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Old 09-16-2019, 02:06 PM
 
1 posts, read 428 times
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This is my first post, sorry if my form or tenor is wrong!


OK, I'm a Dave Ramsey guy. That will excite some of you, tick off others. Oh well...


Dave says to keep 3-6 months emergency fund. I have no problem with that. However, I'm retiring soon, and I find my risks are changing.


From my perspective, the 3-6 month requirement accounts for job loss (income interruption) risk. Got it. But in retirement, my risks are:


- Significant costs (home repair, car repair)
- Unforeseen healthcare costs
- Market downturn (I tend to get 10% or so, but in a downturn, I can lose significant principle!)


'Experts' say, "If you need the money in the next 5 years, don't risk it!". To me, that means I need to keep 4-5 years of expenses as a retirement emergency fund. Of course, pulling this much from my 10% growers into some sort of CD ladder at 2% puts a major toll on my 30 yr outlook.


Thoughts? (Thanks in advance!!)
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Old 09-16-2019, 02:12 PM
 
Location: Hard aground in the Sonoran Desert
4,666 posts, read 8,785,990 times
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Your investment asset allocation should shift as you move towards retirement to protect your principle and provide income moving forward.

We all share the risks you listed, those are not specific to retirement. A "market downturn" isn't an emergency, it is certain to happen. I think you're confusing asset allocation and an emergency fund.
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Old 09-16-2019, 02:17 PM
 
Location: The Triad (NC)
29,121 posts, read 63,327,019 times
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Quote:
Originally Posted by bob-is-retiring View Post
Dave says to keep 3-6 months emergency fund. I have no problem with that.
However, I'm retiring soon, and I find my risks are changing.
Dave (and every other sensible financial advisor) says to keep cash reserves in some format.
How much varies by circumstance and what you call it really doesn't matter much at all.

Me? I'd suggest having no less than TWO YEARS of out of pocket cash available to you
without having to undo any investment holdings or strategy. Quarterly earnings deposited to replenish it.

Quote:
'Experts' say, "If you need the money in the next 5 years, don't risk it!".
To me, that means...
Nope. That means don't put those reserves into risks like the stock market etc.

Quote:
Thoughts?
You should sit down with a qualified someone you already have reason to trust.
Lay out what you have (incl 401K's, pensions, IRA's, Stocks, CD's, real estate, etc) and what you'll soon need it to do for you.

Last edited by MrRational; 09-16-2019 at 02:26 PM..
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Old 09-16-2019, 02:22 PM
 
488 posts, read 994,341 times
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Although 'young' for a retiree (53), I find myself keeping more and more cash as of late, paying about 2.25%. Yep, just about at the official inflation rate (I think it's higher), just the same it works for me as a part of my investment plan. Part of my rationale is I do plan on paying cash for my next home, and still have an equal amount left-over for what you mention.

The stock and bond market have been good to me over the decades, I still keep the vast majority of my portfolio in these type of investments, but I like seeing more cash than is *supposedly* wise, sitting in nice safe accounts despite some inflation loss... Works for me, and perhaps only me going with the philosophy of:

"You have won the race, stop running"

Good luck.
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Old 09-16-2019, 02:35 PM
 
Location: WA
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I keep about 8% in liquid assets... to cover the items you mentioned. In over ten years of retirement it has worked well.
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Old 09-16-2019, 02:46 PM
 
Location: Haiku
4,935 posts, read 2,803,582 times
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The important thing is a range of liquidity. Cash is obviously the most liquid. CD's are not so liquid unless you have short-term, like 1-year.

This is what we do (roughly)
2-3% of total assets in cash
5% of total assets in short-term US bond fund


We spend about 2-3% every year, so the cash fund would last that long. If we need more in a hurry I would hit the short-term US bond fund.

I don't try to cushion a market drop with a cash reserve. That is called bucketing and gets discussed/debated here a lot. I don't like it but some do.
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Old 09-16-2019, 03:07 PM
 
Location: NYC
3,077 posts, read 1,671,739 times
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5 years expenses seems way too conservative to keep money out of investments, I had 3 years set aside in safe cash instruments in order to get me to 70yo & claim SS then, & that seemed very, very conservative. I think after 70yo I will maintain between 2-3 years in my cash bucket. Correct me if I am wrong, but I don't believe most market downturns have lasted longer than that.
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Old 09-16-2019, 03:21 PM
 
Location: Coastal New Jersey
57,480 posts, read 55,705,107 times
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I was never rich enough to have that mythological emergency fund, but now that I'm retired and in a little better shape financially, I am establishing one, mostly to deal with household issues so I could pay for them rather than use credit.
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Old 09-16-2019, 03:22 PM
 
6,557 posts, read 4,915,823 times
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First when I worked I really did not feel comfortable without a very substantial emergency fund. I lost numerous jobs due to downsizing, mergers, etc. I tried to accrue at least a year's worth of expenses. If not a year then the ability to cut expenses and stretch to at least close to a year.

I use the 4% rule for retirement expenses. That means spending up to 4% of my retirement investments each year. That includes typical monthly expenses plus home repairs, a new roof, a new car, and any other major expense. That means monthly expenses need to be substantially less than my social security, other income and my 4% income. In the past few years, we needed a new roof ($20K), bought a replacement used second car ($20K), and had several large trees removed ($8K). I would like to believe most of the big expenses are behind us but I doubt it. Those big expenses have been averaging about $1K/month so when we look at our 4% income we need to decrease expenses by that amount.

You also mentioned a "market downturn". The 4% rule should work regardless of market conditions. That is the whole idea of taking that relatively small amount. You should be close to 100% confident that your investments will last for a 30 year retirement period with a 4% withdrawal that you increase each year to cover inflation. Under average or good conditions you should be able to reassess after several years in retirement and pull a even higher percent.
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Old 09-16-2019, 03:25 PM
 
Location: Florida
4,529 posts, read 3,854,369 times
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I can see five years if you can afford it and do not like risk. I think you could cut this back to two years plus upcoming big expenses such as a new roof or car. You could also add some money for unknow medical.

Look at dividend paying stock. This might help reduce the size of your fund as long as you are willing to assume that the dividends will continue in a recession.

You might be able to find a broker who will loan you money with your stock as security. Schwab might do this. This would be expensive and a last resort but it is for an emergency that hopefully will never come.

I can also see placing some stop loss orders so as the market starts to fall you move a little more cash into your emergency fund.
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