How much emergency cash when retired?

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cbr
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How much emergency cash when retired?

Post by cbr » Sun Jul 29, 2018 4:11 pm

New to what looks like a great forum. I did a search on my question but nothing.

If you had $1 million how much would you spend on a cash house and still have a sufficient emergency fund? We are in early 70's, healthy, no debts and have an income of about $4K/mo. from SS and a pension. We don't plan on leaving anything behind.
I think we could spend $800K on a house and have no mortgage and have $200 K for whatever. Could also get a loan on house for more coupons if needed. We have no children and rest of family is in good shape money wise.
Interested in what financial types think and the experience of others. I know others have this same question.
Thanks for your time.
CBR

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willthrill81
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Re: How much emergency cash when retired?

Post by willthrill81 » Sun Jul 29, 2018 4:22 pm

When you're retired, your entire portfolio is for "emergencies." I'd feel comfortable keeping a few months' expenses in cash in a savings account or some other liquid asset.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

PFInterest
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Re: How much emergency cash when retired?

Post by PFInterest » Sun Jul 29, 2018 4:22 pm

How much are you spending from the portfolio?

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Mlm
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Re: How much emergency cash when retired?

Post by Mlm » Sun Jul 29, 2018 4:38 pm

Is 1M your net worth or the size of your investment portfolio?
Does the 4K per month currently cover all of your expenses (home maintenance, cars)?
Do you have Long Term Care Insurance?

ABQ4804
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Re: How much emergency cash when retired?

Post by ABQ4804 » Sun Jul 29, 2018 4:41 pm

Do you have long-term care insurance? You are only in your 70s, I would leave a lot more than $200K for your future care and paying caregivers; one can run through $200K pretty quickly! Don’t know where you live, but having $800K equity tied up in a house is huge in most locations; your equity is locked up. Looking forward to reviewing additional answers; as this is a very good question.

jebmke
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Re: How much emergency cash when retired?

Post by jebmke » Sun Jul 29, 2018 4:41 pm

Retired since 2007. We gave up carrying any cash emergency fund decades ago. As pointed out, our entire portfolio is our emergency fund.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Toons
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Re: How much emergency cash when retired?

Post by Toons » Sun Jul 29, 2018 5:08 pm

25k.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

cbr
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Re: How much emergency cash when retired?

Post by cbr » Sun Jul 29, 2018 5:40 pm

I replied to a couple of posts but don't see it. Try again.
No LTC. When I looked seemed difficult to obtain at our age. LTC is my only worry.

Alisa, I have always lived my financial life with the rule that if I don't have the cash I don't buy. Houses are the only exception. This probably last house I want no mortgage just for that feeling of no debt.

PFI $800K comes from portfolio.

delamer
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Re: How much emergency cash when retired?

Post by delamer » Sun Jul 29, 2018 5:45 pm

My comments assume that you have no other assets in addition to the $1 million.

I would not tie up 80% of my net worth in one home at your age.

Plus I’d imagine that the carrying costs of a $800K house — property taxes, insurance, utilities, near-term and long-term maintenance — woukpld be steep relative to a $48K annual income.

Having $200,000 in liquid assets isn’t much relative to potential assisted living or nursing home costs for two people.

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iceport
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Re: How much emergency cash when retired?

Post by iceport » Sun Jul 29, 2018 6:05 pm

delamer wrote:
Sun Jul 29, 2018 5:45 pm
My comments assume that you have no other assets in addition to the $1 million.

I would not tie up 80% of my net worth in one home at your age.

Plus I’d imagine that the carrying costs of a $800K house — property taxes, insurance, utilities, near-term and long-term maintenance — woukpld be steep relative to a $48K annual income.

Having $200,000 in liquid assets isn’t much relative to potential assisted living or nursing home costs for two people.
:thumbsup All of that sounds right.

Being willing to consider the home as part of your overall financial plan might be one way to address potential concerns, possibly including the careful consideration of some form of reverse mortgage as a way to meet unforeseen financial needs.
"Discipline matters more than allocation.” ─William Bernstein

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Sandtrap
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Re: How much emergency cash when retired?

Post by Sandtrap » Sun Jul 29, 2018 6:11 pm

Why 800k for a house.
Why not $500k?
Or, $300k ??

j

cbr
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Re: How much emergency cash when retired?

Post by cbr » Sun Jul 29, 2018 6:21 pm

delamer, why wouldn't you tie up %80 of assets in a home? No wasteful mortgage payments which gives me a great comfort plus when you homestead a home in FL. I believe the law is that no one can take it from you.
Sandtrap, so only $500K for a house and you leave $500K sitting around doing nothing for you but maybe adding to your pile that you may never use?

UpperNwGuy
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Re: How much emergency cash when retired?

Post by UpperNwGuy » Sun Jul 29, 2018 6:23 pm

Once retired, the emergency fund goes to zero.

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Mlm
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Re: How much emergency cash when retired?

Post by Mlm » Sun Jul 29, 2018 6:32 pm

cbr wrote:
Sun Jul 29, 2018 6:21 pm
plus when you homestead a home in FL. I believe the law is that no one can take it from you.
Not so..You are not protected from IRS or Medicaid liens.
Here is a review of Florida Homestead exemption http://www.assetprotectionfl.com/2017/08/3216/

delamer
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Re: How much emergency cash when retired?

Post by delamer » Sun Jul 29, 2018 6:54 pm

cbr wrote:
Sun Jul 29, 2018 6:21 pm
delamer, why wouldn't you tie up %80 of assets in a home? No wasteful mortgage payments which gives me a great comfort plus when you homestead a home in FL. I believe the law is that no one can take it from you.
Sandtrap, so only $500K for a house and you leave $500K sitting around doing nothing for you but maybe adding to your pile that you may never use?

First, because diversification is one of the most important components of financial security. Eighty percent of net worth in one asset is not diversified. It is equivalent to putting 80% of your portfolio in one stock.

Second, because homes are expensive to buy, sell, and maintain — unlike stocks/bonds/cash. Don’t kid yourself that a home is a safe investment compared to stocks/bonds. They all have risks.

Third, homes are very illiquid — it is hard to get money out of them. Wouldn’t it give you more comfort to have more money in the bank than to have it tied up in a house? I’d be more concerned that I couldn’t get money out of the house than that someone would take the house away.

Fourth, why would you have $500,000 doing nothing for you? You can use that money to generate income and travel, donate to charity, go out to dinner, whatever...

cbr
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Re: How much emergency cash when retired?

Post by cbr » Sun Jul 29, 2018 8:01 pm

Mim, thanks for the link. Although last paragraph is a little confusing.
delamer all your points are somewhat valid. But you know what, at my age, screw it. Just don't know how much time left on the planet with my lovely wife. Most of the citizens of the the US are scared of everything around them. Half of them think they have to carry weapons in order to stay safe!
Of course the financial institutions want us to put our money in their "care".
For us it kind of gets down to living in a great house with the amenities we both want for the time we have left. I have seen too many people who work most of their lives then finally retire and die 2 years later. We want to spend our time entertaining friends in a great house and fishing and boating where it is warm all the time.
CBR

cbr
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Re: How much emergency cash when retired?

Post by cbr » Sun Jul 29, 2018 8:02 pm

Mim, thanks for the link. Although last paragraph is a little confusing.
delamer all your points are somewhat valid. But you know what, at my age, screw it. Just don't know how much time left on the planet with my lovely wife. Most of the citizens of the the US are scared of everything around them. Half of them think they have to carry weapons in order to stay safe!
Of course the financial institutions want us to put our money in their "care".
For us it kind of gets down to living in a great house with the amenities we both want for the time we have left. I have seen too many people who work most of their lives then finally retire and die 2 years later. We want to spend our time entertaining friends in a great house and fishing and boating where it is warm all the time.
CBR

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dwickenh
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Re: How much emergency cash when retired?

Post by dwickenh » Sun Jul 29, 2018 8:04 pm

willthrill81 wrote:
Sun Jul 29, 2018 4:22 pm
When you're retired, your entire portfolio is for "emergencies." I'd feel comfortable keeping a few months' expenses in cash in a savings account or some other liquid asset.
+1
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

delamer
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Re: How much emergency cash when retired?

Post by delamer » Sun Jul 29, 2018 8:08 pm

cbr wrote:
Sun Jul 29, 2018 8:01 pm
Mim, thanks for the link. Although last paragraph is a little confusing.
delamer all your points are somewhat valid. But you know what, at my age, screw it. Just don't know how much time left on the planet with my lovely wife. Most of the citizens of the the US are scared of everything around them. Half of them think they have to carry weapons in order to stay safe!
Of course the financial institutions want us to put our money in their "care".
For us it kind of gets down to living in a great house with the amenities we both want for the time we have left. I have seen too many people who work most of their lives then finally retire and die 2 years later. We want to spend our time entertaining friends in a great house and fishing and boating where it is warm all the time.
CBR
Nothing wrong with spending to reflect your personal priorities, although I have no idea what people being scared and carrying weapons has to do with this decision. Nor do I agree with that comment in any case.

I stand by my original point that carrying an $800,000 house on a $48,000 income sounds tight to me. Make sure you know all the numbers, not just the purchase price, before you buy.

22twain
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Re: How much emergency cash when retired?

Post by 22twain » Sun Jul 29, 2018 10:10 pm

cbr wrote:
Sun Jul 29, 2018 6:21 pm
why wouldn't you tie up %80 of assets in a home?
What if the housing market collapses again like it did in 2006?

My mother sold her apartment in south Florida in 2005 to move into a retirement facility. If she had waited another year, she would have gotten a lot less for it.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: How much emergency cash when retired?

Post by Grt2bOutdoors » Sun Jul 29, 2018 10:35 pm

The bigger the home, the Bigger the upkeep. $200k isn’t going to cut it, if your hvac goes at now it costs $15-20k to replace it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

cbr
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Re: How much emergency cash when retired?

Post by cbr » Mon Jul 30, 2018 7:03 am

Grtto be out - I don't plan on a house bigger than 2500 sf. The real cost is the location giving me acess to ocean. So upkeep should not be a big factor.

Delamer and 22twain - Many people are so worried about the "what ifs" that it holds them back or causes them to carry weapons because they are afraid they will be attacked at any time.
for example - I am a sailor and many years ago I decided to sail up and down coast of Ca. and Mexico on my own in a 31 ft trimaran. Just about everybody I knew said I was crazy. What if a big wave hits you, what if you get caught in a big storm, what if pirates board your boat, what if Mexicans rob you, etc. None of that happened during my 2 years at sea and I had a wonderful time.
Another reason to pay cash for a house in FL. is that I will not be required to carry wind or flood insurance. I lived in the Keys for 11 years and have some understanding of the risks and where to live to avoid some of those risks.
Guess I have gotten off subject, sorry.
CBR

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Sandtrap
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Re: How much emergency cash when retired?

Post by Sandtrap » Mon Jul 30, 2018 9:07 am

cbr wrote:
Sun Jul 29, 2018 6:21 pm
delamer, why wouldn't you tie up %80 of assets in a home? No wasteful mortgage payments which gives me a great comfort plus when you homestead a home in FL. I believe the law is that no one can take it from you.
Sandtrap, so only $500K for a house and you leave $500K sitting around doing nothing for you but maybe adding to your pile that you may never use?
I think the general suggestions here are based on balance and moderation. Even on a sailboat, there are redundancies and caution to avoid a "single point of failure".

But, everyone's circumstances are different. In Hawaii, average nice homes are worth well over a million and salaries and pensions can often barely cover expenses. Everything is highly leveraged. But, the lifestyle and climate are priceless and worth the effort to many. Many have over 90% of their assets tied up in their home and it is a norm.

So, your strategy fits well given your circumstances, location, risk tolerance, and goals. And, yes, having no mortgage payments is a huge comfort zone. (myself included). :D

Actionably:
The "Bogle Forum", as a financial forum, is very much about mitigating risk and being prepared for financial and personal "black swans". That based on a deep well of experience and financial acumen. So, suggestions are professional based and actionable for most but not everyone. (. . . such as those who make 8 million by age 30 on "bitcoin", or those who are worth over 5 mil by age 35 through highly leverage real estate, and so forth.)
So, the suggestions are based on a balance between income, total assets, expenses, etc.

A home on the coast. Great climate. White sand beaches. Blue skies.
Sounds terrific!!!! :D
j :D

delamer
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Re: How much emergency cash when retired?

Post by delamer » Mon Jul 30, 2018 11:58 am

cbr wrote:
Mon Jul 30, 2018 7:03 am
Grtto be out - I don't plan on a house bigger than 2500 sf. The real cost is the location giving me acess to ocean. So upkeep should not be a big factor.

Delamer and 22twain - Many people are so worried about the "what ifs" that it holds them back or causes them to carry weapons because they are afraid they will be attacked at any time.
for example - I am a sailor and many years ago I decided to sail up and down coast of Ca. and Mexico on my own in a 31 ft trimaran. Just about everybody I knew said I was crazy. What if a big wave hits you, what if you get caught in a big storm, what if pirates board your boat, what if Mexicans rob you, etc. None of that happened during my 2 years at sea and I had a wonderful time.
Another reason to pay cash for a house in FL. is that I will not be required to carry wind or flood insurance. I lived in the Keys for 11 years and have some understanding of the risks and where to live to avoid some of those risks.
Guess I have gotten off subject, sorry.
CBR

So you are going to put 80% of your assets in a house in order to have great access to the ocean, and are not going insure that house for wind or flood damage?

All I can say is that what you see as people worrying too much about “what ifs” I see as foolhardiness.

cbr
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Re: How much emergency cash when retired?

Post by cbr » Mon Jul 30, 2018 12:46 pm

Most recently built homes in FL are built to strict codes to protect from wind damage, 140 to 160 mph. Storm shutters and also impact glass.
Where I plan to move I don't believe there is a threat of flood damage, somewhat inland on river or canal that lets me get to St Lucie inlet.
These days pretty much anywhere you live in US there is a nasty weather threat or fires or earthquakes, tornadoes etc. 20 years from now probably much worse. I think the planet is pretty pissed about how we disrespect the oceans and life.
CBR

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