How to calculate emergency fund during retirement

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somewhatentertained
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How to calculate emergency fund during retirement

Post by somewhatentertained »

Apologies if this is addressed elsewhere, I couldn't figure out the keywords to find an answer to my question.

I am helping my mother manage her retirement and in doing so need to review how many years of expenses she currently has in cash.

When calculating this, should we deduct fixed income from her expenses and only count the variable income? She has 3 income sources, Social Security, Annuity, and IRA (RMDs). About half comes from Social Security and the remaining half is split pretty evenly between the annuity and IRA incomes. I'm thinking that the Social Security and annuity incomes are pretty much guaranteed for all practical purposes, and her vulnerable expenses would then only encompass what extra she needs to spend out of the RMDs. Vulnerable expenses being that which she needs to have cash in hand to cover in case she falls short.

Is this correct or should I ditch the idea of "guaranteed" income and just go with her entire annual expenses for calculating the annual coverage of her cash cushion? For all intents and purposes, this is her emergency fund, because exclusive of cash she holds 60/40 portfolio, so I am only talking about cash contained in bank checking and money market accounts.
secondopinion
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Re: How to calculate emergency fund during retirement

Post by secondopinion »

somewhatentertained wrote: Thu May 12, 2022 10:44 am Apologies if this is addressed elsewhere, I couldn't figure out the keywords to find an answer to my question.

I am helping my mother manage her retirement and in doing so need to review how many years of expenses she currently has in cash.

When calculating this, should we deduct fixed income from her expenses and only count the variable income? She has 3 income sources, Social Security, Annuity, and IRA (RMDs). About half comes from Social Security and the remaining half is split pretty evenly between the annuity and IRA incomes. I'm thinking that the Social Security and annuity incomes are pretty much guaranteed for all practical purposes, and her vulnerable expenses would then only encompass what extra she needs to spend out of the RMDs. Vulnerable expenses being that which she needs to have cash in hand to cover in case she falls short.

Is this correct or should I ditch the idea of "guaranteed" income and just go with her entire annual expenses for calculating the annual coverage of her cash cushion? For all intents and purposes, this is her emergency fund, because exclusive of cash she holds 60/40 portfolio, so I am only talking about cash contained in bank checking and money market accounts.
At 75% of income being from guaranteed sources and only 25% from the IRA, I would not worry about it much. But some cash (say a few months) would be smart if not already present.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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somewhatentertained
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Re: How to calculate emergency fund during retirement

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secondopinion wrote: Thu May 12, 2022 11:07 am At 75% of income being from guaranteed sources and only 25% from the IRA, I would not worry about it much. But some cash (say a few months) would be smart if not already present.
Ok so using the 25% to calculate how many years of cash she has on hand puts her at over 12 years, yup that's more than 144 months of cash cushion. She is extremely reluctant to spend but chafing at not spending so I think knowing this number will help her put her cash in perspective. She would like to replace her car for something with more safety features that is easier to get in and out of, but her current ride still drives, for example.
secondopinion
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Re: How to calculate emergency fund during retirement

Post by secondopinion »

somewhatentertained wrote: Thu May 12, 2022 11:11 am
secondopinion wrote: Thu May 12, 2022 11:07 am At 75% of income being from guaranteed sources and only 25% from the IRA, I would not worry about it much. But some cash (say a few months) would be smart if not already present.
Ok so using the 25% to calculate how many years of cash she has on hand puts her at over 12 years, yup that's more than 144 months of cash cushion. She is extremely reluctant to spend but chafing at not spending so I think knowing this number will help her put her cash in perspective. She would like to replace her car for something with more safety features that is easier to get in and out of, but her current ride still drives, for example.
Obviously, do not do 144 months of cash. I am not seeing a huge benefit from having a ton of cash given the situation; if it were me and was doable, I would stay slightly shorter in bond duration for all my bonds where possible (not all short-term bonds though) and have that serve as the emergency fund if needed (because compositely it is nearly the same as having a cash reserve with typical bonds otherwise).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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somewhatentertained
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

secondopinion wrote: Thu May 12, 2022 11:31 am Obviously, do not do 144 months of cash. I am not seeing a huge benefit from having a ton of cash given the situation; if it were me and was doable, I would stay slightly shorter in bond duration for all my bonds where possible (not all short-term bonds though) and have that serve as the emergency fund if needed (because compositely it is nearly the same as having a cash reserve with typical bonds otherwise).
That's a great idea! I will suggest that to her as she decides what to do with her balances. Thanks so much!
delamer
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Re: How to calculate emergency fund during retirement

Post by delamer »

I’m confused by your question.

Your mother has regular annual expenses. The difference between her regular expenses and her Social Security and annuity payments is what she needs to take from her investments: (Regular annual expenses) minus (Social Security plus annuity) equals (needed annual withdrawals from savings).

My suggestion is that she keep about 5 years of these annual withdrawals in cash so fluctuations in the stock market aren’t a worry,

Note that the RMD amounts are irrelevant; she may need more or less money than the minimum that she is required by law to withdraw from her retirement accounts.

Does she also want to maintain a cash emergency fund for unexpected expenses (like home repairs) and/or lumpy expenses that occur less frequently than annually? If she plans to spend $40,000 on a new car then maybe a total of $50,000 in cash — in addition to any cash set aide for annual expenses — would be appropriate.
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LilyFleur
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Re: How to calculate emergency fund during retirement

Post by LilyFleur »

delamer wrote: Thu May 12, 2022 12:42 pm I’m confused by your question.

Your mother has regular annual expenses. The difference between her regular expenses and her Social Security and annuity payments is what she needs to take from her investments: (Regular annual expenses) minus (Social Security plus annuity) equals (needed annual withdrawals from savings).

My suggestion is that she keep about 5 years of these annual withdrawals in cash so fluctuations in the stock market aren’t a worry,

Note that the RMD amounts are irrelevant; she may need more or less money than the minimum that she is required by law to withdraw from her retirement accounts.

Does she also want to maintain a cash emergency fund for unexpected expenses (like home repairs) and/or lumpy expenses that occur less frequently than annually? If she plans to spend $40,000 on a new car then maybe a total of $50,000 in cash — in addition to any cash set aide for annual expenses — would be appropriate.
I think this is a good approach. I keep about 5 to 6 years in the stable value fund for withdrawals for the portion of my income that comes from my 401k. I've taken care of most of the "lumpy" expenses recently (new car, home maintenance) but lumpy expenses can be paid for out of the stable value fund if the market is down.
MathWizard
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Re: How to calculate emergency fund during retirement

Post by MathWizard »

There are lots of risks.
The dominant risk for different investments are:

Total market stock index funds: volatility risk.
Bond funds : interest rate risk.
Cash/CDs : inflation risk

Keeping several years of funds in cash would expose someone to lots of inflation risk.

I don't think of my cash as an emergency fund, I think of it as a short term liquidity fund.
I may need 30K for a car if my car dies.
If a funeral happens, I will not have much notice on travel.
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somewhatentertained
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

delamer wrote: Thu May 12, 2022 12:42 pm I’m confused by your question.

Your mother has regular annual expenses. The difference between her regular expenses and her Social Security and annuity payments is what she needs to take from her investments: (Regular annual expenses) minus (Social Security plus annuity) equals (needed annual withdrawals from savings).

My suggestion is that she keep about 5 years of these annual withdrawals in cash so fluctuations in the stock market aren’t a worry,

Note that the RMD amounts are irrelevant; she may need more or less money than the minimum that she is required by law to withdraw from her retirement accounts.

Does she also want to maintain a cash emergency fund for unexpected expenses (like home repairs) and/or lumpy expenses that occur less frequently than annually? If she plans to spend $40,000 on a new car then maybe a total of $50,000 in cash — in addition to any cash set aide for annual expenses — would be appropriate.
I appreciate the confusion, it is probably because I am unclear as to what exactly she needs her cash to do and how her portfolio is supposed to function when backup funds are needed. It appears perhaps there is purpose-overlap or redundancy between her bank cash and her retirement accounts? And yes, she you are exactly correct that less than annual expenses are the concern; she views her cash as her fallback in case the markets suddenly drop, in case the roof fails or the appliances break, in case her car is suddenly out of service, in case she has excessive medical bills etc. She is cancer-free for just 3 years now and we had to do some emergency repairs to her home last year due to a decade of deferred maintenance so her perception of what "might" come up is a little off the norm. It wasn't unsurmountable but it was on the order of around $25K on various things. I like your round numbers for general cash holdings. We can use that as a starting point for her needs.

As an aside, I do understand the RMD amounts are in general irrelevant to actual expenses. However, she does not have a solid idea of what her annual expenses actually are, so we are using roughly double her Social Security as our baseline. (My dad passed suddenly and she had never managed finances nor was she aware of how much their expenses were together, never mind alone. He had never retired so that was a curveball too). So far, it appears that double her Social Security produces an excess of income, however it is close enough that the rough guesstimate is still serviceable.

LilyFleur wrote: Thu May 12, 2022 12:47 pm I think this is a good approach. I keep about 5 to 6 years in the stable value fund for withdrawals for the portion of my income that comes from my 401k. I've taken care of most of the "lumpy" expenses recently (new car, home maintenance) but lumpy expenses can be paid for out of the stable value fund if the market is down.
Thank you for the corroboration!!
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

MathWizard wrote: Thu May 12, 2022 1:00 pm There are lots of risks.
The dominant risk for different investments are:

Total market stock index funds: volatility risk.
Bond funds : interest rate risk.
Cash/CDs : inflation risk

Keeping several years of funds in cash would expose someone to lots of inflation risk.

I don't think of my cash as an emergency fund, I think of it as a short term liquidity fund.
I may need 30K for a car if my car dies.
If a funeral happens, I will not have much notice on travel.
I agree with the assessment on inflation risk. In no way am I intending to tell her what she "should" keep on hand but hopefully getting some group-think on what is an average amount of cash to keep on hand will allow her to spend what she is wanting to spend.
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Re: How to calculate emergency fund during retirement

Post by MathWizard »

somewhatentertained wrote: Thu May 12, 2022 2:19 pm
MathWizard wrote: Thu May 12, 2022 1:00 pm There are lots of risks.
The dominant risk for different investments are:

Total market stock index funds: volatility risk.
Bond funds : interest rate risk.
Cash/CDs : inflation risk

Keeping several years of funds in cash would expose someone to lots of inflation risk.

I don't think of my cash as an emergency fund, I think of it as a short term liquidity fund.
I may need 30K for a car if my car dies.
If a funeral happens, I will not have much notice on travel.
I agree with the assessment on inflation risk. In no way am I intending to tell her what she "should" keep on hand but hopefully getting some group-think on what is an average amount of cash to keep on hand will allow her to spend what she is wanting to spend.
The amount of cash she needs is an amount will allow her to sleep well at night.
I have heard that having $60K in the bank makes people feel rich. At that level, there are only
a few big ticket items that cannot just be bought outright. It isn't necessary to buy them, just that you
know you can if you wanted to.

The EF idea is really a Dave Ramsey type concept.
People who are deep in CC debt, need to ensure they don't put any more on the cards.
Getting to a $500 EF is enough to start attacking CC debt.

Almost everyone who is investing can just pull money from their accounts, they do not need an EF.
They may however want an EF.

I agree with the crowd that says that you almost certainly will be better off just staying
invested, and pulling as needed rather than having a pile of cash on the side. However,
having that stash of cash can help with the behavioral aspects of investing, and keep one
from panic during a true market crash.

What the amount is which will help
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Re: How to calculate emergency fund during retirement

Post by Jeepergeo »

How close are her monthly expenses to her low risk income (SS + Annuity)? How does her cash balance compare to the cash balance 1 and 2 years ago (sometimes folks continue to accumulate out of habit).

She might want to consider reducing her cash based on how much she needs that cash. It seems that 12 years of total expenses is very high given that only 25% of income comes from the cash.

If 12 years is something she wants, could she be comfortable with 12 years at 25% of her needs?

Does she have good health insurance and is the house/home in goid repair? Are there big expenses lurking?

I like to keep a separate emergency fund separate from the monies I have in cash and expect to draw on. Ideally, I will never draw on the Emergency Fund...6-12 months of expenses and taxes is my preference.

Good luck. It may be tough to nudge your mom in the direction you think is right. Keep in mind she could likely have done better if she had invested in things other than cash, but also keep in mind she was creative enough to get to 12 years of cash in the bank, so she is doing something more right than wrong.
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Re: How to calculate emergency fund during retirement

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Jeepergeo wrote: Thu May 12, 2022 4:54 pm How close are her monthly expenses to her low risk income (SS + Annuity)? How does her cash balance compare to the cash balance 1 and 2 years ago (sometimes folks continue to accumulate out of habit).

She might want to consider reducing her cash based on how much she needs that cash. It seems that 12 years of total expenses is very high given that only 25% of income comes from the cash.

If 12 years is something she wants, could she be comfortable with 12 years at 25% of her needs?

Does she have good health insurance and is the house/home in goid repair? Are there big expenses lurking?

I like to keep a separate emergency fund separate from the monies I have in cash and expect to draw on. Ideally, I will never draw on the Emergency Fund...6-12 months of expenses and taxes is my preference.

Good luck. It may be tough to nudge your mom in the direction you think is right. Keep in mind she could likely have done better if she had invested in things other than cash, but also keep in mind she was creative enough to get to 12 years of cash in the bank, so she is doing something more right than wrong.
Thank you, I appreciate your kind reply. I want to preface my response with the important point that my mom is sort of only recently getting her feet under her after my father's death. Probate just closed in March. Her finances have been far from what I would expect is the norm and she is paralyzed by the unknown "in case" scenarios. I also agree with MathWizard that the exact amount is what will help her sleep at night.

The cash that she has is what my father had collected unawares to her; she is operating under the premise that if he did not spend it neither must she. His lack of spending was not purposeful but rather just the result of not doing anything with it, so the question I have posed here is to get a sense of what is prudent in general to keep in cash rather than elsewhere. I wouldn't bother with it except she wants to spend but will not out of fear she will not be able to replenish it and/or she will need it for something else before she can replenish it.

As to your question about her actual spend rate, last year she made it work with just Social Security and using a little from her cash, this year she has her annuity and RMDs, and it looks so far like her total annual spending will fit within Social Security and really just a portion of the annuity, so she has the leftover of that plus the IRA as excess. We aren't through a full year yet and we have a wild card in an extra home in disrepair that needs to be sold, so that's another aspect to her reluctance to spend.

It sounds as though the basic problem is a paradigm shift from the working years of earning/saving to the retirement years of spending. Since my dad had never retired and I am not there yet, the previous generation of retireds in our family is already gone, and she is too private to speak frankly to friends about it, this forum is a bit of a goldmine for procuring information like this. I will see if I can get her some reading on how spending in retirement works and how it differs from the earning years, especially as related to the concept of an emergency fund.
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Eagle33
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Re: How to calculate emergency fund during retirement

Post by Eagle33 »

Does she pay all her bills from her bank account? If so, then gather the last 12 monthly statements and total up the outgoing amount to get an idea of her total expenses for the coming year. If on Medicare, then her Part B premium comes out of her monthly SS payment so add that to her expenses total. Then if there is any planned additional expense not done in the past year add it to this year's budget (planned expenses). You get the idea - don't need a detailed budget by subcategories.
Regarding making the mind change from earned income/savings/spending (they spent $ during her husband's working years), consider her SS & annuity payments as her wages for being a senior instead having to work for it.
Circe
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Re: How to calculate emergency fund during retirement

Post by Circe »

Every year I download annual data from my checking account and my mother's account and sort the data on Excel. I do one spreadsheet for each of us (we don't live together). I could sort whatever detailed data I want but I just do broad categories like utilities. I also download my main credit card and sort again by broad categories. It's the closest I get to doing a budget. But it helps for future planning -- what do I need to keep in cash for emergencies, what can be invested etc. It also gathers data for tax deductions.
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somewhatentertained
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

Thank you Circe and Eagle33. I agree knowing expenses is key. I created a spreadsheet of monthly and annual bills as collected from her checking and a credit card I helped her open to keep utility bills paid. She is currently going over the numbers and adjusting as needed (just got new insurance numbers after re-titling assets in her name, for example). I have asked her to see if she can figure out what her spend on gas and groceries is in general and then we will have a better idea of the leftover cash per month for whatever else she wants.

When my dad was around, she had her own checking and he just refilled for her discretionary as needed. I have suggested we can do the same and have a separate fun money account filled from income so she can be confident that when those funds are spent, the spending will not impact her overall financial health.

As to how much she *needs* to keep unspent in the money market savings, it sounds like enough to cover unusual large purchases (car) plus unexpected house maintenance (additional landscaping replacement and one more window, everything else we have addressed) and repair budget for the other house (until sold) would be the actual number for what she needs on reserve. (She has excellent health insurance and a clean bill of health, thankfully). The rest she can decide whether she feels more comfortable keeping it in the bank, opening a taxable account or spending it now on what makes her life more enjoyable. It also sounds like after this calendar year, she can carry forward unused funds or just replenish as needed from her IRA. Yearly investment reviews should make it clear what the longevity of her funds will be. I did originally set her up with an investment advisor to arrange her retirement income but of course they don't deal with individual budgeting.

Thank you all for your help thinking through this. I know personal finance ends up being personal, but the broad brushstrokes of the comments on this thread have really and truly helped me as I help my mother.
Jeepergeo
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Re: How to calculate emergency fund during retirement

Post by Jeepergeo »

somewhatentertained wrote: Fri May 13, 2022 6:43 am
Jeepergeo wrote: Thu May 12, 2022 4:54 pm How close are her monthly expenses to her low risk income (SS + Annuity)? How does her cash balance compare to the cash balance 1 and 2 years ago (sometimes folks continue to accumulate out of habit).

She might want to consider reducing her cash based on how much she needs that cash. It seems that 12 years of total expenses is very high given that only 25% of income comes from the cash.

If 12 years is something she wants, could she be comfortable with 12 years at 25% of her needs?

Does she have good health insurance and is the house/home in goid repair? Are there big expenses lurking?

I like to keep a separate emergency fund separate from the monies I have in cash and expect to draw on. Ideally, I will never draw on the Emergency Fund...6-12 months of expenses and taxes is my preference.

Good luck. It may be tough to nudge your mom in the direction you think is right. Keep in mind she could likely have done better if she had invested in things other than cash, but also keep in mind she was creative enough to get to 12 years of cash in the bank, so she is doing something more right than wrong.
Thank you, I appreciate your kind reply. I want to preface my response with the important point that my mom is sort of only recently getting her feet under her after my father's death. Probate just closed in March. Her finances have been far from what I would expect is the norm and she is paralyzed by the unknown "in case" scenarios. I also agree with MathWizard that the exact amount is what will help her sleep at night.

The cash that she has is what my father had collected unawares to her; she is operating under the premise that if he did not spend it neither must she. His lack of spending was not purposeful but rather just the result of not doing anything with it, so the question I have posed here is to get a sense of what is prudent in general to keep in cash rather than elsewhere. I wouldn't bother with it except she wants to spend but will not out of fear she will not be able to replenish it and/or she will need it for something else before she can replenish it.

As to your question about her actual spend rate, last year she made it work with just Social Security and using a little from her cash, this year she has her annuity and RMDs, and it looks so far like her total annual spending will fit within Social Security and really just a portion of the annuity, so she has the leftover of that plus the IRA as excess. We aren't through a full year yet and we have a wild card in an extra home in disrepair that needs to be sold, so that's another aspect to her reluctance to spend.

It sounds as though the basic problem is a paradigm shift from the working years of earning/saving to the retirement years of spending. Since my dad had never retired and I am not there yet, the previous generation of retireds in our family is already gone, and she is too private to speak frankly to friends about it, this forum is a bit of a goldmine for procuring information like this. I will see if I can get her some reading on how spending in retirement works and how it differs from the earning years, especially as related to the concept of an emergency fund.
Interesting situation. Well, Bogleheads is the place to be.

I suggest that you read the 3 fund portfolio articles ( see the Wiki) and the articles about assest allocation. Once you have an understanding of these concepts, slowly get your mom to start reading the same articles.

3 funds is just a name....you can accomplish nearly the same with 2 or 4 funds. She can avoid advisors that load he up on complicated mixes of funds with high costs, and go DYI with your help and get down to a simple mix.

For me and my wife (she has zero investing/savings interest), I have generally gotten us down to 4 funds, mostly Vanguard for low cost.

Total US Stock ETF
Total International Stick ETF
Total US Bond ETF
Total International Bond ETF

+Cash
+EF

My AA is 60:40, with around 20% in the international arena.

I have a few 401k and 457 plan accounts that are arranged similarly, but with the options the plans offer.
I have a smattering of other investments that will ultimately be cashed out and moved into the 4 funds.

That is simplified from perhaps a dozen ETFs and mutual funds in the past.

She could go even simpler with a target date fund that matches her desired AA. You pay a bit more, but the TDF is like cruise control.

Good luck. It's great that you can help your mom.

Keep it simple, focus on low fees, set an AA, and be patient.
RetiredCSProf
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Re: How to calculate emergency fund during retirement

Post by RetiredCSProf »

I am assuming that your Mom is in her early 70's, given that she is just starting to take RMDs. When I retired, three financial advisors gave me very different recommendations for an emergency fund: one said $200K, another said $100K, and the third said $20K. I'm 74, and I am comfortable with $60K to $100K in a savings account, CDs, or savings bonds.

If a retiree is on a relatively fixed income, it is difficult to refill an EF bucket. If your Mom needs more cash than she has available (home repairs, car replacement, or whatever) in a given year, she can spend the RMD (less taxes) and withdraw an extra "bonus" from her tax-deferred accounts. I suggest looking at the VPW model, which is designed to deplete accounts more quickly than RMDs.
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Re: How to calculate emergency fund during retirement

Post by Golf maniac »

As you can see from the comments it will vary depending on peoples comfort level. Theoretically she could keep minimal cash in a bank and just get monthly withdrawals from her Retirement accounts to cover expenses above SS and annuity. Obviously as others have stated she needs to know her monthly expenses. Any lumpy expenses (car, home repair, etc) could be from a one time withdrawal from her IRA. A compromise would be anywhere from $40k to $60k in a savings account. We have around $40k in savings but I am looking to reduce that to about $20k as we have been retired for 6 years and really don’t need the money in a low paying vehicle when we have retirement accounts we can withdraw from in a few days.
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somewhatentertained
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

Thank you Jeepergeo, RetiredCSProf, and Golf maniac!
Jeepergeo wrote: Sat May 14, 2022 10:17 am Keep it simple, focus on low fees, set an AA, and be patient.
I would love to get her to this point! She would like it as well, and we are both cramming as much info as we can. I had set her up with an investment advisor to consolidate/organize her finances, but now that her income is fairly set she would love to be free of the fees and understand enough to be more in charge of her destiny. If I can get her to agree, I may post her portfolio on here soon to get Boglehead input on how or whether to transition her portfolio to a simpler composition.
RetiredCSProf wrote: Sat May 14, 2022 10:33 pm I am assuming that your Mom is in her early 70's, given that she is just starting to take RMDs. When I retired, three financial advisors gave me very different recommendations for an emergency fund: one said $200K, another said $100K, and the third said $20K. I'm 74, and I am comfortable with $60K to $100K in a savings account, CDs, or savings bonds.

If a retiree is on a relatively fixed income, it is difficult to refill an EF bucket. If your Mom needs more cash than she has available (home repairs, car replacement, or whatever) in a given year, she can spend the RMD (less taxes) and withdraw an extra "bonus" from her tax-deferred accounts. I suggest looking at the VPW model, which is designed to deplete accounts more quickly than RMDs.
Yes and yes! I had bookmarked the VPW Wiki page https://www.bogleheads.org/wiki/Variabl ... withdrawal and will be trying to wrap my head around it as a possible method to address the possibility that she can arrange her excess income so as to partially cover variable years.
Golf maniac wrote: Sun May 15, 2022 11:59 am As you can see from the comments it will vary depending on peoples comfort level. Theoretically she could keep minimal cash in a bank and just get monthly withdrawals from her Retirement accounts to cover expenses above SS and annuity. Obviously as others have stated she needs to know her monthly expenses. Any lumpy expenses (car, home repair, etc) could be from a one time withdrawal from her IRA. A compromise would be anywhere from $40k to $60k in a savings account. We have around $40k in savings but I am looking to reduce that to about $20k as we have been retired for 6 years and really don’t need the money in a low paying vehicle when we have retirement accounts we can withdraw from in a few days.
Great reference point, thank you for posting where you guys are comfortable. She is very close to finishing her expenses spreadsheet. I believe she will see that her RMDs exceed her customary expenditures, and thus can serve as a primary backup for most "lumpy" expenses, with the secondary backup of her main retirement portfolio for exceptionally lumpy years. If she truly does not want to reduce her cash holdings, I will suggest that she use the excess income to either slowly fund her "fun" purchases or pay herself back. This should provide assurance that she can maintain her comfort level in terms of cash on hand, but also be able to spend what she wants.
livesoft
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Re: How to calculate emergency fund during retirement

Post by livesoft »

We are retired, but not collecting SS yet. I just checked how much cash we have on hand: Just enough to pay the bills in the next 2 weeks. That is about 0.04 years of expenses in cash.

Either my spouse or I will sell shares of an ETF a few days before we need cash. Lately, we have been selling some shares of VEA (Developed Markets Index) every month and transferring the money from selling into our checking account. It is pretty much like getting a paycheck. When we bought a car about a year ago we just sold enough shares of VTI (Total US Stock Market Index) to pay for it.

As for emergency fund, we can just sell more shares for any emergency. I do not know of any emergencies where one needs cash instantly, do you?
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somewhatentertained
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

livesoft wrote: Mon May 16, 2022 8:36 am We are retired, but not collecting SS yet. I just checked how much cash we have on hand: Just enough to pay the bills in the next 2 weeks.

Either my spouse or I will sell shares of an ETF a few days before we need cash. Lately, we have been selling some shares of VEA (Developed Markets Index) every month and transferring the money from selling into our checking account. It is pretty much like getting a paycheck. When we bought a car about a year ago we just sold enough shares of VTI (Total US Stock Market Index) to pay for it.

As for emergency fund, we can just sell more shares for any emergency. I do not know of any emergencies where one needs cash instantly, do you?

Great point, the only reference point she has for getting dollars out of retirement is from when we first set up monthly deposits, and then when we had to adjust tax withholdings. Both those took a few weeks (making decisions on amounts and dates and going through her advisor etc) to get the correct paperwork submitted, which masked the actual time between funds request and deposit to her checking. I will be sure to mention this aspect to her as I am sure she's convinced it takes a month to get money out :happy
livesoft
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Re: How to calculate emergency fund during retirement

Post by livesoft »

I sat in on a phone call that an acquaintance had with their financial advisor. The advisor stated that they could get money to my acquaintance in a few hours if they called their office. The background was that the acquaintance was going overseas for an extended period of time and did not want to deal with any hassles in case of an emergency. In other words: Their advisor would simply take care of it.

My point is that a financial advisor has been paid lots of money to cater to the client. Get them to do their job and cut through the paper work.
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Re: How to calculate emergency fund during retirement

Post by somewhatentertained »

livesoft wrote: Mon May 16, 2022 8:46 am I sat in on a phone call that an acquaintance had with their financial advisor. The advisor stated that they could get money to my acquaintance in a few hours if they called their office. The background was that the acquaintance was going overseas for an extended period of time and did not want to deal with any hassles in case of an emergency. In other words: Their advisor would simply take care of it.

My point is that a financial advisor has been paid lots of money to cater to the client. Get them to do their job and cut through the paper work.
Yes, I have a bit of a raw nerve with regards to what that advisor is *not* doing relative to his handsome pay but that's another post. Suffice to say I wholeheartedly agree with you.
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