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"Emergency Fund" thought process?
Old 05-04-2017, 11:27 AM   #1
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"Emergency Fund" thought process?

Have read many threads on this topic, but when spouse and I began the discussion, we started considering which components of our assets and income would offset a market downturn, or a major event need like medical emergency.

We have income from military healthcare and retirement pension, megacorp pension and some non-qual income, and three rental properties ...we discussed various scenarios and while spouse (more conservative) came up with about a year's expenses in case, I offered that we had that much in a CD that would only cost us about $400 to cash out prior to maturity. (also have both taxable equity, IRA and Roth IRA holdings that we won't exhaust at 4% SWR even without the income components)

Confusing or simple? Thoughts, please!
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Old 05-04-2017, 11:47 AM   #2
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I retired 2 years before my pension started and had to bridge the gap. I had almost enough in cash in the bank to cover the 2 years spending and also after tax money in mutual funds. Still I wanted to leave nothing to chance so I put 10% into a stable value fund in my 457 plan.

The pension has started and my AA is around 65/35 now but I've left the money in the stable value as I just like having a large buffer to pay for big expenses if the market tanks.
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Old 05-04-2017, 12:01 PM   #3
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Theoretically, the fixed income in your portfolio should be sufficient to cover a large emergency unless you have a very high equity allocation.

Personally, I have more than that outside my portfolio because I like to have a big chunk in short term funds to do with as I please (including emergencies).
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Old 05-04-2017, 12:28 PM   #4
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sounds like you already have the plan in place, 400 bucks for a years worth of expenses, sounds like a cheap insurance policy to me. since you 2 already liked the idea of a CD ( i dont) , just keep it in place.
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Old 05-04-2017, 12:34 PM   #5
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I have large cash and a HELOC account. That should be sufficient for many years.
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Old 05-04-2017, 12:59 PM   #6
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Emergency funds are a gimmick, I used to carry a 10k, 12k, 15k emergency fund and never had the need to use it, finally decided to just throw it all to gold. IMO everything you own should be batched into 1 lump sum,, your net worth
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Old 05-04-2017, 02:05 PM   #7
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I dropped our emergency fund when my wife retired in 1992. I retired in 2007. We have a fairly conservative allocation (40/60) so I don't feel the need to hold any cash.
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Old 05-04-2017, 02:42 PM   #8
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BCG,

It isn't that we like the idea of a CD, it was simply that we had about $40K a year ago with no where to put it and NFCU had a 18 pos CD at about 2% or so ...a lot has happened in a year, so I could be wrong on any number except the $40K :-)
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Old 05-04-2017, 02:47 PM   #9
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BCG - yeah, I was wrong on two out of three numbers .... :-)

1.98% and 20 months ...
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Old 05-04-2017, 02:53 PM   #10
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Originally Posted by Blue Collar Guy View Post
sounds like you already have the plan in place, 400 bucks for a years worth of expenses, sounds like a cheap insurance policy to me. since you 2 already liked the idea of a CD ( i dont) , just keep it in place.


I agree. E fund is very important in the early years to keep from going off the rails. I always just planned to use credit lines or 401k loans if the need arose. Once you're well into accumulation or nearing ER there are lots of resources available that cost less than keeping a pile of cash at 0 pct. I recently realized I can draw all my CD dividends w/o a penalty. In general the need for an emergency fund is overrated unless you are 100 pct equities.
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Old 05-04-2017, 02:56 PM   #11
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BCG - yeah, I was wrong on two out of three numbers .... :-)

1.98% and 20 months ...
hahaha, its ok, the fact you have an emergency fund of any substance it a tribute to your financial savvy. You are way ahead of many . As a side note im a veteran myself,i only did 2 years, i love the fact you served long enough to collect a well deserved pension.
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Old 05-04-2017, 03:11 PM   #12
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I'm somewhat of an OCD budgeter, so I put money into sinking funds for cars (repairs or ultimately replacement) and modestly-sized home repairs. But beyond that my "emergency fund" is just our general savings. I agree with the other poster who wrote that an emergency fund is more important for those still growing their nest egg to prevent going off the rails.
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Old 05-04-2017, 03:29 PM   #13
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I'm somewhat of an OCD budgeter, so I put money into sinking funds for cars (repairs or ultimately replacement) and modestly-sized home repairs. But beyond that my "emergency fund" is just our general savings. I agree with the other poster who wrote that an emergency fund is more important for those still growing their nest egg to prevent going off the rails.
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Old 05-04-2017, 10:01 PM   #14
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We have CC's , and some cash earning low 1% we could tap, plus a Heloc, so no real need to keep a dedicated emergency fund.
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Old 05-04-2017, 11:41 PM   #15
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Originally Posted by jazz4cash View Post
I agree. E fund is very important in the early years to keep from going off the rails. I always just planned to use credit lines or 401k loans if the need arose. Once you're well into accumulation or nearing ER there are lots of resources available that cost less than keeping a pile of cash at 0 pct. I recently realized I can draw all my CD dividends w/o a penalty. In general the need for an emergency fund is overrated unless you are 100 pct equities.
Agree. E funds are very important for people starting out and whose major risk is job loss. Once retired most people do indeed have access to funds such as helocs, margin loans, fixed income component, etc.

For higher net worth people, I think that regular operating cash management (ie the regular funding of lumpy expenses ) kind of takes over from any E funds concern. I hold enough cash for any likely emergency but that's not why I hold it. It's just for regular lumpy discretionary items like a big trip, new car, or home reno.
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Old 05-05-2017, 04:59 AM   #16
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We hold 2-3 years of expenses in cash or a short-term bond fund so that we can ride out any market declines without selling investments at a loss. We also have a HELOC and a 0% credit card we can use if need be. Almost 50% of our budgeted spending is discretionary (travel, dining out, entertainment, gifts), so we could easily reduce or eliminate expenses to compensate for unanticipated spending needs and/or a more prolonged market decline.
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Old 05-05-2017, 06:15 AM   #17
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The topic of emergency funds has arisen here from time to time. Many people, including me, have EF money in layers, or tiers, with some money in less risky and more liquid or more easily accessible assets.


As for me, my first tier is a small amount in my local bank's checking account above the minimum balance requirements to avoid monthly fees. I used to keep closer to $750 but have reduced it to around $500. This is money I can take as cash from an ATM or write a personal check at will. I tap into this cushion fairly often but it can be replenished quickly and easily.


My next tier is about $40k I keep in an intermediate-term muni bond fund. This fund pays just over 2% annually and is mostly tax-free. I also have checkwriting privileges on the account which makes it more accessible. I tap into this account on average once a year but have gone 2 or 3 or 4 years without touching it. The principal can vary but not a lot.


After that I have other bond funds and a stock fund I can tap into for larger amounts such as buying a new car once in 15 years.


I don't like keeping large amounts of money tied up in accounts which pay zilch or nearly zilch.
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Old 05-05-2017, 07:12 AM   #18
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One advantage of FI is that the ducks are typically aligned and getting cash quickly is a phone call or mouse click away. Virtually all of our funds/investments are structured such that they can become cash (emergency fund fodder). Which to tap first depends on how much might be needed and calculating any tax consequences.

For most issues, credit cards work just fine. I'm guessing we have $30K to $50K available on plastic at most times. For more than that, there is the check book which typically contains from $10K to $30K because our expenses are VERY lumpy.

I actually find myself more concerned about issues such as power outages or other disruptions to the 1's and 0's type of money transfer. I was in a store a year ago when the computers went down. Those with cash walked out with their basket of goodies. Others waited or left empty handed. What about bail? Back in 76 I got a speeding ticket in another state and they would not let me leave without posting CASH bail - not even a travelers check. It turned out that once bail was posted, one could then plead guilty and forfeit the bail as the fine. I don't anticipate anything worse than that but anything can happen. So keeping a handful of $20's (and a few small bills) on hand seems useful.

These are my thoughts on emergency funds. YMMV
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Old 05-05-2017, 08:15 AM   #19
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When I think of Emergency Fund, I think in terms of covering living expenses in case of unexpected loss of income (e.g. layoff, etc.). during accumulation phase. Two income families have significantly more insurance vs. single earner households. My goal was one month expenses and then heloc, credit cards and 401k loans. This was effective for us when DW was riffed and took 4 yrs to recover. If you are in retirement using pension, SS, and savings, these sources are much more reliable. In the spend down phase it's more of an AA question vs. emergency fund.
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Old 05-05-2017, 08:53 AM   #20
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Credit cards that have no balances with high limits and a HELOC is more than enough.
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