6 Emergency Fund Mistakes to Avoid After 50

2. Saving too much

On the other side, putting a ton of money into an emergency fund paying no or low interest can backfire. “Typically, you want your money invested, because it’s an important component of a retirement plan,” Doll says. “If you need to make, say, 4 percent in order to ensure your money makes it through retirement, the more you keep in cash, the more your invested money needs to earn in order to earn that overall 4 percent. That can lead you to having to invest it more aggressively.” Stashing too much away in emergency savings can also make it harder for your money to keep up with inflation, Doll adds.

The takeaway: Generally, older adults should stick to the six- to nine-month emergency fund benchmark. That said, there are exceptions. Kevin Lao, a financial planner and the founder of Imagine Financial Security in Jacksonville, Florida, says your emergency fund target could be higher depending on your risk tolerance. “[Some people] are more risk-averse and would rather have nine or even 12 months of expenses in cash,” he says.

3. Parking the money in illiquid assets

Locking up your rainy day dollars in illiquid assets that are difficult to convert to cash quickly — like real estate, for example, or collectibles — “could result in you not having the savings readily available in case of an emergency, defeating the whole purpose,” Doll says. His advice: “Something that is liquid and earns a bit of interest, with little to no risk, is the best place to keep the emergency fund.”

A number of savings options fill the bill. Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, suggests older adults think about stashing their emergency funds in a high-yield savings account and CDs. Kristin Pugh, a certified financial planner at Creative Planning in Atlanta, also recommends money market accounts that often come with a debit card and check-writing privileges.

Some of these accounts are currently yielding well north of 4 percent on savings — though rates are variable, not fixed, meaning they can go up or down daily. Visit websites like Bankrate and NerdWallet to find accounts paying today’s highest rates, or check with your bank or brokerage to learn what rates it is offering on accounts.

4. Viewing your 401(k) or IRA as an emergency fund

Depending on your age, making early withdrawals from retirement accounts can trigger a 10 percent tax penalty, and you’ll likely owe federal and state income taxes on the amount that you withdraw. IRAs and 401(k)s are also not the best source of funds when you need money ASAP, which could very well be the case in an emergency. “If you need access to fast cash, an IRA will require distribution forms, and in most cases it will be 100 percent taxable ordinary income,” Pugh says.

If you have a retirement account with your current job, you may be able to lend yourself the money to avoid a tax bill. “If you borrow from yourself in a 401(k), that is a loan and not taxable income,” Pugh says. Note, though, that 401(k) loans are limited to $50,000 or 50 percent of your vested account balance, whichever is less. You typically have five years to repay the loan, but should you leave or lose your job, you may be required to repay any outstanding balance immediately or within a shorter period.

5. Breaking into the funds for a nonemergency

Tempting as it may be, a rainy day fund isn’t just spare cash that you can tap for discretionary expenses, like a vacation or holiday shopping. True to its name, an emergency fund is meant for true emergencies, such as a visit to the ER or a major home repair. Bottom line: Don’t view your emergency savings as a piggy bank that you can use for unnecessary spending.

6. Not replenishing after an emergency

If you dip into your emergency fund, make sure to build it back up. If you’re still working, setting up a direct deposit with your employer so that a portion of your paycheck goes into a savings account every month could help you prioritize your emergency fund. If you’re retired, you might look for ways to cut back a bit on expenses like restaurant dining or entertainment, and put the extra cash toward your emergency savings. And if you receive a financial windfall, consider directing at least some of the money to your emergency fund, until you reach your savings goal, before spending or investing it.