Cash/back up fund

Pensions_matter_2

I suspect this has been asked before on the forum, but reading enthusiastic saver’s recent thread, Im wondering how much others think they need as a back up safety (cash) fund for emergencies, one offs, unknowns etc assuming one is lucky enough to have a DB pension which meets regular income requirements, with a little left over to cover smallish expenditure such as new white goods, minor repairs, etc. We  can happily live quite frugally, and I should be able to save much of my SP once it kicks in, so Im kind of thinking £50000 is more than enough. Appreciate very much depends on circumstances. With a new roof put on in last 5 years, and recent car purchase, I am not envisaging having any major expenses in the near to medium term. When it comes to possible care costs, I see the house as our fund for that. If not needed then children will inherit it.

Linton

If you have a DB pension that meets all your needs I dont see any need for an emergency fund beyond that necessary to pay for an emergency repair to your house or car pr similar.  £50K sounds ample.  The discussions on other threads are more relevent to people dependent on investments to meet their day to day expenditure.

enthusiasticsaver

As you say my thread has highlighted the different approaches to cash buffers even for people like my husband and I who have good DB pensions. What I would say is that some things can't be predicted with any certainty and I am not talking about a few hundred for white goods/car or house repairs but possible private medical costs (very important at the moment with NHS  waiting times and how likely you are to do long haul holidays which are expensive or replace cars (in our case after one was written off 4 years before we intended replacing it).  

We have £25k but £15k is earmarked as family gifts so £10k is spare as a cash buffer.  That is too low for me looking at what we have spent over the last year on unusual expenditure. If you live relatively frugally then £50k sounds fine and that is ideally what I would like to feel comfortable with and what we had until this year. Some would say it is too high.  

Pensions_matter_2

Thank you both for your helpful comments. To fill in more detail, with annuity rates improving lately Ive been mulling over topping up my DB pension with more annuity income from
a remaining DC pot to give me around £30k gross pa (SPs will be on top of that), but at the same time wondering how much I need to keep back as a rainy day/back up fund. I love the idea of a guaranteed income that’s enough for me not to have to think too much about detailed budgeting (or worry about volatility in the markets). We dont do long haul flights, but you make a good point about possible health costs in future - that is certaintly something we dont want to underprovide for (care costs excepted). Also my DB pension is subject to capped indexation, so there is always the possibility inflation could erode that quite a bit (and I see SPs as an inflation hedge if that happens). One cant cover everything of course and I do feel blessed be in this position where choices are there. 

Enthusiasticsaver, it does sound like you are in a very good position with your DB income and SPs to be able to relax almost completely - as others have mentioned, there is always the option to save surplus income to bring your back up fund back up to a good level. You have a lot of scope there I think andnit wouldnt take too long.

NedS

I would view it similarly to when you were working - your current fixed income is essentially a replacement for your salary, and if anything is more secure as there is no risk of redundancy on retirement. So how large an emergency fund did you feel you needed when you were working?

Given that it is currently possible to get 4-5% on cash or near cash, I'd probably lean towards a slightly higher cash amount than I may have done a couple years ago when returns were zero. We currently have £5k each in Barclays Rainy Day Savers at 5% and I've been looking at 2 year gilts at ~4.5% and I see fixed rate accounts giving 4.5% for 1 or 2 year fixes. Although with inflation at 10% we are still accepting a 5% loss in real terms by holding cash.

Pensions_matter_2

Thats a very good way to look at it, thanks you (though on that basis Id be keeping only £10k cash!  Admittedly, when I was working I used to received (not guaranteed) yearly bonuses of fairly sizeable amounts, so always felt comfortable with a smallish emergency fund). All things considered, perhaps £50k is good enough amount, and we could always reign in expenditure if we needed to add to it. 

Workerdrone

Pensions_matter_2 said:

I suspect this has been asked before on the forum, but reading enthusiastic saver’s recent thread, Im wondering how much others think they need as a back up safety (cash) fund for emergencies, one offs, unknowns etc assuming one is lucky enough to have a DB pension which meets regular income requirements, with a little left over to cover smallish expenditure such as new white goods, minor repairs, etc. We  can happily live quite frugally, and I should be able to save much of my SP once it kicks in, so Im kind of thinking £50000 is more than enough. Appreciate very much depends on circumstances. With a new roof put on in last 5 years, and recent car purchase, I am not envisaging having any major expenses in the near to medium term. When it comes to possible care costs, I see the house as our fund for that. If not needed then children will inherit it.

 do hate the notion of having to buy a new roof. I will need one before we retire. It just seems like one of those least rewarding of purchases. I have a roof, I then spend £15-20k and I will have a slightly shinier roof. :-(

Pensions_matter_2

I’m with you on that Workerdrone. I had to grit my teeth over that one - total cost £14k, but would probably be £20k if Id waited till now. Its one of these essentials you cant keep ignoring, painful though it may be to let go of the funds.