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Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:15 pm
by goshenBogle
We are retired, early 70's. Have a $5 million portfolio - 40% stock / 60% bond, all in mutual funds. We meet yearly expenses with social security + approximately $30,000 from the portfolio. Given the size of our portfolio and how little we take out each year, what should our strategy be for an emergency cash fund? Do we even need an emergency cash fund, perhaps in an online savings account, or if we need extra cash, just sell bonds or stock from the portfolio?
Appreciate folks thoughts on this. Thank you.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:24 pm
by arcticpineapplecorp.
goshenBogle wrote: Tue Nov 17, 2020 1:15 pm We are retired, early 70's. Have a $5 million portfolio - 40% stock / 60% bond, all in mutual funds. We meet yearly expenses with social security + approximately $30,000 from the portfolio. Given the size of our portfolio and how little we take out each year, what should our strategy be for an emergency cash fund? Do we even need an emergency cash fund, perhaps in an online savings account, or if we need extra cash, just sell bonds or stock from the portfolio?
Appreciate folks thoughts on this. Thank you.
your withdrawal rate overall is 0.6%.

if stocks went down and you want to draw the $30,000 from bonds that would represent 1% per year from your bond portfolio.

wouldn't your bonds last 100 years if you're taking out 1% per year and assuming no growth on bonds over 100 years?

think you're good with $3 million in bonds and in need of $30,000 a year.

money isn't your problem.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:26 pm
by sport
Do you have RMDs?

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:33 pm
by bertilak
goshenBogle wrote: Tue Nov 17, 2020 1:15 pm We are retired, early 70's. Have a $5 million portfolio - 40% stock / 60% bond, all in mutual funds. We meet yearly expenses with social security + approximately $30,000 from the portfolio. Given the size of our portfolio and how little we take out each year, what should our strategy be for an emergency cash fund? Do we even need an emergency cash fund, perhaps in an online savings account, or if we need extra cash, just sell bonds or stock from the portfolio?
Appreciate folks thoughts on this. Thank you.
Given your $5 million I say you don't need an emergency fund, assuming you have no unusual expenses or obligations (like a $5 million mortgage). Seems like even if you had a $1 million emergency you would still be OK, money-wise. In this sense you already have a $1 million (plus) emergency fund. It's just not in cash but it is pretty liquid.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:34 pm
by JoeRetire
goshenBogle wrote: Tue Nov 17, 2020 1:15 pm We are retired, early 70's. Have a $5 million portfolio - 40% stock / 60% bond, all in mutual funds. We meet yearly expenses with social security + approximately $30,000 from the portfolio. Given the size of our portfolio and how little we take out each year, what should our strategy be for an emergency cash fund? Do we even need an emergency cash fund, perhaps in an online savings account, or if we need extra cash, just sell bonds or stock from the portfolio?
As long as you are willing to sell part of your portfolio in the event of an emergency need, no matter what the market conditions, nobody ever needs an emergency fund.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:36 pm
by bertilak
sport wrote: Tue Nov 17, 2020 1:26 pm Do you have RMDs?
RMDs can simply be reinvested although there may be a hefty tax bill. If so I think it would already be included in his "how little we take out each year."

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:43 pm
by simplesimon
Given the numbers you provided, I am wondering why you're asking the question. What is the problem you're trying to solve?

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 1:57 pm
by FelixTheCat
I subscribe to Warren Buffett's philosophy: Have enough in short-term bonds so you don't half to sell stocks in a down market.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 2:06 pm
by Monsterflockster
goshenBogle wrote: Tue Nov 17, 2020 1:15 pm We are retired, early 70's. Have a $5 million portfolio - 40% stock / 60% bond, all in mutual funds. We meet yearly expenses with social security + approximately $30,000 from the portfolio. Given the size of our portfolio and how little we take out each year, what should our strategy be for an emergency cash fund? Do we even need an emergency cash fund, perhaps in an online savings account, or if we need extra cash, just sell bonds or stock from the portfolio?
Appreciate folks thoughts on this. Thank you.
At 70 why even have 40% in stocks with such a low withdrawal rate? Are you looking to maximize inheritance? (Not criticizing... trying to learn).

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 2:23 pm
by bloom2708
You do not need an Emergency Fund.

I'd just keep $30k in my checking account at all times.

You could buy a new car every 3 months and be just fine. Congrats!

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 2:26 pm
by bligh
OP, given your numbers and how most of all of your expenses are met by social security anyway, and emergency fund hardly makes any sense. Having said that, keeping even a 2 year emergency fund @60k has very little impact on your portfolio size and performance anyway, so the cost of your emergency fund is negligible as well. After all, $5 mil - $60k is still basically $5mil.

If I were you I would pull out $60k in cash to cover 2 years of expenses and call it my emergency fund. It won’t make any real difference either way.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 2:52 pm
by Dude2
goshenBogle wrote: Tue Nov 17, 2020 1:15 pm We are retired, early 70's. Have a $5 million portfolio - 40% stock / 60% bond, all in mutual funds. We meet yearly expenses with social security + approximately $30,000 from the portfolio. Given the size of our portfolio and how little we take out each year, what should our strategy be for an emergency cash fund? Do we even need an emergency cash fund, perhaps in an online savings account, or if we need extra cash, just sell bonds or stock from the portfolio?
Appreciate folks thoughts on this. Thank you.
Ok, let me take a shot at this...
Assuming you are comfortable with a 40/60 asset allocation, typically people will draw from their portfolio and rebalance in one action. If stocks are higher than 40, draw from stocks. If bonds are higher than 60 draw from bonds.
However, any kind of short term fund would give you the option to not draw from either stocks or bonds if there was some intelligent reason to not do so. You may have risk assets and non-risk assets. When the risk assets are having a terrible time, maybe it would be better to leave them alone and let time heal the wounds. Then start drawing from them again.

This is just general advice as to why "somebody" might consider holding short term, less-risky assets. It could be a buffer.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 3:57 pm
by sport
bertilak wrote: Tue Nov 17, 2020 1:36 pm
sport wrote: Tue Nov 17, 2020 1:26 pm Do you have RMDs?
RMDs can simply be reinvested although there may be a hefty tax bill. If so I think it would already be included in his "how little we take out each year."
It just seems like 30K is a small amount for a portfolio of 5MM. It is certainly possible that OP has little or no money in IRAs etc. However, I made the comment to make sure that they are not ignoring larger RMDs that may apply.

Re: Do we need to set aside cash for an emergency fund?

Posted: Tue Nov 17, 2020 4:03 pm
by firedup
To me, your bonds are your emergency fund. And you are well covered there...