Unreasonable to have 2+ years of emergency funds?

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Puyi
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Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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.
Last edited by livesoft on Mon Jan 23, 2023 3:42 pm, edited 1 time in total.
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cheese_breath
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Re: Unreasonable to have 2+ years of emergency funds?

Post by cheese_breath »

I think whatever makes you feel comfortable is reasonable.
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Triple digit golfer
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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.
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turtlebug
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Re: Unreasonable to have 2+ years of emergency funds?

Post by turtlebug »

If it helps you sleep well at night, it's likely not unreasonable for you.
Marseille07
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Re: Unreasonable to have 2+ years of emergency funds?

Post by Marseille07 »

Puyi wrote: Mon Jan 23, 2023 3:38 pm 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.
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Puyi
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Re: Unreasonable to have 2+ years of emergency funds?

Post by Puyi »

Marseille07 wrote: Mon Jan 23, 2023 3:47 pm 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

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Marseille07
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Re: Unreasonable to have 2+ years of emergency funds?

Post by Marseille07 »

Puyi wrote: Mon Jan 23, 2023 3:50 pm 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).
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Broken Man 1999
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
secondopinion
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Re: Unreasonable to have 2+ years of emergency funds?

Post by secondopinion »

Puyi wrote: Mon Jan 23, 2023 3:38 pm 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.
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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.

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SmileyFace
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by Triple digit golfer »

Puyi wrote: Mon Jan 23, 2023 3:50 pm
Marseille07 wrote: Mon Jan 23, 2023 3:47 pm 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.
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drgenefish
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by steadyosmosis »

Puyi wrote: Mon Jan 23, 2023 3:50 pm
Marseille07 wrote: Mon Jan 23, 2023 3:47 pm 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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.
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Wannaretireearly
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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 :beer

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.
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Harmanic
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by Vtsax100 »

I have probably three years in Federal Money Market. Optimal? No. But I sleep very well.
gtrplayer
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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
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Re: Unreasonable to have 2+ years of emergency funds?

Post by 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.
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