Do we need an EF? ***UPDATE post 61***

[Formerly SK]

DH and I were talking last night about financial goals.  We are getting some smallish bonuses this year (total 5-8K) and we were discussing what to do with it.  DH was proposing 401k.  I was thinking EF since we don't really have one and "everybody" says you should have 3-6 months expenses saved in a liquid form.  DH didn't see the point of an EF, and I had a hard time formulating an argument for it given our situation.  Nuts and bolts: he makes about 110K/yr.  We do the standard 15% (including match) to retirement, minimal amount (IMO) to college, some car/HELOC debt but all <3% so I don't care about it too much.  Mortgage is at 3.125% and will be paid off when we're 65.  We've had a 1K "emergency fund" for about a decade, but have never really used it.  When something comes up (broken appliance or whatever) we've been able to cash flow it.  Weird but true.  HELOC was from a 23K siding job and owe 10K - it should be paid off in 2015.  Owe 8K on car.

The biggie emergencies where a sizable EF would be needed are job loss or some sort of accident where DH would become disabled.  In the case of a job loss, we own about 50K in private company stock that they'd have to buy back if he left.  So, it seems to be a sort of EF in that case.  If DH were to become permanently disabled, he'd get LT disability at 60% of wages.  This would be tax free, so probably really a 80% benefit.  He also has 500 hours of sick time banked, so a short term disability wouldn't be a huge financial hit either.

At this point, every additional dollar he or I earn (I have a small PT job) is taxed at the effective 25% rate.  DH also pays 8% in state taxes.   So, putting all extra money in his 401k has an immediate 33% return.  That's his argument.  I totally see his point, but it seems weird to not save 40K or so in something liquid for an emergency.  I also worry about tax diversification at retirement and think about starting IRAs, but again, there's that immediate 33% tax savings by putting everything in the 401k.  We could always put the extra money towards debt, but the rates are so low.  I plan to get a FT job in a year (hopefully) and that would go towards college savings mostly. 

We're 40 and 41. 

Thoughts?

[buystoys]

Do you have Roth accounts for each of you? 

A Roth account has a lot of benefits if either of you wants to retire early and the growth is tax free.

[The Walk of the Penguin Mich]

If DH were to become permanently disabled, he'd get LT disability at 60% of wages. This would be tax free, so probably really a 80% benefit. He also has 500 hours of sick time banked, so a short term disability wouldn't be a huge financial hit either.

This is where you need it.  When I got sick, I had 10 weeks of sick time banked (so 400 hours).  I had hoped that I was going to be able to get back to work and eliminate the need for taking long term disability.  When my second hip came up infected, it changed the game entirely.

For me, it took 6-8 weeks for my LTD to come (and it was faster than normal for me, 3-4 months is more normal), so I was able to pay bills out of my savings account after my paycheck stopped and my disability checks started.  The one thing you might want to check is to whether SSDI offsets your LTD policy.  Apparently this is not uncommon, especially in employer provided policies.  Unless you are paying the premiums, it IS taxable.  I had a supplemental policy (for an additional 10%) and the supplemental policy I had was the only one that was not taxable.

Another thing to consider.....most policies are written such that you receive LTD if you cannot do ANY job, not just your job.

[bookkeeper]

DH and I did it the way you described. He is 55 and I will be 50 in two weeks. We keep a savings account at our credit union with $5000 to $30,000 depending on what we are buying or planning to buy.

When we were your age we plowed all the extra money into the 401k and Roth IRA. We borrowed low interest money to remodel our house. We kept our cash for us and used it to pay for our sons college and our used cars . The thing about cash flowing your expenses as they come along, is that it makes you keenly aware of what your income/expenses are.   You are delaying spending on something else to finance the most current or urgent need, but then, at the same time you are investing at steady regular intervals in the retirement accounts.

From what you describe, you have it figured out.  Keep investing, however, be sure to invest in some taxable accounts as well as the tax deferred accounts.  You have more options with your money if you invest some outside of the 401k.

I like to pay for cars and toys as I go.  Once I was gifted $10,000.  I used the money to pay off my car.  Two years later, I didn't have the car and I didn't have the cash either.  I did have a different car with some equity, but I would have rather had the $10,000 in an investment account and kept on paying a car payment.

[quince]

I'd say no, based on income and the resources you have that will kick in upon illness or job loss.

[Gardening Grandma]

In the case of a job loss, we own about 50K in private company stock that they'd have to buy back if he left.

What if he lost his job because the private company went bankrupt? Seems to me that you are relying on something that isn't really there

I'd put the bonuses in Roth IRA's (do a backdoor if you don't qualify) -

Having money in a Roth IRA and/or a taxable account gives a lot of flexibility if you want to retire early.

[giramomma]

I would feel weird having everything tied up in a 401K.

I'd either do taxable or Roth as well.

What percentage of your total retirement money is your accounts, not your H's?

[swasat]

Jun 30, 2014 11:08:39 GMT -5 Formerly SK said:

DH and I were talking last night about financial goals.  We are getting some smallish bonuses this year (total 5-8K) and we were discussing what to do with it.  DH was proposing 401k.  I was thinking EF since we don't really have one and "everybody" says you should have 3-6 months expenses saved in a liquid form.  DH didn't see the point of an EF, and I had a hard time formulating an argument for it given our situation.  Nuts and bolts: he makes about 110K/yr.  We do the standard 15% (including match) to retirement, minimal amount (IMO) to college, some car/HELOC debt but all <3% so I don't care about it too much.  Mortgage is at 3.125% and will be paid off when we're 65.  We've had a 1K "emergency fund" for about a decade, but have never really used it.  When something comes up (broken appliance or whatever) we've been able to cash flow it.  Weird but true.  HELOC was from a 23K siding job and owe 10K - it should be paid off in 2015.  Owe 8K on car.

The biggie emergencies where a sizable EF would be needed are job loss or some sort of accident where DH would become disabled.  In the case of a job loss, we own about 50K in private company stock that they'd have to buy back if he left.  So, it seems to be a sort of EF in that case.  If DH were to become permanently disabled, he'd get LT disability at 60% of wages.  This would be tax free, so probably really a 80% benefit.  He also has 500 hours of sick time banked, so a short term disability wouldn't be a huge financial hit either.

At this point, every additional dollar he or I earn (I have a small PT job) is taxed at the effective 25% rate.  DH also pays 8% in state taxes.   So, putting all extra money in his 401k has an immediate 33% return.  That's his argument.  I totally see his point, but it seems weird to not save 40K or so in something liquid for an emergency.  I also worry about tax diversification at retirement and think about starting IRAs, but again, there's that immediate 33% tax savings by putting everything in the 401k.  We could always put the extra money towards debt, but the rates are so low.  I plan to get a FT job in a year (hopefully) and that would go towards college savings mostly. 

We're 40 and 41. 

Thoughts?

These two things are what give me a pause.

1. Your income is not enough to replace you husband's in case a job loss happens (or so I am assuming).

2. You are relying on a 50K "private" stock. First off, its not a big amount, certainly not big enough to replace income in case of your DH's job loss/disability. Secondly, its private stock. Hard to say much without knowing the size or stability of the company, but very risky IMO to rely on something that may go poof anytime the company goes under.

3. You are relying entirely on 401K for retirement. WHile there is an immediate 33% saving, IMO its risky to have all your eggs in one basket. Specially if his is the only 401K you have,


 

[Deleted]

Jun 30, 2014 11:08:39 GMT -5 Formerly SK said:

We've had a 1K "emergency fund" for about a decade, but have never really used it.  When something comes up (broken appliance or whatever) we've been able to cash flow it.  Weird but true.  HELOC was from a 23K siding job and owe 10K - it should be paid off in 2015.  Owe 8K on car.


Thoughts?

These sentences seem to contradict each other.  You didn't cash flow the siding job, you took out a loan.  What happens if you get hit with 2 things at once?  Job loss and a major home repair.  Without the job you probably can't get a loan. 

[Formerly SK]

Let me see if I can answer some questions.

Yes, we pay the premiums on the LTD so any benefit would be tax free.

Company could go BK, but DH is the controller so he'd be very aware of any trends in that direction.  They've been pretty solid in the 8 years DH has worked there (recession hurt for a year but they've rebounded really well).  Obviously there is no guarantee, but when I consider the opportunity cost of liquid savings of 6 month's expenses for that single scenario, it doesn't seem statistically worth it.  I could definitely be wrong, though. 

None of the 401k is in my name.  We're in a community property state, and every asset we have was earned while married.  DH has also been extremely in favor of me staying home all these years due to DS's autism.  I'm not worried.  Obviously we could divorce sometime and no (to answer a question) I'll never reach his earning potential, but I don't know that having 6 month's expenses saved really helps in that situation.  It's sort of a separate issue.

You are relying on a 50K "private" stock. First off, its not a big amount, certainly not big enough to replace income in case of your DH's job loss/disability

Wow, how much liquid savings should a person have?  I thought 50K was a decent amount.  DH is an accountant, in case of a job loss he may not find something at exactly his pay, but he's well liked/networked and in a stable field, I don't worry about a year of unemployment or a 40% paycut.    Obviously if DH were to become permanently disabled, our lives would change in many ways.  Having roughly 80% of his income would be an adjustment, but we'd probably also move because our house has a lot of stairs.  It's hard, though to predict all aspects of a hardship.  Not being defensive, just trying to be logical.  We get an immediate 33% return if we put the money in the 401k - do these other scenarios seem likely enough that we should give that up?

Having money in a Roth IRA and/or a taxable account gives a lot of flexibility if you want to retire early.

This is the crux for me.  Guaranteed returns with strings, or less returns but flexibility.  I lean towards getting Roths set up, but DH likes the guaranteed returns.  We don't have any plans to retire early, but obviously if health issues prevented us from working, we need access to retirement funds.

[phil5185]

I would not prepay any of those loans, they are all keepers. We have always capped our EF at $5000, usually quite a bit less. I divide emergencies into two kinds - life changing & 'normal'. The 'normals' are appliances, AC, furnace, major car repair, medical bills, etc. 'Life changing' are unemployed for 6 months, disabling accident/disease.  

The usual 3 to 6 month EF won't come close to covering the "life changing' events, they require that you bust up your 401k, sell the house, etc.

We have always kept a large taxable stock fund (we started investing long before 401k was invented so that is what started it). For most things (cars, houses, etc) we borrow when we can get good terms, and leave our own money compounding tax-deferred in the fund. 

At this point, every additional dollar he or I earn (I have a small PT job) is taxed at the effective 25% rate. DH also pays 8% in state taxes. So, putting all extra money in his 401k has an immediate 33% return.

Actually, the pretax (401k) and posttax (Roth) taxes are about the same. With the 401k you get the 33% break now and you pay 33% when you retire. And with a Roth you pay the 33% now and pay zero when you retire.  
For your taxable fund, you pay the 33% now - and when you sell some you pay 15% on your profit - or if it gets inherited, the kids get it tax free.


But all these "what ifs" depend on entirely Tax Code, a wild card, an ever changing thing. In 30 years we may not even have income tax, we may have consumption tax (so Roths will be taxed again when you spend the money). So keep some of each, ie diversify your tax status.

we own about 50K in private company stock that they'd have to buy back if he left.

'Have to"?  Not only would I not count on that, I would probably sell it. But that's just me.    (And sometimes you need some co stock just to fit in with the 'club'.)

[The Walk of the Penguin Mich]

The other thing you need to consider is that if you have some sort of issue where you have a medical disability, you need (at the very least) to have a couple years of your medical deductible (both in and out of network) available to you.  

I got slammed with $6000 in medical bills, and while on disability (my employer continued to pay my health insurance) got slammed with another $6000 6 months later.  That does not include all of the 'stuff' that insurance doesn't pay for, but what you need to make life easier, nor does it include copays.  Those add up quickly.

So while you're getting hit with a 40% loss in income, you'll also be dealing with massive medical bills.  That combo is not fun.  If your husband goes out on disability, what happens to his insurance?  Do you have enough to COBRA it if his employer doesn't cover it?

[Formerly SK]

Jun 30, 2014 12:02:57 GMT -5 pooks said:

Jun 30, 2014 11:08:39 GMT -5 Formerly SK said:

We've had a 1K "emergency fund" for about a decade, but have never really used it.  When something comes up (broken appliance or whatever) we've been able to cash flow it.  Weird but true.  HELOC was from a 23K siding job and owe 10K - it should be paid off in 2015.  Owe 8K on car.


Thoughts?

These sentences seem to contradict each other.  You didn't cash flow the siding job, you took out a loan.  What happens if you get hit with 2 things at once?  Job loss and a major home repair.  Without the job you probably can't get a loan. 

Very true.  We got bids to replace the siding of around 11K (two sides) and then spent two years saving for it.  By the time we had the money, the rot had affected all four sides so we ended up doing the whole house (and then added new gutters since it seemed logical).  Obviously we did not save for that so I totally get your point.  OTOH, the interest rate is so low when I crunch numbers I'm not really upset that we took out the HELOC as our investment returns are so much higher.

A double whammy of DH losing his job AND having a major expense obviously would be bad.  But again it comes down to math - the opportunity cost of double whammy vs investment returns.  Our HELOC has a 30K limit, but obviously that can be cut at any time. 

The core question seems to be how much should you sacrifice in wealth creation to have greater flexibility?

[Shooby]

As long as there is money available for an emergency, be it retirement money, CD, bank account or whatever is what matters in my opinion.

[giramomma]

Well, call me a fuddy-duddy. DH also only works part time. His IRA (we split between Roth and traditional) gets funded first. Since he only has 5500 of retirement space a year.  We also live in a community property state. Maybe the difference is that we will always firmly be in the 15% tax bracket?

You don't need to keep 50K liquid. We don't keep 6-12 months worth liquid because that would be foolish.

I'd look at how much you can cashflow a month. We can cover a cheap appliance/garbage disposables/smaller medical bills. Our air conditioner is going to cost us 4K. We can't cash flow that even with belt tightening over two months. If you guys can do that, that's great! We can't. That's one month of our income.

Access to cash (via a roth or taxable account) gives you choices and flexibility in the future. For me, that's critical. I always appreciate having choices when faced with problems or opportunities. I also appreciate flexibility. Being stuck in a problem with no choices of solution really, really, stresses me out.

[Formerly SK]

Good points about COBRA or medical insurance.  Thanks.

Good point about tax savings being pretty neutral.  Our actual true guaranteed return is only the 8% state tax as we only pay that because DH works in the state.  We won't pay it in retirement because we don't live there (and definitely won't move there). 

Re company stock, yeah I'm not totally on board with it.  There is definitely a corporate vibe to be an owner and I'm dealing with it as best I can.  

[Deleted]

I would diversify and put it in a Roth.  You seem to be hung up on the 33% return, but remember you are just delaying when the money will be taxed (Plus the gains) and you have no idea what the rates will be on income at that time.  Also if you put all your retirement money in a 401K,  you are going to have a big RMD in retirement.  Not putting it in the 401K, does not have to mean it is not invested.

[swasat]

I am getting totally confused now.

You say you have 1K in EF. Everything else is either invested or in some stock. At the same time you say you have been cash flowing all major expenses.

So where have you been cash flowing from? Is there a savings or checkings account separate from EF that you use? If that is the case then I wouldn't even worry about EF and its balance.

I am asking because we don't have a separate EF. We have one checking and one savings account and all liquid cash stays in that. So I am basing my answers on that.

Regarding my point on 50K not being enough, that was in case your DH becomes totally disabled and you lost all his income. If you think he will find something if he leaves the company, then you are right, its not a bad amount.

[Formerly SK]

I'd look at how much you can cashflow a month. We can cover a cheap appliance/garbage disposables/smaller medical bills. Our air conditioner is going to cost us 4K. We can't cash flow that even with belt tightening over two months. If you guys can do that, that's great! We can't. That's one month of our income.

To be fair, we usually have 3-5K in various sinking funds at any point of the year.  So, if we need to pay for a new dishwasher, we may borrow the funds from our auto sinking fund or xmas sinking fund or whatever, and then use the next month or two to pay back the loan.  It's not like we have 4K every month just sitting around. 

[Formerly SK]

Jun 30, 2014 12:41:00 GMT -5 swasat said:

I am getting totally confused now.

You say you have 1K in EF. Everything else is either invested or in some stock. At the same time you say you have been cash flowing all major expenses.

So where have you been cash flowing from? Is there a savings or checkings account separate from EF that you use? If that is the case then I wouldn't even worry about EF and its balance.

I am asking because we don't have a separate EF. We have one checking and one savings account and all liquid cash stays in that. So I am basing my answers on that.

Regarding my point on 50K not being enough, that was in case your DH becomes totally disabled and you lost all his income. If you think he will find something if he leaves the company, then you are right, its not a bad amount.

We do have some sinking funds, but yeah we've been able to cash flow everything.  When I say this, I mean we've never had CC debt and other than the HELOC we took out this January for the siding, we've never gotten a loan for debt (cars excepted).  I don't know how it has worked out in the 12+ years we've been together, it just has. 

[Deleted]

Funny math. You are deferring 33% tax. You pay it now or you pay it later, so you are not saving it. Calling it a 33% return is just not true. If your assumption that taxes will be lower at the time you retire, that is the only true return. That used to be my assumption but I am not so sure taxes will stay the same, they are creeping up, so I feel like my retirement tax bite will be close to what it is now even though my income draw will be lower.

Yes you need an EF. Most of your support depends on one job. If that goes upside down you are 100% hosed. How long would it take your spouse to find a new job? That's what you need to cover. Put it into an investment Roth. That would be liquid enough to get to the money in the event of job loss or disability. Then you can pretend you have a future 30% return on it since you will never have to pay tax on it again.

As Walk of the Penguin says disability policies can take months to start paying. Social security benefits have a 6 month waiting period if you are approved for disability.

How long would the stock cash out take & what if the company isn't in a position to pay it so leaves the shares intact?

What coverage do you have if your DH passes away? Is that only through his employer too? Do you realize life insurance can also take many months to pay out? 

I would not be comfortable without a substantial job loss/disability savings account. 

If you don't do a Roth now, you are really going to kick yourself later when your income is too high to allow you to do one!

[thyme4change]

I've never kept more than $5k in my emergency fund.  I have kept everything invested in mutuals, but in a regular brokerage account, so I can sell it easily, with no penalties or hassle.  I know that is risky, but I am willing to take the chance that I will have to liquidate at a loss.  The way I see it, if I keep it in cash, then I'm taking a risk that I won't end up needing it and I will basically have a lost opportunity for whatever the returns are that year.  Given how infrequently I have liquidated over the past 15 years (and almost all of that was discretionary - or at least the timing of it was) I have won on that front.  

The problem with your investment is the $50k that you call "liquid" isn't diversified, or even really liquid.  Not that it is a bad asset to have - it is just tough that all of your assets come with an asterisk.  You either have to borrow money, pay a penalty to get your money, or depend on a single entity to buy you out at the price you feel is appropriate.  I had a friend who thought he was massively rich because of his private company stock.  It took 3+ years and a bunch of lawyers fees to get half of what he thought it was worth.  Not that it will happen to you - but that doesn't mean they won't say "It is really only worth $30k."  

I was on here a few months ago asking if I should reduce my 401k contributions because I was afraid I didn't have enough that I could get my hands on before I turned 59 and a half.  

[Ombud]

Jun 30, 2014 12:41:00 GMT -5 swasat said:

I am getting totally confused now. ... If you think he will find something if he leaves the company, then you are right, its not a bad amount.

Now I'm confused. I don't know if you've been unemployed recently or since 2008 but I was and I was in a professional support network. A lot of the people there thought that they would just get another job. Most of the higher ups are still there. (CEOs, editors, ect) Took me 5 months to get the replacement job. They're still there -- some 2+ years. And these are highly skilled professionals. Formerly SK, so let's say the company goes bankrupt. That 50K in company stock is worthless. And he's over 55. Don't tell me age discrimination is not real. Now fortunately he's old enough that he could retire. But the chances of getting a job anywhere near what he's earning is wishful at best.

The purpose of an EF is for the worst case scenario not monthly / annual needs cash flow

IMHO you need enough to close the gap between what unemployment will pay and your basic needs for 6 months -- the length of unemployment

[yogiii]

Jul 1, 2014 9:04:20 GMT -5 thyme4change said:

 

I was on here a few months ago asking if I should reduce my 401k contributions because I was afraid I didn't have enough that I could get my hands on before I turned 59 and a half.  

What was the consensus on that?  (Sorry to side track OP)

[gooddecisions]

Follow phil5185 advice. We've been following it since I found the old MSN money boards over 10 years ago and are diversified and have about $2MM between all our investments (the bulk is in the brokerage accounts and retirement accounts but we also have 3 rentals and a primary). We're 35 with 2 kids and a big house...with a mortgage and 2 steady W2 jobs. I sleep well at night knowing we could retire early, lose either or both jobs, become disabled and be just fine, but we have easy jobs, so no need. A 401(k) gives you no options without huge tax penalties. Having diversified assets doesn't mean we have to use it if the markets aren't cooperating. Like you, we could still take out a loan, though we've never needed to do either. Lot's more options this way.

Thanks Phil!

[Bonny]

Jul 1, 2014 9:04:20 GMT -5 thyme4change said:

I've never kept more than $5k in my emergency fund.  I have kept everything invested in mutuals, but in a regular brokerage account, so I can sell it easily, with no penalties or hassle.  I know that is risky, but I am willing to take the chance that I will have to liquidate at a loss.  The way I see it, if I keep it in cash, then I'm taking a risk that I won't end up needing it and I will basically have a lost opportunity for whatever the returns are that year.  Given how infrequently I have liquidated over the past 15 years (and almost all of that was discretionary - or at least the timing of it was) I have won on that front.  

The problem with your investment is the $50k that you call "liquid" isn't diversified, or even really liquid.  Not that it is a bad asset to have - it is just tough that all of your assets come with an asterisk.  You either have to borrow money, pay a penalty to get your money, or depend on a single entity to buy you out at the price you feel is appropriate.  I had a friend who thought he was massively rich because of his private company stock.  It took 3+ years and a bunch of lawyers fees to get half of what he thought it was worth.  Not that it will happen to you - but that doesn't mean they won't say "It is really only worth $30k."  

I was on here a few months ago asking if I should reduce my 401k contributions because I was afraid I didn't have enough that I could get my hands on before I turned 59 and a half.  

This is a really smart post.

We've always had a pretty good liquid savings account (before I learned about EFs on YM ). This was mainly due to us always saving for some project in the short term (< 3 years>) whether it be a house, car, property project etc.  We were also fairly conservative because I have been laid off a couple of times and then for the last 10 years of DH's career his was under the cloud of a RIF.

In hindsight we probably would have done better as Thyme and phil5185 suggest but there is something about being able to sleep at night. DH can be weirdly conservative about some things. Hearing our friends talk about having their kids' college accounts tank in 2008 just as they were entering college didn't help either.

Now that we are retired we are sitting in three piles of cash. Pile 1: About $50k EF for the 4 rentals which is about 6 months each for carrying costs. I also have used it for larger repairs, attorneys' fees and real estate commissions for the AZ house. I replenish once the property starts cash flowing again.

Pile 2: $About $70k personal EF. This is 1 year of hard expenses. We are living on oil royalties which dropped about 20% due to some creative accounting recovery by our royalty operator.  We hired an attorney but there wasn't enough money to keep fighting them. We are also living on the dividend and bond income being generated by our taxable investment account.

Pile 3: is about $45k sitting in the investment account. This is about 2 years of dividend income we haven't spent yet since retiring less income taxes. This is our latest "Project" pile. When I get home we'll start the process of planning our multi-project landscaping plan. This will be for five areas on our 1/2 acre plot including replacing a large driveway. It's going to be VERY expensive.

[gooddecisions]

Jun 30, 2014 11:08:39 GMT -5 Formerly SK said:

We've had a 1K "emergency fund" for about a decade, but have never really used it.  When something comes up (broken appliance or whatever) we've been able to cash flow it.  Weird but true.  HELOC was from a 23K siding job and owe 10K - it should be paid off in 2015.  Owe 8K on car....

Thoughts?

When nothing weird comes up, where does the money go? Is that cashflow disposable income that gets spent on wants? I actually did back down my 401(k) when it had always been maxed when I was still single and relied on my own income. This board, Suze Orman and news headlines for massive layoffs at my company plagued my mind, so I backed it down to the 5% match for 2 years to save up a year of expenses. Never had to use it and even though those 2 years were actually really good years for the market, I guess I don't regret it. It became a nice slush fund for dollar cost averaging.

[The Walk of the Penguin Mich]

The usual 3 to 6 month EF won't come close to covering the "life changing' events, they require that you bust up your 401k, sell the house, etc.


I disagree here.  In the event of a disability, you are going to need at least 3 months before you start seeing any disability checks after you kill all your sick time.  It is going to take 6 months after you are disabled to apply for SSDI.  It's going to take 2 years for you to cover your health insurance (and this is really a biggie, especially if you have issues where you are hitting your health insurance regularly) before Medicare kicks in.  However, Medicare is only going to cover the disabled person, it does not cover the rest of the family.

The OP's got 500 hours of sick time to offset salary.  That's 12 weeks, just the amount of FMLA.  There is a 3 month period after this where you have to have income, but are not quite eligible for LTD.

My disability covered 70% of my income, and as I lived below my means, my disability payments were sufficient for me to live on.  I've not touched my 403b or any IRA.....in fact, as my expenses have decreased some (now that all my flipping medical bills are paid), I've been able to continue to contribute to retirement and save some in investment accounts.

[Bonny]

Jul 1, 2014 10:23:33 GMT -5 gooddecisions said:

A 401(k) gives you no options without huge tax penalties.

Not really. Once you separate from service if you roll it into an IRA you can go the route of taking "substantially equal payments" and access your account  without penalty. I certainly don't recommend it before you retire that does negate the purpose of a "retirement" account.

We're still trying to figure out what we want to do. As young retirees (DH now 55 and me turning 53 next month) we need to make sure our money lasts but I'm finally to the point where if we're careful we should be o.k. Ironically we've been so busy that other than restoring our former residence, we haven't been spending as much money as we thought we would. Whoda thunk?

[Formerly SK]

We have 8x DH's income in life insurance (privately paid).

I don't consider the 50K stock liquid AT ALL.  I'm really not in favor of having it to be honest.  It's DH's thing and I'm trying to find a compromise because he wants even more.    There are a ton of details re the stock that affect why we have it and the pros/cons that isn't worth getting into here.  My only point in mentioning it was that in the case of job loss or disability, we'd get that cash (history shows it takes 2-3 months to get the payout using other employee situations as a comparable).

You all have given me some great points to use when talking with DH.  We just hit the 25% tax bracket in 2013 and it's thrown him for a loop mentally and he wants to do everything he can to minimize taxes.  His argument that we've never needed an EF is also hard to beat (and yes we've had some emergencies come our way).  But, I think I can present some viewpoints where doing a Roth would be advantageous.  I'm betting in the end we'll do a 50/50 between Roth/401k.  My current pt income (and future FT income) will all go to savings, so hopefully we can get more tax diversification at that point. 

Bonny - I'm amazed at your assets!  We're just W2 people and don't plan to ever have that kind of wealth (and won't inherit anything).  Great job!