During your working years, your emergency stash is primarily earmarked for lost wages; while wages are no longer a concern in retirement, there are other unexpected expenses for which you’ll want to be financially prepared. These may include medical bills, a property tax bill that came in higher than you anticipated, or extensive repairs to your car.
It’s important for you to be able to address these types of challenges without having to raid your investment portfolio every time you have an emergency. In the worst-case scenario, you could have to take extensive yields out of your retirement portfolio when the market is at an ebb, thus wiping out your ability to earn future compounding returns on that money.
How Much Is Enough?
Figuring out how large your safety fund should be when you’re still working is a simple matter of setting aside either six months of expenses or six months of wages. However, planning for a safety fund in your retirement is more of an art than a science. It’s still a good idea to pocket six months of expenses. At a bare minimum, you need to plan for any deductibles and co-insurance costs for all of your major insurance plans, two major car repairs, and maybe even a little to help out your kids if you suspect they’ll be needing a hand or even returning to the nest.
Save Early And Be Tax-Savvy
If you can keep the same safety fund from your working years as you move into retirement, that’s great. Otherwise, simply plan on saving as much as you possibly can for your golden years. When it comes to your retirement fund, it’s crucial that you start saving as early as possible, save as much as you can, and save consistently.
Saving early allows compound interest to work heavily in your favor, as does a tax-advantaged investment strategy. Even one percent more of your money going to taxes can mean tens of thousands less for your retirement over the years. The same is also true of fees. In an era where most of the work of a retirement financial manager can be handled by algorithms, there is no need for you to pay high fees to save for retirement.
FutureAdvisor offers an algorithm that’s focused on making the most tax-advantaged transactions possible in your retirement portfolio. What’s more, we keep our fees low so that you can keep more money in your pocket. Best of all, we offer total transparency through regular statements, an informative dashboard, and access to your money via respected third-party institutions. Plotting your retirement finances can seem intimidating, but with a solid plan on your side, you’ll be better prepared for any curveballs that may come your way.