We got up at 5:30 am on Saturday morning to attend a retirement planning seminar. The most important advice imparted by the speaker was the following: Retirees should have 2 – 3 years worth of living expenses stashed away for emergencies! Why? The reason is that it takes 3 years (on average) to recover from a bear market. What is a bear market? Think back to the Autumn of 2008, when the stock market dropped 50% over a 6 month period of time from September 29, 2008 to March 5, 2009. That was the beginning of the bear market. The speaker said that it usually takes about 3 years for the economy to recover from a bear market. Therefore, it is crucial to retirees’ survival to have 2 – 3 years of living expenses to pay bills, and stay afloat. If a retiree has to spend down their retirement accounts to pay bills, they may have to sell stocks or mutual funds at depressed prices. In farmer parlance, that is called “eating your seed corn.”
Where To Stash Emergency Fund?
When saving for the emergency fund, the speaker advised safe bank accounts insured by the FDIC. Brick and mortar banks pay less interest than online banks, but pre-retirees and retirees are most likely more comfortable with brick and mortar banks. It is reassuring to know we can reach our brick and mortar bank in a few minutes, and access our funds. To learn more about bull and bear stock markets, click Stock Market 101: From Bull and Bear Markets to Dividends, Shares, and Margins―Your Essential Guide to the Stock Market (Adams 101)
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