Emergency Savings

[Anonymous]

I am a single 10-year federal employee. For various reasons, I have not built up any substantial emergency savings until the last few years. I now have about 4 months of household expenses saved. I was going to save up enough to cover 6 months of expenses (25K), but then, when thinking about it, I realize I am in a career where the likelihood of being laid off is pretty low. It also seems like I could get a greater return on investment elsewhere (stocks).

What would you recommend? Should I save for another year and build up a 6-month cushion, or should I stop at 4 months and put my money elsewhere after that?
I do save for DC's college fund ($200/month) as well as retirement (7%).

[Anonymous]

Emergency fund is not just for unemployment. It is also for medical expenses, emergency repairs, or even all of the above should they happen at the same time. I'm a federal employee and my goal is 8 months. I'm at about 6 right now. It is an elusive goal.

[Anonymous]

Anonymous wrote:Emergency fund is not just for unemployment. It is also for medical expenses, emergency repairs, or even all of the above should they happen at the same time. I'm a federal employee and my goal is 8 months. I'm at about 6 right now. It is an elusive goal.

Right. And feds don't get disability insurance. Youre leave runs out, no income.

[Anonymous]

I'm at 1 year of expenses right now, which feels great. I would recommend building up to 6 months and go from there

[Anonymous]

I disagree a bit. With 4 months saved in a relatively secure job, you need to save more than 7% for retirement. FERS is a blessing but it is NOT enough to live off and who knows what SS will pay decades from now.

[Anonymous]

I'm so envious of all of you. We had a really nice amount of savings, and then we used it when my mom got really sick. Thankfully, she is OK now, but I took unpaid leave (I already had exhausted leave from the birth of our second child). As our kids have gotten older, our expenses are greater, and it is really hard for us to build it up again. All that is to say is build it up to six months and then hope you don't need it for any reason. You just never know.

[Anonymous]

This is where I don't know what to do....

As mentioned, I save 7% of my salary. With the matching, that's 12% of my annual salary that goes into retirement. I do the TSP projections, and I'm on track to have over $1M in my account by the time I reach 30 years of service (57 years of age), as long as I get 7% returns on average...

Between my TSP, my FERS pension, and some SS money, I figure, as a single, I am doing pretty good. I also know I am going to inherit some money down the road (500K minimum), which will help as well. I don't live an extrvagent lifestyle.

So what do I do with my money? Do I really need to save up 6 months with a super secure job? Do I invest it elsewhere? Do I really need to add more to my retirement, given my circumstances? More into DC's college savings? Or do I just enjoy it?

[Anonymous]

I would put some money into i-bonds-- gets you 1% right now, plus the rate goes up in inflation goes up, and interest is all tax-deferred (and possibly tax exempt if you use it for education expenses). Only downside is that you can't get the money back for the first year (and a small penalty for the first 5 years).

Otherwise, I'd put it into TSP to get yourself up to 10%/15% total.

[Anonymous]

I'd save 6 months- as a single parent, you never know what money you might need. If something happens, and you need unpaid leave, you have no partner to back you up.

Do you have funds earmarked for other areas? Like braces, or other big ticket items?

Then, I'd put more into retirement, to max it out. Once you've started hitting max, then I'd beef up college. $200/mo isn't a lot.

[Anonymous]

Create a separate fund for future goals - new car, home/home remodel, etc. Buying a car for cash is a truly liberating experience.
Then set up some mutual fund accounts and start investing just for the heck of it.

[Anonymous]

Yeah- big ticket items, health-wise, are covered. Have an HSA with a few thousand in it.

Car- I just purchased a gently used car last year. Didn't pay in cash, but payments are reasonable and interest on the loan is low (under 2%).

Home- I rent- paying below market rates for a close-in location in a good school district and only a 15 minute commute. Good arrangement with landlord, and no plans to sell it on the horizon. Could buy, but have a hard time wanting to pay 350K-400K, minimum, for a small, 1000 square foot 2-bedroom condo, which would also add another $500-700/month or more in expenses between the mortgage, upkeep, taxes, and homeowner fees. Plus I hate the idea of having to deal with any issues that comes up; in my current arrangement, if the water pipes break or the A/C unit dies it's not my problem to fix. So don't plan to buy unless I get married or move out of the area.

College- on track to have about $50K by the time DC leaves for collge. Pushing for a state school since I made the mistake of going to a private university and have the loans to show for it. Figure between my 529 savings, loans (DC's), student-work and maybe a scholarship or grant, am okay there too. My parents have been adding about the same to a 529 as well for DC, which will help. Of course, have no idea what a state school costs these days, but figuring 15K/year?

Guess I could always put more into retirement, or just invest; hate the idea of just tying up almost all my savings in only a retirement account. I just don't know much about investing in mutual funds, but I guess I could read a little up on it first. But since I'm not hurting, I suppose I should beef up my emergency savings first. To get to six months should only take another year or less. Just doesn't seem right to have a lot of money sitting around and making little to no return right now, especially with the interest rates being so low and the stock market doing so well.

[Anonymous]

I would not keep any more in cash beyond 4 months in your situation. I would invest in vanguard total market or some such. It will still be pretty liquid and is likely to earn a higher return. Worst case scenario value would fall somewhat at a time you would need to access it but that wouldn't be the end of the world.

[Anonymous]

I am also a single parent and a fed, and I have to say I try for 6 months in savings, because we don't have short-term disability. It really isn't that unusual for people to need it, and it is a big deal not to have it (unless you have a very large pool of sick leave, which many feds consider their STD policy.) You can also keep a smaller amount in actual cash/savings, and move part of that into a slightly higher-yield money market or something, so its doing a little better than just sitting there.
I also contribute the max I can to TSP, because I like the idea of having a well-funded retirement. I also don't assume I will stay with the feds my entire career, so I know my pension piece might not grow fully.

[Anonymous]

We had more than a year of savings, and needed it all when DH got laid off and could not find another job for a year and a half...

DH is not a Fed, but I would err on the side of caution.

[Anonymous]

OP here: My plan is so stay with a federal career my entire career. I enjoy public service and it has been a fulfilling career for me for the most part. My father has also made it his career, and set a great example for me in that aspect. So I do plan to have the pension piece, and will retire between ages 57-60 (30-33 years of service). So that does factor into my retirement planning to an extent. The health insurance component of it is also an attractive benefit...

In my entire time with the federal govt., (10 years) I have not seen one person laid off. Demoted, yes. Fired, no. My father has seen a handful of people fired, but again, not let go. So I feel fairly confident, short of mass RIFs, that my job is fairly stable, so I am not so worried about having cash in case I am laid off. Is it possible I could be fired? Sure. But I would have to massively screw up somehow for that to happen.

The STD does component does concern me. I do have some leave banked, but know I could add more as it accumulates. I've never been majorly sick, nor has DC (knock on wood). But maybe that makes a strong case to grow my emergency savings to 6 month in case of some medical emergency, then start adding more to my TSP. I know that the monthly contribution I put into emergency savings now would pretty much equal the monthly portion I would need to add to my TSP contributions to reach the yearly max.

But I do like the idea of adding a vangard fund to supplement my emergency savings, since it is fairly liquid. I just hate that my savings sitting somewhere and actually losing value since it's not keeping with inflation. I get the point of needing emergency savings, I just want to make the money work for me if I can.