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catastrophy theory
Old 10-15-2005, 09:20 AM   #1
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catastrophy theory

I've hijacked the DW's computer again. DW and I have been discussing our future retirement budget over the past few days. Of course, we can sort of figure out our annual "expected" expenses pretty well. We are currently arguing about how much per year to set aside for regularly occuring unexpected events, such as the relative that needs money, the used car that gets totalled the day after collision insurance is dropped, dentures , etc. I think $5K/year should be enough if the remainder at th end of each year is just rolled into an emergency pot and allowed to build. DW is just unsure.

What are people's experiences with unexpected monetary events in retirement? How are they treated as part of their budgets? What is a good set aside amount over time, what has worked for you? Thanks.

--Greg
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Re: ctastrophy theory
Old 10-15-2005, 09:44 AM   #2
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Re: ctastrophy theory

Our magic number has always been 8K.* Don't know how we came up with that number.
In about 12 years we have never touched it, not because of the lack of calamities, but because we try to address the predictible issues with separate pots.* You mention car problems.* We save 300 per month under the heading of "car". Also, that pot contains out 2 credit card car $$earnings.* That system has covered repairs and new car purchases quite well.* You mention $$ for relatives.* No plan there cause it won't happen.* Dentures* etc, insurance covers enough of dental that it doesn't rise to needing the emergeny fund.

I guess you could say that the 8K is there for the really big one that we truly don't expect to happen.
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Re: ctastrophy theory
Old 10-15-2005, 10:06 AM   #3
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Re: ctastrophy theory

Our biggest unexpected expense comes from the uncontrollable urge to remodel. I'd budget an extra $40K/year.
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Re: ctastrophy theory
Old 10-15-2005, 11:58 AM   #4
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Re: ctastrophy theory

I want H-G-TV...

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Re: ctastrophy theory
Old 10-15-2005, 12:15 PM   #5
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Re: ctastrophy theory

Quote:
Originally Posted by Martha
I think $5K/year should be enough if the remainder at th end of each year is just rolled into an emergency pot and allowed to build.* DW is just unsure.
We just go with about 10% of our annual expenses and don't worry about whether 9.95 or 10.05% is better. Keep in mind, too, that in ER your time will allow you to save far more money by scooping up opportunties or by doing your own work.

For example my mother-in-law needed a replacement fridge. We started at $750 retail and finally whittled that down to about $600. The classified ads didn't produce many leads but then we started watching Craigslist every day. We bought yesterday for $175 plus a $45 gasket, a job other buyers weren't willing to tackle.

Same thing when spouse's car spun out. I was able to save a tow fee and many hundreds of $$ on a new muffler and fender/bumper work.
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Re: ctastrophy theory
Old 10-15-2005, 01:01 PM   #6
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Re: ctastrophy theory

Quote:
Originally Posted by Martha
* I think $5K/year should be enough if the remainder at the end of each year is just rolled into an emergency pot and allowed to build.* DW is just unsure.
--Greg
I'm curious if people actually physically put this "emergency pot" in a different account, or just a diferent catagory on the spreadsheet?

Seems tedious to move it to another account "just in case" but OTOH if it was me, I'd tend to just ignore it, and say at the end of the year, "well I didn't spend it so my portfolio is $X greater than it would have been, so next year I can spend $X x 2 if I have an emergency...* and after a few years I'd forget or neglect to monitor...

And would I really care

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Re: ctastrophy theory
Old 10-15-2005, 02:10 PM   #7
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Re: ctastrophy theory

Quote:
Originally Posted by Nords


Same thing when spouse's car spun out.* I was able to save a tow fee and many hundreds of $$ on a new muffler and fender/bumper work.
Slight subject shift, how is the car working out? Tires wearing evenly? Pulling a bit?
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Re: ctastrophy theory
Old 10-15-2005, 03:33 PM   #8
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Re: ctastrophy theory

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Originally Posted by yakers
Slight subject shift, how is the car working out? Tires wearing evenly? Pulling a bit?
http://early-retirement.org/forums/i...c=3444.new#new (updated).
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Re: ctastrophy theory
Old 10-15-2005, 08:07 PM   #9
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Re: ctastrophy theory

"I'm curious if people actually physically put this "emergency pot" in a different account, or just a diferent catagory on the spreadsheet?'

When I retired (in my 40's) I started considering my taxable dollars as a pot for emergency and living expenses. I do not risk that money in the market, so I sleep soundly. The single biggest 'emergency spending year' I have had in the past 5 years was 2 years ago when the A/C had to be replaced ($5,000) and the plumbing took a big leak ($3,000, a huge job) at my rental property. This was the only time I had to dip in for emergencies, but it taught me that two big things CAN happen at the same time.

In a few years, after I've spent down most of my taxable dollars (which amazingly seems not to go down much at all!!) I will keep $10,000 in an emergency taxable cash fund at all times and withdraw 4% from my IRA.
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Re: ctastrophy theory
Old 10-16-2005, 06:25 AM   #10
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Re: ctastrophy theory


I don't really have a catastrophe theory, but I do keep a pot -- yes, it's separate -- for maintenance (me and the house and the car), travel, and the next car. I keep it in an I-Bond account at Treasury Direct. I decided to keep it separate because it was easier for things that don't fall on a regular schedule, as taxes and utilities and many other things do. I also don't use a spreadsheet.
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Re: ctastrophy theory
Old 10-16-2005, 06:30 AM   #11
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Re: ctastrophy theory

Quote:
Originally Posted by Sheryl
I'm curious if people actually physically put this "emergency pot" in a different account, or just a diferent catagory on the spreadsheet?


Sheryl
We keep our emergency fund in a completely separate account. *No real difference *from a separate accounting line, but in our minds keeping it in a separate account make access it clearly for emergencies only.
Up till now, have been no problem to fund emergencies out of cash flow, but as full retirement gets closer, it becomes more obvious that we will need this account for those expected although irregular emergencies.
One year stove, refrigerator, furnace and car all went out within two months of each other, during the winter. *If that would happen in retirement, which we expect something like it would, nice to have a fund to tap into.
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Re: ctastrophy theory
Old 10-16-2005, 07:55 AM   #12
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Re: ctastrophy theory

Clearly - I need to get more organized - our reserve was money waiting to get invested plus money in checking and savings accounts(household of four).

Heh heh heh - I guess the days of gold and silver coins(when money becomes worthless), an up to date passport, and freeze dryed food are long gone.

Formerly of hurricane alley - we did the usual every year - the newest wrinkle being the internet to book motel rooms for evac.

Any other non monitary preps for possible disasters
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Re: ctastrophy theory
Old 10-16-2005, 08:40 AM   #13
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Re: ctastrophy theory

Quote:
Originally Posted by unclemick2
Clearly - I need to get more organized - our reserve was money waiting to get invested plus money in checking and savings accounts(household of four).

Heh heh heh - I guess the days of gold and silver coins(when money becomes worthless), an up to date passport, and freeze dryed food are long gone.

Formerly of hurricane alley - we did the usual every year - the newest wrinkle being the internet to book motel rooms for evac.

Any other non monitary preps for possible disasters
Stockpile Jim Beam.

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Re: ctastrophy theory
Old 10-16-2005, 09:20 AM   #14
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Re: ctastrophy theory

Quote:
Originally Posted by Repairmanjack
This was the only time I had to dip in for emergencies, but it taught me that two big things CAN happen at the same time.

I've got news for you man. There is no limit on the number of BIG (BAD)
things that can happen at the same time. You've been warned.

JG
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Re: ctastrophy theory
Old 10-16-2005, 10:21 AM   #15
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Re: ctastrophy theory

Quote:
Originally Posted by MRGALT2U
I've got news for you man. There is no limit on the number of BIG (BAD)
things that can happen at the same time. You've been warned.
The world is coming to an end in 10 days at 10:03:34:0236 GMT.
I will selling my property in 5 days, and withdrawing all my money and moving to Jupiter. I hear there's a lot of cheap property to be gotten there. I hope they accept dollars, euros and gold there. It's just a bit cloudy most days.
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Re: catastrophy theory
Old 10-16-2005, 10:32 AM   #16
 
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Re: catastrophy theory

I'm not understanding this thread.

Many of us on this forum have between $200,000 and $400,000 in taxable accounts (that is, non-retirement accounts). For someone like that, talk of an emergency fund is totally irrelevant right?

Things can be organized so that in an emergency, you wouldn't have to sell stock when the market is down, and even if you had to -- it's an emergency, and in an emergency you might have to take a bit of a loss.

I guess this would be relevant if the taxable money were gone, and you were under 59.5 years old, or if your money were coming from a pension, and you didn't have savings.

Let me know what I've overlooked here.
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Re: catastrophy theory
Old 10-16-2005, 10:33 AM   #17
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Re: catastrophy theory

All kidding aside, since I just ER'd this year, I currently don't have official emergency category. I have a decent amount of fat in a few maintainance, personal and travel expense categories so that I could take from peter to pay paul. I am think of taking my surplus at the end of year and putting into a separate emergency category. I will not open a separate financial account for emergency.
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Re: catastrophy theory
Old 10-16-2005, 01:25 PM   #18
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Re: catastrophy theory

"I've got news for you man. There is no limit on the number of BIG (BAD)
things that can happen at the same time. "

Actually, there is a limit. Infinity is a mathamatical concept is valid only when used to indicate a potential, not an actual. Per John Galt. And Aristotle.

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Re: catastrophy theory
Old 10-16-2005, 08:01 PM   #19
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Re: catastrophy theory

Quote:
Originally Posted by TromboneAl
I'm not understanding this thread.*

Many of us on this forum have between $200,000 and $400,000 in taxable accounts (that is, non-retirement accounts).* For someone like that, talk of an emergency fund is totally irrelevant right?

Things can be organized so that in an emergency, you wouldn't have to sell stock when the market is down, and even if you had to -- it's an emergency, and in an emergency you might have to take a bit of a loss.

I guess this would be relevant if the taxable money were gone, and you were under 59.5 years old, or if your money were coming from a pension, and you didn't have savings.

Let me know what I've overlooked here.
I don't think you overlooked anything. I don't get it either.

JG
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Re: catastrophy theory
Old 10-16-2005, 08:34 PM   #20
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Re: catastrophy theory

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Originally Posted by MRGALT2U
I don't think you overlooked anything. I don't get it either.

JG
I'll 3rd that. It makes no sense to me to put $XX,XXX in a MM at low rates for 'emergencies', when you never know if/when they might occur. I think it does make sense to budget an average $X,XXX each year for the normal 'unscheduled' expenses that occur each year. I'd rather have the money invested, if I get hit at a time when the market is down - well, that's the breaks. Don't miss out on the gains for years and years, fretting over the once in a lifetime event. I plan for new car purchases - any other 'emergency' expenses have not been more than a few $K - I can take that in stride.

ERD50
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