You’ve probably heard it before: you should have an emergency fund for those times when life throws you a curveball. Unexpected medical bills, car repairs, home repairs, a sudden layoff, and even pandemics can disrupt your current budget in an instant. 

As a retiree, it’s just as important to have cash on hand for emergencies. You may not need this rainy day fund to replace a paycheck, but it can still come in handy for bills that throw a wrench into your carefully crafted retirement income strategy. 

Whether you’re working or retired, we have some guidelines to help you calculate how much cash you should have on hand. 

How Much Cash to Save if You’re Still Working

The general rule of thumb is to save 3 to 6 months of living expenses in your emergency cash fund. For example, if your rent or mortgage, utility bills, food, and gas totals $3,000 a month, you need $9,000 minimum in your fund. Your fund increases if you have a spouse, children, or family members who live with you that depend on you: aim towards 6 months minimum, which would be $18,000 in savings in this scenario.

This is just a starting point, however. Think about what’s important to you and the specifics of your job. For example, if you are not a salaried employee and your income is less predictable, you may want to set aside more than 6 months for your cash fund. The same goes if you work in an industry with a high turnover rate or a high injury rate. You’ll always want more if there is a reason to dip into your emergency fund, so don’t be afraid to go past 6 months if that’s what you want.

How Much Money to Have on Hand After Retirement

When you’re retired, you may not think about having cash reserves available since you’ll be pulling income from your retirement accounts. However, keeping extra cash on hand can help you out in a pinch so you
don’t have to drain your IRA, 401(k), or pension in an emergency. You can also draw on your emergency cash reserves should there be an extended down market. That way, you won’t need to sell your investments at an inopportune time.

How much should you keep in your emergency cash fund? As a retiree, you can use the same rule of thumb we previously mentioned: start with 3 to 6 months of living expenses. However, you should also consider how cautious you’d like to be when planning for emergencies. What’s your risk tolerance? Will you need a higher cash fund to cover you in case of turns in the market? Has your retirement lifestyle changed since your working days? You may want to increase your cash fund to 9 to 12 months to be on the safe side… or even 18 months. It’s all up to you.


How to Keep Cash on Hand

These funds are commonly referred to as a “rainy day fund” or “cash on hand,” but that doesn’t necessarily mean you should store your cash under your mattress. Actually having cash on hand can be helpful for people who want to be more mindful of their everyday, smaller purchases. And it’s totally fine to keep a portion of your emergency fund at home in case the power goes out and you can’t access it electronically. If you do plan to keep some emergency funds at home, think about stashing it in a safe tucked away in a closet or your attic.

However, keeping all of your emergency fund on hand means you miss out on the opportunity to earn interest. Keep your emergency fund in a regular checking or savings account so that it’s easily accessible should you need it. 

Know Your Numbers and Have a Plan

We hope that this has helped you start thinking about how much cash to set aside for emergencies. Remember that your emergency fund number is reflective of what’s important to you. Everyone’s number will be different according to their career, retirement, family obligations, risk tolerance, and level of caution. You don’t have to go by what the “experts” say if it doesn’t feel right to you.

The most important thing is to have cash on hand in case of a market downturn, natural disaster, or personal emergency. Start building it now, and your future self will thank you. If you’re ready to start planning for the future, or want to know how to make the most of your money in retirement, you can also contact a Certified Financial Planner™ who can help.