"Emergency Fund" in Retirement - How much?

Sea_Shell

Thanks for all the comments so far.

There is no "drawdown pot" in this scenario.

Other than the house/car, Jim has no other assets other than these savings.

Qyburn

In Jim's shoes then personally I'd want at least £50k as emergency fund. 

But some depends on what you call an emergency and how it would affect you. For example the car dies, Jim could do without until next year when he'll have £5k to pay for it. Or he might not be able to wait, or settle for anything less than a main agent approved used car.

NoMore

Good point by Qyburn, what is Jim's 'emergency fund' for ? As can be seen by this thread already, I don't think people have the same ideas on what exactly a emergency fund is for. Nobody is right or wrong of course. The whole point, I think, of an emergency fund is to allow you to sleep at night without having to worry about if something goes wrong leading to a financial cost that you can't deal with. If that require' s 400k for one person and 20k for another, then that is the right amount for each of them.

Sea_Shell

NoMore said:

Good point by Qyburn, what is Jim's 'emergency fund' for ? As can be seen by this thread already, I don't think people have the same ideas on what exactly a emergency fund is for. Nobody is right or wrong of course. The whole point, I think, of an emergency fund is to allow you to sleep at night without having to worry about if something goes wrong leading to a financial cost that you can't deal with. If that require' s 400k for one person and 20k for another, then that is the right amount for each of them.

This ...

I think I've muddied the waters by using the term "emergency".   (I didn't know what else to call it)

It's just a pot of money that gives you warm and fuzzies and let's you sleep soundly.

Without which you may have to resort to credit, finance or equity release !!

Linton

For people who are still working the main reason for a 6 month emergency fund is to cover losing their job. If you are retired you won’t lose your job but that does not mean you can live on a hand to mouth basis.  You need cover for large one off emergencies. Perhaps as a minimum £5k may be sufficient.

Large discretionary purchases are a different problem though possibly with the same solution, a significant near to cash pot. We have about £80k held for that purpose as it enables us to do whatever we want whenever we want.

So at the moment with £100k Jim  is in a good position. He can take a fairly expensive holiday every few years or buy a car without too much worry. In that position I would certainly not give £60k to the 3 kids. £20k would probably not be a life changing amount, assuming that they had reasonable jobs. The effect on Jim of reducing his long term expenditure flexibility for the rest of his life would be far greater than any real benefit to the kids.

GazzaBloom

Sea_Shell said:

NoMore said:

Good point by Qyburn, what is Jim's 'emergency fund' for ? As can be seen by this thread already, I don't think people have the same ideas on what exactly a emergency fund is for. Nobody is right or wrong of course. The whole point, I think, of an emergency fund is to allow you to sleep at night without having to worry about if something goes wrong leading to a financial cost that you can't deal with. If that require' s 400k for one person and 20k for another, then that is the right amount for each of them.

This ...

I think I've muddied the waters by using the term "emergency".   (I didn't know what else to call it)

It's just a pot of money that gives you warm and fuzzies and let's you sleep soundly.

Without which you may have to resort to credit, finance or equity release !!

That makes sense.

For me it is £20K "emergency fund" which is to cover genuine unexpected household emergencies that insurance may not cover. 

Plus 1 years worth of retirement expenses as wrapped cash which is sleep at night money

Qyburn

GazzaBloom said:

For me it is £20K "emergency fund" which is to cover genuine unexpected household emergencies that insurance may not cover. 

Plus 1 years worth of retirement expenses as wrapped cash which is sleep at night money

I'm aiming for a buffer of three times our annual DC drawdown. Which is about the same as one year's total income, as 70% is covered by SP and DB. That buffer is to deal with the "emergency" of poor investment returns, so doesn't have to be instant access. I'm not sure in my head whether I should keep the separate from the sort of emergency fund being referred to, or whether the functions can be combined.

Also consider how much of the fund needs to be cash. In a true emergency how bad would it be for example to cash in investments at a loss for that special occasion?

GazzaBloom

Qyburn said:

GazzaBloom said:

For me it is £20K "emergency fund" which is to cover genuine unexpected household emergencies that insurance may not cover. 

Plus 1 years worth of retirement expenses as wrapped cash which is sleep at night money

I'm aiming for a buffer of three times our annual DC drawdown. Which is about the same as one year's total income, as 70% is covered by SP and DB. That buffer is to deal with the "emergency" of poor investment returns, so doesn't have to be instant access. I'm not sure in my head whether I should keep the separate from the sort of emergency fund being referred to, or whether the functions can be combined.

Also consider how much of the fund needs to be cash. In a true emergency how bad would it be for example to cash in investments at a loss for that special occasion?

My numbers exclude poor market return buffer. It's simply the bottom line I won't feel comfortable going below.

The full cash/MMF buffer will be £20K emergency fund plus 3 years DC drawdown cash buffer. I plan to cycle through 2 years of the cash buffer routinely and hope to top up from risk on investments annually. If we have depleted the 2 years cash buffer and are eating into year 3 in an extended downturn before our SPs kick in then I guess that's an amber light flashing and Nytol my be required...

Sea_Shell

Assume Jim is all in cash, so isn't concerned with poor investment returns.

westv

Is the "gifting" a separate question??