Emergency Fund really necessary in retirement

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Emergency Fund really necessary in retirement

Postby stemikger » Sat Mar 23, 2013 12:23 pm

I understand how a working man or women need to have an emergency fund while working. The main reason would be in case of a lay off and you no longer have an income.

However, in retirement if you have an income for life is it really necessary to have an emergency fund?

I think a small one might be a good idea in case the car or house need repairs but anything beyond that seems to be overkill.

Does anyone else feel this way?
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Re: Emergency Fund really necessary in retirement

Postby Sidney » Sat Mar 23, 2013 12:31 pm

I think it depends on your situation. For people who have portfolio assets and hold some bonds, they can probably do without it. For someone who is mainly living off of Social Security and a Pension (or an annuity), they should probably have something set aside for emergencies.
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Re: Emergency Fund really necessary in retirement

Postby john94549 » Sat Mar 23, 2013 12:54 pm

Emergencies merely morph into off-budget items. A cash stash is still a good idea.
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Re: Emergency Fund really necessary in retirement

Postby scrabbler1 » Sat Mar 23, 2013 1:14 pm

As an early retiree, I have tiers, or layers, of money based on speed and ease of access along with risk of principal. This is the same philosophy I used when I was working. I have some extra cash in my local bank's checking account (beyond any minimum balance requirements) in case I have some small, unforeseen expenses. If that is not enough, my next layer is an intermediate-term, muni bond fund. It has checkwriting privileges so it is a bit more readily accessible than other investments I have which lack that privilege. (I have rarely needed to tap into that.) Beyond that, I have other mutual funds which are more volatile than the bond fund or are used mainly to generate the monthly dividends to cover my expenses.
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Re: Emergency Fund really necessary in retirement

Postby retiredjg » Sat Mar 23, 2013 1:22 pm

stemikger wrote:However, in retirement if you have an income for life is it really necessary to have an emergency fund?

I don't think so.

While working the emergency fund takes care of loss of income as well as those little emergencies like broken appliances or vehicle accident repairs. Once retired, you don't need the income protection component any more.

I now keep $10k or less in cash or cash equivalents. The rest is working (although some seems a little on the lazy side these days :D ).
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Re: Emergency Fund really necessary in retirement

Postby mickeyd » Sat Mar 23, 2013 1:37 pm

I think that "emergency fund" is just another name for "cash reserves" and other euphemism that we all use to denote cash that is siting in a bank account/MMF or other short term location that will probably be spent on something in the relatively near term.

Some folks seem to like the EF name that is placed on their stash-of-cash. Name's not important, but amount and availability of funds is.
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Re: Emergency Fund really necessary in retirement

Postby ddunca1944 » Sat Mar 23, 2013 2:05 pm

We're retired. I keep about $20,000 in a high interest checking account. That money is "reserved" for those things that I know will happen (but I don't know when or how much): Healthcare out of pocket costs, emergency vet bills, auto maintenance/ repair, house maintenance/ repair.

Other than that, I consider our IRA accounts as the real emergency funds- a serious illness/auto accident, that sort of thing. I don't have any money labeled "EF", but we do have funds that could be utilized in a genuine emergency.

As retirees, loss of income is not an issue, but life still happens.
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Re: Emergency Fund really necessary in retirement

Postby midareff » Sat Mar 23, 2013 2:09 pm

scrabbler1 wrote:As an early retiree, I have tiers, or layers, of money based on speed and ease of access along with risk of principal. This is the same philosophy I used when I was working. I have some extra cash in my local bank's checking account (beyond any minimum balance requirements) in case I have some small, unforeseen expenses. If that is not enough, my next layer is an intermediate-term, muni bond fund. It has checkwriting privileges so it is a bit more readily accessible than other investments I have which lack that privilege. (I have rarely needed to tap into that.) Beyond that, I have other mutual funds which are more volatile than the bond fund or are used mainly to generate the monthly dividends to cover my expenses.



Kinda similar..... although I only keep $2 at my local credit union which pays 0.02% interest. .. just to have a local brick and mortar. Keep maybe $1K in a safe at home, and enough at Ally, which could be at the CU overnight, for perhaps 18 months needs over pension and SS. Muni in taxable at VG has enough monthly drawdown to last several years past RMD. Retired a year next week .. how sweet is this :sharebeer :sharebeer
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Re: Emergency Fund really necessary in retirement

Postby ruralavalon » Sat Mar 23, 2013 2:26 pm

Retired just over 2 years ago. I don't think a dedicated emergency fund or large cash holding is necessary. We usually keep only about one months expenses in a checking account. About 15% of our portfolio is in a joint taxable account, invested in total market type stock index funds, and so that is immediately accessible without tax or penalty.
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Re: Emergency Fund really necessary in retirement

Postby Bill M » Sat Mar 23, 2013 11:08 pm

I'm not yet retired, so my answer is based on my plans, not experience. I currently have an emergency fund equal to 6 months of expenses, and it generally doesn't get touched. Once I retire I plan to use that fund as a "buffer", keeping it as approximately 6 times average monthly expenses, and using it so I can avoid any sales at bad times. Some assets are in a bond ladder, with a batch maturing every six months. Plan is to use the maturing bonds to replenish the buffer to 9x, and letting it drain down to 3x before the next maturity date (so it will average 6x).
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Re: Emergency Fund really necessary in retirement

Postby NYBoglehead » Sat Mar 23, 2013 11:17 pm

I think a small emergency fund is necessary so that you have some access to cash in case the market tanks. So I suppose its not so much of an emergency fund but rather having a dedicated cash position in your AA to weather any storms.
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Re: Emergency Fund really necessary in retirement

Postby rr2 » Sat Mar 23, 2013 11:23 pm

It seems to me that in retirement, your emergency funds are your retirement accounts.
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Re: Emergency Fund really necessary in retirement

Postby joe8d » Sat Mar 23, 2013 11:32 pm

I think that "emergency fund" is just another name for "cash reserves" and other euphemism that we all use to denote cash that is siting in a bank account/MMF or other short term location that will probably be spent on something in the relatively near term.

Some folks seem to like the EF name that is placed on their stash-of-cash. Name's not important, but amount and availability of funds is.


Exactly.
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Re: Emergency Fund really necessary in retirement

Postby Peter Foley » Sat Mar 23, 2013 11:40 pm

In the sense that an emergency fund is 3-6 months of income replacement, I would agree that there is no need for that in retirement. One does need some cash reserve to pay for unexpected expenses, major auto repair, for example. I like the suggestion of about one month's expenses.

There are some individuals who should have an emergency fund in retirement. I'm specifically thinking of those who have annuitized most of their savings. Having to pay for something on credit and then paying off the balance over a number of months (with interest) can raise havoc with a tight budget.
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Re: Emergency Fund really necessary in retirement

Postby Dandy » Sun Mar 24, 2013 11:42 am

I think you have hit it -- that you need a small one to cover large purchases e.g. car. Better as far as I am concerne is most retirees should have an allocation to cash. (actually I never had a seperate emergency fund) Maybe 5 to 10%. Cash can mean CDs, Ibonds, savings accts etc. money that is liquid and has no real risk of loss. If you have that allocation you will add stability to your portfolio and can use it as your emergency fund. Depending on your health and health insurance you might experience some expenses larger than a car purchase. Also, it is nice to have a home equity line of credit. That way when an unexpected expense hits you have a number of options.
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Re: Emergency Fund really necessary in retirement

Postby MoneyTalks183 » Mon Mar 25, 2013 12:51 pm

I think having a large cash buffer (whether you call it an emergency fund or simply a money market account) is absolutely crucial for a retiree. The reason is to avoid locking in losses on your investments. A bad string of losses in early in retirement is so dangerous for a retiree because the investments are sold for a loss to cover living expenses and never have the chance to recover. On the other hand, having a large cash cushion means that investments have the ability to recover (as we saw in the past financial crisis) and the retiree's portfolio can remain large enough to substantially avoid the risk of running out of money in the future.
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Re: Emergency Fund really necessary in retirement

Postby Skiffy » Mon Mar 25, 2013 1:55 pm

Attaching a label on a pot of money (retired or not) is just a label--

What I'm seeing in the inlaws is it is HARD when you're retired to replenish your funds! They are on a downward spiral-- Utility & healthcare cost increases are keeping them from saving anything.
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Re: Emergency Fund really necessary in retirement

Postby GregV » Mon Mar 25, 2013 3:08 pm

It's a personal choice...whether you call it cash reserve or emergency fund. Having an amount of ready cash for emergencies...whether home/car repair, health, etc allows these types of events to minimally impact your overall investment and withdrawal plans or at least give your time to adjust them in a deliberate manner. If we are going to make large purchases in the near future, we'll also have that cash on hand.

In our case, pensions are an important component of retirement income and my spouse loses almost 50% of that income if I die first...and she has to report my demise, apply for the survivor benefits, etc to get her future income flow in place. Part of the rationale behind, and decision about the size of, our cash reserve/emergency fund is to give her as smooth a transition to those survivor benefits as possible. Just some other food for thought...
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Re: Emergency Fund really necessary in retirement

Postby Teetlebaum » Fri Mar 29, 2013 11:23 pm

While I might've said in theory it's not necessary, in fact I have the equivalent of over one year's income in a Vanguard money market account. It just makes me feel more secure in case of unexpected costs.
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Re: Emergency Fund really necessary in retirement

Postby Sheepdog » Fri Mar 29, 2013 11:38 pm

In retirement, I don't have an emergency fund. I do keep about 3 years of normal distributions in low risk investments to protect my money source in extended market downturns. (I hope to avoid having to sell stock containing funds during such downturns.)
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