Legal & Financial Planning

How Retirees Can Be Financially Prepared for Emergencies

Donna Freedman
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Donna Freedman
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September 22, 2022
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How Retirees Can Be Financially Prepared for Emergencies

Unless you were born under a lucky star, you will face emergencies in your life. These could be relatively minor but still irritating, such as car trouble, or much more worrisome, such as serious illness.

Emergencies are hard enough to deal with when you’re younger and bringing in a decent paycheck. When living on a fixed income in retirement, emergencies can cause financial hardship.

Being proactive can make a huge difference. After all, emergencies are stressful and can keep us from making the best decisions. Being financially prepared won’t make emergencies any more fun, but at least they’ll be more manageable.

Here’s how to make sure that you or a loved one will be prepared to deal with emergencies when they happen.

Create a budget

How far will your money go in retirement? Maybe not as far as you had thought. That’s why you need a budget: to figure out what you have and how to make it work best for you.

Basically, you’ll need to list all sources of income and determine all your expenses, then compare the two. If they don’t mesh, you’ll need to get creative. “How to Budget For Retirement” walks you through this process.

“Budget” doesn’t just mean things such as food, utilities and property tax, either. Include categories for things that bring you joy, such as gardening, travel or gift-giving. If you want to help a grandchild through college, figure out how much you can afford to give. But don’t forget to include room in your budget for a monthly amount you can set aside for emergencies.

Save an emergency fund

You need ready cash, separate from daily expenses, in case things go wrong. (Spoiler alert: They will.) Homeowners or renters insurance may cover some issues, but not all. When you face car trouble, a dead appliance or medical co-pays, you’ll be glad you had a pool of cash.

Set aside at least enough to cover the deductibles for your insurance policies. However, aim to save an amount equal to three to six months’ worth of expenses so you don’t have to draw from your retirement savings if there is a big drop in the stock market. 

The emergency fund works for others, too. Suppose one of your kids is laid off or gets divorced and needs temporary assistance. Having some extra cash on hand will reduce anxiety about helping your loved ones. 

Revisit your insurance

Whether you own or rent, it’s important to keep your insurance agent updated. The policy you bought way back when might no longer provide enough coverage to repair or replace your home and its contents. This is especially true if you’ve modified your home to age in place; physical upgrades and tech solutions aren’t cheap.

It’s also essential to update your insurance inventory list. For example, suppose you bought your spouse an expensive watch for Christmas last year. If it’s not on the inventory list, will it be covered?

Or maybe you’ve started giving things away because you weren’t using them enough. Don’t keep paying to cover the skis, specialized cookware or camping equipment you no longer own.

In terms of auto insurance, why not look for a better rate? Saving a little (or a lot) on premiums gives your budget some wiggle room. Comparison sites such as Policy Genius or The Zebra will do the rate comparison legwork for you.

Revisit your Medicare coverage, too

Some people stick with original Medicare for their retirement healthcare needs. Others opt for Medicare Advantage, which is a way to get Medicare benefits from private insurers instead of the U.S. government.

Maybe you went with original Medicare (possibly adding a Medigap plan) but now wonder if Medicare Advantage would be more affordable. Or maybe you chose Medicare Advantage, and automatically renew it each year without bothering to check plan prices from other providers.

These choices are personal and may be complex, which makes it easy just to keep doing what you’re doing. Consider checking with a company such as Boomer Benefits or Chapter to see if you can get a more affordable premium while still ensuring optimum coverage.

 [ Read: What is Medicare Advantage? ]

Check your retirement plan designations

If you set up a “target date fund” with a specific retirement year in mind, it will automatically adjust as you age. The idea is to invest more conservatively as you grow closer to retirement. It won’t hurt to check to be sure. After all, you may have set this up years ago and don’t really remember what you have.

And if what you have isn’t a target date fund? Visit a fee-only, fiduciary financial planner to make sure your money is invested with an eye toward safe but still steady growth. That way, you’ll have more available should an emergency require more than a 3% or 4% annual drawdown.

Also, make sure you have named beneficiaries on your retirement account. That will ensure that any money left in the account will go directly to your loved ones if something happens to you. 

Keep your credit score healthy

Credit scores matter, even in retirement. For example, if you have less-than-stellar credit, you might pay more for insurance or have to put down a bigger utility deposit if you move. Should you decide to finance new furniture to keep more liquid cash, it’s the good to excellent credit scores that let you qualify for 0% financing.

Here are a few ways to build the score or keep it high:

Don’t co-sign any loans. No, not even for your grandkids. Doing this adds to your total debt.

Have at least one credit card. Pay it off in full each month, and keep usage to less than 30% (ideally, less than 10%) of your total available credit.

If divorcing, separate your credit. “Gray divorce” is on the rise. Should this happen to you, make sure your attorney stipulates that no joint accounts be left open.

Reconsider that second car

If yours has always been a two-car household, ask yourself whether that’s still necessary. Senior rides programs, rideshare apps such as Lyft and Uber, and being flexible about who’s using the car can go a long way toward eliminating the need for that second vehicle.

The costs of insuring, maintaining and fueling that vehicle could hurt your budget. Rather than wonder how you’d pay for it during an emergency, why not sell the vehicle? Demand is high for used cars, and the cash from the sale—plus everything you would have spent on the second vehicle—is money that will boost your retirement budget.

 [ Read: 6 Financial Tasks Retirees Should Tackle Now to Stay Independent and in Control ]

Make a financial plan

Maybe you made a will five years ago and called it good. But things change: You acquire (or sell) assets, grandchildren are born, etc. Talk with an estate planning attorney about how best to divide your assets.

If you haven’t made a will or designated an executor, get going on that yesterday. Otherwise you’ll leave your heirs with one heck of a mess as they try to figure out where your financial assets are and how they can access them. Cameron Huddleston, author of “Mom and Dad, We Need to Talk,” offers a free fill-in-the-blank financial inventory on her website; download it and fill it out so that your kids know what’s what.

Finally, make a plan in case you become ill or temporarily incapacitated. That means naming a power of attorney who can make financial decisions and transactions for you if you can’t.  You also need to name a healthcare power of attorney who can make medical decisions for you if you can’t. And an advance directive will allow you to spell out what sort of end-of-life medical treatment you do or do not want. The estate planning attorney you meet with can draft all of these documents. 

Watch out for fraud and identity theft

As you prepare for emergencies, make sure you don’t overlook the threat of fraud and identity theft. Older adults are often targeted by thieves and scammers. Get in the habit of checking your accounts at least weekly, preferably daily. The sooner you spot evidence of fraud, the faster you can deal with it.

To make monitoring your accounts easier, consider a service that will do the work for you. The Carefull service will monitor your (or a family member’s) financial accounts, credit and identity and alert you when it spots anything unusual. It’s possible to add trusted family members to the account, so they can receive those alerts and check your accounts (but not make transactions on them). Having a second set of eyes can make a huge difference.

 Plus, Carefull’s “Frauds and Scams” resource has articles about how to protect yourself or a loved one against password hacking, payment app scams, medical identity theft, phishing and other increasingly sophisticated crimes.

Taking steps now to prepare for emergencies will soften the financial blow when they happen and help you get through them much easier—so you can get back to enjoying your retirement.

[ Keep Reading: 6 Financial Tasks Retirees Should Tackle Now to Stay Independent and in Control ] 

Donna Freedman

Donna Freedman

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