I am retired fourteen years from the Postal Service. I have eight months liquid cash in bank for emergencies. I have my Postal pension and also get full SS benefits under the FERS retirement system. I have no debt on credit cards. I have paid my car off five years ago. My TSP plan continues to grow as I keep 25% invested in stocks.. In fact , I earned back all my RMD’s and then some this year. I am single now (divorced eight years ago) Health coverage is still funded primarily by the Postal retirement system and been in Medicare for a while. I still have a mortgage but it’s small , did a re-fi at 3% . I will never be rich but I am in a good place and want for nothing. I aches and pains like most of us in our 70’s but overall health is good. What can I say? I am blessed , truly.
2 months living expenses in a Federally Chartered BANK 2-4 months living expenses in a Treasury ST Bond or Money Market fund. Alternatively, very short CDs.
Pay off cards Pay off car, unless it is a special low rate from manufacturer.
Emergency fund: After our savings passed a certain amount (for us $50K+) we no longer have a lot of cash or emergency fund for over several decades and are now in retirement. Do I need an emergency fund? not really, first I use credit cards, if I can’t, I have several thousand in the bank. Beyond that, I can sell my mutual funds and get the money within 2 days. I have been reading now for many years you must have a lot of cash (beyond several thousand) but never saw a case where you need it unless you buy illegal drugs or need it for a ransom.
CASH: Do you need years of cash, even as a retiree? IMO, a retiree needs maybe 3-6 months at most. Most/all retirees have a cash flow from SS + distributions + pension + can sell something, which isn’t difficult to sell 3-4 times per year. When stocks do better, you can sell stocks, when stocks lose, you can use bonds. Some of these bonds should be a ballast for stocks, which means in a market meltdown they will go up or have minimal losses. Bonds have different categories, risks, duration, and behavior such as treasuries, Munis, HY, bank loan, MBS, TIPS, emerging markets, and corp. Usually, over the longer-term hold, they will do better than money markets and CDs. You can sell your bond funds and see the money the next day in your account. The only time I was in cash=money market was in 2022 for months because it was obvious that bonds+stocks will not work when the Fed promised to raise rates rapidly at the beginning of 2022.
CASH for trading: I never understood this concept, and I’m a trader and not a typical investor. A typical investor has stocks+bonds. If stocks go down, and you want to buy more stocks, it’s pretty easy to sell some bonds and buy stocks, so why be in cash for months-years making a lot less?
The only exception for me happened after our portfolio was big enough, and I was several years before retirement. I added the max loss allowed rule to protect my portfolio. Since then, I’ve been in the market most time and invested at 99+%(less than 1% in cash, in the bank). Only at extreme risk, I’m out.
How can a retiree create monthly cash flow? Pretty easy. She can use 1 (or more) funds and create a repeatable monthly sell order for the amount she needs for years to come. It takes about 2 minutes and there is nothing to do after that. A more sophisticated retiree can sell 3-4 times annually the fund that made more money or from the account (taxable, IRAs) she likes to use. She has full control of what and how to do it.
============
The above has been tested several times in 2022-3. We totaled our used car (over 10 years old) and bought a new one. Just sold thousands in our joint account for the purchase. We had to replace our very old vehicle of 17 years. We were just looking and to our surprise, we found what we wanted, we paid (wired the money to the dealer) it in just one day after selling a mutual fund. We also had to replace the roof + deck, we used the same approach. The above has been 4 times your typical emergencies and the total amount was over $100K.
So, I’m still looking, after several decades, for an emergency I can’t handle with this approach.
We have always tried to maintain 3-6 months of “living expenses” in readily available cash. Taught the kids the same.
Now in retirement, we have 1 year of living expenses in checking, a second year in a short-term T-Bill ladder, and I treat our ROTHs as a tertiary safety net (tax-free withdrawals). I have also added a HECM as the mother of all emergency band-aids. (Reverse Mortgages, Dr. Wade Pfau)
During accumulation if you have a stable income I suggest 3 to 6 months emergency fund, then after retirement increase to 1-2 years cash, depending on your age and risk tolerance you might want more 🙂
We’re retired and have a few years in cash or a very short term bond fund as part of our asset allocation. In addition, we keep some tens of thousands in an FDIC insured online savings account from a separate custodian, and a few hundred in paper cash on hand.
Our primary emergency fund is in cash on hand. Our view is, emergencies are unlooked for events that require cash in hand now—Natural disasters, bad weather, being on the road—situations where credit cards are useless. We think in terms of money for a week for such circumstances. We also choose to have 9 months of “cash” in our money market fund. In the last year, our family bank was bought out. Some of our automatic deposits took months to get into our account (don’t ask!). Because we had a fat pot of MM money, we could pay our bills while sorting out a five figure mess. For us, these arrangements have saved anxiety and trouble. But everyone has to hoe their own row.
The financial retirement gurus say that you need at least ten to fifteen times or more of your last annual salary to retire comfortably or Sleep Well At Night (SWAN). So, hopefully, your social security check will cover 40% of your living costs. Inflation has measurably increased most folks living costs over last years living costs.
Everyone should have an emergency account. However, that should not come at the expense of foregoing tax preferenced participation and employer contributions to a 401(k) or 403(b) – where, done right, the retirement savings plan offers “liquidity without leakage along the way to and throughout retirement.”
We hold approximately four years of living expenses in cash. The possibility of job loss for the two of us is low given her tenured position as a teacher and my new position as a community bank president. This is a topic of much discussion in our home given likely retirements in about seven years or so, her generous pension on retirement and a small state pension that I’ve earned that provides healthcare coverage for both of us for life.
I don’t hold very much cash. If I need cash, I can use a margin loan on my portfolio. My broker has a low rate and I can repay it at my discretion. This allows me to keep my funds invested.
5 years – 1 year’s worth in savings a/cs, 4 years’ worth in a ladder of I-Bonds and CDs.
I don’t hold bonds in my investment portfolio. If there is a market correction, I don’t need to sell and I can funnel 2 years’ worth emergency expenses into the market when it is cheap.
All our kids know to save in stages. First, a 3-month emergency fund. Then as your career progresses, slowly grow that to 6-months. Now, that I am retired it dawned on me as a “bucket approach kinda guy” that I could take that 6-month emergency fund and turn it into another layer of the first retirement bucket by expanding it to 12 months of living expenses giving us 3 years of cash as we start retirement. And if we have “an emergency” it’s still there.
How much and where you keep it depends on family/work situation. My goal is to have enough readily available cash to meet expenses while making thoughtful decisions about how to pull money from my investment accounts. I keep a month’s current expenses in checking, two month’s essential expenses in savings, and the rest is invested. If I had dependent children, I might want more cash available to minimize disruption to family while dealing with emergency.
I keep 2-3 months of expenses. I try to keep 2 months always available and the money for the third I used to things like car repair, private insurance or any other emergency, I see more like amount of money I have saved for big bills.
I keep only 2 months because I’m single, no dependants, have a high paying job as a software engineer and I’m really good at it, so is very unlikely to be unemployed more than a few hours/days (really!).
If I endup in a situation where I’ll need to cover more than two months I can always go back to Nicaragua where I have a shelter and can live with the third of what I spend where I live right now.
I’m early retired and rely on my investments pay my bills. I get a “paycheck” each month from my investment account – selling index funds when my net worth is within 90% of it’s all time high and pulling cash when my net worth is below the 90% threshold.
I keep about six years of spending in cash and CD’s so I can make it through a six year downturn without having to sell stock. These cash holdings allow me to be aggressive with my other investments and still sleep at night.
In a different interest rate environment, I’d be in bonds rather than cash and CD’s but I’m not willing to take the rate risk in bonds. I keep less than a year’s expenses in each CD so I won’t have to pay much of a penalty in the event of early withdrawal.
For many years, I didn’t make enough or had enough to keep an emergency fund. I was fortunate to make a good living and finally accumulated 6 months. As I’ve gotten older (51), I carry way too much cash but it seems to make me sleep better.
I heard about that on a podcast. Seems to make sense as long as people have the self discipline to not run up the credit line with things other than the emergency. Also, during the 2008 financial crisis, did banks close or reduce HELOCs on people? That’s certainly a risk.
I understand and agree with the conventional financial planning guidance of holding 3 to 6 months of expenses in liquid savings. I can’t say my wife and I always met this. There were definitely times when we scrambled to make ends meet. It’s important to understand your personal situation, how secure your employment is, and what your risk are. Do you have short term disability insurance – that helps. Where I worked you were allowed to accumulate up to 400 hours of vacation in a bank. Lots of employees considered that an emergency fund against a layoff.
Caution on using stocks as a store for emergency fund money. There have been rare occasions such as 9/11 when the stock market has been closed. It could also potentially be closed for weeks. I used to hold emergency money as US Savings Bonds which paid a 4 per cent minimum interest that compounded tax free until maturity and was state tax exempt (those were the days!).
These best place today is probably a high yield (like .50 per cent per year – ha!) account at Citibank, American Express or some local credit unions.
Jonathan, that strikes me as a clever method and maybe I should re-think this subject. But I’m older than you and on Medicare, so there’s another factor in play. If our MAGI (modified adjusted gross income) exceeds a certain level, I have to pay IRMAA surcharges on Medicare, which can be pretty expensive. So if I needed a big chunk of cash, and got it by selling stock which resulted in a significant long term capital gain, it could trigger the IRMAA problem.
I don’t think you’re missing anything. In the good old days, when bonds had a yield that you didn’t need a microscope to see, the standard advice was to keep bonds in a retirement, while favoring tax-efficient stock strategies in a taxable account. But at today’s tiny yields, high-quality bonds aren’t nearly as tax-inefficient as they once were, so there’s less reason to avoid them in a taxable account.
I’m not claiming this is smart, but I’ve never had what people think of as an emergency fund—three or six months of living expenses sitting in cash investments and held in a regular taxable account. In my 20s, when I was married to a graduate student and raising two children on a junior reporter’s salary, I simply didn’t have much money to spare, and what I could spare I preferred to stash in my 401(k) or use to buy stock funds in my regular taxable account. Over the years, that taxable account grew, so I always knew I could dip into it if I suddenly needed cash. To be sure, my taxable account is mostly in stocks, so I run the risk of having to sell stocks during a bear market. But if that happened, I’d simply make an offsetting move from bonds to stocks within my retirement account, thereby maintaining my portfolio’s overall stock exposure and effectively avoiding selling at a market low.
I am retired fourteen years from the Postal Service. I have eight months liquid cash in bank for emergencies. I have my Postal pension and also get full SS benefits under the FERS retirement system. I have no debt on credit cards. I have paid my car off five years ago. My TSP plan continues to grow as I keep 25% invested in stocks.. In fact , I earned back all my RMD’s and then some this year. I am single now (divorced eight years ago) Health coverage is still funded primarily by the Postal retirement system and been in Medicare for a while. I still have a mortgage but it’s small , did a re-fi at 3% . I will never be rich but I am in a good place and want for nothing. I aches and pains like most of us in our 70’s but overall health is good. What can I say? I am blessed , truly.
2 months living expenses in a Federally Chartered BANK
2-4 months living expenses in a Treasury ST Bond or Money Market fund. Alternatively, very short CDs.
Pay off cards
Pay off car, unless it is a special low rate from manufacturer.
After that, it is investing decision…
Emergency fund: After our savings passed a certain amount (for us $50K+) we no longer have a lot of cash or emergency fund for over several decades and are now in retirement.
Do I need an emergency fund? not really, first I use credit cards, if I can’t, I have several thousand in the bank. Beyond that, I can sell my mutual funds and get the money within 2 days. I have been reading now for many years you must have a lot of cash (beyond several thousand) but never saw a case where you need it unless you buy illegal drugs or need it for a ransom.
CASH: Do you need years of cash, even as a retiree? IMO, a retiree needs maybe 3-6 months at most. Most/all retirees have a cash flow from SS + distributions + pension + can sell something, which isn’t difficult to sell 3-4 times per year. When stocks do better, you can sell stocks, when stocks lose, you can use bonds. Some of these bonds should be a ballast for stocks, which means in a market meltdown they will go up or have minimal losses. Bonds have different categories, risks, duration, and behavior such as treasuries, Munis, HY, bank loan, MBS, TIPS, emerging markets, and corp. Usually, over the longer-term hold, they will do better than money markets and CDs. You can sell your bond funds and see the money the next day in your account. The only time I was in cash=money market was in 2022 for months because it was obvious that bonds+stocks will not work when the Fed promised to raise rates rapidly at the beginning of 2022.
CASH for trading: I never understood this concept, and I’m a trader and not a typical investor. A typical investor has stocks+bonds. If stocks go down, and you want to buy more stocks, it’s pretty easy to sell some bonds and buy stocks, so why be in cash for months-years making a lot less?
The only exception for me happened after our portfolio was big enough, and I was several years before retirement. I added the max loss allowed rule to protect my portfolio. Since then, I’ve been in the market most time and invested at 99+%(less than 1% in cash, in the bank). Only at extreme risk, I’m out.
How can a retiree create monthly cash flow? Pretty easy. She can use 1 (or more) funds and create a repeatable monthly sell order for the amount she needs for years to come. It takes about 2 minutes and there is nothing to do after that.
A more sophisticated retiree can sell 3-4 times annually the fund that made more money or from the account (taxable, IRAs) she likes to use. She has full control of what and how to do it.
============
The above has been tested several times in 2022-3.
We totaled our used car (over 10 years old) and bought a new one. Just sold thousands in our joint account for the purchase. We had to replace our very old vehicle of 17 years. We were just looking and to our surprise, we found what we wanted, we paid (wired the money to the dealer) it in just one day after selling a mutual fund. We also had to replace the roof + deck, we used the same approach. The above has been 4 times your typical emergencies and the total amount was over $100K.
So, I’m still looking, after several decades, for an emergency I can’t handle with this approach.
We have always tried to maintain 3-6 months of “living expenses” in readily available cash. Taught the kids the same.
Now in retirement, we have 1 year of living expenses in checking, a second year in a short-term T-Bill ladder, and I treat our ROTHs as a tertiary safety net (tax-free withdrawals). I have also added a HECM as the mother of all emergency band-aids. (Reverse Mortgages, Dr. Wade Pfau)
During accumulation if you have a stable income I suggest 3 to 6 months emergency fund, then after retirement increase to 1-2 years cash, depending on your age and risk tolerance you might want more 🙂
We’re retired and have a few years in cash or a very short term bond fund as part of our asset allocation. In addition, we keep some tens of thousands in an FDIC insured online savings account from a separate custodian, and a few hundred in paper cash on hand.
Our primary emergency fund is in cash on hand. Our view is, emergencies are unlooked for events that require cash in hand now—Natural disasters, bad weather, being on the road—situations where credit cards are useless. We think in terms of money for a week for such circumstances. We also choose to have 9 months of “cash” in our money market fund. In the last year, our family bank was bought out. Some of our automatic deposits took months to get into our account (don’t ask!). Because we had a fat pot of MM money, we could pay our bills while sorting out a five figure mess. For us, these arrangements have saved anxiety and trouble. But everyone has to hoe their own row.
Retired, I have a $107,000.00 pension and $224,000.00 in an emergency account. Hope that is enough.
The financial retirement gurus say that you need at least ten to fifteen times or more of your last annual salary to retire comfortably or Sleep Well At Night (SWAN). So, hopefully, your social security check will cover 40% of your living costs. Inflation has measurably increased most folks living costs over last years living costs.
Everyone should have an emergency account. However, that should not come at the expense of foregoing tax preferenced participation and employer contributions to a 401(k) or 403(b) – where, done right, the retirement savings plan offers “liquidity without leakage along the way to and throughout retirement.”
We hold approximately four years of living expenses in cash. The possibility of job loss for the two of us is low given her tenured position as a teacher and my new position as a community bank president. This is a topic of much discussion in our home given likely retirements in about seven years or so, her generous pension on retirement and a small state pension that I’ve earned that provides healthcare coverage for both of us for life.
I don’t hold very much cash. If I need cash, I can use a margin loan on my portfolio. My broker has a low rate and I can repay it at my discretion. This allows me to keep my funds invested.
5 years – 1 year’s worth in savings a/cs, 4 years’ worth in a ladder of I-Bonds and CDs.
I don’t hold bonds in my investment portfolio. If there is a market correction, I don’t need to sell and I can funnel 2 years’ worth emergency expenses into the market when it is cheap.
All our kids know to save in stages. First, a 3-month emergency fund. Then as your career progresses, slowly grow that to 6-months. Now, that I am retired it dawned on me as a “bucket approach kinda guy” that I could take that 6-month emergency fund and turn it into another layer of the first retirement bucket by expanding it to 12 months of living expenses giving us 3 years of cash as we start retirement. And if we have “an emergency” it’s still there.
How much and where you keep it depends on family/work situation. My goal is to have enough readily available cash to meet expenses while making thoughtful decisions about how to pull money from my investment accounts. I keep a month’s current expenses in checking, two month’s essential expenses in savings, and the rest is invested. If I had dependent children, I might want more cash available to minimize disruption to family while dealing with emergency.
I keep 2-3 months of expenses. I try to keep 2 months always available and the money for the third I used to things like car repair, private insurance or any other emergency, I see more like amount of money I have saved for big bills.
I keep only 2 months because I’m single, no dependants, have a high paying job as a software engineer and I’m really good at it, so is very unlikely to be unemployed more than a few hours/days (really!).
If I endup in a situation where I’ll need to cover more than two months I can always go back to Nicaragua where I have a shelter and can live with the third of what I spend where I live right now.
I’m early retired and rely on my investments pay my bills. I get a “paycheck” each month from my investment account – selling index funds when my net worth is within 90% of it’s all time high and pulling cash when my net worth is below the 90% threshold.
I keep about six years of spending in cash and CD’s so I can make it through a six year downturn without having to sell stock. These cash holdings allow me to be aggressive with my other investments and still sleep at night.
In a different interest rate environment, I’d be in bonds rather than cash and CD’s but I’m not willing to take the rate risk in bonds. I keep less than a year’s expenses in each CD so I won’t have to pay much of a penalty in the event of early withdrawal.
For many years, I didn’t make enough or had enough to keep an emergency fund. I was fortunate to make a good living and finally accumulated 6 months. As I’ve gotten older (51), I carry way too much cash but it seems to make me sleep better.
I also used an untaped HELOC as my emergency reserves.
I heard about that on a podcast. Seems to make sense as long as people have the self discipline to not run up the credit line with things other than the emergency. Also, during the 2008 financial crisis, did banks close or reduce HELOCs on people? That’s certainly a risk.
I understand and agree with the conventional financial planning guidance of holding 3 to 6 months of expenses in liquid savings. I can’t say my wife and I always met this. There were definitely times when we scrambled to make ends meet. It’s important to understand your personal situation, how secure your employment is, and what your risk are. Do you have short term disability insurance – that helps. Where I worked you were allowed to accumulate up to 400 hours of vacation in a bank. Lots of employees considered that an emergency fund against a layoff.
Caution on using stocks as a store for emergency fund money. There have been rare occasions such as 9/11 when the stock market has been closed. It could also potentially be closed for weeks. I used to hold emergency money as US Savings Bonds which paid a 4 per cent minimum interest that compounded tax free until maturity and was state tax exempt (those were the days!).
These best place today is probably a high yield (like .50 per cent per year – ha!) account at Citibank, American Express or some local credit unions.
I guess it works if you have twice (or more) your emergency fund on stocks and no plans to retire in the next few years.
but yes, I would at least keep 2 months in cash.
Jonathan, that strikes me as a clever method and maybe I should re-think this subject. But I’m older than you and on Medicare, so there’s another factor in play. If our MAGI (modified adjusted gross income) exceeds a certain level, I have to pay IRMAA surcharges on Medicare, which can be pretty expensive. So if I needed a big chunk of cash, and got it by selling stock which resulted in a significant long term capital gain, it could trigger the IRMAA problem.
Am I missing something here?
I don’t think you’re missing anything. In the good old days, when bonds had a yield that you didn’t need a microscope to see, the standard advice was to keep bonds in a retirement, while favoring tax-efficient stock strategies in a taxable account. But at today’s tiny yields, high-quality bonds aren’t nearly as tax-inefficient as they once were, so there’s less reason to avoid them in a taxable account.
I’m not claiming this is smart, but I’ve never had what people think of as an emergency fund—three or six months of living expenses sitting in cash investments and held in a regular taxable account. In my 20s, when I was married to a graduate student and raising two children on a junior reporter’s salary, I simply didn’t have much money to spare, and what I could spare I preferred to stash in my 401(k) or use to buy stock funds in my regular taxable account. Over the years, that taxable account grew, so I always knew I could dip into it if I suddenly needed cash. To be sure, my taxable account is mostly in stocks, so I run the risk of having to sell stocks during a bear market. But if that happened, I’d simply make an offsetting move from bonds to stocks within my retirement account, thereby maintaining my portfolio’s overall stock exposure and effectively avoiding selling at a market low.