Expensive car repairs. Medical care that’s not covered by your FEHB plan. Helping a family member with a financial need. Any number of unexpected expenses can crop up when you’re living on a fixed income in retirement.
81% Of Americans Didn’t Increase Their Emergency Savings in 2023
According to a Bankkrate.com survey of 2,500 U.S. adults in September of 2023, only 19% percent added funds to their emergency savings since the beginning of the year.* The reason: inflation. The majority of survey participants said they stopped making deposits into their emergency savings to keep up with the rising prices on food, gas and other essentials.
Even worse, according to the study, Baby Boomers and Gen-Xers are more likely to have less saved for emergencies. For those close to retirement, this is a big red flag. Why? Because they have fewer working years ahead of them to make up for the lack of savings.
“Since there’s not much you can do to speed up the process, you may find yourself struggling with a short-term income gap.”
An Emergency Fund Helps Cover The Long Wait For Your First Full Pension Check
The Office of Personnel Management (OPM) usually takes several months to process your application for an immediate retirement. Add to this, there’s usually a backlog of retirement applications during the end of the calendar year when many people file.
You’ll start receiving 80% of your full net annuity around your third month into retirement. Known as interim payments, these checks usually continue for the next two months. Around the sixth month into retirement, you’ll receive the full amount of your net annuity plus retroactive pension owed with interest. Since there’s not much you can do to speed up the process, you may find yourself struggling with a short-term income gap.
An Emergency Fund Protects Your TSP
Instead of tapping into your TSP or, worse, running up high-interest credit cards, an emergency fund gives you fast access to liquid funds when life throws you a curveball. As a result, you can avoid going deeper into debt or running the risk of outliving your TSP nest egg. Remember – the TSP was created to give federal workers a retirement savings option with the advantages of a 401(k). It was never intended to be a piggy bank you can use on a rainy day. Without an emergency fund, you may need to tap into your TSP and deal with the potential loss on your investment while owing income taxes on the withdrawal.
Consider working with an FRC® trained advisor who understands your federal benefits and can help you plan a strategy for building up your emergency cash reserves.
*Source: https://www.bankrate.com/banking/savings/emergency-savings-survey/
