Don’t need it until you do: By one measure only 58 percent of retiree households “have enough cash to cover their unexpected expenses for just a single year.” Image: Ariya J/Shutterstock.com
While most of the financial advice regarding the need for emergency savings focuses on those still employed, retirees experience financial shocks as well, although often of a different type, says a report.
Financial planners for example often focus on the potential of a job loss in advising having an emergency fund of three or more months of income saved, the Center for Retirement Studies at Boston College said. Loss of job is not a concern for those already retired, “However, unexpected expenses do not go away once people retire,” it said.
For retirees, the need to cover needs such as major home or car repairs “is similar to working-age households,” it said. In any given year, it said, 83 percent of all households experience an unexpected expense, with 58 percent experiencing an unexpected health-related expense and 29 percent experiencing an unexpected family-related expense.
“Other risks – such as health or family concerns – loom larger for retirees. Understanding retirees’ specific needs for unexpected expenses is important, as it has implications for how they navigate retirement risks, such as how much to allocate for annuities, the degree of reliance on family for long-term care, and whether to tap home equity,” it said.
It said that while it’s difficult to estimate such potential expenses because they can vary so much—affecting how much should be set aside to cover them—by one measure only 58 percent of retiree households “have enough cash to cover their unexpected expenses for just a single year.”
“An additional 16 percent of households could cover their expense shocks for a year if they also tapped their 401(k)/IRA assets. However, that leaves 27 percent of households unable to cover just one year of unexpected expenses, even after spending all their cash and retirement assets,” it said.
“Overall, these findings suggest that unexpected expenses could present a significant source of financial stress that many older households may be unprepared to handle,” it said.
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