emergency fund or retirement savings

The highly debated question by many financial guru’s and financial planners…”Do I build my emergency fund before retirement savings?? Both are highly stressed as important to your financial well-being. There’s no doubt that’s true. But, which comes first? There are several arguments on both sides of the debate. Here are my top 4 reasons for putting your emergency fund before retirement savings.

It’s a Matter of Risk

Risk is everywhere. All we can do to protect ourselves is manage it. That’s done in three different ways…eliminate it, transfer it or absorb it.

Eliminating risk is by far the best route. Cutting down the old tree in your yard eliminates the risk of it falling on your house or car. But, we can’t eliminate all our risk.

Transferring risk is our next option. This is done through various types of insurance. To get into more of the details about how to transfer risk, read our post, “4 Ways to Protect Your Family and Your Goals”. This, of course, has a cost.

Absorbing risk is where you take the risk head-on. Your only protection is through your own savings. This is also required when you share risk. Having an insurance deductible or co-payment are good examples of this.

Either way you look at it, you need to have the ability to cover your own risk. Having a “cash cushion” in your emergency fund is doing just that. 

Your Most Immediate and Urgent Expense

As my dad always said, “Plan for the worst and hope for the best”. Translation, build your emergency fund before retirement savings.

I want to say that your chances of needing your emergency fund is unlikely. But, the reality is, you’re going to use it more than you ever thought you would.

emergency fund for unexpected expenses

All the time, expenses pop up that are unexpected. You blow out a tire on your car, your refrigerator dies out (this guy just recently) or you have a major medical expense that comes with a higher bill than you’re used to.

How do you cover these expenses now? I know you have them. This stuff is just part of life. If you didn’t quickly adjust your budget, SOMETHING probably went on a credit card. Maybe it’s still there?

Retirement is a long-term expense. Again, don’t get me wrong, it’s vital to start saving, but much of the equation around retirement is more want than need.

You want to retire earlier, and you want to travel to exotic destinations and so on.

There is time to catch up. The concept of retirement is fluid. There is no exact date or exact amount of money that you need.

What you need is to protect yourself, and now. 

It Keeps You Out of Debt

So, I mentioned putting these expenses on a credit card. Small expenses, that’s OK. That might work out for you if your budget can absorb the expense. It must be paid off right away though.

What if the expense is one of the LARGE ones? What if you air conditioner needs replaced? Can your budget absorb that? Likely not.

So, you carry a balance. You pay interest on it. That also impacts your budget. This slows your savings rate for your other goals and retirement.

emergency fund keeps you out of debt

What if it gets out of hand? Your credit is affected…and the snowball keeps growing.

Building your emergency fund can minimize or even “eliminate” this risk all together. 

It Actually Protects Your Retirement

U.S. New & World Report wrote an article several years ago pointing this out. It points out that “Your retirement accounts are meant for retirement”. Well, duh.

The picture I want to paint for you here is…

Let’s say you skipped the emergency fund and started aggressively saving for retirement. An emergency expense presents itself.

If you HATE debt, you might opt for dipping into your IRA.

If your timing is bad, it could be following a dip in the market. You may be forced to sell at an inopportune time.

What’s worse is that you are forced to pay income tax AND a 10% penalty for withdrawing the funds early if it’s not for a qualified hardship. The result, you end up paying MORE for the emergency than needed.

In Conclusion

Money is complicated. There are many opinions and theories on how to do this “stuff”. What is NOT a debate is that protecting your money and your family are a must.

Before building a home, you build your foundation.

Some of the strongest and largest companies build enormous cash reserves to be prepared for investment opportunities and to cover large expenses.

I haven’t even touched on the psychological effects of feeling prepared. That, in and of itself, might be the ONLY reason you need to build your emergency fund before retirement savings.

Something else my dad always said, “You can’t be too careful”. I’ve taken his advice. Maybe you should too.

Brad Ruttenberg

Brad Ruttenberg


Sports Fan, Movie Buff, and Anything Outdoors sums it up.  Brad loves spending time with his wife, Ashley, and their two boys.  He helps empower people to take control of their money, bringing them the confidence to build the life of their dreams.

What are you waiting for?

Start boosting your savings now with our FREE 3-Day Challenge.

We take you from over spending your budget to money in the bank.

Start THRIVING financially!

About Matt & Brad

They are identical twins and money experts.  Matt and Brad Ruttenberg have, combined, over 2 decades of experience as financial planners.  They are known for simplifying money and helping others go from living paycheck to paycheck to thriving financially.

Be Our Guest

Consult with Matt and Brad. Ask us anything.

The Money Twins Podcast

Join us weekly to talk money, goals and everything in between.  We share our perspectives on money, answer questions, and inspire you to find new and exciting goals.

3 Days to a Better Budget

Our free gift to you, because everyone can do it.  Take control of your money today.  By signing up for the 3-Day Boost Your Savings Challenge, you learn how to track your budget to help build a bigger savings.

© 2018 The Money Twins  All Rights Reserved.  Disclaimer  |  Privacy Policy  |  Terms of Use

This communication is strictly intended for individuals residing in the states of Florida, Michigan, Arizona, Nevada, New York, Ohio, and South Carolina.  No offers may be made or accepted from any resident outside the specific states referenced. Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  The Money Twins and Ruttenberg & Company are not affiliated with Cambridge.