An interesting financial exercise is to calculate how long your savings would last if you were to lose your job or other main sources of income.  Basically, how much of an emergency fund (cash or line of credit) would you need?  In this “worst case scenario”, proper planning needs to be in place to be prepared for the worst and/or peace of mind.

So what do we do in the case of losing main sources of income?  First, we need to look at household expenses and cut back where possible.  Next, we’ll need to evaluate what types of incomes are available with no salary.  Following that, existing savings/investments will need to be examined to see what can be liquidated to provide cash flow.  As a last resort, new debt or liquidation of retirement savings can be used.

Some assets to consider,

  • Employment Insurance – This usually kicks in after about 4 weeks and lasts for about a year.  The maximum EI benefit is around $1500/month after taxes/deductions.
  • Cash Savings – Some people don’t like to have cash hanging around, but we usually have cash in our accounts as it gives us a sense of safety.  As well, it allows us to take advantage of opportunities that require cash as they come up.
  • Tax Free Savings Account – The TFSA can be withdrawn from completely tax free and is a tax efficient way to keep your emergency funds.
  • Non Registered Investments – We have a leveraged non-registered investment account that produces dividends, but could be liquidated if need be.
  • Home Equity Line of Credit – If you have home equity, then a home equity line of credit can provide instant cash at a fair rate.  However, the higher the balance grows, the higher the required interest payments will be.
  • Retirement Funds – In my opinion, retirement accounts should be the last resort in terms of providing cash flow due to the high taxation along with losing the contribution room forever.  However, with the low amount of income that year anyways, it may be an opportunity to withdraw from an RRSP at a lower tax rate.

In our family, both spouses have professional jobs which would qualify us for employment insurance.  In addition, we have a healthy savings, non registered portfolios, some borrowing room on our line of credit, and fairly healthy retirement accounts..

If we were to both lose our jobs simultaneously, this is the order that I would use our funds until new work is found.

  1. Savings Accounts/Cash on Hand: $12,000 (most of our cash was recently used to pay down mortgage)
  2. Tax Free Savings Account: $0 (not funded yet)
  3. Non Registered Investments: $60,000 ($45,000 leveraged, $15,000 regular)
  4. Line of Credit (s): $95,000 available (HELOC and PLC)
  5. Retirement Funds: $63,000

How long could we pay our expenses without going into debt or touching our retirement funds?  With no salary (assume no online income or severance), the only source of income left is via dividends in my leveraged investment account and employment insurance (EI).  As of right now, dividends provide around $1,800/year or $150/month.  However, the dividend income would decrease if we liquidated the portfolio for cash flow.

Our expenses are around $4,300/month.  Without jobs, I estimate that we could reduce our expenses to around $3,800/month.  This means that we would need at least $3,800 cash to cover our expenses while waiting for EI (assume $3k/month total EI income for both spouses).

Accounting for the initial cash requirement of $3,800 (waiting for EI), it would leave us with $8,200 in savings to cover the $650 monthly shortfall (counting dividends).  This cash would last around 12.5 months which is approximately when employment insurance would run out.

Hopefully by this point, we would have employment lined up, but if not, we would need to dip into our portfolios or line of credit.  If rates were to remain low like today (2.25%), it would be a toss up on whether to use the line of credit or liquidate our portfolio.  The largest downside of the line of credit is that it would create an additional monthly expense, unless we were to capitalize the interest.

Liquidating a taxable portfolio has it’s downfalls as well.  You could be forced to sell low, or even if you sell high you’ll face capital gains tax.  If choosing to liquidate, it may be best to liquidate positions as you need the cash instead of liquidating everything at the same time.

If we were to liquidate the portfolio completely (to keep things simple) and deposit into a high interest savings account that keeps up with inflation, it would eliminate my $150/month cash flow and would mean that the $60,000 cash would last 15.7 months (accounting for inflation).  At today’s market price point, there would be no capital gains tax payable on this amount.

So it looks like without going into debt, or dipping into our retirement savings, our expenses would be covered for up to about 28 months (assuming no big ticket expenses during that time.

So back to you, how long could you cover your expenses if you lost your main source(s) of income?


  1. Gael on June 23, 2009 at 9:07 am

    8 months. I was just unemployed for two months (a month after buying a new house) and it was not a fabulous feeling!!

  2. cannon_fodder on June 23, 2009 at 9:37 am


    You used $1,500/month for EI or $40k/year. Those numbers don’t add up.

    Another option when dealing with extended unemployment would be to restructure your debt (credit cards, mortgage, etc.). You may be able to roll everything into one lower interest rate and reduce the monthly payments. After getting back to work, and perhaps getting past that 3 month probation period, you could think about gradually catching up on previous path to debt reduction.

    You also didn’t mention any severance packages. We’ve had 3 rounds of cutbacks at our employer in the last 16 months. My wife was offered a package of 4 weeks per year of service or about 40 weeks. Her other option was to take another position which she gladly took as it was of great interest to her.

    I only have that one example, but it wouldn’t surprise me if severance packages are more lucrative now because of the anticipated difficulty in finding new work.

    Since my wife and I have both been at our employer for about 10 years, we would be fine for at least 6-12 months without having to dip into any savings whatsoever – as long as we get that severance package!

  3. Gael on June 23, 2009 at 9:41 am

    @ cannon_fodder: Severance packages aren’t necessarily better: A friend of mine just got laid off and only got about a two-month package. This runs out next week and though she has been interviewing like mad (in Iowa) she has yet to find a job.

  4. FrugalTrader on June 23, 2009 at 9:45 am

    CF, I assumed no severance as indicated above, as not everyone is entitled to it. As well, I believe severance would eat into EI, would would need to be accounted for.

    I meant to say that the maximum insurable amount for EI is around $42k, and the weekly maximum is $447/week (before taxes).

  5. Ray on June 23, 2009 at 11:02 am

    FT maybe a correction is in order the maximum EI BENEFIT is NOT $42K, the maximum payment is $447/week which is about $23K/yr….$42 is the maximum insurable amount that your payment will be based on. So max you can get is about $42K X 0.55= about $23K. Also not everyone will qualify for the full 52 week maximum it will depend on the unemployment rate in your region and hours worked

    In our case we would be in a little trouble as we do not have a large savings amount (spend most on wedding) but both would qualify for maximum EI and our living expenses are very low only debt we have is student loan which would go on interest relief.

    • FrugalTrader on June 23, 2009 at 11:04 am

      Yes, you guys are right, it is a bit misleading. I’ll fix it now.

  6. Kathryn on June 23, 2009 at 11:14 am

    I just did the calculations and came out at 20.5 months if we liquidated everything except for the house. It’s more than I thought!

    We have no debt other than the mortgage.

    My spouse in a PhD student on scholarship so wouldn’t quality for EI.

    I work part time so my EI would be negligible.

    Your Canada Child Tax benefit would increase too. And you’d also continue to get Universal Child Care Benefit for any kids under 6.

  7. Blogging Banks on June 23, 2009 at 11:17 am


    Actually if your side business is generating at least some cash flow, you could extend the amount of time without a job to over one year.

  8. Steve Zussino on June 23, 2009 at 11:36 am

    That was interesting reading about the EI benefits. I am still wondering how our country can afford all these EI payouts but there are so many people out there that don’t ever use it.

  9. FrugalTrader on June 23, 2009 at 11:40 am

    Steve, our EI fund is actually overflowing with money (the last time I checked). We contribute almost 4% (up to $42k) when combining the employee and employer contributions.

  10. nobleea on June 23, 2009 at 12:41 pm

    FT, you say you could liquidate your non reg portfolio if need be and not go in to debt. But 45K of it is leveraged, so I would say you could only liquidate 15K of it and not go in to debt.

    I thought there was only a 2 week waiting period of EI? I mean, it could take a couple months for the first cheque to show up, but they would pay retro from after the 2wk waiting period.

    If you’re going to be out of work for 6 months or more, I think you could count on a nice tax return from the previous year.

  11. FrugalTrader on June 23, 2009 at 1:28 pm

    nobleea, good point! I should have said “without going into any additional debt”

    I believe that you are correct in saying that there is a 2 week waiting period but from my experience, it has taken at least 4 weeks to receive it. I could have accounted for the 2 week retro, which would pay for a little less than 1/2 months expenses.

  12. Thicken My Wallet on June 23, 2009 at 2:36 pm

    Are you eligible for EI if you are already over the clawback threshold or do you receive it and its a dollar for dollar clawback later?

    Stats Canada found that an unemployed person typically takes 15-26 weeks to find a new job. So, to be safe, you should aim to cover expenses for about 30 weeks.

  13. Four Pillars on June 23, 2009 at 3:01 pm

    TMW – I don’t believe there is any clawback for EI in terms of total income. Are you talking about money earned for that year? Ie if you make $70k through to Sept, get laid off – do you still get EI? I’m pretty sure the answer is yes.

    I don’t know how severance affects EI – I would assume they calculate a time period that the severance would cover and then start your EI at that time? Ie if you get laid off on Jan 1 and get 6 months severance then you wouldn’t get EI until July.

    I do know there is some sort of clawback for money earned while you are collecting ei. I can’t remember the formula. One thing I’m curious about is what if you own a small business and get laid off – can you “not pay yourself” for a while in order to get EI?

  14. nobleea on June 23, 2009 at 3:04 pm

    FP: “One thing I’m curious about is what if you own a small business and get laid off – can you “not pay yourself” for a while in order to get EI?”

    How would you lay yourself off? Is that even possible?

    I think you can earn something like $50 a week and still be fine for EI payments. Any dollar over that gets subtracted from your EI payment. Or maybe it’s $150 a week. Not sure.

  15. Four Pillars on June 23, 2009 at 3:45 pm

    Nobleea – Sorry, I meant if you got laid off from your full time job but had a small business on the side.

  16. Theory on June 23, 2009 at 3:53 pm

    From my experience, any severance payments count against EI earnings, straight up. So if you get 1 month severance, that’s not just one month of EI, that’s no EI until the amount you would have received from EI totals the amount you got from the severance.

    Say you get 400 a week, and got 4000 severance. That’s 10 weeks before you get an EI payment. I received an EI cheque for $1 one time because of this.

    They may have changed this since I was last unemployed.

  17. Stephanie Elizabeth on June 23, 2009 at 4:13 pm

    That was an excellent post with some great information. We published some information on this topic too.

  18. Thicken My Wallet on June 23, 2009 at 5:40 pm

    Ok- found the clawback section:

    So, there is a clawback but when you file your tax returns and any severance counts against EI earnings since severance is taxable income.

  19. Four Pillars on June 23, 2009 at 5:52 pm

    TMW – thanks for the info – very interesting.

    So I was wrong about the clawback, although in my defence the last two times I was on EI I didn’t get clawed back because I was part of the “exception” group (receiving parental benefits).

    However, it also says “you received less than 1 week of regular or fishing benefits in the preceding 10 taxation years;” as an exception. This would imply that someone who hasn’t collected EI in 10 years wouldn’t face the clawback.

  20. TheRoadtoMeaning on June 23, 2009 at 9:02 pm

    First off, I have been browsing this website for months without ever commenting but have decided to today. Frugal Trader, your articles are excellent and have been a great educational tool for me.

    28 months is a very impressive time frame to be without work and not dipping into retirement funds or gaining any extra debt. I am now aggressively building an emergency fund in case an event like this would ever happen to me in the future.

  21. Tero on June 23, 2009 at 9:39 pm

    I do this kind of calculations about once a month to be “on top of things”. Current estimate is that if i loose my job and start to live through my savings, it will take approximately 6-8 years before they run out. My monthly living costs are less than $1000 a month so that is easy to cover. Unemployment insurance lasts for 2-3 years in Finland and it will be in my case almost $2000 so I can easily keep on saving money for first couple of years. And I have zero debt so I really don’t need to worry about anything related that.

  22. FrugalTrader on June 23, 2009 at 9:44 pm

    Thanks for the kind feedback RoadtoMeaning. Feel free to ask questions as the community members here are both considerate and knowledgeable.

  23. mp on June 24, 2009 at 1:01 am

    Good luck getting EI after 4 weeks – budget for minimum 8 weeks wait. Stephen Harper’s government has failed to recognize the severity of this recession so consequentially has failed to staff up the department responsible for processing claims. Then factor in you’ll be required to exhaust any severance before you can even begin to receive EI.

    Other factors to consider – if your employer convinced you to scale back your hours of work to prevent layoffs in your workplace, and your employer didn’t apply for the EI workshare program, then your employer has just screwed you out of full EI benefits (up to just under $450 a week). That’s because your EI benefit will be calculated on the number of hours you work, based on your last weeks of employment, not your best weeks.

    Finally, if you live in an area of previously low unemployment, the duration of your benefits will be a lot lower than if you live in an area of high unemployment – because it takes a while for the rate to recalculate and improve benefits in your area. The duration of benefits depends on the unemployment rate where you live. Thus if you lose your job in Calgary, you’re likely to get only 19 weeks of unemployment benefits but if you lose your job in Acadie New Brunswick, you will get about 50 weeks of benefits.

    Thank your conservative government for not changing this unfair regional disparity.

  24. mp on June 24, 2009 at 1:08 am

    Oops. And I also forgot to mention, if you are self-employed, or got laid-off from your job last year and got conned into “going into business for yourself”, you are totally out of luck with respect to EI. I know of many people who lost their jobs last year (after years of paying into EI), tried their hands at consulting or going into business for themselves, didn’t make it and have tried to apply for EI and of course cannot qualify at all now.

  25. Debt Consolidation Regina on June 26, 2009 at 5:41 pm

    This is a great article with very helpful insight on how important it is to do an emergency fund analysis such as the one you have provided. Thanks for sharing!

  26. WP on June 26, 2009 at 7:04 pm

    I believe it was in one of Robert Kiyosaki’s books that I first came across this subject. The way that he proposed it, was that a persons wealth can be measured by how long they can survive financially without working. At this point, my savings won’t last nearly long enough.

  27. thatdaveguy on June 29, 2009 at 2:51 am

    I could live using just using EI in the first year, barely dipping into my savings at all.

    I live in a small city, so I’d dump my car and minimize all my other costs. I could last about 41 months including my retirement assets.

    If I counted the buyout my company is currently offering to get rid of employees, I could last 66 months.

  28. CJS on April 15, 2010 at 12:49 am

    does anybody know if dividend end payments from stocks will reduce the amount of EI you are eligible for?

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.