How much do you need?
Accumulating - 3-6 months of net living expenses
Transitioning to Retirement - 6-12 months of gross living expenses
In Retirement - 12-24 months of gross living expenses.
For accumulating clients, we suggest having 3-6 months cash on hand. As interest rates rise, we recommend three months in an emergency fund/savings account linked to everyday checking, usually at a brick-and-mortar bank and, the other three months, in a high yielding savings account at a company such as Ally, CapitalOne, SoFi, or others.
For clients in retirement, we suggest two years of what you need from your investments in cash & cash equivalents. When the markets are less volatile, we systematically replenish this balance on a monthly basis but when markets start to decline, we pause the systematic and draw from the cash & cash equivalents until things start to pick up. Three months in above mentioned savings, nine months in high yielding savings, six months in money market fund and six months in a short-duration, high-quality bond fund. Liquidating from high yield savings to money market fund to bond fund, as needed.
Retired clients whose monthly expenses can be completely covered by a pension or social security we often allocate up to 4% of their investment portfolio to a money market fund for Required Minimum Distributions (RMDs), Qualified Charitable Distributions (QCDs), or planned/unplanned living expenses.
Why 24mos? In the past century, there have been 15 recessions in the US. In 11 of those instances, stock returns were positive two years after the recession began. "Chance favors the prepared." (Louis Pasteur)
How to measure what you need? Do a 30-day spending review - write down EVERYTHING you spend for 30-days, inevitably, something comes up - property taxes, income taxes, Christmas, a roof leak, birthday/birthday parties... in any given 30-day period, you'll be able to identify your non-discretionary (mortgage, insurance, auto payments...) and your discretionary (eating out, coffee out, amazon...) and your unplanned/unexpected/forgotten annual expenses.