EF Question

[FrugalIII]

I know everyone recommends a 6 or 12 month EF these days. I have a defined benefit pension that I recieve each month, guaranteed. I also work full time. If I lost my job, I'd still have my pension coming in each month. I have no cc debt, a small car loan and a HELOC. My total living expenses are easily covered by my pension. So, should I still have such a large EF?

[disneysteve]

If there is no possibility that the pension could be reduced or stopped, a large EF isn't necessary. I would still keep a small cash reserve just to cover something unexpected like a car repair, home repair, etc.

[swanson719]

As steve said, there has to be no possibility of the pension going away. If it's paid from the auto-industry, I would consider it gone, but if it's from the government, then it's about 99% secure. Either way, you still probably want enough to cover your insurance deductibles, and the difference between what your insurance would pick up and what you would need in realty. Like if you got hit with a natural disaster and your insurance covers the cost of replacing the home and the contents, but not the hotel or rent while the house is being rebuilt. Or if your car got stolen and your insurance doesn't cover a rental in between. You get the point.

Basically, in your situation, an EF is more a security blanket than an emergency fund. You could drop the EF down to as little as your comfortable with, or beef it up to as much as you could possibly need. There's nothing to say you won't use all of a $3,000 EF, or a $25,000 EF if the emergency was big enough.

[snafu]

I suggest you check the terms and conditions of your pension plan. You need to know what age & years of service combination makes you eligible to collect. 2nd it helps to know the rules for income splitting which may allow you retain more of your $$$.

[maat55]

I would not trust your pension and keep at least a six month EF around. Better safe than sorry.

[FrugalIII]

My pension is a municipal government pension that I am confident is secure. I have been collecting it for 4 years now. The only thing the pension does not allow for is cost of living increases. I am 54 years old and plan to work somewhere for quite a few years yet. I also have about $70k in supplemental retirement money (457 & IRA), which as we all know is what's left after losing about 40% of it's last year's value. I want to do so home renovations and pay cash but don't want to short my EF doing so. I'm a pay as I go guy so I plan to do it slowly as I get the cash in reserve.