Curious what other military folks over 20 years are doing for emergency funds.
For most of my career I’ve maintained around a 6 month emergency fund, but now that I’m over 20 years active duty and much closer to retirement eligibility, I’m starting to rethink that number a bit.
My thought process is that once I retire, I’ll immediately begin drawing my pension, so the “income cliff” risk feels a lot different now than it did earlier in my career. Because of that, I’m debating whether it makes sense to reduce the size of my emergency fund and instead direct more money toward investing (likely Roth TSP and/or taxable brokerage).
For those in a similar position:
– Did you reduce your emergency fund once your pension became more “real”?
– If so, how much do you keep liquid now?
– Did you shift the difference into TSP/retirement accounts or taxable investments?
– Any regrets either way?
Trying to balance liquidity/security vs opportunity cost of too much cash sitting idle.
20+ Years In — Did You Reduce Your Emergency Fund?
byu/curiosity98765 inMilitaryFinance
Posted by curiosity98765
5 Comments
Things to think about first, you will not immediately begin drawing pension I have heard anywhere from 1-3 months before retirement pay starts taking effect. As well your last paycheck get held up for an audit so does not hit your account immediately.
Have you not been maxing your IRA/TSP?
– Did you reduce your emergency fund once your pension became more “real”?
Not really, but then again I never really kept a large emergency fund to begin with. This doesn’t work for most people but I would rather lose money in an investment rather than watch that money sit in a savings account earning 1%-5%. Most of my military career (and adult life) even high yield savings accounts were paying less than 2%. Today, I’m getting mid- to high 3%, down from 5%+ a couple of years ago. Forget that. I hate it. Keeping a large amount of cash is a sure fire way to underperform (when you factor in what they money could have earned if it was invested). Again, not smart for the masses, but I’m comfortable with this level of “risk.”
– If so, how much do you keep liquid now?
The same one or two months. Usually about a month. There’s always the Roth IRA contribution money (that would be over a year of expenses), but I haven’t ever needed to touch that.
– Did you shift the difference into TSP/retirement accounts or taxable investments?
Yes, I shifted that money into a brokerage account.
– Any regrets either way?
Not with the amount I kept in an emergency fund. My biggest regret (this advice is really good for higher savers) is saving too much in my TSP and not enough in my brokerage. I wish my brokerage account was $100K-$200K when I retired.
Your logic makes sense from the perspective of living expenses – 6 months with a pension is not the same as without.
However… To answer…No, but I’m a FAO and we generally have the risk of ordered departure which is currently running me 10k+ a month thanks to epic fury. And dfas is 5+ weeks backlogged on claims.
But I’ve also added more cash in general and we don’t do months of living expenses. We’re prepping for the final assignment at a spot worth buying and will likely go cash or a sizeable down payment.
I’m over 20 as well, but maintain a 6 month EF. However, I don’t necessarily use it strictly for emergencies. I’ve dipped into for car down-payments, a new roof, some significant HVAC work, etc. etc. Once I dipped in, I focused on getting it back to my 6 month benchmark (budgeted tighter, dropped TSP a little, etc. etc.). Don’t know it this is the most prudent strategy but it’s worked very well for me over the last decade or so.