How To Save for a Financial Downturn During Retirement

Middle aged man working from home.
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No one likes planning for the worst-case scenario. However, if you ever find yourself in a bad situation, having some money saved can do wonders for your financial situation. Not to mention help out your peace of mind, as well. 

One of those potential emergencies can be a financial downturn, which can hit particularly hard if it comes up during your retirement years. In retirement, living on a budget is much more common — and often necessary. These types of downturns can be caused by anything from a medical emergency, a car issue or a home repair, but they’re issues that will take a big bite out of that budget. 

Fortunately, there are ways to be better prepared for these types of situations should they arise. For advice on how to best save for a financial downturn during retirement, GOBankingRates talked to Chaim Geller, financial advisor and founder of

Retirement Saving 101: Build an Emergency Fund

First and foremost, if you’re prepping for a financial downturn, view it as a potential emergency and treat it as such.

“Create an emergency fund account,” Geller said, and tailor it specifically to your retirement budget. “You should designate a separate savings account as your emergency fund and make sure to include enough money for two to three months worth of expenses.”

Once you’ve calculated the amount you’ll need to cover a two- or three-month gap, putting it in a separate savings account designed for that sole purpose is the next move. By having it in a second account, it will help the possible temptation of dipping into it now and then. 

Are You Retirement Ready?

While you’re building this fund, don’t be afraid to start small. Set a goal for a few hundred dollars and contribute when you can. Once you reach that milestone, you can continue to set larger and larger goals until you have three months of expenses set aside. Or more, should you choose. 

Talk to your financial institution about the best possible options for this specific kind of emergency fund. Most banks offer savings accounts designed specifically for such things, which are known for their higher interest rates. These options, including money markets, should be able to be accessed without taxes or penalties. That way, as Geller explained, “this will be money that will be available for you just in case of a sudden financial downturn.”

Don’t Be Afraid To Use the Emergency Fund — for an Emergency, That Is

Granted, it’s possible that situations will arise where that does require skimming a little off the top of this designated emergency fun. While it’s not ideal, Geller said it’s permissible under certain circumstances. “If you ever use your emergency fund then make sure to replenish it,” he said. “Just like you needed the funds yesterday you might need them again in the future.” 

Of course, just like you shouldn’t over-extend yourself building the fund, don’t do the same if you need to pay the fund back, either. “You don’t need to fill it up in one month. You can replenish it slowly by adding a few hundred dollars monthly until you reach the level needed.” This is the same strategy you should use when building the fund out initially, as well. 

Are You Retirement Ready?

Once the emergency  fund is up and running, Gellar advised that you’ll want to make sure the money you’ll be using for it is “fully liquid.” Specifically, he explains that the fund “should be in a regular savings account, not even in the stock market,” to avoid any potential complications. 

Markets tend to fluctuate, and you don’t want to be dependent on something that’s so potentially volatile when a situation comes up where you need cash in hand. These high-interest savings accounts “help you get quick access to your funds in a case of a sudden financial downturn, even if the stock market is at that time down or the real estate market is not doing well,” Geller said. 

When shopping around for the type of account to best be prepared, Geller advised avoiding “the impact of inflation” by looking for a savings account that pays the best interest rate. That way, your funds will not only be accessible, but they’ll even work for you in the meantime. 

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