Life can throw an unexpected expense your way at any time, even after you’ve retired.
While a curveball expense is never fun, the stress of managing a surprise expense during retirement can be especially taxing. But, unfortunately, most retirees face unexpected expenses each and every year.
Over 8 in 10 retiree households will face unexpected costs each year. Among retired households that experience unexpected expenses, those costs total $6,000, according to a recent study from the Center for Retirement Research at Boston College. That’s a significant amount for any household to handle, especially a retired household.
The study pointed out that these unexpected expenses tally up to around 10% of a a retired household’s annual income. Many households, even retired ones, don’t have enough tucked into emergency savings. In fact, researchers found that 43% of retired households don’t have enough cash on hand to cover emergency expenses for the year.
Here’s how to plan for unexpected expenses in retirement.
Keep An Emergency Fund
Most financial experts recommend keeping an emergency fund on hand. While the exact amount you’ll need to keep on hand varies, most experts suggest keeping an emergency fund totaling three to six months’ worth of expenses.
In retirement, it’s still a good idea to keep a cash emergency fund. Even though you have funds in your retirement accounts, those are likely invested into stocks, bonds and other assets. If you need cash at an inopportune time, you could be forced to sell when your assets have lost value.
In order to avoid having to sell in a market downturn, make sure to keep some emergency savings on hand for unexpected expenses.
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Store Your Emergency Fund in the Right Spot
You won’t want to keep your emergency fund in physical cash under the bed or even a standard savings account to collect dust. Instead, it’s a good idea to store your emergency savings in a high-yield savings account (HYSA).
An HYSA offers savers a higher rate of return on their funds, which allows your funds to grow within the account. Although this growth might be modest, it’s better than nothing.
Look Ahead for Big Expenses
Many expenses catch us off guard. But some “unexpected” expenses aren’t truly out of the blue. For example, big annual bills might surprise you. However, it’s possible to plan ahead for those big hits to your bank account.
Consider looking at the year ahead to see what expenses might be coming down the pipe. A few common ones include your car insurance premiums and healthcare deductibles for planned surgeries.
Don’t Stash Too Much Cash
While it’s often tempting to hoard cash in a savings account to make sure you always have enough, it’s not a good idea to put too much of your money into a savings account. That’s because inflation will eat away at the value of your dollars.
If possible, keep some money on hand in cash. But you’ll likely want to keep the bulk of your retirement savings invested in appreciating assets to help your funds keep pace with inflation.
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This article originally appeared on GOBankingRates.com: Surprise Expenses Eat 10% of Retirees’ Yearly Income — How To Make Sure You Have Enough Cash
