This Money Matters caller has done just about everything right, but like many conscientious savers, he can’t quite bring himself to enjoy the fruits of his labor.

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Scott: Let's talk to John. John, you're with Hanson McClain.

John: Gentlemen, hello. I've been retired for a couple of years and I have a California state pension. I have Social Security, which is taxable at about 85%. Anyway, I want to build up about a $50,000 emergency fund. Oh yeah, I have no debt, except to the Grim Reaper. Anyway, I've got about $20,000 now. So, I'm looking for... Well, I have the money. I'm building it up with Social Security, the emergency money, and...

Scott: And what kind of an emergency might come up that this would be used for?

John: I don't know, surgery...

Scott: Yeah. You’d just feel more comfortable having a little more cash. And do you have money in a 401(k), or something similar?

John: Yes.

Pat: How much?

John: About $400,000.

Pat: And how old are you?

John: 68.

Scott: Are you taking distributions from your 401(k), yet?

John: No, I thought I'd wait until seventy and a half, correct?

Pat: Yes. Are you married?

John: No.

Pat: And you're living comfortably on your monthly pension without these distributions?

John: Well, so far.

Pat: Okay. And tell me why you want to get this emergency fund?

John: Oh, I guess so I don't have to sell mutual funds at a loss, if I need the money.

Scott: Okay.

Pat: Okay. So this leads to the next question, how is your...

Scott: Because a lot of people view emergency funds to have it in case of an event... It's often times when someone's working they'll have an emergency fund in the event that something happens and they can no longer work, they need the income to keep coming in. But if you have a pension and Social Security it's probably replacing what your income was before.

Scott: But there's nothing wrong with it, though, John.

Pat: So, is the money in your 401k or is it in an IRA? The $400,000?

John: It's in an IRA now.

Pat: Okay. And how is that allocated.

John: I've got a target fund, but I'm comfortable with about 60% in equity. But I've got too much in international.

Pat: Oh. So how much of this $400,000 is in the target date fund? All of it?

John: Yeah. I'm taking it out.

Pat: Oh, you are?

John: Yeah. You know, with bonds the way they are and everything I just think it's not good to be in a... Well, the target dates, you know, I just picked... Oh. I picked the target date that would serve me with 60% in a 2035.

Pat: Okay.

Scott: Got it. And sometimes those work great but on this large of an account, you can probably customize...

Pat: Yeah. Frankly, I'd build a portfolio that was, if you're comfortable with 60% equities, and you obviously have years and years of experience investing because these dollars didn't occur overnight. I'm okay with that 60% equity position, but I wouldn't worry so much about the liquid account. The problem I have with it now is, because it's all in a target date fund, that you going in and taking $40,000 out...

Scott: Yeah. You're forced to sell equity.

Pat: You're forced to sell equities. But not really, because what you could do is take the $40,000 out and then sell the target date fund and move it from a 2035 to a 2040...

Scott: Theoretically.

Pat: And still keep the 60-40...

Scott: Theoretically, yes.

Pat: Theoretically. You could do the math. It wouldn't be that difficult. So, I appreciate the fact that you want the liquidity, but you have no need for an emergency fund. You have a $400,000 emergency fund.

Scott: And two years from now you're going to be forced to take in some distributions from it.

Pat: Of approximately $12,000 to $14,000 dollars the first year.

Scott: Here you're 68 years old, retired, and you're talking about saving money. Right? And I get it. That's why you have these dollars.

Pat: That's why you have money. You show me someone that doesn't care about money, I'll show you someone that doesn't have it.

Scott: I mean, that's the challenge, right? So, your whole life you've been focused on saving for tomorrow, right? Saving for the future. And now you're here. It's hard, right? It's a change in mindset. And I think that's... Pat and I are kind of looking at each other. It's like, "Yeah, you can do that..."

Pat: If you were sitting in my office I'd build a portfolio with ETFs, exchange traded funds, and mutual funds, and I'd have a 60-40 portfolio, and if you...

Scott: If you wanted to have something carved out for emergencies, just carve out a portion of the IRA.

Pat: You just carve out, or, if you said, "Okay, I need $20,000 grand in the next 3, 4 days," we'd look to see in the rebalance of the portfolio to make sure it was consistent with your needs, and go from there. But I think what you should do is...

Scott: Enjoy the money.

Pat: Not worry about it.

Scott: No, really.

Pat: I think what you should do is not worry about it, and when those required minimum distributions start coming out, spend it. Spend it. Spend the $12,000, $13,000 dollars a year.

Scott: I mean, unless you have, unless you've got, say, some child with a need, something that we haven't learned about here. Other than that, I would agree with Pat. We really don't think that you need to be saving your Social Security for the future.

Pat: So, appreciate the call John.

Scott: Yeah, thanks.

John: All right. Thank you, gentlemen.

Scott: Hey, glad you called, John. It is a funny thing, Pat. As we get closer, it's those that've done the best saving that have a tough time adjusting to being in a season where they’re no longer saving.

Pat: It's hard.

Scott: We're no longer saving.

Pat: It's a change in mindset.