Transcript:
Easan Arulanantham:
Should I change my how much I keep in my emergency fund after retirement? Because I’m not making any more money, I can’t just replace it just with my income.
Tom Vaughan:
Yeah, so here’s the thing about emergency money that’s really fascinating. There’s all these rules of thumb, you know, have three months worth of expenses on hand, or three years worth of expenses, murder, all kinds of different things. And there’s some ways that you can actually, you know, say, Hey, I’m in a 60/40 portfolio. And you can model what would have happened in 2008. downturn, how much did it drop? How long did it take to come back, and you can say, Okay, I want to make sure I can cover another one of those situations. So essentially, if I’m taking a systematic withdraw, I can either reduce or eliminate the withdraw during that period of time, go are my emergency money, and use that instead. And then when things recover, I go back to my normal, systematic withdrawal, and it’s going to recover quicker, because I’m not he’s not taking anything out of it, right. And so you can’t figure that out, you can literally do the math by each type of portfolio and figure out exactly how much emergency fund you need for different scenarios. But one thing I have found about emergency money, it’s super personal. And that’s, there’s just no way around it. There’s no analytical aspect of emergency money that I’ve ever seen really work. Some people feel like having $5,000 of emergency money is too much, because they want to have everything invested all the time. It’s just their belief system. And they believe that they can withdraw from that if they need to.
Other people feel like $500,000 is just really not enough. Because it won’t cover as long enough for me. And that’s what emergency money is about. It’s about sleeping well at night. And so whatever that number is, so if you get into retirement, and you feel like you don’t have enough emergency money, then yeah, you should be saving more money towards emergency money until you get to a spot where you feel good about that. And so that’s, that’s the problem with all these rules of thumb. They don’t take into account like just human behavior, and people’s thought processes and how they’re dealing with, you know, risk and, and whatnot. So it is it’s very fascinating. It’s a great question. So the answer would be yes, you should save for more emergency monies during retirement if you don’t feel like you have enough. But that goes for any age, at that matter whether you’re 20 or 90, your emergency money is something you have to feel good about, look at your bank account and say, Man, I feel great about having that one way or another. You know, so yeah, it’s a it’s a, it’s a good question.
Easan Arulanantham:
It’s a hard answer but, one of the nice things is when with us, if you ever need money, we can get you in a couple days to liquidate something. For some sort of emergency, your money is always there and accessible.
Tom Vaughan:
Yeah, that’s right, that liquidity in today’s world has dramatically improved. We don’t have commissions to sell, we use a lot of Exchange Traded Funds, for example. And we don’t have any Commission’s to sell those. So you know, it doesn’t cost anything to get out. It you know, if you’re all your money’s in IRAs, you might have some taxes. So they make an argument for having some money in cash for that purpose. But you can still get it out. If you needed it again, it’s an emergency theoretically. And so yeah, usually somebody calls on Monday, we can have the money in their account, you know, Wednesday or Thursday at the latest. And so there’s, you know, liquidity is not a huge issue. The only thing is, you know, the market could be falling. And but oftentimes that might mean some portion of portfolios going up, you know, stock market falling in the bond markets going up, we can sell some of the bond pieces, rebalance that later type of thing, you know, so there’s, there’s usually someplace we can get money, which does mitigate some of the need for emergency but it still doesn’t answer the emotional need. I’m telling you, just from my experience, people still just need that feeling of having something. And again, sometimes it’s a small amount. I’ve had quite a few clients who really, really don’t like having a lot of money in emergency because it makes them uncomfortable, literally, to have money in emergency accounts. They feel like it’s not working for them. And I have other clients on the other end of that spectrum. So you know, there isn’t any wrong or right there at all, is just we know what works for you.