake on the page to save more. If you just look to cover one-off costs, save less. And if the majority of your bills are really predictable, you can get away with an even smaller amount. Just make sure you have some money available and immediately available – because it's something you can't live without.



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