Retire: Emergency funds and retirement

In Latest, Retire by Carina Jooste

Here’s a question: You’re newly retired, and thinking about cashing out your emergency fund. As most of your expenses might be under control during this time, and you don’t have to worry about the consequences of losing your job, the purpose of an emergency fund does not apply to you anymore, right? 

Emergency funds are for emergencies and should be treated that way – whether you are 27 or 70 years old. However, as all money conversations go, the answer to this question (and that what constitutes an emergency)  is as unique as the time, circumstances and the individual it pertains to. 

Why having an emergency fund makes sense – especially when you’re retired

Although retirement products are structured to protect retirees from the gut-wrenching impact of market volatility, a negative impact can still be expected. So if you are already retired and drawing a monthly salary from a living annuity, the current market turmoil can take a nasty bite out of your investment, forcing you to reduce the amount you withdraw or to keep it as is for some time while waiting for the market to recover. 

In this instance, an emergency fund can help to make ends meet, while preventing an increase in the drawdown rate while the market is still on its knees. This also helps to promote the longer-term health of the annuity. 

Markets aside – your health is your biggest asset

When retired, your medical and health expenses can be much higher than expected. Having extra cash in a savings fund for medical expenses can make a world of difference to a retiree’s life. Again, having something extra on the side to prevent you from increasing your drawdown rate for as long as possible, will benefit your investment in the long run.  

It also makes sense when you’re close to retirement

Some retirement products are based on a life stage model, which means the investments of individuals who are close to retirement are automatically moved from riskier assets (like equities) to less volatile options, such as cash. This means investors are more protected in times like these. However, a fall still hurts.

If you’re planning to retire this year, you can try and regain some ground by continuing to work – if possible. You are also not bound by the maturity date of your retirement product. If your employer requires you to retire, you don’t have to retire from the fund. You can try and lessen the blow by drawing from other investments or savings before you retire from your fund. 

Emergency funds are vital to any individual’s financial wellbeing, and it’s an egg that shouldn’t be in the same basket as the rest of your investments. Because if the world suddenly turns on its head, short-term relief (with a long-term impact) should be a click away.


Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.


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