Is a one year emergency fund too much?

[Allen]

The average job replacement is now supposed to take something like 9 months.  I can't imagine it would ever take me that long to find a job, but who knows.  It might.  And I might not fully replace my income.

As a Mustachian, I also have a lower monthly expenses than a typical family, so a '1 year emergency fund' is not as big in dollar terms as, say, '1 year salary'.

So, would it be obscene to have a $30k emergency fund in a boring money market, sitting doing NOTHING "just in case" ?

[4alpacas]

It depends on the situation. Are you the only wage earner?  Do you have easy access to credit?  Could you sell off some investments to come up with the money in a reasonable time frame. Do you have a mortgage? Car payments?

[Allen]

Good questions.

In my hypothetical scenario, when I would plan to do this, I would be the sole wage earner, easy access to credit (excellent scores) although actually GETTING a loan when you are suddenly unemployed may be more tricky, my investments would be mostly tied up in taxable accounts 401k/IRA with very little Roth/Taxable accounts to access, and I would have no debt except a mortgage payment that I was aggressively paying down.

I would also be able 7 years away from planned early retirement.  This scenario should be me in about 5 years.

[phred]

those who follow the Permanent Portfolio would see nothing wrong in having 30k in cash or near cash if that is 25% of their PP portfolio
Having said that, if job hunt takes 1 1/2 years how will you be doing?

[Another Reader]

Would you be able to collect unemployment insurance?  That would soften the blow.

Retired folks often keep three years of withdrawals in cash and other fairly liquid investments, such as CD's.  This prevents draw down of assets in a declining market.  In your shoes, I would want to something similar.  I would consider the likely period of unemployment, the contribution of unemployment, plus the contribution of income from side jobs and investments.  Figure out the likely shortfall and add in a safety cushion.  Since you would not need all of the money at once, some laddered CD's might improve your cash returns slightly.

I would not rely on credit.  In 2008-2009, many people had equity lines, personal lines, and credit cards cancelled or the limits were reduced substantially.  As you point out, credit availability can be severely restricted just when you need it.

[4alpacas]

As the sole wage earner, I would definitely be MUCH more conservative with my emergency fund.

If you have minimal money outside of retirement accounts, this would also signal to me that I need to have a larger than usual EF.

I asked about the mortgage because a house limits mobility and job options.


If I were in your shoes, I would have a very large EF, especially if you work in an unstable job.
 

[aj_yooper]

Assuming you are going to FIRE in 5 years, with very little in taxable, I would think of your EF as a means to fund your retirement, assuming you don't have rentals, pensions, or other money to draw on.  In that case you might want to lay up even more as it takes time to convert 401k money to Roths.

[Khan]

I don't have much of an emergency fund, and I'm not wholly supportive of them. IMO, having -assets- that cover your needs of any form is desirable, whether it's cash or equities. If you truly desire some peace of mind, maybe some laddered CD's are in order.

But having >10k in money market earning <1%.... why? Do you really think an emergency is that likely, that a need for that is that great?