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I use the 4% rule for retirement expenses.
...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.
That sorta explains the 4%... but I've gotta pipe up that I don't agree with including the one time exceptional expenses
under the same heading as the recurring monthly and annual expenses...
The total adds up to whatever it does but the commingling distorts the planning and the reviews.
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!!)
If you don't have enough, you have to risk it is my view to keep earning. If you have enough to hold back and able to still have sufficient money to derive a decent income, that is preferred and this is what I do...I have enough cash reserves to cover at least 5 years and I retired last January. I took some out today due to the situation in Saudi to put in cash until I feel it's safe or we have a market drop buying opportunity.
A standard retiree allocation typically ranges from 40-60% equities and the rest in assorted bond funds ....simple yearly rebalancing creates all the cash you need ....you would not be spending down stocks regardless in a down market to rebalance ......a 50/50 mix has about 7-10 years in assorted bond funds.
If you want to keep a large expenditure bucket Just keep it out of the income calculation.. it is like when we retired we bought a new car and my wife was going to need 15k in dental ....we subtracted that off our portfolio value and calculated a 4% draw off the balance .
People get to caught up in this cash thing ...if you kept 1 to 2 years cash you should be fine.
Even 1 years cash is fine ...rebalancing portfolios have been done to provide spending cash just fine
Last edited by mathjak107; 09-16-2019 at 04:27 PM..
I'm with mathjak, once you get to a point with enough assets that can be tapped without penalty and are in something reasonably stable (like bond allocation) that's your emergency fund.
That sorta explains the 4%... but I've gotta pipe up that I don't agree with including the one time exceptional expenses
under the same heading as the recurring monthly and annual expenses...
The total adds up to whatever it does but the commingling distorts the planning and the reviews.
Everyone manages their money and expenses differently. I have no "headings". There is nothing to commingle. My income is social security, a couple of very small pensions, RMDs and occasional draws from mutual funds. Most of the income goes directly into the checking account. If that starts getting low, I will pull a chunk from the mutual fund portion of our portfolio.
I have no budget or short term system to track income, expenses or portfolio performance. We pay the accounts we are committed to and that are typical: insurance, gas, food, mortgage, credit cards, utilities, etc. A pretty high percent is on autopay or my wife pays it about monthly. Even many big items are handled without much thought. There was not much choice on the roof. It had to be replaced and we started getting ice damning that was starting to damage ceilings. The bill for removing trees was a necessity since they were diseased and would have become a risk. Our second car was old and unsafe. The third time the brakes failed was it. Our major expenses and lifestyle generally fit within our budget with money left for unexpected expenses. Big discretionary expenses we handle on an individual basis. Last year we were planning a river cruise in Europe. The expenses got out of hand and we had just bought the car. We decided to skip that trip or at least postpone it for a while.
About once a year we take a 30000 foot view. We take a look at the portfolio performance. We also look at overall expenses. Even then there is no reason to hit a 4% withdrawal as long as it is close and likely to balance out over a year or so. If we start pushing the 4% rule hard then we will also need to take a harder look at expenses.
1. cash, actual Jacksons, kept At Home (not safe deposit box): 5%.
2. "hold in your hand" gold, silver, platinum, etc. kept wherever: 5%.
3. government bonds. take your pick. municipal, treasury, etc. 60%
4. Index Fund. 25%. this has been really, really good since 2016.
5. 5% invest in a flyer. restaurant. lottery. never know.
this is what we have done.
we wish we could continue with the Index Funds,
but our age requires certainty over contingency.
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!!)
Dave Ramsey has Some good advice if you want to be a successful miser. He says don’t buy a car unless you can pay cash. Easy to say for someone who drove a car with no reverse for several years until one of his parishioners bought him a new car. Don’t finance anything even a house!
With that said, we are in the first years of retirement. We’ve completed all obvious and optional, home repairs. New roof, preemptive repainting, etc. If our fridge dies, we will just buy a new one. The major stuff is covered. Plan ahead and fix stuff soon. Just replaced our dying car. With healthcare we have Medicare and the best supplement. I spent 9 days in the hospital in February and didn’t pay a cent out of pocket. Hint; My view of my income is what goes into my bank acct, not the gross SS amt and not my gross pensions of which one deducts my Medicare supplement.
I’d not worry about emergencies that may never happen, but keep investing. So what if you actually do have an emergency. Pull the needed cash out as needed.
If I never financed anything, I would be spending far more than my mortgage payment, in rent. I'd have to lease a car, too.
And I am one of the more debt-averse people I know. So that^^ advice is not very realistic for most people.
I have no plans to keep 5 years of expenses in an "emergency fund". I am not yet retired, but I will have enough in my conservative portion of my accounts to manage any emergency cash needs.
I have no plans to keep 5 years of expenses in an "emergency fund". I am not yet retired, but I will have enough in my conservative portion of my accounts to manage any emergency cash needs.
I think for people like us that are still working as we approach retirement, our income is our "Emergency fund". At 66 I still only keep 3-6 months in cash but when I retire I can see that going to a year or 2. I have the income to handle most emergencies. That will change in the next few years.
5 years does seem excessive. I'd rather have 3 years of that money doing something.
I think for people like us that are still working as we approach retirement, our income is our "Emergency fund". At 66 I still only keep 3-6 months in cash but when I retire I can see that going to a year or 2. I have the income to handle most emergencies. That will change in the next few years.
5 years does seem excessive. I'd rather have 3 years of that money doing something.
what we did is fully funded year one's withdrawals in cash ready to go ... then we started letting the 2nd year start to accumulate by channeling ,interest , dividends and distributions in to it ... it really was a sizable amount that flowed in , so we had some extra money if needed if things were forced over budget , or we just applied that money the following year towards what we needed and rebalanced that much less
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