Do we need to set aside cash for an emergency fund?
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Do we need to set aside cash for an emergency fund?
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.
Appreciate folks thoughts on this. Thank you.
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- arcticpineapplecorp.
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Re: Do we need to set aside cash for an emergency fund?
your withdrawal rate overall is 0.6%.goshenBogle wrote: ↑Tue Nov 17, 2020 12:15 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.
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.
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Re: Do we need to set aside cash for an emergency fund?
Do you have RMDs?
- bertilak
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Re: Do we need to set aside cash for an emergency fund?
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.goshenBogle wrote: ↑Tue Nov 17, 2020 12:15 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.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Re: Do we need to set aside cash for an emergency fund?
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.goshenBogle wrote: ↑Tue Nov 17, 2020 12:15 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?
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- bertilak
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Re: Do we need to set aside cash for an emergency fund?
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."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
- simplesimon
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Re: Do we need to set aside cash for an emergency fund?
Given the numbers you provided, I am wondering why you're asking the question. What is the problem you're trying to solve?
- FelixTheCat
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Re: Do we need to set aside cash for an emergency fund?
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.
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Re: Do we need to set aside cash for an emergency fund?
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).goshenBogle wrote: ↑Tue Nov 17, 2020 12:15 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.
Re: Do we need to set aside cash for an emergency fund?
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!
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?
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.
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?
Ok, let me take a shot at this...goshenBogle wrote: ↑Tue Nov 17, 2020 12:15 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.
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.
Then ’tis like the breath of an unfee’d lawyer.
Re: Do we need to set aside cash for an emergency fund?
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?
To me, your bonds are your emergency fund. And you are well covered there...
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