"Emergency Fund" in Retirement - How much?

QrizB

Sea_Shell said:

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.
...
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.

That's a good question and there have already been some thought-provoking replies!

I'd go with one year's spending, £25k. I would expect that to be enough to let Jim replace his csar, his boiler and his white/black goods simultaneously in one year, if such an annus horribilis was to occur.

On the other hand, if Jim's private pension was a DC fund in drawdown rather than a DB scheme, he might not need an emergency fund at all (other than the month-to-month float in his current account). With a £25k pa spending need, he could draw an extra £25k from a DC pot without becoming a HR taxpayer.

Albermarle

I'd go with one year's spending, £25k. I would expect that to be enough to let Jim replace his csar, his boiler and his white/black goods simultaneously in one year, if such an annus horribilis was to occur.

Don't forget in a few years time, you will not be able to have a new boiler, but will have to have a heat pump probably.

Cost will vary but even with the Govt grant, I think you need to put aside more than the £2k/£3K for a new gas boiler. Plus buying an EV maybe .

barnstar2077

Sea_Shell said:

barnstar2077 said:

My plan is to retire with £30k invested, or at least in high interest accounts.  Hopefully then, when I need a new boiler, etc, I should be able to buy one while not reducing my £30k too much.  Which will then start growing again until I need something else.  It will only be used for larger items, never for month to month expenses.  I don't see the point in keeping the money in cash, or something "safe" that won't be keeping up with inflation, nevermind generating free boiler replacements personally. 

So you wouldn't gift to leave yourself below that level?

How serious would family's need be, for you to give them some (all) of your £30k ? 

These are not easy questions, and would depend on who needed the money, why, and also my age at the time.

I can't readily think of a reason why I would give a relative, or anyone, money out of my emergency fund if I had only just retired tbh.

Most of my family wouldn't need it, and the ones that would benefit are only in that position because they have made the choice themselves to spend and never save.  So I wouldn't give them the money I have sacrificed for while they have lived their life without any thought to the consequences of their actions.

If on the other hand I was 81 and my then 79 year old sister's house burnt down and she asked me for a couple of grand to help her out until the insurance came through then I would give her five grand, tell her there is more if she needs it and that I would be insulted if she paid it back.  You can't take it with you after all.

Also, if I had far in excess of that £30k then I wouldn't hesitate to help my nieces and nephews with house deposits also (especially if they were really putting the effort in to save the money too themselves.)

It definitely is not a simple matter though.

marycanary

I don't know what "hard deck" means but £60k is a figure I won't want to go below unless it is spent on care or support.  I do have other savings for GC and for cars, holidays, home improvements etc. I tend to think in years - money needed for years 1-5, 5-10, 10 - 20 & 20 plus. At least £60k is allocated for years 20 plus.

If £60k was my total capital I would save from the combined DB &SP pension. So would spend less on holidays, hobbies etc.

None of this comes with a guarantee, although I have these "buckets" I am flexible - "woman plans and God laughs." 

quirkydeptless

marycanary said:

I don't know what "hard deck" means

Hard deck - In air combat training, the minimum allowed altitude below which the aircraft is considered destroyed by ground impact.

I only know it because of Top Gun

https://www.youtube.com/watch?v=mNTmQhivfDk

theoretica

As implied above - the question of the degree of other people's need or wants would also be very significant.  Is their life about to crash and burn because of an unforeseen disaster? Would a gift allow something life changing, like a particular qualification? Or would they just be a bit more comfortable with the cash now rather than inherited later?  Some things I would be more willing to reduce the comfort of having reserves for than others!

Nebulous2

Our situation has a bit in common with Jim's. We will be better off than Jim when state pensions kick in. We relocated and ended up with capital to save / invest. We had expected to spend quite a bit of it to fund us to SP age, and it now looks as though that won't be needed, certainly not to the extent we had planned.

At some point we will have to move again, possibly to a bungalow, which could swallow up quite a bit of the money. So while we don't have a hard deck as such, we certainly have a reluctance to divest the money with unknown needs ahead. 

Our family don't have any pressing needs that would be helped by gifting. 

cloud_dog

Sea_Shell said:

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.

We are likely to be in this position, with DB/SP funding a good proportion of our post SP age income, however I see your question in two distinct parts which would necessitate different answers (well the same, but that is down to the wording of the question)...

Would this hard deck limit your gifting to family?..... Yes.

Or would you literally give family your last saved £?..... IF necessary yes.  Obviously dependant on the situation, but I am reading this to mean an emergency for them as opposed to us simply gifting money.