We are retired with ‘substantial’ pensions — how do I build a ‘rainy day fund’?


Good morning,

I recently retired with a substantial teacher’s pension. My take-home pay (after federal taxes and health insurance) is now more than when I was teaching due to no state taxes on teacher pensions and no retirement contributions being deducted. My wife is in the same position, so retirement income is not going to be a problem. Additionally, our house is paid off, and we have no credit card debt. Our only debt is a car loan. We have long-term disability insurance, long term-care insurance, and life insurance. 

Given these circumstances, I am wondering how to calculate the amount we should have in a rainy day fund. Our pensions will cover all of our living expenses (and then some), but I know we should have reserves for such things as a new roof, windows, etc. I have not been able to find any advice on this unique situation since most of the time it is aimed at retirees with portfolios that can fluctuate. I realize no one has a crystal ball, but I am looking for general guidelines. Thank you.

See: I’m 66, we have more than $2 million, I just want to golf – can I retire?

Dear reader, 

You’re in a great spot for retirement by having so many income streams in retirement, so congratulations on that. You’re right to want a rainy day fund, though, and I appreciate you asking this question. 

I’ll start by saying some folks might consider rainy day funds and emergency savings accounts to be two separate things — rainy day funds have smaller balances and are used for less expensive surprises, like a parking ticket, than emergency savings accounts, according to Bankrate. But I’m going to focus on the latter, as I think that’s what you mean (or at least, what you’ll need for any of those big-ticket home repairs you mentioned). Some people may feel better separating those two types of accounts, while others might consider them to be one and the same.  

Typical financial advice suggests having three to six months’ worth of living expenses in an emergency fund, depending on how many incomes the household has. For example, a married couple with one income source should have more, whereas a dual-income household could settle for less. This differs for retirees, however. 

Near-retirees are better off stashing away more money if they can afford to do so before they call it quits. But if you are already retired and have more than enough cash flow coming in, you could start putting away in a savings account now. 

Also see: What’s the safest place for retirees to keep an emergency fund?

In that regard, how much would you be comfortable having in this fund? One year’s worth of expenses? Two years’ worth? There’s no one-size-fits-all approach to saving and spending, in or before retirement, but you should consider all the possible things that could go wrong — and then try to save even more, taking into account what you don’t know could happen.

Calculate what your living expenses cost for the entire year and assess how much extra money you have coming in from your pensions. Of that excess, could you put it all away in a high-yield savings account for this fund? Or if you want some of it to spend on hobbies and activities, can you save at least half of it? It could take a while for you to achieve this goal, but it would be worth it. When something unexpected occurs while you’re building up this balance, try to keep that savings untouched and use current cash flow to pay for the surprise expense. 

Some advisers say there is such a thing as “too much” in emergency savings. I don’t think that’s a bad problem to have, but if you have enough cash to spare for various savings and investing goals, and you plan accordingly to hit those targets, you might want to divert some of your savings to an investment account that will work a bit harder for you than a traditional savings account. There are pros and cons to every type of account. For example, FDIC-insured bank accounts protect up to $250,000 but often have low interest rates, whereas investment accounts (depending on asset allocation) could show you a greater rate of return but come with risks due to market volatility.  

As for where to put that money, here’s more information about how to make the most of your emergency savings in retirement, in response to a retiring couple with $250,000 in their emergency account.  

Regardless, you need liquid savings to tap into for a “rainy day,” as you know. If you don’t have anything in that fund just yet, I would get started right away and make a plan for at least a year’s worth of living expenses. If you don’t think that’s enough, save more — if you’re able to do so and you’re enjoying life as it is, it certainly doesn’t hurt. 

Readers: Do you have suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at [email protected]


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