I suspect some of the folks that responded didn't fully read my initial post. Surely some of the reply's suggest that not everyone read and contemplated the original post, but simply blew it off as noise. Disappointing, as I have given this lots of thought and consider it to be superior to most emergency fund techniques... balancing risk, cash value, liquidity, and inflation protection.
I did float the idea of investing most of your emergency fund! I noted that I consider tiers 3 and 4 to be part of the bond allocation within my portfolio. That leaves only 3-4 months in cash that I don't consider "invested", at least for me. Others may want to consider it as part of their cash holdings. This is an incredibly gray area and will vary substantially with each person and their risk profile.
Even so, there is a unique difference between my technique and the technique of those wanting to "invest" their emergency fund - even if 100% in bonds. The unique difference is that investment grade bonds are not guaranteed to hold their cash value. My technique ensures that the entire cash value is guaranteed by the US government; recall, preserving the principal is one of the stated goals of this emergency fund technique. The US defaulting on these investment vehicles is a risk, but it's so infinitesimally small that I consider it zero risk.
It is worth noting still that because I consider Tiers 3 and 4 to be part of my bond portfolio I may need to sell some stock someday to balance out my AA if I need to access these tiers. I'm okay with this, but others may not be and may want to consider it part of their "cash" holdings. Again, this is highly dependent on the investor and their risk tolerance.
Once you have accessible I-Bonds, who needs a "Tier 3?"
As for Tier 3. I expected this tier to get the most scrutiny as it does seem a bit strange, but let me offer up the following thoughts.
Tier 3, as you imply, is indeed an extension of Tier 4, with the additional bonus of not needing to go through the 1 year holding period. That 1 year hold can be long for an emergency fund. And because of the underrated nature of the I-bonds being anything from a short-term bond (1 year) to a long-term bond (30 years), I believe it best to only access -Tier 4 in the most dire of circumstances (job loss or medical emergency, predominately). You don't want to just get through the 1 year hold, and have to pull all of the money out just to put it all back in again the following month and need to wait another year.
In this way, Tier 3 is a bit of hedge in an attempt to not need the I-bonds, but to also back-fill Tiers 1 and 2 in relatively short order when smaller emergencies come up. Also, most mid-sized emergencies requiring Tier 3 can almost certainly have a negotiated payment period, allowing for the ladder to pay out and have the cash available. If no payment plan can be negotiated, I-bonds can still be used, giving 9 months of emergency funds. That's a hefty chuck of change for most people.
I'm certainly not going to fault someone for wanting to do something different with Tier 3, moving it to Tier 2 or 4 is pretty logical. Some will prefer a CD or Money Market fund, as I described earlier. Some may go as far as not having a tier 3 at all. I wanted to offer it up as part of the technique though, as I find it a good safety net for my needs, with a bit better yields, good liquidity, and state and local tax free.
Finally, I think I will follow up with a post that describes how to implement this technique, as I believe some of the comments about the
perceived complexity are justified. Perhaps this perceived complexity is due to the length of the original post? Perhaps it I should shorten it?