Thanks all for the great replies. I am still trying to get my head around the 4% rule to understand the practicalities and risks. But it makes sense to have good buffers to tide through tougher times.
The scariest part is coping with unplanned capital expenditure for me. I can cover my base expenses with relative ease. The thought of having to fix the house or buy a new car when not working is a bit frightening.
Ideally a small business/ income would be nice to have to keep some money coming in, apart from investment returns. Lots more to work through...mmmm
Right. Sooooo, if you fear you can't cover this yet, then you're not actually FI and you're not ready to RE. Things like a new roof or a replacement car are normal parts of life, and so you need to plan them into your budget so you have the cash when you need it. E.g., you look at your history and realize that you have historically bought a new (used) car every $10K, for about $20K. So you know you need to put away $2K/year (or maybe $2500 with inflation) to account for that.
Or, home repairs. You may only need a new roof once -- but there will be other stuff that you may need only once, too, like new windows, or more insulation, or whatever. I'd suggest estimating future expenses by looking at what you've spent over the past decade or so, and looking at what is nearing the end of its useful life. Then do the same math to put together an estimate.
Now, personally, I plan to get everything shipshape before I pull the plug, to make that capital outlay while I still have plenty of excess income and to avoid that big early expense. But even if I go into retirement with a new car, that doesn't mean that I can ignore the $2500/yr -- it just means that I *only* have to save $2500/yr, because I have the full 10 years to build that $25K back up before I will likely need a car again. If I were going into RE knowing I needed a new roof in 2-3 years, I'd need to have a big chunk of extra $ already in the 'stache to cover that.
[Note that I'm not actually going to have a separate car fund -- rather, I'm going to make sure that my 'stache can throw off the extra $2500/yr I will likely need for a car so that I can afford to pull that $ when I need it. This is just for illustration purposes -- you plan based on expected costs divided by frequency of recurrence]