This familiar message is etched across many fire alarms: in case of emergency, break glass.
But how, when and why should older folks “break the glass” of their personal emergency funds? For that matter, in an age of so many whiz-bang financial investment options, are emergency funds even relevant for folks 50 and up? And who even has them?
AARP went straight to the experts and asked financial gurus to offer their best tips for older folks on how to accumulate, invest and use an emergency fund.
“Too many seniors wait for a financial hurricane before they take action,” says Reed Markham, coauthor of Money 911: Tested Strategies to Survive Your Financial Emergency. “Preparation is your key to success when it comes to developing an emergency fund.”
Who actually has an emergency fund?
For those age 50 and up, it’s typically those who work with a financial advisor, says Sandra Adams, a certified financial advisor in Southfield, Michigan. “The general population is bad at this,” she says. It’s particularly important to have an emergency fund as you get closer to retirement, she says.
When should I use an emergency fund?
In break-the-glass-worthy emergencies, of course. These typically — but not always — are events that involve unexpected issues related to your health, home or car.
“The focus is not so much on having money set aside to pay your bills if you lose your job, but how to tackle really big and unexpected bills,” says Mari Adam, a certified financial planner in Boca Raton, Florida.
Over the past 30 years, she says, the single most common big-ticket emergency need is for major dental bills. That’s because most dental procedures are not covered by Medicare, she says. She has one client who recently had to take $8,000 from their emergency fund to cover major dental work.
The second most common use for her clients — many of whom live on the South Florida coast — is for unexpected real estate assessments. These typically happen when condo boards require residents to share the costs of necessary repair to buildings aged by climate and salt water on the coast. One of her clients recently had to withdraw $30,000 to cover such a real estate assessment.