How big of an emergency fund should you have? Strive to have one with up to three months’ worth of expenses. Image: Ariya J/Shutterstock.com
By: John GrobeYou should have money set aside for emergencies, even if your main goal is funding your retirement. Having a readily available emergency fund can keep you from drawing on your Thrift Savings Plan or other assets if (when) you are faced with a financial emergency. In previous articles, I’ve lectured (some might say hectored) readers on how important it is to be prepared for the slings and arrows of outrageous fortune, so I will spare you a re-run.
A recent survey by the Employee Benefits Research Institute (EBRI) found that almost half of the participants responded that not having enough money to cover emergencies was one of the top reasons for their financial stress.
In fact, it was the most reported source of financial stress. You might be interested in other reported financial stressors.
Here, in descending order, are the sources of financial stress identified by the respondents to EBRI’s survey.
• Having savings in case of an emergency 47%
• Paying monthly bills 45%
• Saving enough for retirement 45%
• Debt (excluding student loans) 37%
• Job and/or income security 31%
• Paying for medical care 23%
• College costs 13%
• Student loan debt 13%
• Financially supporting a loved one 10%
• Childcare expenses 07%
• Caregiving costs 07%
How many of these financial stressors do you have? As a federal or uniformed service employee or retiree, probably not as many as the survey respondents did.
The survey also found that 40% of respondents said they could handle an emergency expense of $500, while only 20% could handle an emergency expense of $5,000.
SECURE 2.0 allows employers to provide workers who participate in defined contribution plans (such as the TSP) a special Roth account that can be tapped for emergencies. We will see if the TSP chooses to offer such an account in the future.
For the time being, if you’re concerned about emergency savings, start setting some aside – even if it means cutting back some on other savings. After all, if there’s no emergency, the savings can be used for other purposes later on.
You can still get decent returns on FDIC insured savings accounts. A March 27th search on bankrate.com found FDIC insured accounts paying up to 5.25% with no minimum balance – that’s better than the G Fund’s 2023 return, and probably better than it will return in 2024.
How big of an emergency fund should you have? Strive to have one with up to three months’ worth of expenses.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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