What is the ideal percentage the Reserve balance should be funded?
The goal for the association is to have 100% of the recommended balance funded. This means that the association has 100% of the money needed to cover all of the anticipated costs at that point in time. The calculation of the required balance is complicated and includes estimates, valuations, assumptions, and projections. Some reserve experts suggest that the reserves should be funded at 50% or higher of the property’s calculated deterioration. If the association has less than this amount saved, the risk of a special assessment to cover the costs increases. This can be a challenge for some of the owners who would need to come up with the money on short notice.
If your funding is less than 50%, you should work with your association manager to come up with a budget that will allocate a greater percentage of the regular assessment to the Reserve fund. Most associations allocate 10% to 40% of the regular assessments to Reserve, with an average being approximately 20%. The percentage will vary depending on whether or not you are playing “catch up”. Some associations that are fully funded allocate 0% to Reserve, while those that are playing “catch up” could be on the high end of the range, or 40%.