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Here’s How Much Retirees Should Keep in an Emergency Fund

Don’t let unexpected costs derail your retirement — here’s how much to stash.

Senior couple reviewing bills together
Updated Sept. 26, 2024
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An emergency fund is necessary no matter what age you are, but for retirees who don’t have a salary, that fund is crucial. It’s not only a way to build a stress-free retirement, but can help you cover unexpected expenses without putting your finances in jeopardy.

Here’s a look at how much you might plan to keep in your retirement emergency fund.

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Aim for 12 to 18 months of living expenses

fizkes/Adobe woman calculating bills at home

You may have heard the common advice that emergency funds need to have three to six months of living expenses. While that may be solid guidance for workers, retirees should aim for 12 to 18 months of living expenses in their emergency funds.

In part, retirees need more of a cushion because of their situation. Unlike typical workers, they may not have the option to increase income through overtime or a part-time job. 

Additionally, they may encounter unexpected health care expenses, which could cost much more than a car repair.

Overall, aiming for 12 to 18 months of living expenses in your emergency fund can give you peace of mind to better enjoy your retirement.

Multiply monthly expenses by three and six

Dragon Claws/Adobe piggy bank over bills household expenses concept

Perhaps you’re not yet ready to have 12 to 18 months of living expenses available in your retirement emergency fund. If so, one other common piece of advice is to multiply your monthly expenses by three and six.

Once you have those numbers as baselines, you can then think about them as minimum amounts and plan to add more money until your emergency fund totals around 12 to 18 months of living expenses.

Consider averages

Jirapong/Adobe businessman calculating budget at work

While everyone’s situation is different, it can be helpful to look at averages when it comes to financial planning.

For instance, at age 60, an average retirement saving goal may be around $722,000. At the same time, an average emergency saving goal may be between $20,000 and $35,000.

Again, keep in mind averages can be helpful for perspective and planning, but you know your situation better than anyone else.

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Keep it liquid

Vitalii Vodolazskyi/Adobe Emergency fund jar with money

One critical thing to remember when planning a retirement emergency fund is where to put it.

You want the emergency fund to be separate from your retirement accounts because tapping that money will trigger taxes. If you are younger than 59 1/2, you will also incur early withdrawal penalties.

You also want to consider savings vehicles that you can access easily and may earn interest.

Think about home and auto expenses

kyrychukvitaliy/Adobe car parked near garage besides garden

Even when you’re working, unexpected home and auto expenses can quickly add up. When you’re retired, those costs can cause a great deal of stress on your mental health and monthly budget.

That’s why it may serve you well to add around 2% of your home’s value and $1,500 for each vehicle to your emergency fund each year. This way, you’ll be better prepared for any unexpected home or auto repairs.

Some retirees move out of their own homes and into 55+ or retirement communities where maintenance is figured into the monthly cost.

Consider inflation

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You may be all too familiar with the impacts of inflation. After all, for several years, Americans have been struggling to maintain their budgets due to higher prices at grocery stores, restaurants, and retailers.

This may be a good reminder to prepare your emergency fund for inflation. In fact, you might consider increasing your emergency fund by 3% annually to keep up with average inflation.

Look at your lifestyle

Robert Kneschke/Adobe Senior people with menu in restaurant

You may want to think about your travel plans and hobbies when allocating money to an emergency fund as a retiree. 

If you’re planning to just travel a bit or pursue simple and inexpensive hobbies, it may not be necessary to add any additional money to your emergency fund.

However, if you travel extensively or engage in expensive hobbies, you may want to add an extra 10% or so to your fund. This can help cover unexpected costs, such as illness. You may even consider creating a separate savings account just for travel.

Start small

kirill4mula/Adobe senior couple walking on running track

If you’re feeling overwhelmed or far behind when it comes to having a retirement emergency fund, consider starting small. You can figure out a money goal and then work toward having that much in your emergency fund.

You can even put technology to work for you here with automatic options. One way to do this is to coordinate automatic transfers to your emergency fund the day after you receive your regular Social Security or retirement distributions each month.

Bottom line

Iryna/Adobe woman with calculator planning expenses

You can find many pieces of advice when it comes to keeping a retirement emergency fund. While 12 to 18 months of expenses may be a good general guideline, you may find it best to consider your lifestyle, expenses, and how you plan to spend your retirement.

If you find the numbers aren’t quite adding up, perhaps there are ways to cut back on expenses but still enjoy your retirement years. In addition, retirement doesn’t mean you can’t work a bit to supplement your Social Security.

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Chris Adam

Chris Adam is a seasoned personal finance, technology, and general assignment journalist. As a broadcast and digital journalist, he's served as a leader in network and local newsrooms. Some of his favorite topics to write about include investing, shopping, retail, and stocks.