Don’t wait for an emergency before you need to pay for it

Don’t wait for an emergency before you need to pay for it
April 25, 2018 Bob Allen

After a month of immersion in the retirement planning industrial complex, I had concluded that I had read every possible piece of advice to be doled out, multiplied by 10 to the third power. And then I came to this column by Michelle Singletary of The Washington Post and a quotation from a financial planner.

“People have to get over quitting work in their 60s.”

And there you have it. Simply stated. Retirement as we know it is dead.

OK, maybe not for you or, I hope, me one day. But after having read hundreds of stories about the topic, it seems clear that for a lot of people, a retirement crisis will not arise for the simple reason that retirement will not happen. Or it won’t happen in what has been the traditional way.

That something so obvious based on considerable evidence should be so jolting to read and then process speaks to the overwhelming, paralyzing coverage.

And note that I said coverage as opposed to, say, information. Because I haven’t really come across many retirement revelations over the past month.

Which is why I want to return to my first blog and my first piece of advice, based on my own experience: Pay yourself first.

Let me follow that up with a companion tip: Establish an emergency fund. You’ve heard it many, many times. Maybe the advice was stash three months of living expenses in a savings or checking account. Maybe it was six months. You can find guidance anyplace you can find WiFi, such as Vanguard, Dave Ramsey’s website or Kiplinger. And as is always the case with the internet in general and retirement planning in particular, you can find a contrarian here and there on the particulars of an emergency fund. But overthinking this isn’t an improvement on underthinking. Just start putting money in a bank account.

One reason to have an emergency fund is pretty obvious: You have an emergency and need the money. Another scenario: Let’s say you have thousands of dollars in your company’s 401(k). I mean, you are on track for retirement at 65 and then some.

Then comes that sudden expense that you can’t just fund paycheck to paycheck. You need a chunk of change now. And you have no emergency fund. Only a retirement account. And it’s gonna cost you to tap into it.

And let’s say that the stock market has fallen 10 percent or more, and the value of your account has taken a bit of a hit. It’s a paper loss, if you don’t touch it. Your account might rebound in a year. But if you need it tomorrow, it’s a loss.

I know this can happen. It happened to me some years ago and would have been painful to absorb.

Except I had my little emergency fund.

Everybody talks about Plan B. But when it comes to planning for retirement, Plan B is just Plan A’s understudy, waiting to play the lead role. I hope yours is ready to face the music.

— Bob Allen

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