How to build your ‘Oh, crap!’ fund

The emergency fund is a bust.

Millions of Americans don’t have one, and some of those who do resist tapping what they’ve saved. I’d like to propose an alternative for both sets of people: The “oh, crap!” fund, a savings account for not-quite-emergency expenses.

One of the reasons people don’t have emergency funds is misplaced optimism. People think that if they’re healthy, they’ll stay healthy. If they’re employed, ditto. The car will keep running, the roof will never need to be replaced and, since everybody’s a better-than-average driver, there won’t be any accidents. Behavioral scientists call that “recency bias,” which is the delusion that whatever happened in the recent past will continue into the indefinite future.

Everyone, though, has experienced “oh, crap!” moments: the no-parking sign they didn’t see, the crown the dentist says they need, the smartphone dropped in the toilet. In my latest for the Associated Press, how to build a fund that will take the sting out of emergency expenses.

Friday’s need-to-know money news

Today’s top story: If you sold fearing a market crash, here’s what to do now. Also in the news: Why you should look under the hood of your target-date fund, a home buyer’s guide to motivated sellers, and is Amazon Prime worth its new price?

If You Sold Fearing a Market Crash, Here’s What to Do Now
Getting back in the game.

It’s Time to Look Under the Hood of Your Target-Date Fund
Taking a closer look.

A Home Buyer’s Guide to Motivated Sellers
Making the right match.

Is Amazon Prime worth its new $119 price tag?
The online giant is raising Prime prices.

Q&A: What’s better, collecting Social Security early or blowing through retirement savings?

Dear Liz: I am married and six months away from my full retirement age, which is 66. I have not filed yet. My wife started collecting Social Security at 62 but does not get very much. We are both in excellent health and have longevity in the genes. We don’t own a home. I have around $960,000 in diversified investments. I take out around $7,000 to $8,000 a month to meet my monthly expenses. Fortunately, the markets have been good, helping my portfolio, but I am not counting on that to continue at the same pace.

Doesn’t it make more sense to be taking less money out each month by starting Social Security now? I know I would receive less money than waiting until 66 or later, but between my check and the spousal benefit my wife could get, I would reduce my annual living expense withdrawals from my account by close to 50%. This would give my portfolio more opportunity to grow, since I will not be taking out so much every month.

I wish I could cut my expenses or could earn more income but cannot at this point. I am shooting for not taking more than 5% a year out of the portfolio going forward.

Answer: You’re right that something needs to change, because your withdrawal rate is way too high.

You’re currently consuming between 8.75% and 10% of your portfolio annually. Financial planners traditionally considered 4% to be a sustainable withdrawal rate. Any higher and you run significant risks of running out of money.

Some financial planning researchers now think the optimum withdrawal rate should be closer to 3%, especially for people like you with longevity in their genes. Chances are good that one or both of you will make it into your 90s, which means your portfolio may need to last three decades or more.

So even if you start Social Security now, you’ll need to reduce your expenses or earn more money to get your withdrawals down to a sustainable level.

Generally, it’s a good idea for the higher earner in a couple to put off filing as long as possible. The surviving spouse will have to get by on one Social Security check, instead of two, and it will be the larger of the two checks the couple received. Maximizing that check is important as longevity insurance, since the longer people live, the more likely they are to run through their other assets. Your check will grow 8% each year you can delay past 66, and that’s a guaranteed return you can’t match anywhere else. In many cases, financial planners will suggest tapping retirement funds if necessary to delay filing.

But every situation is unique. Your smartest move would be to consult a fee-only financial planner who can review your individual situation and give you personalized advice.

Thursday’s need-to-know money news

Today’s top story: What the Fed rate hike means for your CDs. Also in the news: Steps to take if you don’t trust your spouse at tax time, 3 women you should know in investing, and 6 personal finance rules to live by in your 40s.

What the Fed Rate Hike Means for Your CDs
Look for higher rates.

5 Steps to Take If You Don’t Trust Your Spouse at Tax Time
Watch what you sign.

3 Women You Should Know in Investing
Leaders in investing.

6 Personal Finance Rules to Live By in Your 40s
Time to bulk up your retirement savings.

Friday’s need-to-know money news

Today’s top story: How to maximize your Priority Pass Select. Also in the news: Tap your credit cards for spring break savings, how to avoid a spring break money hangover, and why the death of the fiduciary rule is bad news for your retirement.

How to Maximize Your Priority Pass Select Membership
Getting the most from your membership.

Tap Your Credit Cards for Spring Break Savings
Save on foreign transaction fees and more.

Ask Brianna: How to Avoid a Spring Break Money Hangover
Not the souvenir you want to bring home.

The Death of the Fiduciary Rule Is Bad News for Your Retirement
Less protection means more scams.

Wednesday’s need-to-know money news

Today’s top story: 7 places to get a slice of savings on Pi Day. Also in the news: Choosing between a Roth 401(k) and a Roth IRA, guarding your cash from debit card fraud, and credit bureaus may get a boost from Congress.

7 Places to Get a Slice of Savings on Pi Day
Happy 3.14!

Roth 401(k) vs. Roth IRA: Which Is Better for You?
Making the right choice.

Debit Card Fraud Still Rising; Here’s How to Guard Your Cash
Protecting your money.

Despite Equifax breach, Congress may boost credit bureaus
Rewarding bad behavior.

Thursday’s need-to-know money news

Today’s top story: 5 pieces of popular tax advice that are actually baloney. Also in the news: VW aims to plug into nostalgia with the electric bus, Social Security is underpaying thousands of widows and widowers, and 33% of Americans don’t have more savings than credit card debt.

5 Pieces of Popular Tax Advice That Are Actually Baloney
Popularity doesn’t make them true.

VW Aims to Plug Into Nostalgia With Electric Bus
We’re going back to the 60’s.

Social Security underpays thousands of widows and widowers
Claiming a larger benefit.

33% of Americans do not have more savings than credit card debt
A third of the country is in trouble.

Monday’s need-to-know money news

Today’s top story: Before doing your taxes, gather these documents. Also in the news: 3 things to do when buying a house as an unmarried couple, how credit cards can help you save on buses and trains, and 4 money lessons every teenager needs to know.

Before Doing Your Taxes, Gather These Documents
Putting your paperwork together.

Buying a Home as an Unmarried Couple? Do These 3 Things
Buyer beware.

Credit Cards Can Help You Save on Buses and Trains, Too
Discounts everywhere.

4 money lessons every teenager needs to know
The sooner the better.

Should we pay people to save?

Long ago, people were rewarded for saving. Banks contributed something known as “interest” to the amounts deposited in savings accounts.

OK, technically they still do, but you’d be forgiven for not noticing the tiny amounts added in a low-rate environment. The current average interest rate on savings accounts is 0.06 percent.

Anemic rates may not be a major reason why Americans don’t save enough, but there’s some evidence that better rewards could induce more people to save. Two approaches that seem to work: matching funds and prize-linked accounts.

In my latest for the Associated Press, could rewarding people for saving get them to save more?

Monday’s need-to-know money news

Today’s top story: 7 questions to ask before you hire a tax professional. Also in the news: The security of your hotel’s mobile room key, side hustles you can start with no money, and how to pay off student debt while still saving and investing.

7 Questions to Ask Before You Hire a Tax Professional
Asking the important questions.

How Secure Is Your Hotel’s Mobile Room Key?
Risking safety for convenience?

Side Hustles You Can Start With No Money
No investment necessary.

How to Pay Off Student Loan Debt While Still Saving and Investing
Paying for the past, planning for the future.