International Baccalaureate (IB) Practice Exam

As you age, how much of your expenses should your emergency fund ideally cover?

1. One month's worth

2. Two to three months' worth

3. Three to six months' worth

4. One year's worth

The correct answer is: Three to six months' worth

The ideal coverage of expenses for an emergency fund as you age is three to six months' worth. This range is often recommended by financial advisors because it provides a buffer that can help individuals navigate unexpected situations such as job loss, medical emergencies, or urgent significant repairs without the stress of financial instability. Having three to six months' worth of expenses saved allows you to maintain your current lifestyle while you seek new employment or address any emergencies. It accounts for a reasonable duration to bridge the gap between losing an income source and securing a new one, considering that job searches can take longer as you get older due to various factors such as industry changes or shifts in job market demands. While shorter timeframes, like one to three months, may not offer sufficient security in cases of longer unemployment periods or significant unforeseen expenses, a full year of expenses can sometimes be excessive for an average emergency fund, potentially leading to inefficient allocation of resources that could be invested elsewhere for growth. Thus, the three to six months' guideline strikes a balance between security and opportunity for the aging population.