While your work pace may have slowed to part-time or even full-time retirement, your expenses continue at a steady pace. Especially during retirement, your finances need monitoring and even heightened focus.

In our continuing series on wealth planning and protection for retirees, our topic today is how establishing a war chest and implementing guardrails can help you weather challenging times.

Your budget is your road map that outlines what to expect on a monthly basis to keep track of your income, spending, and savings goals. As discussed last time, having a budget is even more necessary in retirement. But what else can you do to protect against inflation and other financial uncertainty? Just like preppers stock up their pantries with long-term non-perishable food items and grow gardens, you should establish a war chest or continue stocking one to help you endure tough times more comfortably.

Your war chest is your “liquid savings” that you can easily access when needed to cover life’s little and not-so-little emergencies – such as larger-than-anticipated medical expenses, car repairs, and even dips in the market that affect your cash flow. Your war chest should be made up of cash and bonds and is based on your current cash flow needs.

Consider your monthly expenses and how many months you would like to have covered in case of a financial emergency. Having at least three to six months of expenses saved up in a war chest is recommended. Depending on how often you take money from your accounts for living expenses, you may even require several years of living expenses in your war chest to ensure you have enough to weather a decline or period of volatility in the equity markets. Once you have determined the appropriate level of your war chest, adjust your portfolio to create the cash and bonds necessary to get you to your number.

While no one is happy about rising inflation, the current higher interest rates may help reinforce your war chest with increased bond yields, increased dividends, and increased rates from your savings accounts.

So that’s my pep-talk about the importance of having a war chest. It’s a proactive measure you can take that will provide peace of mind for you and your family.

1. Evaluate Your Current Financial Situation
Start by assessing your current income, expenses, and debt. Identify areas where you can cut back on expenses to free up extra cash that can be put toward building your financial war chest.

2. Minimize Your Debt
As a retiree, you may have little to no debt. But now is a time to minimize it if you do have any. And it’s a time to watch incurring any new debt. Try to limit your credit card usage and pay off your balance in full each month to avoid high-interest charges and debt. If you carry any balances, pay down high-interest debt such as credit card balances or personal loans to reduce interest charges and free up more cash to put toward your war chest.

3. Choose a High-Yield Savings Account
Make sure you have a competitive savings account. Look for a high-yield or money market account that offers a competitive interest rate.

4. Have a Spending Plan
Stay committed to your spending plan and avoid dipping into your war chest for non-emergencies.

5. Maintain a Long-Term Investing Plan
For those who are retired, you did well to arrive at your retirement goal, but you want to stay disciplined with your investments. Set a long-term investment strategy and stick to it. Avoid making impulsive decisions based on short-term market fluctuations.

As you can see, even if you’re retired, you will need to keep a sharp focus on financial matters to enjoy your retirement lifestyle. A financial war chest can provide a sense of security and flexibility in case of unexpected financial emergencies. And it’s always a good idea to have financial guardrails in place to help you travel on your path with as few bumps as possible. I look forward to next time when we will discuss some tax-saving strategies you can implement now.