Yes, you still need an emergency fund in retirement. Here’s how much you should have.

Core Insights - A study from the Center for Retirement Research at Boston College highlights the financial stress retirees face from unexpected expenses, particularly affecting vulnerable groups such as lower-income households and minorities [1][2][3] Group 1: Financial Preparedness of Retirees - The typical retired household spends about 10% of their income on unexpected expenses annually, yet 40% lack the cash to cover even one year's worth of such expenses [2][12] - Retirees should consider having emergency savings equal to roughly 10% of their annual income, which over a 25-year retirement translates to unexpected expenses totaling about 2.5 years' worth of income [13][20] - J.P. Morgan recommends that retirees hold three to six months' worth of income in emergency savings to manage larger spending shocks, particularly those related to healthcare and housing [7][20] Group 2: Nature of Financial Shocks in Retirement - The nature of financial shocks changes in retirement, with healthcare, housing, and family-related expenses becoming more significant compared to job loss, which is a major shock for working households [10][11] - About 60% of households experience "rainy-day" shocks, with healthcare costs being the largest category for retired households [11][12] - Spending volatility is common, with one in four retirees experiencing significant increases or decreases in annual spending over two years [14][15] Group 3: Strategies for Managing Unexpected Expenses - Experts suggest that retirees should not rely solely on retirement accounts for emergencies, as premature withdrawals can jeopardize long-term financial security [16][20] - Strategies to manage unexpected expenses include delaying Social Security claims, improving advice on drawing down retirement accounts, and utilizing health savings accounts [18][20] - Timing is crucial; retirees should build up emergency savings early in retirement to ensure financial security, as they have limited ability to replenish savings through additional work [22]