"Emergency Fund" in Retirement - How much?

Sea_Shell

Some of you may have read the thread about your "number" when planning retirement, but it got me thinking, what about the level of savings you would like to be able to hold, over and above your pension income, assuming that income is sufficient to meet all your day-to-day needs.

Do you have a "hard deck" in mind, below which you would try not to fall, and where possible keep a healthy balance in addition to your pensions?   10k, 20k, 1 yrs spending... how would you calculate it?

This could be for big ticket items, unforeseen repair costs, private medical treatment etc etc

Would this hard deck limit your gifting to family?     Or would you literally give family your last saved £?

Take the following example...

Jim has guaranteed pension (DB/SP) income of £30,000.   He crunched the numbers and calculated that his "number" is £25,000, so he is likely to have some "spare" at the end of each year.  He is a homeowner and runs a car.

He currently has other savings/investments of £100k.    He wants to gift £20k each to his two adult children, leaving him with £60k.   All good?  Plenty?

But, what if Jim only has £60k to begin with, and so the gifts would leave him with only £20k.  Enough?

Would it be short-sighted or foolish to leave yourself "short" in this way?

What would be your hard deck?   (assuming one has a decent pot of savings in the first place) - EDIT, assuming you were in Jim's position?   I'm not taking about FIRE size pots here.



For now, please ignore any other considerations of IHT, DOA, inflation etc etc.    I'm interested in knowing at what point you'd consider NOT gifting.

I look forward to hearing your thoughts.

SouthCoastBoy

400k for me. As I have no db provision other than state pension I think the emergency fund needs to be larger

Sea_Shell

SouthCoastBoy said:

400k for me. As I have no db provision other than state pension I think the emergency fund needs to be larger

But, I'm asking*, what if you were in "Jim's" position?    And you didn't have to worry about your savings pot to  provide your income.

 
* I've edited my post to make that clearer.    

NoMore

Usually an emergency fund is defined as three to six months of monthly expenditure to cover various emergencies, but that's also based on being able to cover no income for that amount of time (due to job loss for example), as Jim has DB/SP covering his desired income and more, there's no chance of loss of income for him (unless he dies) I don't see a problem with dropping to 20k 'emergency fund'. 

400ixl

Being left with only £20k of savings and only £5k per year in reserve is not really a big enough emergency fund if you are a home owner. There are lots of things that could wipe that out in one go.

You can't define a working emergency fund and a retirement emergency fund in the same way.

£60k left scenario would be my minimum in that scenario. At £20k the kids can wait and make their own way in life.

Pat38493

Zero?  I don't really see why you would need an emergency fund if you already have a cash bucket of 2 or more years for example.  Emergency funds are to cover short term cash flow issues - if you have high 6 figure sums in a pension DC funds, you are not going to have short term cash flow issues.

NoMore

400ixl said:

You can't define a working emergency fund and a retirement emergency fund in the same way.

In Jim's case why ? If he was still working and had a job paying 30k, with 25k expenditure and 20k emergency fund (so that's nearly 10 months expenditure), why is that any different to his retirement situation. Do emergencies cost more or happen more often because your retired ?

I can understand if there is no guaranteed income, its different but that's not Jim's scenario.

GazzaBloom

I would say Jim's £60K is plenty.

Personally, for our retirement in 2025, I'm thinking £20K bank account held cash as an emergency fund plus 1 years retirement drawdown expenses of around £30K held as pension wrapped cash as a buffer will be our "hard deck".

We will start retirement with the £20K emergency fund cash plus the first 3 years living expenses (excluding what a DB pension provides) held as cash/MMF with 2 years of that planned to be cycled through and topped up/rebalanced from equity growth as we roll through retirement.

I recall Dave Ramsey's Baby Step 7: "Build wealth and give generously"

quirkydeptless

My plan going into retirement was to have 3 years of my living costs as cash, but I currently have 4 with 1 year in easy access.

I don't think of it as an emergency fund, but with that much of a cash balance, the plan was to replenish it by selling my bond investments as needed. However these took a beating, so I might sell something else should the need arise. 

Either way, I have options to cover most of the worst as long as there aren't too many black squirrels events

handful

I would say in Jim's position £60k would be plenty. If he was drawing down £30k from a DC pot then he would most likely need to keep the £100k for 3 years buffer in case of a crash and a bit extra for emergencies.

LHW99

For me, £60k probably wouldn't be enough, because I could see a large bill using up a significant amount what would take quite a few years to replace. But I think that's more to do with my personality than actually what might be necessary.

So what's Jim's personality? Has he always been easy come - easy go, or has he known years on the breadline and struggled to build up what he has?