I'm Retired With a $1 Million Nest Egg. Do I Still Need an Emergency Fund?

There's no such thing as a magic retirement savings figure that will guarantee you long-term financial security. But many people think that if they manage to save $1 million for retirement, they'll be all set.

Now, the reality is that the amount of money you'll need as a retiree will hinge on factors such as where you live and how you choose to spend your time. Your health will also play a role. But it's pretty fair to say that people who retire with $1 million are at least in decent financial shape.

If you're retired with $1 million in savings, you may be wondering if it's important to have an emergency fund on top of that. After all, you're not working, so it's not like you need to replace income. And you clearly have a lot of reserves to tap for an unplanned bill, whether it's a home repair or needing to buy a new car.

But having a $1 million nest egg doesn't necessarily mean you don't need a separate emergency fund. Rather, you'll need to think about what your nest egg consists of.

How's your $1 million spread out?

When we talk about a retirement nest egg, we're not necessarily referring to a single account, like an IRA or 401(k). For some people, the term nest egg might refer to the sum total of their various accounts.

But let's assume you have $1 million in a single retirement plan. If you have a portion of that money -- say, enough to cover about a year's worth of bills -- in cash, then that could serve as your emergency fund.

However, if your entire $1 million is invested in assets like stocks and bonds whose value can fluctuate, then you may want to stick some cash in a savings account. That way, you'll have some money whose value can't change on a whim.

You may be hesitant to keep too much money in cash as a retiree because if you continue to invest your nest egg, it might continue to grow during your retirement, thereby giving you access to more money. But it's also important to have money you can pull out at a moment's notice for an unplanned expense. And you don't want that money to come in the form of a stock or ETF, because if its value is down when you need to take a withdrawal, you'll lock in a loss.

Make sure you're covered

Fidelity reported that in 2022, almost 300,000 of its 401(k) accounts had at least $1 million in them. But that doesn't mean savers in that boat are totally set as far as their emergency funds go.

It's a good idea to have about a year's worth of cash in an emergency fund so that if your portfolio takes a huge dive, you can wait things out without having to instantly lock in a loss. You may have some cash sitting in your IRA or 401(k). But if not, you'll want to make a point to put some in the bank.