- The finances of Rachel, a hypothetical retiree, and the decisions she had to make.
- Key goals for any retiree.
- How to estimate a retirement budget.
- Home equity as a retirement asset.
- A reserve fund during retirement, mostly for medical expenses.
- Annuities that do (or don't) make sense for retirees.
- Managing income and payouts from your retirement savings.
Why a Reserve Fund?
While in principle one might agree with these notions, in practice most of us do otherwise. We feel safer if something is set aside to cover the unexpected. Whether it's called a reserve fund, an emergency fund, or a sheltered account, it's a safety cushion whose purpose is as much psychological (for peace of mind) as financial (for budget planning).
Because the fund's objective is to pay for the unexpected, it is really a form of self-insurance. During your working years, a reserve fund mainly offers protection against losing your job. Thus, it's unemployment insurance that you devise for yourself and your family. During retirement, the main risk of unplanned expenses is for health care not covered by Medicare or other insurance. To a lesser extent, there may also be risks of occasional large expenses for a home you own, if not covered by your home-owner's insurance.
To plan a reserve fund for your retirement, ask yourself three questions:
- What potential expenses should you self-insure with a reserve fund?
- What amount should you reserve to cover those expenses for your unique circumstances?
- Where should you hold and invest your reserve fund?