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Repair / replacement / slush fund
Old 11-01-2010, 04:45 PM   #1
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Repair / replacement / slush fund

What may be a simple question that I have not though about until now -

What does everyone do with the amount that you have budgeted for your repair / replacemnt / etc. fund once you have retired? Do you pull that out every year and put it in a money market fund / savings account or some other type of investment that you can get at quickly or do you leave it in the market and pull it out when needed?
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Old 11-01-2010, 05:43 PM   #2
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I started with three years expenses in a money market. However, as the market went down the year I retired, I have not replenished that and there is about a year left. SS has now kicked in, so that fund is now an emergency fund.

My question would be, 'How big is your repair/replacement/etc. fund?' Mine is currently about $45K. I think that is a little high.
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Old 11-01-2010, 06:33 PM   #3
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Quote:
Originally Posted by Rustic23 View Post
I started with three years expenses in a money market. However, as the market went down the year I retired, I have not replenished that and there is about a year left. SS has now kicked in, so that fund is now an emergency fund.

My question would be, 'How big is your repair/replacement/etc. fund?' Mine is currently about $45K. I think that is a little high.
Now there is another question - I have not officially retired yet, but will by the end of the year if all goes as planned. I have about two years worth of expenses in a money market right now. I'm thinking I will start with that but then I wonder if I should adjust that up or if that's about right to start with?

I am budgeting $10K on the repair / replacement fund. The house (new roof three years ago) and car (2008 model with 15k miles) are in really good shape, one to two year old appliances, so I don't foresee needing to spend any large amounts for repairs anytime soon. If I keep pulling 10k out of mutual funds, etc and into a money market every year, I can see it maybe growing large before I need to access any of it. Is it better to do that or maybe leave it in the market to hopefully grow some more before I need it?
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Old 11-01-2010, 06:42 PM   #4
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Personally I pull the portion of my entire year's "salary" that is to come from Vanguard, out of my Vanguard money market account at the beginning of the year. I then keep it in my bank savings account. That way it is easy to see how I am doing through the year.

Granted, this is not the most cost-effective way to arrange things, but the convenience in keeping track of my spending is worth it to me.

I keep about 4 years' "salary" in my Vanguard MM account, so there is no need to liquidate equity funds in the middle of a crash, and such.
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Old 11-02-2010, 01:21 AM   #5
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I won't leave that in the market but then I'm based in India where you can get 7% return on a checking account (Called Linked Fixed Deposit in India, you get higher returns on your money but can write a check and that much money will be swept out to the checking a/c).
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Old 11-02-2010, 06:59 AM   #6
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I think you want to size your slush fund such that you can cover reasonable contingencies plus have the cash to ride out a sloppy market. If I were in your shoes, I would probably size that to maybe 50k plus 2 to 5 years worth of expenses. I would err on the high side as you step off into retirement simply because there is kigher uncertainty in your life. You can always adjust later.

I would not arbitrarily yank money out every year for expenses that have not cropped up. If you raid the slush fund, replenish if the market isn't in the tank. Otherwise leave it be.

The other thing I would do if I were you is set up a HELOC while you are still employed. It will be easier to set it up now and its good to have options.
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Old 11-02-2010, 07:28 AM   #7
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Quote:
... so I don't foresee needing to spend any large amounts for repairs anytime soon.
Don't count on it!

I'll share what I do.

For expenses (as W2R puts it, our salary): I keep 6-12 months expenses in a MMF. I have a lot of the bond portion of my portfolio in a Short Term Investment Grade Bond fund (VFSTX), which is safe enough for me. My AA is 60 stock 40% bond+cash.

For maintenance / large expenses: my budget includes the average that we spent for this category over the past years. My expectation is that it will be sufficient for most years. If I have to spend a lot more, I'll take it from my emergency fund.

For a emergency/slush fund, I carved out about 5% of my portfolio before calculating my initial SWR. This money is part of my portfolio (and invested per my AA), but not used in calculating my annual withdrawal. I use (roughly) the 4%/95% rule from Bob Clyatt.

This emergency fund will be used to supplement our maintenance/big expense budget and also to supplement annual withdrawal for those years when 4% of the portfolio is too little to live on. I'll replenish it in good years.

Our situation is Semi-ER. Come end of this month and we'll both be employment-free again!
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