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Thread: How much in an emergency fund?

  1. #1
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    How much in an emergency fund?

    How much do you feel is optimal to hold in an emergency fund? I hear 3-6-9-12 months of living expenses, but you also need a separate fund to pay for things like car transmissions or airconditioners.

    I am just trying to get a feel for what is enough, what is a sensible approach to the question of taking cash off the table and out of investments.

    I am finding as I have hit semi-retirement, my desire for emergency money grows, as well as the lure of a cash position now that I am living on my retirement money. . . So I guess the ancillary is, how much in your portfolio do you keep in cash, if you are retired?

  2. #2
    Senior Member bae's Avatar
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    I keep 2-3 years of living funds in "operating reserves", and replenish the position when I rebalance my portfolio.

    This allows me to not realize significant income some years, which has great tax advantages, and gets Alan to pay for my healthcare most years.

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    I might say a couple of years and maybe something toward a new used car if you think you'll need one anytime soon. Cautious yea well, how much does investing and retirement even matter if one faces destitution if they lose a job in the next recession? It is not going to be one's top priority and one really doesn't want to raid some fund like a 401k with big tax penalties, just to pay bills, at least not as a first resort. But I'm not retired so ... live to work another day, or if that's not possible because unemployed then live to look for work another day ...
    If you want something to get done, ask a busy person. If you want them to have a nervous breakdown that is.

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    WE just keep a small amount but we have pensions and $ from working p.t. coming in monthly.

  5. #5
    Simpleton Alan's Avatar
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    We used to keep between 6 and 9 months of cash in reserve but dropped it down to about 3 months once we got old enough to remove money from retirements accounts without penalty. We haven't done that yet because I'm determined not to make additional payments on bae's insurance subsidies unless I absolutely have to.
    "Things should be made as simple as possible, but not one bit simpler." ~ Albert Einstein

  6. #6
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    Thanks, everyone. That is a good point about once you pass 59 1/2, as I have, and are not subject to the 10% early withdrawal penalty. Also I can really see the 2-3 years operating expenses--maybe someday I can get there. Terry is right about the pensions--we don't have any such steady pension income. Sure wish I had selected different work a long time ago, but too late now. Anyway, thanks for some interesting thoughts on this.

  7. #7
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    Since I am now making very little and I don't want to touch any of my retirement money, I am keeping about 18k on hand right now and add $500 to it a month. I want to work up to a 1-2 years worth of living expenses and enough for a decent used car (hopefully that's in the distant future)

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    That sounds good to me, freshstart. I currently have the 1 year cd ladder with a different one rolling over each month, with enough for survival for a month in each. But I need to have a pool of cash, too, for emergencies.

    So far, the big emergency in the last year was the tree falling and taking out part of the other tree and missing the house by a food (Yay!) so that was 2200 in cash for removal and trimming the other 3 maples. We also had a 600 dollar dog emergency.

  9. #9
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    I go by 8 months living expenses, based on Suze Orman's recommendation.

  10. #10
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    Our pensions are small compared to our co-workers because I went to college later in life and then to work for the state. But I am grateful for the steady income. We also are losing most of our SS because we retired from a state that does not pay in so due to WEP they can take up to 60% away from us. I probably would have chosen to go to a state that did not have this had I known when I first started. I specifically chose to make less $ and have the pension. I saw how it really helped my parents through my dad's long illness and then my Mom after that. It really is a shame that so few places offer them now.

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