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Extraordinary Expesnses in ER
Old 04-22-2007, 06:13 AM   #1
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Extraordinary Expesnses in ER

We plan to increase spending in ER. We intend to have the mortgage paid off. Health care insurance costs will rise a little (company subsidized benes). We will travel more. I expect that to increase expenses.


What I am considering is other expense in retirement. Is anyone planning/considering any extraordinary expeneses such as purchase a vacation condo/home, boat, remodel house, etc... Those large one-time costs that may mor may not have trailing on going expenses.

If so, how are you factoring that into your WR. Just a lump sum payment form the portfolio or getting a loan?
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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 07:43 AM   #2
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Re: Extraordinary Expesnses in ER

Quote:
Originally Posted by chinaco
... Is anyone planning/considering any extraordinary expeneses such as purchase a vacation condo/home, boat, remodel house, etc... Those large one-time costs that may mor may not have trailing on going expenses.

If so, how are you factoring that into your WR. Just a lump sum payment form the portfolio or getting a loan?
We're considering buying a motor home. Although I have factored the maintenance, insurance, fuel and other ongoing costs into our WR, I'm not factoring in the purchase price. I set aside that lump sum and don't include it as part of our portfolio when running FIRECalc.

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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 08:06 AM   #3
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Re: Extraordinary Expesnses in ER

Let's supposed you want to make a major purchase in year (X + n) without a loan. Divide the purchase price by n (number of years). That amount will be included as a part of your expenses until year X + n.

If you are planning to take out a loan, add annul payments as part of the expenses.

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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 08:23 AM   #4
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Re: Extraordinary Expesnses in ER

If the expense is predictable it can be planned for even if it's extraordinary. The real problem is the unexpected expense that is hard to predict. I've allowed $5000 in my budget every five years for something that I haven't been able to predict, aside from what you call extraordinary expenses such as car replacement, new roof, etc. If I don't use the $5000 so much the better.
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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 08:25 AM   #5
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Re: Extraordinary Expesnses in ER

i am considering living aboard but it will not be an extraordinary expense requiring either lump sum or loan. instead i would simply trade the house for a boat.

if that plan comes to fruition, it involves holding off at least another five years in the hopes that the house doesn't lose too much value but, rather, hopefully gains some in that time, while being more sure that the boat would only lose value over those five years. my other fear is that as illiquid is a house, a boat is even moreso (was such equity ever to be required.)

oddly, to my mind, i find that the farther in time i am removed from my parents--having buried mom 6 months ago--the less my desire to be boating. i wonder if this plan which i've been considering during all the years of taking care of mom was just my sad atempt to recapture the family life i once knew but no longer have. so instead i might just trade the house for an extraordinary life of vagabond adventure. sometimes you just have to make do with what ya got.
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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 08:39 AM   #6
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Re: Extraordinary Expesnses in ER

I'm not RE'd yet but I am budgeting to have an emergency cash reserve in case of unexpected big purchases, and enough discretionary spending to be able to cut back and re-build the reserve when it gets "hit"
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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 09:08 AM   #7
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Re: Extraordinary Expesnses in ER

I'm considering a move at ER. I'm building in the anticipated expense in Firecalc. Also considering buying the place before ER and renting it.
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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 10:44 AM   #8
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Re: Extraordinary Expesnses in ER

Four years into ER, we have a plan that runs until we are out of money (currently at age 103 where the plan ends) and there is a line for extraordinary capital items such as a new car.

In this way we determined that purchasing that vacation condo would reduce our out of money age to 97. It used to be 84 so we continued to rent. But the high equity performance has pushed it out, and, as of 1Q2007 it is now out to 103 so we will be shopping next winter.

Of course we also look at the relative sanity of purchase versus continuing to rent but that is in a different spreadsheet. Obviously it depends on local market conditions at the time of purchase.
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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 02:31 PM   #9
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Re: Extraordinary Expesnses in ER

Personally the way I think it should be done is to take the lump sum amount out of your investment portfolio, calculate the SWR your new portfolio can now provide, and live on that. Divide the cost of your purchase by 25, and that will be about how much your annual income will be reduced due to the purchase.

If you are paying cash for a house, it's probably a wash because your living expenses should come down since you no longer would pay rent.

Other big purchases such as motorhome, etc. - well, you've got a fancy new toy and it will lower your annual SWR somewhat. The tradeoff is simple as that.

Hopefully, your portfolio grows enough that you can occasionally indulge in one of these big toys without a major impact on your standard of living. It's kind of like reseting your SWR occasionally.

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Re: Extraordinary Expesnses in ER
Old 04-22-2007, 03:39 PM   #10
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Re: Extraordinary Expesnses in ER

We've been ERed for a couple years. Extraordinary expenses, planned and unplanned, are a little more complicated for us than managing routine living expenses. Mostly, we expect to WD extraordinary in lump sum rather than a stream of (possibly loan) payments, but we'll reexamine as each one arrives (including recalculating SWR as Audrey described).

For us, another big, related issue is where to WD extraordinaries from, since most of our nest egg is IRA, and every dollar withdrawn is another dollar taxed! So we WD our extraordinary expenses from our smaller, taxable account. That way we don't ding the nest egg twice -- once for the money and again for the taxes on the money which would put us into a higher tax bracket just for the extra.
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Re: Extraordinary Expesnses in ER
Old 04-23-2007, 06:18 PM   #11
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Re: Extraordinary Expesnses in ER

This has been a concern of mine, so I examined previous decades of expenses to put together a capital expense budget. It actually didn't amount to that much and the largest items, such as remodelings and cars, are fairly flexible about when to take them, or, such as roof and hvac, fairly predictable in lifespan, and fairly easy to allow for using a sinking fund. There are some uncertainties, like earthquakes, that remain difficult, but not for me alone.
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Re: Extraordinary Expesnses in ER
Old 04-23-2007, 06:46 PM   #12
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Re: Extraordinary Expesnses in ER

I treat remodeling costs as capital expenditures, and I just add them to the cost basis of our house when calculating net worth (I ignore market value of the house for the most part). It's mostly kosher, and it makes me feel better about spending tons of money.
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