Do Retirees Still Need an Emergency Fund Even Though They Aren't Depending on a Paycheck?

You probably know that you should have emergency money in a high-yield savings account. The common advice is to save up three to six months of living expenses in case of unexpected surprise costs.  

One of the big reasons why people need money saved for emergencies is to be prepared for a potential cut in income that could come from a job loss or a reduction in hours. But, what happens if you're retired? You aren't getting a paycheck any more, so do you still need emergency savings?

The answer is a definite yes. And here are a few big reasons why. 

Retirees can still see a reduction in spending power

It may seem like having an emergency fund isn't as important when you don't face the risk of a job loss any more. But just because seniors aren't dependent on their employer for a paycheck doesn't mean they can't experience economic conditions that affect their buying power.

For example, while Social Security benefits are protected against inflation through cost-of-living adjustments, their savings aren't protected. If inflation surges, as it has in recent years, retirees could see a substantial decline in their buying power. In some cases, this could cause a shortfall that results in significant financial stress. Having some money set aside for emergencies could provide a little bit of breathing room. 

Retirees can also be impacted by recessions if they affect the stock market and send their investment values plummeting. While recoveries follow crashes, that's not super helpful for retirees who need to take money out of their investment accounts now to cover basic expenses and who can't necessarily just leave money alone in their brokerage account to wait for a recovery. 

Seniors need to have emergency money set aside to deal with these types of declines in their buying power. In fact, seniors may want to have more than three to six months of living expenses set aside in a high-yield savings account where they can access it easily. They may want to have several years of living expenses, in case they need to rely on the money while waiting for their investment accounts to recover. 

Retirees can definitely still face emergencies 

There's another important reason seniors still need emergency savings. Emergencies can still happen that come with unexpected costs.

For example, unexpected medical expenses are one of the leading causes of unexpected spending among all adults. Recent data from the Federal Reserve showed 20% of adults had experienced a major unexpected medical expense over the course of the prior year, with the median amount of that unexpected expense coming in between $1,000 and $1,999. What's more, 15% of all adults had medical debt from some time in the past, incurred either for their own care or for the care of a loved one. 

As you age, the chances of a surprise medical expense only get higher. If your car and house are getting older along with you, you also face a potential for surprise repair costs as well. You don't want to have to pull money from your investment accounts (and potentially risk dropping your balance too low too fast) or go into credit card debt and commit some of your fixed income toward credit card interest. You need an emergency fund to pay for these bills. 

It's not always easy for retirees to just earn more money if they face these types of unexpected financial surprises. As a result, seniors absolutely need an emergency fund so they are ready for whatever life throws their way. Having a good amount of emergency savings in the bank could be just the thing that ensures the secure retirement everyone deserves.