Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Capital expenditures vs. safe WR
Old 12-21-2018, 09:04 PM   #1
Recycles dryer sheets
arch57's Avatar
 
Join Date: Dec 2013
Posts: 68
Capital expenditures vs. safe WR

How do folks track one-time withdrawals to support capital expenses like a major home remodeling project vs. their planned safe withdrawal rates?
Iíve been retired for 3.5 years and our WR seemed high at 8-9% until I backed out large chunks for a home remodel one year and a new car this year. Want to see how others account for the lump sum expenses that occasionally come up.
__________________

arch57 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-21-2018, 09:08 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,316
Withdrawals are withdrawals... whether spent on a new car or on hookers it doesn't really matter... it is money from the portfolio that is gone.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 12-21-2018, 09:19 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 3,745
I would borrow money before getting too much into my planned withdrawal rates. No one knows how long they have on this earth, but being conservative is better than coming up short when someone has another 10 years to live.

I could make it until 75 years old before any IRA money is needed. But those RMD's hit at age 70 1/2, and I will be reinvesting the money since we don't plan on spending more than we currently are (spending.)
Bamaman is offline   Reply With Quote
Old 12-21-2018, 09:52 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Apr 2005
Location: Midwest
Posts: 2,104
I kept a spare bag of money "off the books" because I knew these I'd have to call an audible someday and I didn't want the expense to upset my retirement math. Over the years I would direct excess funds to top off that account after a big pay-out.

IOW: My retirement funding was based on: No matter how much money you need, you'll need more.
razztazz is offline   Reply With Quote
Old 12-21-2018, 10:28 PM   #5
Thinks s/he gets paid by the post
Katsmeow's Avatar
 
Join Date: Jul 2009
Posts: 4,170
When DH retired and I semi-retired 8 years ago I knew that we were going to have some big withdrawals (above 4%) for several years. Some were because we had kids in college and others were house related. I ran Firecalc using manual spending (this required being a supporter) so was able to project spending by year. Without that, it can be modeled in Firecalc as one time expenditures or by reserving some money and not including in the portfolio or as spending.
Katsmeow is offline   Reply With Quote
Old 12-21-2018, 10:58 PM   #6
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 979
I have two approaches. My basic budget include allowance for "car depreciation" which allows for a replacement every X years, and for major home repairs. So for regular living expenses I am actually withdrawing less than my total "budget."

For planned expenses I used FIRECalc's "Portfolio Changes" tab to cover the final couple of years of tuition, two new cars (one of which is a new used car), and renovation of the summer place we bought from the in-laws before I retired.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is online now   Reply With Quote
Old 12-21-2018, 11:50 PM   #7
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 42,658
Quote:
Originally Posted by arch57 View Post
How do folks track one-time withdrawals to support capital expenses like a major home remodeling project vs. their planned safe withdrawal rates?
I’ve been retired for 3.5 years and our WR seemed high at 8-9% until I backed out large chunks for a home remodel one year and a new car this year. Want to see how others account for the lump sum expenses that occasionally come up.
In 2015 I bought my Dream Home in cash. My old house was paid off so that helped, but still my Dream Home was more expensive than my old house. Also there were other costs involved. For example, there were costs for moving, closing, and a major re-landscaping project for the yard of my Dream Home. All net costs related to buying and moving into my Dream Home added up to $92,603. There is no way I could get this just from petty cash lying around! I am not that kind of high roller...

What I did was treat this as a permanent reduction in my portfolio nest egg.

From 2010-2015 I had spent an average of 2.1%. This is how I knew I wasn't fooling myself, and that I could really afford to forever reduce the amount on which my WR was computed.

Also in 2013 I got divorced spousal SS which meant I was spending less investment money than I had been previously, more like 1.7%. Anyway it all worked out.

Another way to think of this is to imagine that I withdrew 3.5% every year and just didn't spend all of it, and put it in savings. Then I would have had more than enough in savings to pay for it. Deciding whether to think of it this way, or as a permanent portfolio reduction, is just mental gymnastics IMO. I prefer the latter because I actually put the excess back into investments instead of into savings.
__________________
I have drunken deep of joy,
And I will taste no other wine tonight.

― Percy Bysshe Shelley
W2R is online now   Reply With Quote
Old 12-22-2018, 01:21 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Tampa
Posts: 4,536
Quote:
Originally Posted by razztazz View Post
I kept a spare bag of money "off the books" because I knew these I'd have to call an audible someday and I didn't want the expense to upset my retirement math. Over the years I would direct excess funds to top off that account after a big pay-out.

IOW: My retirement funding was based on: No matter how much money you need, you'll need more.
+1
Even though money is fungible, I am currently building up a reserve account off the books and when I will need it for a car for example, I will not technically include it in my WR% for that year. The monies which are funding the emergency/large expenditure account IS included in my WR% of those years. I know, I know......
__________________
TGIM
Dtail is offline   Reply With Quote
Old 12-22-2018, 04:59 AM   #9
Recycles dryer sheets
 
Join Date: May 2013
Posts: 291
Quote:
Originally Posted by pb4uski View Post
Withdrawals are withdrawals... whether spent on a new car or on hookers it doesn't really matter... it is money from the portfolio that is gone.
+1

Another way of asking the OP question is:

"Do I count my house equity / vehicle equity in my retirement calculator 'Portfolio' total?"

Answer you generally get is "No."

(I still remember how upset I was in my thirties to realize that a home is a wasting asset. )
footenote is offline   Reply With Quote
Old 12-22-2018, 06:00 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,159
Quote:
Originally Posted by arch57 View Post
How do folks track one-time withdrawals to support capital expenses like a major home remodeling project vs. their planned safe withdrawal rates?
Iíve been retired for 3.5 years and our WR seemed high at 8-9% until I backed out large chunks for a home remodel one year and a new car this year. Want to see how others account for the lump sum expenses that occasionally come up.
That extra 4 or 5 percent is not insignificant. I think you front loaded your expenses without any planning and you have permanently reduced your portfolio and your income as a result. The fact you are discovering this retrospectively is concerning. Most people plan for these expenses and set aside funds outside their assets used for retirement income projection or borrow the money and include the payments in their WR.

If you don't include the "lump sum expenses that occasionally come up" in your planning, you are not accurately projecting your WR. You also can't expect long term success if you consume too much of your retirement assets early in retirement, especially now with a SORR event possibly looming.
Another Reader is offline   Reply With Quote
Old 12-22-2018, 06:28 AM   #11
Moderator
 
Join Date: May 2007
Location: GenŤve
Posts: 11,742
I “save” part of my withdrawals to pay for large capital expenditures like home maintenance and car replacement. In reality, what I “save” simply stays in my portfolio and continues to compound.

I consider “home remodeling” purely a want and I would not withdraw extra money from my portfolio to fund such a project (I usually pay-as-I-go for it using the discretionary funds in my monthly budget).
__________________
45 years old. Exited the job market in 2010 (age 36). Have lived solely off my investments since 2015 (age 41).
Current AA: real estate 30% / cash 70%
Current WR: < 2%
FIREd is offline   Reply With Quote
Old 12-22-2018, 06:39 AM   #12
Recycles dryer sheets
arch57's Avatar
 
Join Date: Dec 2013
Posts: 68
Quote:
Originally Posted by Another Reader View Post
That extra 4 or 5 percent is not insignificant. I think you front loaded your expenses without any planning and you have permanently reduced your portfolio and your income as a result. The fact you are discovering this retrospectively is concerning.
I've been planning for this since 2010 and have run many models, spreadsheets and Firecalc simulations (like another poster mentioned you can model lump-sum withdraws). Every scenario has 100% confidence up to age 95 so am not concerned about outliving our money. Was just asking how others treat the lump sums out of curiosity.
arch57 is offline   Reply With Quote
Old 12-22-2018, 07:04 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,159
Quote:
Originally Posted by arch57 View Post
I've been planning for this since 2010 and have run many models, spreadsheets and Firecalc simulations (like another poster mentioned you can model lump-sum withdraws). Every scenario has 100% confidence up to age 95 so am not concerned about outliving our money. Was just asking how others treat the lump sums out of curiosity.
Sorry, that's not how it came across. Sounds like you have a solid plan, but still more aggressive in the early years than I would do. This is a conservative crowd here, and I'm on the more conservative edge.

Can't help with the lump sum question, as my only withdrawals are RMDs from an inherited IRA. No choice there.
Another Reader is offline   Reply With Quote
Old 12-22-2018, 07:07 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 9,503
My SWR is higher than my typical expenses. The excess is tracked in a psuedo-account and is available for any large purchases that would exceed my SWR in any given year. My actual expenses are low enough that I have not tapped this "mad money" fund.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 12-22-2018, 07:11 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,517
In the budget I created pre-retirement, I have an annual expense bucket for car replacement.

In retirement, I don't track spending categories, but just track cash flow each month. This means I have a huge expense in the month I have bought a car, and I note what it is in the spreadsheet. I use VPW as a model but if I go somewhat over in a year I have such an expense I don't worry, as long as I'm under in other years.

If I were more worried about it I might create a side fund for such purposes that I pay into and track that fund rather than the actual purchase, but I just haven't bothered doing it. I could also lease the car or make payments so I'd have level payments, but I don't want to make such decisions based on easier personal accounting.
RunningBum is offline   Reply With Quote
Old 12-22-2018, 07:14 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 22,931
I have plenty extra accumulated outside of the portfolio I withdraw from annually, and use that for the occasional large lump sum purchases. If I ever spent that all down, I would not increase my withdrawal rate, but would rather “save up” from my annual income to cover large lump sums.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 12-22-2018, 07:26 AM   #17
Thinks s/he gets paid by the post
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 1,385
I think the question is, how often going forward will there be "lumpy expenditures", that push your SWR to the 8 or 9%, that you have experienced twice out of the 3.5 years that you have been retired? If those "lumpy" years will not occur again, or only occur rarely throughout your retirement, then you're good. If they occur with more frequency, then it would appear that your modeling was off.


Sent from my iPad using Early Retirement Forum
__________________
"Luck favors the prepared mind"
Pasteur
Golden sunsets is offline   Reply With Quote
Old 12-22-2018, 07:26 AM   #18
Moderator
Aerides's Avatar
 
Join Date: Nov 2015
Posts: 3,832
Quote:
Originally Posted by arch57 View Post
How do folks track one-time withdrawals to support capital expenses like a major home remodeling project vs. their planned safe withdrawal rates?
Iíve been retired for 3.5 years and our WR seemed high at 8-9% until I backed out large chunks for a home remodel one year and a new car this year. Want to see how others account for the lump sum expenses that occasionally come up.
We don't really track the big expense other than go "oh yup bought the car". As long as the rest is within the expected range, and you're not really having these every year from now on.

(Of course, there are always unexpected things, so if next year you need a new roof, or the year after that you pay for a kid's wedding, then that's not an exception, it's your new WD, and to a certain extent, most of us have a buffer included in our budget to handle what's typical for us...)

Assuming these are really just back to back one-times, there's probably no issue, unless these two high years skimmed enough off the nut that you can't continue with your remaining balance and your typical SWD, which does not sound like the case for the OP.
Aerides is offline   Reply With Quote
Old 12-22-2018, 08:52 AM   #19
Recycles dryer sheets
 
Join Date: Sep 2017
Posts: 481
In this case I would, like others have said, treat it as a hit to the portfolio. We’ve done this in our model with a few big expenses we know are going to be coming.

Not yet retired, but we’re accruing for these expenses annually. We will likely leave the $ invested. I feel like this is a bit of extra conservatism/buffer as most of these are discretionary. With the exception of a new hvac or something like that, we’re not going to be spending on this sort of stuff, especially in the early years, if the market is down significantly. About 1/6th of our budget is set aside for this type of expense, so minimizing this spend, especially in the early years, can move the needle.
tb001 is offline   Reply With Quote
Old 12-22-2018, 09:02 AM   #20
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 45,585
Quote:
Originally Posted by pb4uski View Post
Withdrawals are withdrawals... whether spent on a new car or on hookers it doesn't really matter... it is money from the portfolio that is gone.
Exactly.

Any funds withdrawn - and spent - are reductions to the portfolio. Over the past couple of years RMDs have required us to withdraw slightly more funds from the portfolio than we've spent, and those unspent (except for taxes) funds are still in our portfolio, albeit now in a taxable account.
__________________

__________________
Numbers is hard

Charter resident of the lumpen slums of cyberspace

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Budgeting for major expenditures in retirement 23window FIRE and Money 31 02-16-2016 04:21 PM
Consumer Expenditures Survey Independent FIRE and Money 9 11-04-2014 08:21 PM
PSA: Soc Sec - Expenditures of the Aged Chartbook 2010 Midpack FIRE and Money 4 04-01-2013 04:36 PM
Cash Expenditures in Quicken TromboneAl FIRE and Money 10 07-13-2006 02:42 AM
Expenditures Decrease With Age TromboneAl FIRE and Money 18 06-11-2005 06:57 PM

» Quick Links

 
All times are GMT -6. The time now is 08:34 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×