I recently began including another step in my financial plans.
Previously, I always discussed with clients the wisdom of having 3 to 6 month’s worth of expenses in cash reserves. That is still an integral part of any financial plan.
More recently, what I realized is that after ceasing work, each blueprint needs a way to replenish reserves as they get spent down due to unforeseen expenses or emergencies. In other words, we can’t say that the need to save money stops at retirement.
So now, when we review annual expenses, we also include an amount to replenish cash reserves.
The amount to assume for replenishment can vary by circumstance and client, but I think $3,000 – $5,000 per year is a good goal. In this way, and emergency reserve of $20,000 can be replenished every 4-7 years. If you’re like most people, Murphy (of Murphy’s Law) will definitely come to visit you during that time period.
So if you’re familiar with the “Buckets Approach” to retirement planning, in addition to the other buckets we allocate a portion of our money to the short-term liquidity needed for goals and emergencies (A Liquidity Bucket), and also portion of money to predictably cover the income gap between predictable retirement income and regular retirement expenses (An Income Bucket).
You have a plan to replenish your reserves?
If you have any questions please feel free to contact me
