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Emergency fund in retirement
Old 09-28-2013, 09:19 PM   #1
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Emergency fund in retirement

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
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Old 09-28-2013, 09:27 PM   #2
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I think of mine less of an emergency fund and more as liquidity to avoid needing to sell investments at an inopportune time. The main change that I have made in ER is to make 6% of my 40% fixed income allocation cash and short term investments. This 6% is 18-24 months of living expenses.

I guess in retrospect, I didn't have much of an emergency fund when i was working since i had a steady paycheck.
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Old 09-28-2013, 09:35 PM   #3
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I bother with an emergency fund in case of, well, an emergency.

Ir's split between a money market, stable value, and bond fund.
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Old 09-28-2013, 10:08 PM   #4
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There are two potential sources of emergency funds for me:
1. I could pay myself a corporate dividend from a HISA which currently has over 1 year's worth if expenses in it. This would generate a tax liability next year.
2. I could use my HELOC at prime + 0.5%.
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Old 09-29-2013, 10:29 AM   #5
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Similar to pb4uski, I, an early retiree, keep something resembling an emergency fund in tiers, using ease, speed of access and liquidity, and relative security of principal as criteria. This is no different from when I was working.

For example, tiuxiu, I keep a small cushion of cash (about $750) in my local bank's checking account beyond minimum balances needed to avoid monthly fees to cover any small and unforeseen expenses which may arise. I tap into that cushion often for $100 here and there, replacing it in a month or two. My next tier of funds is a larger (about $40k) amount I keep in an intermediate-term muni bond fund which is part of my overall portfolio. It earns interest (about 2.5%, not a lot but mostly tax-free which is nice) and is nearly as accessible as the local bank account. I have checkwriting privileges in this fund so I can write a check if I need it. I can do an electronic transfer to my local bank's checking account and I will be able to use for everyday purposes in about 2 days. I have rarely had to tap into this account to cover any large, unforeseen expenses the local bank's checking account could not handle, the last time back in 2010. But it is always there in case I need it and it is earning interest, unlike the local bank's checking account.
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Old 09-29-2013, 10:34 AM   #6
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ER here, and no emergency fund as such, but I do have a large chunk of IBonds that serve as a sizable buffer should things go pear shaped. I would draw this down before selling equities if an unexpected large amount of cash was needed.
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Old 09-29-2013, 10:58 AM   #7
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I keep an extra few thousand dollars in the savings account at the bank so that if there is an unexpected expense that I can't put on a credit card I can do so without having to wait to transfer money from Vanguard (I know you can get check writing with Vanguard but I haven't done that).

In addition, DH keeps a 15k IRA account at the bank. This is basically just parked there as another source of cash that we can quickly access if need be. I do count this when considering our AA.
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Old 09-29-2013, 01:00 PM   #8
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Thanks all, it always good to hear replies from the gang here.

IRA is an interesting thought too, we each have a Roth that combined easily has more than 100k of contributions that we could raid without penalty if we needed to.

I'll probably lighten up the 15k in the MM fund.

Thanks again.
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Old 09-29-2013, 02:20 PM   #9
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Question about how you handle withdrawals from the MM or IRA funds. Ours in Maryland, and withdrawal from the IRA, requires a signature, not just a fax. Three days mail in transit, 2 days for weekend, and three to five days to receive check, makes the transaction a bit lengthy, especially in case of an actual emergency.
With a tie in transfer to the local bank, (which has to be done in advance by about a week, the first time,) the actual time to receive cash, is down to 4 days... (where bank holds the funds for a day or two)... still a long time.

Have never used credit card to "borrow" cash, and almost fell over when I heard the cost to do this... Worse than "payday" loans.

As long as interest rates are so low, we just keep a buffer in our local checking account. Am a dinosaur as far as money tranactions go... so realize there are better ways, but what are they?
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Old 09-29-2013, 02:34 PM   #10
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Quote:
Originally Posted by imoldernu View Post
Question about how you handle withdrawals from the MM or IRA funds. Ours in Maryland, and withdrawal from the IRA, requires a signature, not just a fax. Three days mail in transit, 2 days for weekend, and three to five days to receive check, makes the transaction a bit lengthy, especially in case of an actual emergency.
With a tie in transfer to the local bank, (which has to be done in advance by about a week, the first time,) the actual time to receive cash, is down to 4 days... (where bank holds the funds for a day or two)... still a long time.

Have never used credit card to "borrow" cash, and almost fell over when I heard the cost to do this... Worse than "payday" loans.

As long as interest rates are so low, we just keep a buffer in our local checking account. Am a dinosaur as far as money tranactions go... so realize there are better ways, but what are they?

I've not done any IRA withdrawals yet, but I would expect that it is a few clicks of the mouse just like other withdrawals from after-tax funds and for tIRA to ROTH conversions. Certainly IRA contributions have always been very easy between my bank account and the IRA. (once set up, the bank details are associated with the IRA fund(s) until such time as I change them)
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Old 09-29-2013, 02:40 PM   #11
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For IRA 70 1/2 mandatory withdrawals, my bank requires a form...
Here's a form from another bank, and it looks exactly like the one we have to use.

https://www.tdameritrade.com/retail-...pdf/TDA266.pdf
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Old 09-29-2013, 02:46 PM   #12
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Originally Posted by imoldernu View Post
Question about how you handle withdrawals from the MM or IRA funds. Ours in Maryland, and withdrawal from the IRA, requires a signature, not just a fax. Three days mail in transit, 2 days for weekend, and three to five days to receive check, makes the transaction a bit lengthy, especially in case of an actual emergency.
With a tie in transfer to the local bank, (which has to be done in advance by about a week, the first time,) the actual time to receive cash, is down to 4 days... (where bank holds the funds for a day or two)... still a long time.

Have never used credit card to "borrow" cash, and almost fell over when I heard the cost to do this... Worse than "payday" loans.

As long as interest rates are so low, we just keep a buffer in our local checking account. Am a dinosaur as far as money tranactions go... so realize there are better ways, but what are they?
I am amazed that the process could be this cumbersome. Surely your financial institutions must be able to transfer finds electronically to your local bank? If not, this is an argument for consolidating assets at one or two comprehensive institutions with access from anywhere.
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Old 09-29-2013, 02:48 PM   #13
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Originally Posted by imoldernu View Post
For IRA 70 1/2 mandatory withdrawals, my bank requires a form...
Here's a form from another bank, and it looks exactly like the one we have to use.

https://www.tdameritrade.com/retail-...pdf/TDA266.pdf

Suppose you have taken out your mandatory withdrawal then later in the year you find you need to withdraw more, do you still have more forms to complete?

How about ROTH IRA's, no mandatory withdrawals there, do you have forms to fill out each time you want to make a withdrawal?
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Old 09-29-2013, 02:56 PM   #14
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I am amazed that the process could be this cumbersome. Surely your financial institutions must be able to transfer finds electronically to your local bank? If not, this is an argument for consolidating assets at one or two comprehensive institutions with access from anywhere.

An alternative may be for him to place his emergency money in IBonds rather than a MM or savings account. Access is a few clicks of effort, money in the bank next day, savings keep pace with inflation and no tax on accumulated interest until money is withdrawn.
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Old 09-29-2013, 03:16 PM   #15
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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.
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Old 09-29-2013, 03:49 PM   #16
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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.
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Old 09-29-2013, 03:54 PM   #17
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Not retired yet..But I'm planning to keep 60K for emergency fund when I retire for emergencies like new roof/washer/dryer/heater/ac/car breakdown..etc. It's about the same amount I keep now while working but that's for income loss.
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Old 09-29-2013, 04:02 PM   #18
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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.
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Old 09-30-2013, 11:13 AM   #19
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There is a local bricks and mortar bank nearby that has a 1.2% savings account. You can keep any amount there but the 1.2% is only good on the first $20,000, over $20,000 the rate drops. So we keep $20,000 and make 6 electronic transactions from the required checking account every month. The savings account covers about 9 months of expenses.

The savings started out at 2% with a $50 gift card and a $100 bonus so it was worth the effort to set it up and jump through a few hoops. Now it all runs automatically with 6 of our regular bills.

In case of a natural disaster or other issue that keeps banks closed I have a few hundred in cash in the house.
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Old 09-30-2013, 04:57 PM   #20
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We hold no cash. Our entire portfolio is our emergency fund.
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