When most people think about retirement, they imagine a time when they can finally relax and enjoy life without worrying about work.

However, one of the most important things you can do for a smooth retirement is to have an emergency fund in place.

In this article, I share why it’s a good idea to have at least two years’ worth of living expenses saved up before you retire.

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Person putting cash into an Emergency Fund jar

What is an emergency fund, and what is its purpose?

An emergency fund is a savings account that covers unexpected expenses, such as a job loss, medical bills, or major repairs.

The purpose of an emergency fund is to provide financial security in the event of an unforeseen circumstance.

It’s important to note that an emergency fund is not the same as a retirement fund. A retirement fund covers living costs during retirement, while an emergency fund covers unexpected costs before or during retirement.

It can be used during retirement as a hedge if there is a bear market and you want to take less out of your retirement accounts than the normal 4% or whatever rate you typically withdraw each year.

Why is it necessary to have an emergency fund in retirement?

A few reasons why having an emergency fund in retirement is important.

First, it provides security in unforeseen circumstances, such as a job loss or medical emergency.

Second, an emergency fund can help you avoid prematurely tapping into your retirement savings. If you don’t have an emergency fund and experience an unexpected cost, you may be tempted to withdraw money from your retirement account. This can be detrimental to your long-term financial security, as it can reduce the amount of money you have saved for retirement.

Third, an emergency fund can help keep your retirement lifestyle on track. If you have to tap into your retirement savings to cover an unexpected cost, it can set back your retirement plans and cause you to have to make lifestyle changes, such as downsizing your home or cutting back on your travel plans.

How much should you have in your emergency fund?

When it comes to your emergency fund, the general rule of thumb is to have at least two years’ worth of living expenses saved.

This may seem like a lot, but having a cushion in a major financial emergency, like a job loss or unexpected medical bills, is essential. Having a robust emergency fund will help you weather any unexpected storms that come your way.

Of course, everyone’s financial situation is different, so you may need to adjust your savings goals based on your particular circumstances. But saving two years’ worth of living expenses is a good goal.

How to start building your emergency fund

If you don’t have an emergency fund, it’s never too late to start one. Here are a few tips to help you get started:

1. Set a savings goal

Determine how much you need to save based on your unique circumstances. As a general rule of thumb, aim to have at least two years’ worth of living expenses saved.

2. Make saving a priority

Set aside money each month to contribute to your emergency fund. If possible, automate your savings so that the money is automatically transferred to your account each month.

3. Keep your emergency fund in a separate account

This will help you avoid dipping into your savings for non-emergency expenses.

What should you do if you’re about to retire and don’t have an emergency fund?

If you’re close to retirement and don’t have an emergency fund, building one as soon as possible is essential. You might not be able to reach your two-year savings goal, but every little bit will help.

In addition, if you’re about to retire and don’t have an emergency fund, it’s crucial to have the plan to cover unexpected costs. This might include downsizing your home, cutting your travel plans, or working part-time during retirement.

Tips for maintaining your emergency fund once it’s established

So, you have your emergency fund and are still years away from retirement. Congratulations! Here are a few tips to help you keep your emergency fund in good shape:

1. Review your savings goals regularly

As your circumstances change, so too should your savings goals. Review your emergency fund annually to make sure you’re still on track. Life has a way of throwing curveballs, so it’s essential to be prepared for the unexpected.

2. Make regular contributions to your emergency fund

Even if you have enough saved to cover two years of living expenses, you must continue contributing to your emergency fund regularly. This will help you keep up with inflation and give you a cushion in an unexpected financial emergency.

3. Invest your emergency fund wisely

Once you’ve built up your emergency fund, it’s crucial to invest the money wisely so it can grow over time. A high-yield savings account or short-term certificate of deposit (CD) is a good option for most people.

A great place to get started with your savings account is CIT Bank. They offer very competitive saving rates with no monthly maintenance fees.

With their Saving Connect Account, you can earn 12x the national average! There are no ATM fees, and you have the convenience of online banking.

Rest assured, CIT Bank is also FDIC insured!

If you don’t mind a negligible risk, you could also consider investing your emergency fund in a stock market index fund. This will give you the potential to earn a higher return, but there’s also the possibility of losing money.

The bottom line

There’s no right or wrong answer regarding how much you should have in your emergency fund. It’s always a good idea to have at least a few months’ worths of living expenses saved, but some experts recommend aiming for two years’ worth.

Building up a larger emergency fund is an excellent way to prepare for the unexpected if you still have many years ahead of you before retirement. And if you’re close to retirement and don’t have an emergency fund, building one as soon as possible is essential.

Whatever your situation, it’s always a good idea to have a plan in place for how you’ll cover unexpected costs. This will help you weather financial storms and keep your retirement plans on track.


We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!