The traditional financial-planning prescription for life's financial emergencies is to hold three to six months' worth of living expenses in cash.

But how should retirees handle unplanned expenses? Should they also have an emergency-fund cash cushion on hand, or should they simply increase their withdrawal rates when they need to and then tighten their belts at a later time?

With an eye toward unearthing some best practices on how to handle unplanned expenses during retirement, I turned to the Investing During Retirement forum of Morningstar.com's Discuss boards.

Not surprisingly, our healthy contingent of retired posters had already given this question considerable thought, and many worthwhile strategies poured forth. Some retirees have carried on with the traditional rainy-day fund in retirement, while others have attempted to factor in unplanned expenses into their withdrawal-rate projections. Several advised that with some advance planning--putting a time horizon on new-car purchases, for example--it's possible to circumvent unexpected expenses.

To read the complete thread or share your own in-retirement strategy for managing unplanned expenses, click here (http://socialize.morningstar.com/NewSocialize/forums/p/307666/3267735.aspx#3267735).

'The Old-Fashioned Rainy-Day Fund'Several posters stated that there's no need to reinvent the wheel; unplanned expenses should be anticipated and addressed just as they were during the working years--by maintaining a liquid reserve that can be tapped in a pinch.

For steelpony10, that means "a cash reserve of uninvested money for nonroutine and unpredictable expenses. The old-fashioned rainy-day fund. It's been around for years. The same thing people should have when they weren't retired."

Bobk47 noted that he and his spouse haven't had to tap their emergency reserve to date, but it's there if they need it. "We do have an emergency fund that I pretty much just keep in an FDIC-insured account. It isn't earning anything but I know it will be there in an emergency."

Festus is also a believer in setting aside extra for the inevitable unexpected expense, writing, "In retirement it really is all about having enough money and being able to stay ahead financially, regardless of what comes along the way. I have a savings bucket to cover the unexpected surprises that seem to appear from time to time, no matter how prepared you think you are, they arise from nowhere."

Richendric and his spouse maintain two liquidity pools. "We have owned a home for 40 years and always had a 'maintenance accrual' account for large unplanned expenses on the home. For real emergency expenditures not covered by insurance, such as acts of God, personal accidents/health related issues, and emergency cash for children (already had one of these), we would use our cash reserve."

See the original post here:
How to Manage Unplanned Expenses During Retirement