Emergency fund in retirement

[growing_older]

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.

 

[martyb]

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.

 

[imoldernu]

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.

 

[Bestwifeever]

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.

 

[butterfly]

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.

 

[foxfirev5]

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.

 

[mickeyd]

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.

 

[rayvt]

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?"

 

[steelyman]

I think you always need an emergency fund.

 

[jebmke]

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.

 

[MDJO]

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?

 

[jIMOh]

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.

 

[Meadbh]

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.

Meadbh

 

[scrabbler1]

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.

 

[bamsphd]

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.

 

[tessaduncan]

A large (untapped) HELOC is our emergency fund although would probably put on a credit card first if possible That'd give us at least a month (until cc payment due date) to decide whether we'd want to tap the HELOC and incur interest payments (currently 3%) or withdraw from ROTHs or other investments.

 

[samclem]

A large (untapped) HELOC is our emergency fund although would probably put on a credit card first if possible That'd give us at least a month (until cc payment due date) to decide whether we'd want to tap the HELOC and incur interest payments (currently 3%) or withdraw from ROTHs or other investments.

A HELOC is good tool, but some folks discovered their shortcomings during the recent financial crisis. With home prices down, the HELOC didn't do them any good because they had none of the "E". In some cases, even with available equity, the bank had enough questions to spawn the requirement for a new appraisal, etc, which slowed things down a bit (not what anyone wants in a true "emergency"). If a person has a lot of equity in their home then this is much less of a concern.

 

[tessaduncan]

With our house paid in full, equity was never an issue. Having a HELOC with our local credit union for over 20 years for only half the value of our home, there was no problem and no need for appraisal even when values tanked. We did have a problem proving "income" when it came up for renewal right after my DH retired. Too young for SS or pension, we lived on savings, leaving our retirement funds untouched. They had never seen that before.

 

[dtbach]

Glad this topic came up because it made me look again at my cash levels. Turns out I have about $27K in the local credit union, $34K cash in Vanguard and about $60K in short term bond funds at Fidelity.

That covers us for at least 2 years, maybe 2.5

 

[mickeyd]

Why would this "cash reserve" be anything other than just withdrawals from the portfolio?

I don't want to be liquidating $10K in stocks/bonds at the wrong time when DW decides that we need to "update" both of our bathrooms or stairway this month. If it's in cash, no problem.

 

[Animorph]

I don't want to be liquidating $10K in stocks/bonds at the wrong time when DW decides that we need to "update" both of our bathrooms or stairway this month. If it's in cash, no problem.

All she has to do is keep her hands off it until equities double. Then you're safe for a 50% drop.

 

[RitaR551]

I keep five months worth of emergency fund cash in a KASASA account. It pays 2%.

 

[NW-Bound]

I consider as emergency cash my holdings in money markets, I-bonds, stable value funds, etc..., or in short anything that is not adversely affected by the stock market or the Fed fund rate.

As I do not own much bonds currently (5%), I have 28% in cash, and that's 8 years of living expenses. That percentage may go down if I find compelling reasons to put it in some other assets. However, I never went below 10-15% in the past.