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Old 09-30-2013, 08:44 PM   #21
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We hold no cash. Our entire portfolio is our emergency fund.
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Old 09-30-2013, 09:41 PM   #22
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We keep enough in the checking account so that we don't worry about overdrawing it with a big payment.

As for emergency funds, I think you still need to consider two things. Do you have enough cash to sustain you through some type of natural disaster (or a bank freeze) when most ATM's are shut down. That's something you hear about once in a while, like with Superstorm Sandy. And do you have enough to sustain you through a market shutdown, like 9/11? It may take a while before you can access your brokerage account or can sell something if their computers are damaged or the market is unexpectedly closed.
I think the natural disaster thing is important. We keep a quantity of folding money around the house for exactly this reason (plus water, MREs, gasoline, a generator, lots of shotshells, etc.).

I will be pulling the plug for ESR next year. I am sitting on about 100k in cash, CDs and I bonds. Much of this is just part of my fixed income allocation, but since it is not market sensitive it will serve as the obvious place to draw on and should be enough to ride out market kerfluffles.
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Old 09-30-2013, 11:29 PM   #23
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I use about a half month income as a buffer in my checking account. It is in essence the first tier emergency fund for anything that I cannot simply put on a credit card (like new appliance, home or car repair). If I draw it down, I replenish with the following paycheck or two as needed. I also accumulate some escrow accounts throughout the year. These total about 3 months income and are in interest bearing bank accounts and if necessary I will raid them for a short term emergency. I have some supplies and a small amount of cash in the house for natural disasters or sudden need for late night pizza.

The rest of the "emergency" fund is to cover long term job loss and I actually invest it in my usual asset allocation. This is contrary to all instruction and if the job market gets terrible at the same time the stock market gets terrible I will be forced to sell something when it's down. But a long term job loss necessitating using this fund will be a long slow draw, not unlike an actual retirement, so I don't feel the need to have it all in actual cash. As a result of investing this way for several decades, that fund has grown to several multiples what it would be if I left it in CDs and money markets, so now even if the market is down 70% and I liquidate the whole thing (a vanishingly unlikely scenario) I'm still ahead.
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Old 10-01-2013, 10:45 PM   #24
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On the "forced to sell when down thing" I'm not retired so haven't sold much of anything (just when rebalancing) wouldn't someone with an allocation of stocks and bonds likely be selling the bonds anyway if the stocks are down?

Like if I'm 50/50 and stocks take a 10% beating, wouldn't I be selling some from the fixed income allocation to both get my living expenses and rebalance?
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Old 10-01-2013, 10:52 PM   #25
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On the "forced to sell when down thing" I'm not retired so haven't sold much of anything (just when rebalancing) wouldn't someone with an allocation of stocks and bonds likely be selling the bonds anyway if the stocks are down?

Like if I'm 50/50 and stocks take a 10% beating, wouldn't I be selling some from the fixed income allocation to both get my living expenses and rebalance?
Sometimes some bonds move in the same direction as stocks. For example, if interest rates headed up in a hurry, it would hurt both the stock market and the value of long-term bonds. That's when having cash (CDs, MM funds, etc) can be handy. Obviously, shorter term bonds behave more like cash--but right now they also have lower yields.
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Old 10-01-2013, 11:16 PM   #26
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Yes, your suggestion that if one asset class is down, then redemptions are primarily asset classes that are not so down is correct. Basically the same re-balancing done in the accumulation phase by buying more of whatever is under target, but in reverse.
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Old 10-02-2013, 07:37 AM   #27
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I have IBonds, but they're earning 5+%, and that's not worthwhile right now... Did take some out years ago, and wish I still had them.

As far as I know, any IRA (mine are Traditional) requires the form... see the note on the last page that states facsimiles not allowed.

Keeping money "local" makes sense today, but we've used Money Market funds in the past, when some the larger National banks... ETrade, Metropolitan Life Bank, Discover and a few others were paying a full percent or more than most banks, and even more in Jumbo accounts. Some were paying about 6%.
Wasn't too smart to do that at the time, but we were, are, and will be ultra cautious. Still spend each dollar as if it were the first one I earned as a lifeguard @$.75 /hr.
In the last 2 weeks, I made several withdrawals from our Vanguard Roth IRA's. There was no form, nothing to sign, just a few mouse clicks on the same page where you buy/sell funds into or out of your account. Electronically transferred to my credit union checking and savings account, and the money was available to me in 3 days as advertised.
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Old 10-02-2013, 08:32 AM   #28
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In the last 2 weeks, I made several withdrawals from our Vanguard Roth IRA's. There was no form, nothing to sign, just a few mouse clicks on the same page where you buy/sell funds into or out of your account. Electronically transferred to my credit union checking and savings account, and the money was available to me in 3 days as advertised.
Not sure, but believe the difference has to do with government reporting for tax purposes.... (Roth vs Traditional) thus, because of no tax implications for Roth, no forms. I was wrong to assume "all" IRA'a.

When we began investing in IRA's in 1975, there were no Roth IRA's. It made sense to us to receive the tax benefits of reducing our taxable income (DW and I) by $3000/yr... (at the time, $1500 maximum IRA).

As it turned out, since we are in a low income bracket, there have been no tax effects from taking out from our IRA's. If we had been fortunate enough to have taxable income, our IRA withdrawals would have required payment of taxes.

The traditional IRA has worked the way it was planned. Our use of the monies we saved in taxes, paid off because of the times. Paying off our home mortgage brought us a better return in the halcyon days of housing value increases... along with the better return rate on savings.

Times have changed. Equating what was best 40 years ago to today doesn't always work.
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Old 10-02-2013, 09:13 AM   #29
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In the last 2 weeks, I made several withdrawals from our Vanguard Roth IRA's. There was no form, nothing to sign, just a few mouse clicks on the same page where you buy/sell funds into or out of your account. Electronically transferred to my credit union checking and savings account, and the money was available to me in 3 days as advertised.
Yes, it is the same with our traditional IRA at Vanguard. All of our $ at Vanguard is in a traditional IRA and no transactions require paper forms. I pulled $10k early this summer from our money market fund there to pay our property taxes ($2k was sent by Vanguard to the IRS). Only a couple of mouse clicks and the money was in our checking account three days later.

Re OP, we consider the money market account to be the emergency fund as it generates little income.
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Old 10-03-2013, 05:48 PM   #30
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We will keep two thousand in a savings account and then put anything beyond that on a visa card. We will do this mainly because we will be travelling overseas and may need to have a quick cash option if one of our banking methods fails.

30% of our portfolio will be in shares which we can liquidate in 3 days into cash.
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Old 10-03-2013, 05:59 PM   #31
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Yes, it is the same with our traditional IRA at Vanguard. All of our $ at Vanguard is in a traditional IRA and no transactions require paper forms. I pulled $10k early this summer from our money market fund there to pay our property taxes ($2k was sent by Vanguard to the IRS). Only a couple of mouse clicks and the money was in our checking account three days later.

Re OP, we consider the money market account to be the emergency fund as it generates little income.
Agree. I have no problem with family members Fido or VG acts regarding w/ds. A couple clicks and the money is in your local acct within 48-72 hrs. I'd be questioning if it where otherwise.
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Old 10-03-2013, 06:07 PM   #32
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I don't think retirees need an ER but they do need a cash reserve to pay for all of the unexpected things that crop up (vacation, new roof, new heating/ac repair, money to bail kids out of jail) at various times.
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Old 10-03-2013, 06:48 PM   #33
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Why would this "cash reserve" be anything other than just withdrawals from the portfolio?

SWR of 4% doesn't mean 0.333% every month, does it? I thought it meant 4%/yr, averaged over 12 months. There's no reason why it can't be lumpy. Spend more in Jan, spend less in Feb-May. Spend less in Jan-May, spend more in Sept.

Vacation is an unexpected expense?
Well, maybe -- after all, Princess and Holland America keep sending me emails with the subject "How Fast Can You Pack?"
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Old 10-03-2013, 10:25 PM   #34
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I think you always need an emergency fund.
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Old 10-04-2013, 09:13 AM   #35
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I don't think retirees need an ER but they do need a cash reserve to pay for all of the unexpected things that crop up (vacation, new roof, new heating/ac repair, money to bail kids out of jail) at various times.
I just sell stuff when this happens. Most of these things can go on a credit card so one would have a couple weeks or so to convert something to cash to settle the CC bill.
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Old 10-04-2013, 09:22 AM   #36
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I don't think retirees need an ER but they do need a cash reserve to pay for all of the unexpected things that crop up (vacation, new roof, new heating/ac repair, money to bail kids out of jail) at various times.
How do you do your projections on how many times the kids get into jail? Is there a calculator for that?
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Old 10-04-2013, 10:05 AM   #37
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Hi!

We're still in accumulation phase (but seeing the light at the end of tunnel) was curious whether you retired types maintain an emergency fund. In your working years one constantly hears the 3-6 months of living expenses thing but clearly is mainly for loss of income due to job loss, with a nod to major expenses popping up like medical, home repair, car repair etc.

Right now we keep about 15k in a MM fund as our emergency stash, but as we approach retirement it seems less and less useful. Actually it might not even be needed now since we can live on either one of our incomes and have plenty in taxable retirement savings. So what do you guys do when you hit the point where you are living on accumulated assets as opposed to a paycheck? Do you even bother with an emergency fund or just figure if have major expense just sell some of those assets (granted possibly at a loss) to handle it?

Thanks for the wisdom, as always
A couple of additional questions-

Do you consider your current $15k part of your asset allocation?
In retirement if you did have an EF, would you consider part of allocation?

"If you do" that means if market dropped 20-40% you could be lowering cash and buying securities.

IMO, I have a cash allocation at all times, but no EF. The goal is 6 months expenses, but if market dropped, I would buy, if market went up, I would raise more cash.
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Old 10-04-2013, 11:04 AM   #38
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IMO, I have a cash allocation at all times, but no EF. The goal is 6 months expenses, but if market dropped, I would buy, if market went up, I would raise more cash.
jIMOh, I see that your planned retirement year is 2031. The difference between your situation and mine (ER) is that you have regular infusions of cash from your job. When I was working I thought like you. Now that I am ER, I am unable to "raise more cash" without reallocating assets. In order to to be a hostage to the markets, I feel it is important to keep some liquidity at all times.

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Old 10-04-2013, 11:55 AM   #39
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IMO, I have a cash allocation at all times, but no EF. The goal is 6 months expenses, but if market dropped, I would buy, if market went up, I would raise more cash.
The only problem here is that back in 2008 when the markets dropped bigtime, many people lost their jobs, too, and then to raise cash to cover their expenses had to sell their investments, often their 401k stock holdings, at big losses. So after the markets bottomed out and began to bounce back, they had no cash to repurchase those same stocks at low prices (especially if they remained unemployed or underemployed).

Even for us early retirees, it was not always possible to sell high and buy low. Back in 2008 and into early 2009, both the bond and stock markets moved together so there were not many good rebalancing opportunities. I did take some bond fund losses in order to buy some stock fund shares at very low prices, counting on an comparative advantage which did turn out to come true.
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Old 10-05-2013, 12:39 PM   #40
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was curious whether you retired types maintain an emergency fund.
It is more a case of managing liquidity.
  1. Credit cards and cash in the wallets.
  2. Small amount of cash in the house.
  3. Checking account at the credit union. Negligible balance, but almost all spending flows through it.
  4. MM account at the credit union. From 1/2 to 3 months spending. This feeds the checking account.
  5. MM account at Vanguard. Destination for dividends. 0 to 1 month spending.
  6. ST bond fund at Vanguard. From 1/2 to 2 year's spending with an informal target of 1 year's spending as the default.
  7. Five year Treasury Inflation Protected Securities ladder. Roughly 1 year spending for each rung.
  8. The remaining investment portfolio.
Once I transfer money to the credit union I consider it "spent" for asset allocation calculation purposes. So the Vanguard MM account, ST bond fund, and the TIPS ladder are all part of my asset allocation, but the credit union MM account is not.

With a Federal Wire from Vanguard to my Credit Union I can tap many years of spending in one or two business days. So household specific "emergencies" are pretty well covered. Short term market disruptions are hopefully covered by points 1 through 4. Longer term market crashes are hopefully covered by the TIPS ladder.

The one thing I keep thinking about adding is 1/2 to 1 year's liquidity with after-tax money at some other financial institution, perhaps using Savings Bonds or CDs. We do have 401k accounts around that could be tapped in an emergency, but that would disrupt our tax planning.
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