Author Topic: Where to park my conservative mom's $100k emergency fund?  (Read 5051 times)

mjb

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Where to park my conservative mom's $100k emergency fund?
« on: April 01, 2015, 09:26:17 AM »
My mom is a 63yo widow with a healthy (Texas municipal) pension and Social Security survivor benefits. She lives well below her means, so barring a disaster with her either source, she has no financial worries.

She also has a $100k emergency fund (~3 yrs expenses) in a typical, terrible savings account.

She wants the money accessible and safe (i.e. not invested) in case there's trouble with her pension/SS -- however, her family's usual life expectancy is 85 - 90 years, so the value of that cash will of course erode due to inflation if it stays in a savings account.

I have convinced her to at least move the money to Ally or another comparable bank -- Ally's money market account pays 0.85% and has check/debit card access, which is a big deal to her.

She's also open to the idea of putting at least some of that money into a CD ladder, which while not great, will gain her a little something extra over time.

Is there anything else I can do to help her protect the value of this fund without making her worry about risk?

Thanks!

I'm a red panda

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #1 on: April 01, 2015, 09:40:09 AM »
I'd go with laddered CDs.

You could also try to convince her that with inflation, NOT investing the money is risky. 
Maybe you could get her to invest half, and ladder CD the other half?  That's better than doing nothing.

mjb

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #2 on: April 01, 2015, 09:51:57 AM »
I'd go with laddered CDs.

You could also try to convince her that with inflation, NOT investing the money is risky. 
Maybe you could get her to invest half, and ladder CD the other half?  That's better than doing nothing.

Yeah, I think I'm going to have to ease her into the idea at all about investing. She's pretty financially literate, but also very conservative.

I thought about talking to her about putting a small amount of money into this fund and increasing the overall % over time: https://personal.vanguard.com/us/funds/snapshot?FundId=0723&FundIntExt=INT

Sibley

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #3 on: April 01, 2015, 10:12:42 AM »
Try keeping an amount in cash, laddering some in CDs, and getting her to invest in something low-risk with $10k or something. Then as she's more comfortable with the investing, you can move the cd's as they mature to investments.

As long as you can demonstrate to her that money is available if she needs it then she'd probably be willing to try it.

Drifterrider

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #4 on: April 01, 2015, 10:56:27 AM »
I would recommend your mother meet with an elder care attorney (they specialize) to discuss estate planning with an eye on creating a trust for herself.

Most people never plan on ending up in long term care and that can quickly consume all of your assets. 

dunhamjr

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #5 on: April 01, 2015, 01:16:32 PM »
i get that she is conservative.  and that she wants it liquid.  but how liquid is REALLY needed?

my mom is conservative.  and not really financially literate. so relies on my to help with the $$/investment decisions.
my mom basically does not have a 'cash' emergency fund.  she has a couple thousand in her checking/savings.  beyond that its all invested.

now with that said.  much of her investments are conservative, or at least less risky.
if she big needed money, i could pull a distribution at anytime, and have money in about 2 days.

i dont get then need to have instant access to $100k.  $10k... maybe even $20k if you are really worried about something and have HUGE expenses to fund monthly.
but beyond that i dont get why there is an issue holding money in an investment and having to wait 2-4 days for the sale and bank transfer to happen.

so far, i have never run into a situation where i needed huge sums of cash in such short amounts of time.
anything i need instance money for, i have CC's.  and i can just pull from investments and pay them off when its all said and done.

for my own scenario... even with two small children, primary home and a rental house... my cash accounts still hover around a max of about $15k, which is easily over 3 months of expenses.

mjb

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #6 on: April 01, 2015, 01:47:41 PM »
i dont get then need to have instant access to $100k.  $10k... maybe even $20k if you are really worried about something and have HUGE expenses to fund monthly.
but beyond that i dont get why there is an issue holding money in an investment and having to wait 2-4 days for the sale and bank transfer to happen.

I agree with you, but she is of course worried about market volatility. Having the cash readily accessible makes her comfortable.

Thanks for the replies, everyone. Once we moved her savings over to Ally and we deal with some other stuff, I'll see about getting her to talk to an elder care attorney.

nereo

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #7 on: April 01, 2015, 02:31:44 PM »
My mom is a 63yo widow with a healthy (Texas municipal) pension and Social Security survivor benefits. She lives well below her means, so barring a disaster with her either source, she has no financial worries.

She also has a $100k emergency fund (~3 yrs expenses) in a typical, terrible savings account.

She wants the money accessible and safe (i.e. not invested) in case there's trouble with her pension/SS ...

She's also open to the idea of putting at least some of that money into a CD ladder, which while not great, will gain her a little something extra over time.

She lives below her means, has more money than she needs, and wants to keep a large stash both liquid and non-volatile.
In this particular case I think you should do what she asks.  There are banks (TD for one) that will give you >1% on a savings account, and a CD ladder will get you slightly better results.  Eventually the Fed will raise rates and savings accounts might go back to 2-3%.

Yes, this is sub-optimal for earning the best returns.  Yes she's loosing out to inflation.  But she doesn't need the money to beat inflation, and at this point i think it's best for her piece of mind.

Periodically talk to her and see if she wouldn't be willing to go down to, say, $50k in savings.  But in the meantime, if she has enough to live off of for the rest of her life and she doesn't want the volatility, let it go.

MandyM

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Re: Where to park my conservative mom's $100k emergency fund?
« Reply #8 on: April 01, 2015, 03:06:07 PM »
My mom is a 63yo widow with a healthy (Texas municipal) pension and Social Security survivor benefits. She lives well below her means, so barring a disaster with her either source, she has no financial worries.

She also has a $100k emergency fund (~3 yrs expenses) in a typical, terrible savings account.

She wants the money accessible and safe (i.e. not invested) in case there's trouble with her pension/SS ...

She's also open to the idea of putting at least some of that money into a CD ladder, which while not great, will gain her a little something extra over time.

She lives below her means, has more money than she needs, and wants to keep a large stash both liquid and non-volatile.
In this particular case I think you should do what she asks.  There are banks (TD for one) that will give you >1% on a savings account, and a CD ladder will get you slightly better results.  Eventually the Fed will raise rates and savings accounts might go back to 2-3%.

Yes, this is sub-optimal for earning the best returns.  Yes she's loosing out to inflation.  But she doesn't need the money to beat inflation, and at this point i think it's best for her piece of mind.

Periodically talk to her and see if she wouldn't be willing to go down to, say, $50k in savings.  But in the meantime, if she has enough to live off of for the rest of her life and she doesn't want the volatility, let it go.

+1 to this. If she is amiable to a CD ladder, great.

What is her living situation? Does she own the house outright or have a mortgage? Paying off a mortgage may not be liquid, but its conservative. Maybe use a portion of the $100K or just start paying extra with any monthly savings.

In the end, I think you should remember that she doesn't need to accumulate additional wealth, she just needs to sustain. As you said, she has no financial worries, so don't create one by pressing this too much.

 

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