Question about retirement savings

[KB]

I have read in different posts that people have a sum set aside for replacing appliances or cars. At this time, I don't have either of those in my budget.

Can you share what amount you are adding to your Emergency funds for applicances? I'm going to buy a new car within the next couple of years and have accounted for that.

I do have a brand new house and have a household maintenance amount that I add to each month. Did you estimate how long the applicances will last and the amount a new one will cost? And then just put that amount aside? Thanks

[cute fuzzy bunny]

I laid out a 20 year maintenance/replacement schedule for the home and cars, adjusting their value for expected price increases and inflation. Then I took that back to a yearly contribution needed to pay for those, added it all up, and added that to my annual required withdrawal. Then I dont take that money from the portfolio, but its planned in for required returns. I went with 20 years because almost everything that needs expensive maintenance or repairs is on a less than 20 year cycle.

Theres volatility involved, but a lot of these items can be deferred temporarily to account for that.

For example, I will probably need a new car every 10 years. So I look at cars and figure that in 2010 (when my car hits 10 years old), a reasonably serviceable car will cost $15k. That means I needed to make an extra $1.5k a year for the ten year period preceding that. If my regular withdrawal is $25k, then that means I need to see an average return of $26.5k to accommodate that.

Of course when ten years arrive, the car may still be quite serviceable, cars may be cheaper or more expensive than I thought, or I may decide to limp along with what I have and deal with breakdowns. Or my portfolio may have been screaming, my car might be a huge piece of junk, and I go buy a big fat expensive car if it suits me.

I have a fairly new house that is extremely low maintenance as well. My numbers include cars, tires, car maintenance, replacing furnaces and air conditioning units, water heater, kitchen appliances, furniture, etc. Not all-inclusive but pretty comprehensive. My added cost per year is roughly $3342.60.

Some of my smaller incidental "capital" costs are also soaked up by my "miscellaneous" category, which includes almost everything I can think of excluding monthly bills, food, gas and so forth. I am very conservative with the misc numbers and then add a 30% fudge factor in. That comes to $4930.85 a year.

So if you add up your insurance, utilities, mortgage or rent, food, medical, and any other monthly or yearly expenses, and add ~$8273.45 to it, that should give you a reasonably good idea as to how much you need to generate a year over a ten year period to not bite into your portfolio.

Add to that any luxuries you enjoy that are above and beyond, for example expensive wines, eating out, travel, $50k cars, continuing education, expensive hobbies, etc.

Since these costs can jack up your income requirements by a third or more, if you arent including longer term capital costs in your ER budget, you have some very unpleasant surprises awaiting you...

Actually, I have a past history of my spending and feel that is good enough. That along with the realization that I could cut my spending by 50%, if I had too. Maybe even more!

I look at the items that have snuck up on me in the last few years and find it would be almost impossible to budget for. Example : Tooth Implant - Cost $4500 out of pocket. (I have dental ins. - But who knew? - this was a 'luxury' item.

That's one of the reasons I think it is necessary to have a budget that is twice what you "need". When SH*T happens you've got the funds.

[unclemick]

I don't recommend anybody else do this (12 years into ER) - I have this no.2 pencil and a 12 year old sheet of engineering graph paper.

Top curve is the what I thought we could safely spend. The blacked in squares are roughly what we spent over the years. The open squares are what constitutes a margin of safety - unspent past date squares.

Since I'm a cheap SOB - there are a lot of them.

You know - computers and spreadsheets may actually be here to stay. I play with the step daughters computer and do a few spreadsheets - perhaps someday I'll take this newfangled stuff seriously - heh,heh,heh.

Hi unclemick! I am a "back of the envelope " guy myself.
Literally.
It has served me well over the years. But, I can get
fancy if I want to. I recall before I bought my small
company in 1990 the banker told me it was the most
complete business plan he had ever been presented
by a customer. Anyway, now my personal records are
a disaster as I have slipped back into old habits.
Typically, I start the year with 2 big cardboard boxes, one marked "Personal", one marked "corp.". Then I just
toss everything I need (or want) to retain into the boxes
throughout the year and don't worry about it until
tax time. One of these days I will have to get serious about budgeting and SWR.

John Galt

[retire@40]

I have read in different posts that people have a sum set aside for replacing appliances or cars. *At this time, I don't have either of those in my budget. *

You have to account for everything you spend or may spend. You may have a cash outflow that happens once every 5 or 10 years, so that amount has to be allocated to your yearly budget. For example, I've only owned 3 cars in the past 20 years and don't expect to buy another one for another 10 years. So I estimate my net car purchases and repairs for 30 years to be $30K. So I have to allocate AT LEAST $1K a year for auto purchases and repairs. I am allocating $1500 a year to be on the safe side.

Every few months I go back and look at my actual 12 month rolling average as compared to my budgeted items and make adjustments accordingly. The only item that scares me is health insurance. I've been forecasting using a 10% yearly growth for that expense and luck has it that's what the actual average has been for the past decade. I'm afraid to calculate this expense out for the next 40 years because I may not like the answer.

[unclemick]

Hmmm - in the last 12 yrs: one tornado, two reasonably chewy hurricane hits, and "you #^%* cheap bastard - go buy a new truck" - when the last beater suddenly semi died.

However you do it - margin of safety, planned reserves/replacement funds - a pad is necessary. You may guess wrong - but a best guess is way better than nothing.

[Bob_Smith]

KB, you asked specifically about appliances - I keep a list and update the prices annually. This one was updated just a few weeks ago (August). I estimate a lifespan, based on my past experience, and I try to build some padding in. I came up with a monthly income needed to cover appliances, and I do this with other parts of the budget too. These are actual prices, including tax, shipping, and installation (where applicable) for new appliances that I found online at various places like Sam's Club, Sears, etc. And these are NOT necessarily bottom dollar sales. For example, this summer I ordered a Dell for my nephew and the total cost was $411. Those kinds of prices aren't always available so I don't include them here. If something breaks, chances are I'm not going to wait several months to replace it, so I don't low-ball my estimated expenses. But if you're willing to wait/search for better prices, or buy used, you can do better than this. But if you just want to know what middle of the road new appliances will cost, and what you need to have per month to cover them, (with some padding) this should be pretty close. It includes almost everything we use (we consider furnace/AC/water heater to be part of house maintenance).

One thing I'd change is VCR/DVD combos. I bought two over the past few months and they are crap. I'll be lucky to get 6 months out of the VCRs, and we use them a lot. They used to last a few years.

[KB]

Thanks for all the information, this is exactly what I was looking for. I have a current budget with 2 kids at home that I plan on using after they have moved out. That will give me some padding. But I did want to have a specific percent or dollar amount to add to my annual budget.

I don't want any surprises, which is why I knew I needed more info. This is great.

[ESRBob]

KB,
I am amazed at Bob Smith's detail, but my thinking is pretty much the same, (I think): figure out your amortization/depreciation amount to cover known recurring expenses and add that to your budget of annual spending. Then do all your SWR calculations and assessment of your budget gap or surplus as though you are spending this bigger number. In some years you will actually incur the bigger expense, in some years you will incur nothing, but you are still wearing out something you spent in previous years.

Keep this spending separate from your actual checks out the door annual budget, so that you don't double count. (in other words, you don't get yourself exercised over the large spending surge in the year you do buy the new car).

My difference with Bob's approach is that I only really have two things in the budget -- Car purchase expenses and House Painting expenses. Everything else I just figure I will use up and replace in my regular spending. Maybe a function of not using Quicken or MS Money?

I keep cars 10 years or until they get squirrelly, (haven't had it happen yet but I promise myself I will dump at that point). If a car costs 30k and I think I will get 5k back for it, I call that 25k of depreciation over 10 years, and add 2.5k per year to my annual spending to account for it. Housepainting is on a seven-year cycle, so one seventh of that cost goes into the annual budget, too.

Works out to 6k a year I tack on.

ESRBob

[sgeeeee]

I base my numbers on my spending over the past 8 years. That's as far back as I kept accurate records. I have broken my spending down into several categories including one titled, "special expenses". This category includes only items that 1) do not occur every year and 2) are greater than about 0.5% of my total annual spending. Other items are absorbed in my regular budget categories.

The special expenses category adds just over $7000 per year to my budgets.

My gosh, am I the only one on this board who has
neither budget nor SWR?

John Galt

[Jarhead*]

My gosh, am I the only one on this board who has
neither budget nor SWR?

John Galt

No, John, you're not the only one.
One thing I've figured out since the first week I found this board, is that most of the prolific posters on this board, have a common thread. Most were engineers, software, civil, etc. These folks are wired a little different from the rest of us. They love numbers, and what is tedious to most of the population, comes natural
to them. If my memory serves me, even the founder of this site, (Greaney) was a retired engineer. And of course Ted, until he imploded and left was an engineer.
In the spirit of the thread, I usually figure about $7,000 a year over and above expenses to take care of future "surprises".
In any case, while i find some of the attention to the smallest detail mind-numbing, I also understand that if everyone was like me, the only way to get from Oakland to San Francisco would be paddeling your way across

One thing I've figured out since the first week I found this board, is that most of the prolific posters on this board, have a common thread. Most were engineers, software, civil, etc. These folks are wired a little different from the rest of us. They love numbers, and what is tedious to most of the population, comes natural
to them.

Jarhead,

I think you got that right! I was a Software Engineer also.

I don't mind crunching numbers, but when you start trying to guess what you are going to spend money on 8 years from now - I don't even try

[Nords]

One thing I'd change is VCR/DVD combos. I bought two over the past few months and they are crap. I'll be lucky to get 6 months out of the VCRs, and we use them a lot. They used to last a few years.

Bob, if you're not a videophile, try pawnshop VCRs/DVD players. For $30 you really don't care how long it lasts, although our youngest is two years old and still going strong.

Pawnshop inventory is a wonderful commentary on the American consumer's ability to handle debt.

[cute fuzzy bunny]

Hmm thats interesting...we have two that came up with ~7000 and my $8273...and my 8273 has about 1500 in "fudge factor" built in...so we all came up with close to the same number.

One question though that might make this deviate from a "standard"...Jarhead, Salaryguru and myself all live in the southwest...do you guys live in stucco houses with tile roofs? That certainly cuts down on the exterior maintenance...

[Bob_Smith]

Bob, if you're not a videophile, try pawnshop VCRs/DVD players.

I'll try that, Nords.

I'll try that, Nords.

You mean Iowa has Pawn Shops? I'm Shocked *

Minneapolis has only gotten a few in the last 10 years or so. Clearly a bad sign *

[Zipper]

The Zipper's experience Bob, is add at least 5+years to each of your appliance's lifespan. We've always shopped quality and have exceeded your figures by a very wide margin.

[Bob_Smith]

Cut-Throat, yes, there is a pawn shop in Waterloo. I've seen it from the highway but have never entered; it's in a rough area (yes, Iowa has some tough neighborhoods). I'm not sure I have the guts to go in.

Zipper, I was very conservative on life-span. I've noticed that appliance quality is declining dramatically though. VCRs are only one example. I was going to buy a new Kitchen-Aid stand mixer (the kind that are built to last forever) and read that they're crap now - that gears they used to make out of steel are now plastic and they don't handle tough jobs like they used to. I bought a new Whirlpool dehumidifier and it lasted about 1 1/2 years and died. So I dragged out an old 30 year old Kenmore that still works. My TVs aren't lasting as long; I had one for about two years before there were big red halos trailing moving objects on the screen. Maybe it's just my experience, but I'm seeing an overall decline.