This article first appeared here.
Which should be the priority in uncertain economic times? Retirement savings or emergency fund?
When you’re nearing your retirement and you’re working and living on a tight budget in uncertain economic times, when future economic environment is unpredictable, it’s always going to be difficult to know which to prioritize between retirement savings and emergency fund.
The reality of life is, both are necessary.
It is necessary to set aside a stash of money to take care of income and spending upsets.
No one prays for a job loss but it can’t be ruled out in uncertain economic times.
And in life, no one prays for unwanted expenses like a medical emergency, but it still happens.
So, an emergency fund is necessary.
The regular contribution to retirement savings is also necessary.
Why is it necessary?
70 years is the age of retirement from active service.
You’re expected to bow out of active service when you clock 70 and depend on your retirement savings as your major source of income.
So since both are necessary to help reduce financial stress and avoid interruption to a lifestyle you are used to, you need to strike a balance.
How can this balance be achieved?
By working out a ratio that allows you to contribute regularly to reach the maximum level of your retirement savings and also have a cash reserve that’d cover at least, one year expenses on basic needs.
This is a conservative approach.
You may decide to have a balance that suits your personal preference and career field.
