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Blog Your guide to financial planning and retirement
June 5, 2025 • 5 minutes
Having adequate emergency savings is the basic foundation of financial wellness for anyone at any age. In fact, emergency savings should be your first priority when it comes to taking control of your money. Be it a flood, fire, health event, job loss, a downturn in the economy, or anything else, emergency savings can help you get through any tough spot without going into debt.
Emergency savings is money that is easily accessible and set aside to be used for emergencies or unexpected expenses. It is most common to retain emergency funds in a money market account or another low-risk vehicle.
Unexpected events, ranging from medical emergencies to sudden job loss, can quickly unravel even the most carefully planned budgets. Acting as a financial safety net, emergency funds provide a buffer to weather unforeseen circumstances.
Life is unpredictable. In fact, the only thing that you can know is that something you weren’t expecting will occur. Emergency savings enable you to be prepared for the unknown
According to the Consumer Financial Protection Bureau (CFPB):
Without emergency savings, any financial shock can set you back, and if you have to borrow to cover your obligations, even a minor emergency can have a lasting impact.
Taking on debt is akin to digging yourself into a financial hole. Debt can make a minor expense a major cost and mean that getting ahead and saving adequately for the future is harder than ever.
You might believe that a steady income and healthy lifestyle will protect you from financial disaster, but it won’t. What would happen if you were in a car accident and unable to work for some period of time. Medical bills, rehabilitation costs, and lost income could mean that you need to borrow money, accumulate high-interest debts, and compromise your long-term financial goals.
The amount of emergency savings individuals should have is dependent on various factors, including: income, expenses, lifestyle, and personal circumstances. However, here are general guidelines for recommended emergency savings based on different age ranges:
Early 20s to 30s: During this stage of life, it’s advisable to aim for an emergency fund that covers at least three to six months’ worth of essential expenses. This includes rent/mortgage, utilities, food, transportation, and insurance. As individuals in this age range may have lower financial obligations and fewer dependents, they can focus on building a solid foundation for their emergency savings.
40s to 50s: By the time individuals reach their 40s and 50s, they should aim to have an emergency fund that covers six to twelve months’ worth of essential expenses. At this stage, financial responsibilities may increase, such as mortgage payments, children’s education, and healthcare costs. Building a more substantial emergency fund provides a greater cushion to navigate these potential financial challenges.
60s and beyond: As individuals approach retirement or enter their retirement years, it becomes even more critical to have a robust emergency fund. Aiming for a minimum of twelve months’ worth of essential expenses is recommended. This is because unexpected healthcare expenses or market downturns can have a significant impact on retirees. Having a larger emergency fund helps mitigate these risks and provides a greater sense of financial security during retirement.
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A large emergency fund isn’t always necessary in retirement—especially if your guaranteed income (like Social Security, pensions, or annuities) reliably covers your essential expenses. But if you’re relying heavily on investment withdrawals to fund your lifestyle, having a cash reserve can be critical.
During prolonged market downturns, tapping your portfolio to cover expenses can mean selling assets at a loss—potentially derailing an otherwise solid retirement plan. A dedicated cash cushion allows you to avoid withdrawals when the market is down, giving your investments time to recover. Think of it as a buffer that protects your long-term plan from short-term volatility.
It’s important to note that these guidelines are general recommendations, and personal circumstances can vary. Factors such as job stability, health conditions, and individual risk tolerance should also be considered when determining the appropriate amount of emergency savings. Additionally, as personal financial situations evolve over time, regularly reassessing and adjusting emergency savings goals is crucial to ensure ongoing financial wellness.
The truth is, not everyone needs the same amount of emergency savings in retirement. The right amount depends on your income sources, spending needs, and how much of your plan relies on the market. That’s why it’s essential to model different scenarios and stress-test your plan.
The Boldin Retirement Planner makes it easy to see how much cash cushion you need, based on your actual income, expenses, and investment strategy. You can test market downturns, healthcare shocks, and big one-time expenses, so you’re prepared for whatever life throws your way.
Because retirement confidence isn’t about avoiding risk—it’s about being ready for it.
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