Unreasonable to have 2+ years of emergency funds?

[Puyi]

I have 2 years of emergency fund money right now. 1.5 years worth in HYSA, 0.5 years worth in I-bonds. Do you think that's reasonable or overkill?

I read this report a while ago that showed the breakdown of unemployment duration during the Great Recession. I remember being shocked at how high a percentage of people were out of work for more than a year or two, which drove me to save a lot of my emergency fund. I'm just a regular engineer in an industry well known for cyclical bad times and I'm not particularly smart/skilled enough to just easily jump ship to any tech company. So I can definitely imagine myself being out of work for a long time, especially with the upcoming recession/mass layoffs.

By emergency fund, I mean money needed to pay my normal bills and expenses should I get laid off. I have an HSA that I could use for medical expenses. Yes I do max my tax advantaged retirement accounts and invest aggressively.

[livesoft]

That would be insanely unreasonable for me, but maybe not for you. I have lots of mutual funds that I can sell to pay expenses; maybe you don't.

[cheese_breath]

I think whatever makes you feel comfortable is reasonable.

[Triple digit golfer]

I don't think it's unreasonable, given the information that you've provided. If it allows you to sleep at night and keeps you investing, it's doing its job.

If you have 2 years in cash and nothing else, then perhaps you may argue that it's unreasonable. But I'm assuming that you have a healthy investment portfolio outside of the emergency fund.

[turtlebug]

If it helps you sleep well at night, it's likely not unreasonable for you.

[Marseille07]

I have 2 years of emergency fund money right now. 1.5 years worth in HYSA, 0.5 years worth in I-bonds. Do you think that's reasonable or overkill?

I read this report a while ago that showed the breakdown of unemployment duration during the Great Recession. I remember being shocked at how high a percentage of people were out of work for more than a year or two, which drove me to save a lot of my emergency fund. I'm just a regular engineer in an industry well known for cyclical bad times and I'm not particularly smart/skilled enough to just easily jump ship to any tech company. So I can definitely imagine myself being out of work for a long time, especially with the upcoming recession/mass layoffs.

By emergency fund, I mean money needed to pay my normal bills and expenses should I get laid off. I have an HSA that I could use for medical expenses. Yes I do max my tax advantaged retirement accounts and invest aggressively.

It depends on the rest of your allocation. If you're holding 60/40 or 50/50 then probably unreasonable. If you are 100% equities outside of the 2-years emergency funds, that's completely reasonable.

[Puyi]

It depends on the rest of your allocation. If you're holding 60/40 or 50/50 then probably unreasonable. If you are 100% equities outside of the 2-years emergency funds, that's completely reasonable.

My AA across all accounts is 75/15/10 equities/bonds/cash.
My AA across retirement accounts alone (401k/Roth) is 88/12 equities/bonds

36yo

[Marseille07]

My AA across all accounts is 75/15/10 equities/bonds/cash.
My AA across retirement accounts alone (401k/Roth) is 88/12 equities/bonds

If 10% = 2 years, that sounds reasonable to me. Assuming you're collecting 3.5~4% APY on cash, there's nothing wrong with that. You basically have 25% in fixed income where 10% of which is super short term in duration (cash).

[Broken Man 1999]

[quote=Marseille07 post_id=7079323 time=1674506834 user_id=167335]
[quote=Puyi post_id=7079296 time=1674506328 user_id=189590]
I have 2 years of emergency fund money right now. 1.5 years worth in HYSA, 0.5 years worth in I-bonds. Do you think that's reasonable or overkill?

I read this report a while ago that showed the breakdown of unemployment duration during the Great Recession. I remember being shocked at how high a percentage of people were out of work for more than a year or two, which drove me to save a lot of my emergency fund. I'm just a regular engineer in an industry well known for cyclical bad times and I'm not particularly smart/skilled enough to just easily jump ship to any tech company. So I can definitely imagine myself being out of work for a long time, especially with the upcoming recession/mass layoffs.

By emergency fund, I mean money needed to pay my normal bills and expenses should I get laid off. I have an HSA that I could use for medical expenses. Yes I do max my tax advantaged retirement accounts and invest aggressively.
[/quote]

It depends on the rest of your allocation. If you're holding 60/40 or 50/50 then probably unreasonable. If you are 100% equities outside of the 2-years emergency funds, that's completely reasonable.
[/quote]

+1.

We hold zero cash, but we have plenty of assets that are close enough to cash should we ever need a large amount of cash.

To hold or not hold cash is one of the personal things in personal finances.

Whatever allows you to sleep well at night is the right choice.

Broken Man 1999

[secondopinion]

I have 2 years of emergency fund money right now. 1.5 years worth in HYSA, 0.5 years worth in I-bonds. Do you think that's reasonable or overkill?

I read this report a while ago that showed the breakdown of unemployment duration during the Great Recession. I remember being shocked at how high a percentage of people were out of work for more than a year or two, which drove me to save a lot of my emergency fund. I'm just a regular engineer in an industry well known for cyclical bad times and I'm not particularly smart/skilled enough to just easily jump ship to any tech company. So I can definitely imagine myself being out of work for a long time, especially with the upcoming recession/mass layoffs.

By emergency fund, I mean money needed to pay my normal bills and expenses should I get laid off. I have an HSA that I could use for medical expenses. Yes I do max my tax advantaged retirement accounts and invest aggressively.

If all you have is the retirement accounts besides the 2 years worth and the retirement is invested aggressively, then I think it is reasonable for cyclical industries. If one is like me with a large taxable account that is only semi-aggressive, it is not reasonable even if it is somewhat cyclical. I hold one year in puttable debt (I-bonds and direct CDs) and treasury bills. Bad timing of an emergency costs maybe a 25% loss to the withdrawn funds if it so happened to be much more serious. Getting fired and staying unemployed for that long is a maybe; having the market be down during that time is also a maybe (despite correlation); unless one is too short on funds otherwise with a considerable loss, it is not the best thing to just hold a bunch of cash.

[KlangFool]

OP,

It is reasonable. Too many folks are overly optimistic that they can find employment quickly in the coming recession. I have been unemployed more than 1 year a few times.

KlangFool

[SmileyFace]

It's reasonable to me. (If you have a house and a family to feed it seems very reasonable).
You can shift more of it to ibonds over time.

[Triple digit golfer]

It depends on the rest of your allocation. If you're holding 60/40 or 50/50 then probably unreasonable. If you are 100% equities outside of the 2-years emergency funds, that's completely reasonable.

My AA across all accounts is 75/15/10 equities/bonds/cash.
My AA across retirement accounts alone (401k/Roth) is 88/12 equities/bonds

36yo

I think this is entirely reasonable.

I'm 37 years old, one income household, and we keep an 80/20 overall portfolio, so about 5% more aggressive than your 75/25.

I aim to keep 80/20 at all times. So, if I was sitting at 82/18 and an emergency arose, I'd sell equities first. If there was a recession and the market dropped 30% and my portfolio dropped to 74/26, I'd use the cash or bonds first for an emergency.

Potato, potahto really.

[drgenefish]

I think it's too much money not working for you.

I agree you need to sleep at night so I'd keep it for now...but I would start using some of that $ towards some kind of training / certificates you can do to make yourself more valuable for the future. (or maybe work can pay for it).

then when you're more comfortable in your skills move the excess emergency fund into your investment accounts.

[student]

I don't think it is unreasonable. I technically don't hold a separate emergency fund. My target portfolio has 5% cash (which can be treated as emergency fund). It covers 1-2 years of expenses depends on how much belt-tightening.

[steadyosmosis]

It depends on the rest of your allocation. If you're holding 60/40 or 50/50 then probably unreasonable. If you are 100% equities outside of the 2-years emergency funds, that's completely reasonable.

My AA across all accounts is 75/15/10 equities/bonds/cash.
My AA across retirement accounts alone (401k/Roth) is 88/12 equities/bonds

36yo

Retired, and I keep my AA between 75/25 and 25/75 (currently ~60/40), and two years EF is unreasonable to me.

[Jack FFR1846]

I've got 3.75 years in HYSAs. Another 6.6 years in paper savings bonds. Wanna know what I got to do during the recent downturn? Point and laugh like Nelson from the Simpsons. I retire the end of May.

[Wannaretireearly]

I’d say it’s reasonable. Especially if prepping for retirement day.
Perhaps once comfortable in retirement, accustomed to your run rate costs, you could swan with less ER $.

1-2 years cash is my target, unless there is (another) buying opportunity

It is ironic though. Larger your portfolio amount, less cash matters. However larger your portfolio amount, less of a drag 1-2 years cash is.

[Harmanic]

It is not unreasonable if you are getting a good return on it, like ibonds, HYSA, and money market. It would be unreasonable to have it sitting in a checking account or in a savings account with less than 3% return.

[Vtsax100]

I have probably three years in Federal Money Market. Optimal? No. But I sleep very well.

[gtrplayer]

I have more than a year in emergency fund at this point and adding more. Have a medical condition that could put me out of work if it crept up again, so I’m overly cautious. The good news is you can actually earn something on safe investments now.

I’d make sure you’re getting the most return you can. Some HYSA are more high yield than others and there are CD’s paying decent returns now, too.

[rustwood]

+1 to it being reasonable - especially if it brings you peace of mind.

If you aren't already, you might consider moving some of your emergency fund into higher earning, but slightly less liquid investments. Many years ago I wasn't maxing my 401k, but I maxed out my Roth IRA contributions with my "emergency" funds each year, all invested in a fund with a modest, but guaranteed return (TIAA Traditional). Years later I withdrew my contributions for the down payment on our home. It would have been nice to keep them there, but it was clearly the best option for us at the time (even in hindsight). You don't need to use a Roth though and there are more than a few higher yielding investments that are only slightly less liquid than cash but still very safe (short term treasuries and I-bonds are the first that come to my mind).

[Coltrane75]

Sounds reasonable.

I am also an engineer and married with 1 kid and 2nd kid on the way. We are a one income household and will stay that way. I have about 2 years worth of an emergency fund too.

[Dandy]

Times of personal unemployment often occur when there is an economic downturn and lots of unemployment and negative equity performance. In that case you don't want to have to sell depressed equities to fund living expenses unless you have to.

Having a couple of years in an E fund is reasonable to me especially if you are able to adequately fund your retirement fund accounts.

[jpelder]

Not unreasonable, just cautious. It's likely worthwhile to squeeze as much no-risk return out of some of that money as you can. CD or bond ladders, more I-bonds, hunt down the best HYSA rates, that sort of thing. You don't want to have it languish in 1% account when it can earn more and be accessible. Several banks have 1 or 2-year CDs at over 4% these days.

[APX32]

This is perfectly reasonable especially in the current economic environment. I have exactly two years of expenses split evenly at Fidelity (FDRXX) and Schwab (SWVXX) earning 4%. Rising Interest rates have simplified things greatly in this regard. I didn’t have to open yet another savings account somewhere to chase higher yields.

The knowledge that I don’t have to sell any investments, raid my retirement accounts, or even tap into my 2nd-tier EF (I-bonds) in the event of anything unexpected happening is a blessing.

[dagsboro]

My primary consideration is for dependents who cannot fend for themselves without my assistance. And I would not want to be forced into taking just any job due to short term financial pressures. Furthermore, while unemployment is currently about 3.4%, we see large layoffs in some sectors of the economy right now - and it wasn't that long ago that Covid 19 impacted jobs. Cash loses value due to inflation but it still increases one's resilience and flexibility. I would set living expenses aside of course but I would also add a healthy amount for an unexpected emergency.

[TwstdSista]

We have 5 years of living expenses in cash. The husband works part-time, and I'm self-employed working in in real estate which is very cyclical. We sleep well at night, and that five years would take us to the year the husband turns 59. (we also try to max our retirement and HSA vehicles).

[Blue456]

Two years is not unreasonable if it lets you sleep at night.

[dcabler]

I have 2 years of emergency fund money right now. 1.5 years worth in HYSA, 0.5 years worth in I-bonds. Do you think that's reasonable or overkill?

I read this report a while ago that showed the breakdown of unemployment duration during the Great Recession. I remember being shocked at how high a percentage of people were out of work for more than a year or two, which drove me to save a lot of my emergency fund. I'm just a regular engineer in an industry well known for cyclical bad times and I'm not particularly smart/skilled enough to just easily jump ship to any tech company. So I can definitely imagine myself being out of work for a long time, especially with the upcoming recession/mass layoffs.

By emergency fund, I mean money needed to pay my normal bills and expenses should I get laid off. I have an HSA that I could use for medical expenses. Yes I do max my tax advantaged retirement accounts and invest aggressively.

Also an engineer in a cyclical industry, albeit a soon to retire one. I've never set aside a specific pile of money that I labeled "emergency fund" though I tend to keep a reasonably high balance in my checking account. But it isn't targetted for some fixed X number of years of expenses. It came in handy when I was out of work for about 10 months a number of years ago. Between what was in my checking account, unemployment benefits, and some belt tightening we didn't have to touch any investments till about 2 weeks before I started a new job where I had to sell a small amount of some muni-bonds I was holding at the time to float us till the sign-on bonus hit the checking account. If I had gone longer, then yeah, I would have started pulling more from investments in our taxable account, likely from the bond side of things.

There is no right answer for this and is more about what you feel comfortable with. My worst-case experience over nearly a 40 year career was "10 months" but I've had other experiences that were significantly less than 10 months. And we probably all know people who went longer. Many of those eventually did what needed to be done, which was anywhere from taking a job in a different field, whether temporarily or permanently, relocating or dipping into savings.

It's a tradeoff of how much you want to have set aside vs. the longer term effect of reduced returns.

By the way, one thing I do regarding anticipating layoffs has been to front-load my 401K and, when possible, my HSA. Meaning I increase the withholdings starting on January 1st in order to max out my contributions as soon as possible each year. It can make for paychecks during the first part of the year that are pretty small, though. I do this because the layoffs in my industry tend to happen in the second half of the year. I'd only do this with the 401K if I had a plan that provided true-ups for corporate matching. By front loading, you max out your withholdings before you max out the corporate match. So, sometime in the following year, my employer provides the remainder of their contribution from the previous year. Whether you have to still be an employee to receive the true-up depends on the specifics of your plan.
Cheers

[z3r0c00l]

Not needed if you have an AA with bonds in it if those bonds are safe enough to sell when needed. Short term bond funds, I-bonds, CDs, they can serve a role in your AA and be a backup in an emergency too. I now have a conservative enough AA to not have a separate emergency fund and bond allotment. Can just sell a few $10,000 of I-bonds or short term bonds if needed. Obviously keep a few thousand in banking/checking for short term use. I suppose the cash I save for each I bond purchase doubles as an emergency fund as it swells to $10,000 at the end of each year into January next.

[learningtime]

Sounds reasonable to me. Finance is personal. Your money management has to work for you over the short/medium term and the long term. It sounds like that that's where you are.

[faanger101]

I have 2 years of emergency fund money right now. 1.5 years worth in HYSA, 0.5 years worth in I-bonds. Do you think that's reasonable or overkill?

I read this report a while ago that showed the breakdown of unemployment duration during the Great Recession. I remember being shocked at how high a percentage of people were out of work for more than a year or two, which drove me to save a lot of my emergency fund. I'm just a regular engineer in an industry well known for cyclical bad times and I'm not particularly smart/skilled enough to just easily jump ship to any tech company. So I can definitely imagine myself being out of work for a long time, especially with the upcoming recession/mass layoffs.

By emergency fund, I mean money needed to pay my normal bills and expenses should I get laid off. I have an HSA that I could use for medical expenses. Yes I do max my tax advantaged retirement accounts and invest aggressively.

Depending on size of your portfolio, single or dual HHI earning, same or different domain with your SO.
If dividends are still low and you’re a single earner 2 yrs EF seams fine

[Grt2bOutdoors]

Those who say it’s unreasonable also aren’t offering to cover you if you run short of liquidity.

Go with your intuition as only you are privy to the exact circumstances in your life and field of work. There is no one size fits all when it comes to personal finance.

[fourwheelcycle]

My AA across all accounts is 75/15/10 equities/bonds/cash.
My AA across retirement accounts alone (401k/Roth) is 88/12 equities/bonds

36yo

You are doing fine. Nothing unreasonable. Yes, 10% cash is high, but if it makes you comfortable with your remaining 75/15 allocation it's fine.

When my wife and I started out, I was paranoid about the risk of stock market losses. I was determined we should build a solid nest egg of bonds before we began investing in equities. Up to our mid-thirties, our portfolio was about 0/85/15. By our mid-forties, our portfolio was a more reasonable 70/25/5. Today, during retirement, it is about 85/12.5/2.5.

[bradinsky]

I’m sure you’re just fine. What is important is that it works for you & you’re comfortable with it. My DW is extremely risk intolerant so with a MYGA & Schwab SWVXX money fund we are at 47/18/35. I’m considering the money fund & MYGA to be cash. This keeps DW happy & happy is important. If I alone chose, it would be 65/30/5.