Advisors encourage clients to establish emergency savings funds
Whether it’s money for something fun — like buying an RV to travel the country to see their children — or something painful — like replacing their roof — individuals often require emergency savings, but they tend not to think about it until they need it.
“Most clients don’t see it as a concern until it’s too late,” said Cameron Valadez, partner at Planable Wealth. “We always recommend having an emergency fund, whether they need it or not.”
If an emergency fund isn’t in place, clients often want to pull money from pretax retirement accounts, which can be costly.
“They typically don’t think about the ramifications of doing that,” Valadez said.
He encourages clients to build an emergency savings fund that they can draw from to cover planned expenses, such as a new vehicle, and that would cover three to eight months of living expenses, such as mortgage. Such a fund also should be big enough to give them a cushion against a possible market downturn at the onset of retirement.
Herschel Clanton, founder of Chancellor Wealth Management, encourages retired clients to have at least $10,000 in a bank account for emergencies. Those funds should be drawn from normal retirement sources, such as a pension, Social Security, a required minimum distribution or a planned withdrawal from an IRA or brokerage account.
Without an emergency fund in place, his clients have to take additional distributions from retirement accounts or take on credit card debt — moves that can diminish retirement security.
“If you don’t have an emergency fund, when there are one-off events, it’s another withdrawal from their retirement resources,” Clanton said.
A lack of emergency savings has become a major source of stress for Americans, according to a Fidelity
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