A financial planner explains how much you should have in emergency savings if you're retiring soon — and when to use it

The offers and details on this page may have updated or changed since the time of publication. See our article on Business Insider for current information.

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate products and services to help you make smart decisions with your money.

• If you're retiring soon, make sure your emergency fund is in good shape. 
• A financial planner suggests having 12 months' worth of expenses set aside when you retire. 
• You'll have a backup if the market falls or if you need funds for unexpected medical expenses.

If you're planning to retire soon, there are a lot of money items on your mind. One thing you might not be thinking about, though, is your emergency fund. 

An emergency fund is a simple thing that's absolutely critical: It's a savings account kept only for unexpected expenses. Generally, financial planners recommend keeping three to six months' worth of expenses in this fund.

But, in retirement, that changes, one financial planner says. 

Keep a larger emergency fund for retirement — you'll want about 12 months of expenses

While you could get away with a smaller emergency fund while you were working, you'll want a larger one in retirement. 

Financial planner Mamie Wheaton of LearnLux says that having the extra cash will mean extra security. "I would generally recommend around 12 months of liquid expenses on hand for retirees or someone who is just about to go into retirement," she said.

When Wheaton talks about liquid savings, she means money that isn't tied up in the investments of a retirement plan. Instead, emergency savings should be in an easily accessible account like a high-yield savings account. There, it will continue earning a small amount of interest while waiting to be used.

That's bigger than the traditional emergency fund. However, she says 12 months isn't the maximum you can keep. "Everyone has a comfort level on the amount of cash they want to hold," she said. Having a few months extra may not be a bad idea for someone craving extra security.

Use your emergency fund in case of a market downturn or unexpected expenses 

There are a lot of things that your emergency fund can be used for, from home repairs to unexpected bills. But, in retirement, there are a few more situations when it's safe to use your emergency fund. 

One scenario is when it's not beneficial to withdraw money from your retirement plans if the market goes down and your portfolio is worth less. Wheaton said you can dip into your emergency funds instead of your retirement account.

"If you have a lot of your retirement investments in securities, that's where you would probably want a little bit more of a cash buffer so that you don't have to pull from those accounts in the event of a market downturn," she said. "You can let it recover."

In addition to having cash to cover your expenses if the market goes down, a larger emergency fund in retirement could also help you with medical emergencies and expenses if needed. With some expenses not covered by Medicare or private insurance, it could fall to you — and your emergency fund — to pay for what you need. 

"They should prepare for higher health costs, things like mobility issues. You don't really think about that, but a lot of times, that's not always covered. When a mobility issue comes up, you'll have to pay out of pocket for it," she said. That's where your emergency fund can come in. 

Your emergency fund should be larger to protect your retirement account, Wheaton said. "You generally don't want to pull large sums of money from retirement accounts at one time. If you do have an emergency or a medical expense you have to pay for, it's nice to pull it out of your emergency fund, as opposed to pulling it from your retirement account." 

That way, your retirement money will continue growing and be there when you need it, while your emergency fund will help make sure the unexpected is covered, too.

This article was originally published in September 2021.