It’s a good reminder that having some cash (or liquid investments, non-taxable) can be a helpful thing in retirement.
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Yep, no matter who you are, retired or not, everyone needs an emergency fund. You don’t want to have to use your 401K as an emergency fund, if you’re reluctant to use it.
Then again, I realize that we completely depleted the funds that we built up before retirement. We had a large amount saved, but we did a kitchen remodel, replaced our roof, bought a truck, paid off a good chunk of our mortgage and bought forest land. So now our emergency fund is our 401K’s or Roth.
I guess it’s a family trait.
I completely agree, this is critical for everybody at any age. Something people often overlook and then are stuck when they have an unexpected emergency need.
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The good thing is that you do have some Roth money (and we do too now, after doing some rollovers). That way you can withdraw from traditional/taxable or Roth depending on the circumstances that year.
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Yeah, I realized several years ago that our assets were 90% in 401k and home equity. We adjusted our automatic deposits to build up more savings outside retirement vehicles. Every time we pay off something (ie, car, the mortgage) or H gets a raise, we take that amount and drop it into a HYSA, I-Bonds, T-bills or our non-retirement assets. Our USAA money market account was making .01%, so we decided to diversify. My feeling is that if we need emergency funds, it should be relatively easy to access.
We’re also starting on the deferred maintenance/updating projects while H is still working. I am painting the kitchen, main bedroom and guest bedroom right now. Project creep is a real thing!
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Emergency funds are hugely important, but then you have people like me, who actually know better, but leave buckets of cash sitting in regular savings account making almost nothing. I kick myself regularly, but there most of it still sits.
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There was a long time when we had lots more at the credit union than we should have, due to indecision on investments. I often felt bad about that, except for during the 2007/2008 market woes. But diversification (and saving) can be a good thing.
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Oops - I just replied to you in the wrong thread.
Yes, every once in awhile we have to remind ourselves that we’ve done pretty well planning for retirement, despite not always making the most savvy financial decisions.
We’ve never done well in real estate for example, but we are fine (and retired).
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One of my credit cards has a $40k credit limit, and I’ve got others. Why do I need to keep a ton of cash around?
Plus we have a HELOC with a large credit that I can write a check against at any time.
I think keeping a big pile of money in very liquid forms is overrated if you’ve got access to other sources of money.
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I took some advice years ago when it was suggested to reduce the credit limit on cards. So I lowered them to $27,500. Its not been a problem, but I kinda regret it. AmEx let’s you get an increase automatically on the app. I may have done it ( done the auto temporary increase) when I booked an Alaskan cruise for 12 people all with nice rooms with decks. That was $$
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We had to move due to job relocations, mergers, and even for health reasons. Some houses we bought thinking we’d live in them for 10+ years and ended up moving in two years or less. We sometimes sold for just 5% to 10% more than our purchase price, so not enough to cover RE commission and closing costs, but those were actually the better ones. On two houses we took significant losses. It wasn’t possible to time the market and we had no desire to become absentee landlords in order to wait for a recovery.
Between hard work, frugality, and a good deal of luck, we managed to recover financially and end up in comfortable shape for our current retirement years. We do keep some funds readily accessible and even keep some cash on hand. Last decade, when storms knocked out power for a couple of weeks nearby, we were glad to have cash to help folks who needed it when stores couldn’t process credit cards. I’ll gladly give up a little bit of potential earnings to have that peace of mind.
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Agree about having other sources of emergency funds handy. Caution though: credit card issuers usually monitor your income and can cut the limit or cancel the card altogether if your income in retirement dips significantly below what it was pre-retirement.
@1214mom don’t leave it there! There are high interest rate, easily accessible checking a/savings accounts all over, except for the biggest banks. Shoot, if you have a brokerage account at Vanguard, you can make over 5% just in their sweep account. Easy peasy to transfer back to your checking account. My mom had a bunch doing almost nothing in her bank, I transferred it to low risk money market funds in Vanguard, Fidelity and her own credit union, and now she’s making about 4K per month in interest on this. It’s so easy and safe, stop kicking yourself, move it and make money!
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Didn’t banks reduce credit line limits during the downturn starting 2008 or so? That could have been the time that many credit line holders were more likely to need to use the credit lines.
Thank you for that!
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Credit cards typically have an enormous APY, often >= 20%. It’s not a good source for emergency funds, unless you will be able to pay off the card(s) quickly, so you don’t pay the high APY for a long period.
With current > 5% federal rate, there are numerous places to save cash that earn > 5% APY. If you are looking for and open to opportunities, you can earn far more than that. For example, earlier this week, put some cash in HYSA earning the equivalent of >13% after bonus. In any given month, I’m like to see several different financial opportunities like this to earn well above fed rate, and it’s good to have cash available to pursue them.
As such, I think it more of setting aside a portion of assets to pursue fixed income investments, rather than a traditional emergency fund. The portion I choose for fixed income is limited by my risk tolerance to stock market fluctuations, rather than not having a sufficient assets to withdraw in case of emergencies.
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The other case for using credit cards as the emergency fund would be if one is in the process of paying down credit cards or other high interest credit line debt. In this case, it does not make sense to build up a cash emergency fund earning up to 5% or so interest when one can pay down 20% or so interest rate debt. Of course, after paying off the credit cards and other high interest credit line debt, then it makes sense to build up a cash emergency fund.
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We have 3 credit cards each with a limit of about 20K. We HAD a 15K limit on a Capital One card. When COVID hit, they lowered the limit to only 5K. I called them to complain–their explanation was that they had lots of people defaulting on payments due to the pandemic and had to reduce their level of liability.
I explained that I had paid off EVERY bill when it arrived, have a credit score over 800, that I used their card as an emergency back up overseas (no foreign fees), so could they please restore the limit, to at least 10K?
They said nope. I said OK, your card can sit in my wallet and you can make nothing off of me.
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@1214mom That was what basically happened. Was building up the cash reserve, but it was sitting there doing nothing. We wanted to increase our liquid funds, but then for so long, there was no place to park it and earn anything. Vanguard MM, USAA, CDs, I-Bonds were all close to zero. And yes, we are diversified in other mutual funds and TSP. Used to have a HELOC, but I’m sure it expired long ago. Might be worth it to set that up before H retires, but we’re not anxious to incur debt after retirement, unless car loan rates drop.
Having started with “two window shades in our bedroom have dry rotted after 25 years and we should probably replace them” has grown into “well, we should replace the 57 yo windows while we’re at it, because if we pay for shades, they may not fit on new windows,” which turned into new windows for all of upstairs and the kitchen, and then buying the actual new shades for both the bedroom AND the new kitchen bay window, and “ya know, this bedroom hasn’t been painted since 1991,” which leads to my current painting projects and FB Marketplace for real wood furniture I can refinish because our 1990 Ikea stuff is finally falling apart, here we are.
The cost of renovations and home improvements has almost doubled in our area over the past three years. It has become a real budget item in our retirement planning.
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That Vanguard MM is likely paying over 5% interest now, so don’t discount that. It’s rather shocking.