I mean things are pretty dire, and I was too young for 2008. I have zero idea how much financial padding I need to survive. 12 months of expenses? 24? Some people are even saying 3+ years – although that’s probably overkill.
I do have a reasonable income enough to sustain a baseline lifestyle but you never know in this economy. Job security is 0.
Anyway curious to hear everyone’s thoughts/experiences.
Realistically, how much do we need to have saved to survive the downturn?
byu/comoma inpersonalfinance
Posted by comoma
4 Comments
You want enough in savings to cover a job loss so if you have no job security and your industry is quick to shed jobs in a downturn you need more of a cushion than if you are in a less volatile industry.
> Some people are even saying 3+ years – although that’s probably overkill.
When you are retired you should have about 3 years in cash or cash equivalents to weather a downturn so you don’t have to sell equities until the market recovers.
The higher you believe the risk is of losing your job, the higher you want your emergency fund to be.
3 years is insane, and you are losing out on investments earnings long term by keeping that much money out of the market.
Don’t panic for the sake of panicking.
One of the reasons things were so bad in 2008 was that mortgage lenders lent to folks who could not afford their mortgages in the best of times. So they had no emergency funds. Houses starting going for sale about six months to two years into the crisis in my neighborhood. I just stick with six months but I’m over 55 and could feasibly do Rule of 55. Would be pretty bleak for me though – hard to get another role in tech at this age though I do have good skills.
It depends on your income security, honestly, and how much you’re willing to sacrifice in a loss of income event. If you work in a really volatile market that it would be difficult to get another job in right now (for example, tech), the recommendation is at least 12 months. However, we’re seeing people out of work in their preferred field for over that, so that’s kinda just a gut call.
If you work in a relatively stable field that’s easier to find a job in/has a lot of openings (like teaching), you could probably get by with anywhere from 3-6 months of an emergency fund. Or, if you’re willing to take a lower wage, non-preferred job to supplement your savings (though these are getting harder to find). It’s really just a personal call and a gamble, at the end of the day.