According to a recent report, if you’re close to retirement, you should be prepared for some type of big, unexpected expense. The study found that about 50 percent of pre-retirees (age 45 and older, but not retired yet) have experienced an unexpected financial shock. The report makes it clear that the closer you are to retirement, the more careful you should be.
The “shocks” that the pre-retirees endured were no small matter. They ranged from unexpected medical costs to loss of income. As USA Today reports, about a quarter of the respondents claimed that the incident reduced their assets by 25 percent or more and spending by 10 percent or more.
Although the report suggests this pre-retiree “financial shock” is likely coming, you can minimize it. The first step toward doing that is to not neglect your emergency fund. The closer you are to retirement, the more tempting it might be to let your emergency fund dwindle. But this report found you need it more than ever. Make sure your fund is continuously stocked with enough to cover three to six months of expenses. If you need to cut back on discretionary spending to get where you need to be, do it now. Don’t wait around until that shock hits you and you’re left scrambling to cover it. The other option you have is to tap into home equity or use a 401(k) loan. If you take that route, make sure you have a payment plan worked out first. A pre-retirement shock might be coming, but you can be ready for it with a little foresight.