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Old 02-14-2016, 02:49 PM   #21
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I leave my Roth IRA for last to tap. But before we( H&I) retired, we had major dental work done that cost up to $5k on top of a generous dental plan. This year we have a low benefit plan now. But we are lucky, we don't have to worry about ACA.


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I considered that but taxable and IRA cost tax money when you spend it. Taxable is passed to heirs tax free just like it was a ROTH so why not me save tax money. IRA is being spent to maximize my income for life so taking out about 10K a year so far with that and SS and dividends I am attempting to even out lifetime taxes maybe try not to get SS taxed or not deciding yet. Two more years until RMD and I want them pretty much my choice so don't want IRA to grow out of control so spending some of it.
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Old 02-14-2016, 04:36 PM   #22
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WE have an emergency fund and could tap equity in our paid for home if we wanted too. Before we retired we did all the expensive things to the house. Our old cars were costing to much in repairs so we bought 2 slightly used cars. When they die we will be in our 70's by then and we will probably share a car. We don't drive a ton now. It is certainly less then when we were working f.t.
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Old 02-14-2016, 04:57 PM   #23
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When I did my initial retirement budget I used an accrual approach to calculate my initial withdrawal rate. I understand that some years my WR will be more and some less. I split the accruals into two pots for record keeping; less discretionary (roof, appliances) and more discretionary (replacement vehicle, furniture upgrades). As long as my multiyear average is at the initial withdrawal rate (adjusted for inflation) I consider myself on budget.

Each year the total amount actually spent is included in my withdrawal rate calculation which means some years I will be over or under my total budget which is fine as long as the variance is explained by the big ticket items a d the multiyear average of the big ticket items total is also on/under budget.

Actual funding simply comes out of my 4 year cash & short term savings (which also serves as my buffer against a down market).
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Old 02-14-2016, 05:35 PM   #24
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The studies show that most people spend less $ as they age. By the time people are in their 70's most no longer want to travel much, etc. This is why in our early 60's now we are ramping up the travel.
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Old 02-14-2016, 05:58 PM   #25
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The budget effort is very different for a lot of people on this board. Some hit the numbers they planned before retirement almost exactly. For me, I was way off on everything. Like you, I had 20 years of Quicken data to go on. What I did not have were costs associated with a new location half way across the country at about $5k/yr and cost overruns for kid's college and building a house. I think I will be between $100k and $150k over planned spending (I don't really keep a budget) for the first 5 years. I am withdrawing an additional $24k per year for the first 6 years to try to even things out. I'm still under 3% WR so in my case it is not a major financial burden, just spending more than I planned and withdrawing more than planned to cover it.
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Old 02-14-2016, 06:34 PM   #26
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I put chunk of money into a virtual "emergency/slush" bucket. The money is invested in the same pot (ie. same AA) as the money used for annual withdrawals, but is not used in calculating the withdrawal.

We have used money from it once when our annual expenses exceeded our withdrawal. Since we use a percentage of portfolio value withdrawal method (ie. no automatic increases based on CPI), our annual budget can be quite volatile. This bucket helps smooth it out.

It is purely a mental game, but it helps me.

Imho,the timing, number and scale of large expenses are hard to predict. I find my method works for me.
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Budgeting for major expenditures in retirement
Old 02-14-2016, 06:43 PM   #27
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Budgeting for major expenditures in retirement

Quote:
Originally Posted by old woman View Post
I considered that but taxable and IRA cost tax money when you spend it. Taxable is passed to heirs tax free just like it was a ROTH so why not me save tax money. IRA is being spent to maximize my income for life so taking out about 10K a year so far with that and SS and dividends I am attempting to even out lifetime taxes maybe try not to get SS taxed or not deciding yet. Two more years until RMD and I want them pretty much my choice so don't want IRA to grow out of control so spending some of it.
I do t know if the beneficiaries have to take RMD with Roth or not? I need to do more research on this subject. I know with IRA the beneficiaries have to withdraw, but the beneficiaries can stretch them if the RMD has not started. If it has started then I think it has to be maintained the same withdraw rate as the deceased IRA owner.



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Old 02-14-2016, 11:45 PM   #28
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My second-tier emergency fund, or "slush fund," has about $40k in it used to cover large, unforeseen expenses. Besides using that blob of money now held in an intermediate-term muni bond fund, I have another $40k in another muni bond fund which fits better as a "slush fund" to cover large, unforeseen expenses not covered by the second-tier EF.


My goal is to have my current car, a 9-year-old car with just under 30k miles, last me another ~6-7 years until I turn 59.5 in 2022. Then, I can begin tapping into my IRA for large expenditures. That wouldn't necessarily be Plan A, but it is a decent Plan B.
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Old 02-15-2016, 07:30 AM   #29
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We have a separate savings account which we deposit funds into monthly for irregular expenses. That fund which is currently at $75,000 is "off balance sheet" in other words not included in our assets/net worth. The monthly deposit is a summation of the estimated cost of each item we are saving for divided by the average life of the item in months. We are currently depositing $5,300/month into the account. So as an example exterior house painting runs about $9,000 and needs to be done every 7-8 years so the monthly contribution for that component is 9000/96= $94. The account also holds funds for more normal but periodic expenses like property taxes and travel. Capital expenses like furnace replacement, washer/dryer/dishwasher, interior paint, driveway paving and car replacement are all in the account. In the end money is fungible, but there is something emotionally soothing about seeing a bill or expense come in that will be absorbed by the fund and will not deplete assets. It will be particularly meaningful when the next car purchase comes around, currently scheduled for the end of 2017.
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Old 02-15-2016, 08:05 AM   #30
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Our's is similar to many on here. I use to build discounted cash flow spreadsheets for apartment appraisals. So from that experience I set up a fund.

I looked at the items that would need replaced and the time frame. (we started with a new house, which made it easier) Roof, 15 yr. (could be 20 but in Texas sun, often shorter}, painting 15 yrs, appliances 8 to 12 year depending on which ones, carpet 10 yrs, A/C 8 yrs, Auto 6 yrs, TV 4 yrs. I then divided the inflation adjusted price by the year of use to arrive at annual savings required.

If you wanted to track it closer, you would reduce the amount going in when a replacement value is reached. i.e. we start out saving about a thousand a month. Eight years has gone by and there is enough to replace all the appliances. The thousand a month does not cause us pain so we just keep on. In ten years we have enough to replace all the items, but we still continue to put the thousand in. I check the price to replace the major items and it now lets me upgrade the car, or hard wood floors, or take a cruise.
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Old 02-15-2016, 03:56 PM   #31
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Since I have tracked spending for many years (long before ER) I always compare my current spending and withdrawal rate not just against the previous year but the five year moving average - five years tends to catch things like computer replacements, major repairs, big travel blowout years...


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Old 02-16-2016, 04:21 PM   #32
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We have a 2% of asset value provision for annual maintenance, property taxes, insurance etc. Then another 2% for budgetary purposes for major repairs. HELOC will provide the liquid cash when needed, and it will be repaid out of dividends.

Of course easy right now as I am still working, will see how it holds up when I do retire.
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