By now, most people know that financial planners recommend you keep three to six month’s expenses tucked away in case of emergency or unemployment.

It may be even more imperative for retirees, considering that many have not saved enough and no longer have a regular paycheck if something does happen.

“Unexpected expenses still come up,” says Dana Anspach, founder and CEO of Sensible Money in Scottsdale, Ariz. and author of “Control Your Retirement Destiny.” “It might be a dental expense, home repair or auto repair. We often see a family member who needs help – an adult child loses his or her job and goes through unemployment or a divorce. I’ve seen clients who gained custody of grandchildren. All kinds of things happen.”

Most Americans are not prepared for an unforeseen emergency. Only 40 percent could cover an unexpected $1,000 expense, according a survey from Bankrate.com, a personal finance web site. Many would be forced to borrow cash or use a credit card.

Anspach says that emergency fund will have no impact on your Medicare or long-term care policy. It will have an impact if you are applying for Medicare, but by then you are spending down your assets anyway, she said.

How much money should retirees have set aside?

“If your income is coming from Social Security or a pension that is super safe, meaning the company or government guaranteeing that pension is highly secure financially, you might only need a few months’ worth of spending,” said Ric Edelman, author, radio host and founder of Edelman Financial Engines. “But that doesn’t describe most retirees. Most have income from a variety of sources, none of which is guaranteed. They are getting a pension from employers that are shaky, pensions that are not stable and investments that can lose money in a market crash.”

Nathan Boxx, director of retirement plan services at Fort Pitt Capital Group in Pittsburgh, Pa, says a retiree’s emergency fund might be a little less than working people. “Hopefully, your mortgage is paid off and you are down to one car. Expenses tend to go down. The biggest one will be medical care, and that will be covered through your Medicare or supplemental premiums.” 

Boxx says retirees should have a home equity line of credit to help pay unexpected expenses. “Usually it doesn’t cost anything if it’s there. You can write a check if you do have catastrophe like a flooded basement. It’s very inexpensive money. And it gives you time to figure out what pool of money you will draw on to pay it off or pay it off slowly over time.”

Where should it be invested?

It needs to be somewhere safe,” said Anspach. “You won’t get a lot of interest, but it will be accessable.” She said one trap people fall into is using retirement accounts in emergencies. “If it’s all tax-deferred, you will pay taxes on everything. It can bump you to another bracket. A money market fund or bank savings account provides you with a lot of flexibility. What it really brings is peace of mind.”

“There’s a psychological component to having a healthy cash reserve outside of the stock market,” said Boxx. “When we experience periods of high volatility, like we just did, having that cash reserve on the side can serve as a peace of mind.”