We are 10 years out from retirement. Our emergency fund is about 2 months of current expenses in cash.
This is way too risky for a lot of people. It's okay for us because
a) it covers the deductibles for insurance
b) There's plenty of fluff in our budget. We have no debt except the mortgage, and I could cut out 35-50% of our non-mortgage monthly expenses tomorrow if I had to.
c) Our income streams are diverse.
*I'm the primary breadwinner. I'm currently contracting, but I'm confident enough in my skills that I could find another job within 4-6 months, even in a down market.
*My husband is in college. He has an internship that brings in 20% of our non-mortgage expenses , and he could easily go back to work for his old boss (as a mechanic) in the evenings and bring in another 10%. (For a total of 30% of our non-mortgage expenses)
*I deliberately planned my mortgage to be the same amount as the child support I receive, and the mortgage will be paid off the same month youngest kid turns 18. My ex's job is extremely stable, so I'm not concerned that he will miss a payment.
d) We have other forms of savings we COULD access.
*There's an additional month in another savings account that I have earmarked for the kids' coverdell ESAs next year; I could rely on that if it were needed.
*We also have $80k invested in a taxable account. I can pull that money out in a few days if I had to. Worst-case scenario, the market crashes and we're down to about 50% of the total. We can live on that for at least a year, at our current spending levels, with H's job and child support. I've also pulled money out of this account to deal with an unexpected catastrophic plumbing issue; it surprised the company that I paid the $10k outright rather than finance it.
My friends have an emergency fund of at least a year in cash, even though their jobs are more secure than mine. That makes them feel more secure.