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Sinking Fund?
Old 10-17-2014, 12:04 PM   #1
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Sinking Fund?

A quick search did not find this, so I thought I would see how people handle this.

For my analysis I use $40,000 as average annual expenses. Thats everything except a sinking fund for expenses I know are coming, but just don't know when. i.e. replace roof, appliances, car etc. It does not include medical because that is taken care of by insurance, and it does not include long term care as that is our 'melt down' scenario and is handled differently.

So for us I figure the following. I have the standard washer, dryer, stove, fridge, freezer, dish washer, and two water heaters. 8 items. All bought new with the house. I figure 8 year average life, and $2,000 each replacement cost or $16,000 total. *that's high, but I like the pad. So for eight years I need to put $2,000 a year in the fund to cover these replacement items.

Roof, $30,000 over 15 years or another $2,000 a year.
External house refurbish 10 years, $5,000 = $500 a year
Carpet another $500 a year
Auto $5,000 a year.

So all in all I need to put about $11,000 a year into savings to cover known future expenses. I go for $12,000, just because. So far we have been able to pay cash for all upgrades/replacements. Just wondering how others handle this.

Forgot AC, Thats another $6,000 about 12 years.
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Old 10-17-2014, 12:10 PM   #2
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I include a budget line item of $1000 per annum for home maintenance. I do not carry over any surplus. If I needed more than that I would use my HELOC at prime plus 0.5%.
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Old 10-17-2014, 12:21 PM   #3
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I have incurred heavy home repairs (of the 5-figure type) each of the last few years, and these were supposedly of the non-recurrent type (knock on wood).

Yet, I stayed under 4%WR, so am not making any special allowance or budget item for them.

PS. If the market tanks and I have extraneous expenses one year, I figure I would skip vacation that year to compensate.
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Old 10-17-2014, 12:25 PM   #4
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I don't have a budget, although I do keep close track of my spending.

I guess you could say that I play it by ear. I just keep my spending well below the WR I have in mind. So far, so good. I plan to adjust future spending as needed.
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Old 10-17-2014, 01:48 PM   #5
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Our retirement budget includes $15K per year for large, non-recurring expenditures such as cars, major repairs, home improvements, new HVAC system, etc. I can usually cover a new washer/dryer/stove/etc with the normal budget for home maintenance, or by slightly cutting some other discretionary item like travel.

I arrived at $15K by looking at 10 years of Quicken history in an account I had created called "one-shots," where we had spent $150K. I'm quite certain we won't spend that much going forward as those years included used cars for teenage kids and lots of improvements we did when we bought our current house (pool, window replacements, new floors, kitchen remodel, landscaping, furniture, etc). But I wanted to budget on the high side and that provided a convenient baseline based on actual spending.

I don't actually set the money aside in a specific fund or account. If we don't spend it in a particular year, the money just stays in the portfolio until we do need it. If we need a new car, we might consume more than one years' budget. But over the long haul, we should be adequately covered.
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Old 10-17-2014, 01:56 PM   #6
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Originally Posted by W2R View Post
I don't have a budget, although I do keep close track of my spending.

I guess you could say that I play it by ear. I just keep my spending well below the WR I have in mind. So far, so good. I plan to adjust future spending as needed.
I do something similar. I have 17 years of expenses. This has been enough to go through it all: every appliance, the roof, exterior repairs, new car, etc.

From this, I have a category in quicken. I run a report on the last 17 years, take the total for the category, and divide by 17.

Guess what? It is pretty close to $12k per year on average, just like you calculated.

So, I don't have a fund, but rather some built up experience.

EDIT: what Cobra9777 said.
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Old 10-17-2014, 02:16 PM   #7
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Our house will be a little over 20 years old when I ER. I anticipate quite a few of these items to turn up and I am trying to budget. We have about $40k set aside in Series I bonds and a separate bank savings account (our personal HOA).

In 2007 we were looking at condo's in FL to add to our two homes. Fortunately we came to our senses, but did make some observations along the way. Many of the complexes were underfunded with unrealistically low HOA fees. This led us to think that we really didn't have much in reserve for our own homes. We then set up the separate accounts.

I know this is a mental accounting exercise. No matter how you do it, plan for these not so unexpected expenses. Likewise we have a car/transportation fund which includes the boat.
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Old 10-17-2014, 02:24 PM   #8
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We built new in 2011 just before we retired, so roof and any other major repairs should be a long ways off. For cars, boats and other toys, I include "depreciation" in my expenses I used for deciding if we "had enough", which is in essence a replacement allowance. We don't have any specific reserve fund or anything like that - its effectively commingled with our other retirement funds just like our son's college or DD's wedding, which we provided for in our expenses as special items.
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Old 10-17-2014, 02:28 PM   #9
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Wow some of these numbers look really big to me and I live in a high COL area. I would estimate we have spent less than 10K/year on our house and that includes the current remodel which is going to be in the 75-85K range and a previous kitchen remodel, windows, roof and installation of a HVAC system.

Our cars are both over 15 yrs old but I don't see a replacement anytime soon

Things like appliances will be covered when they break and I wouldn't expect 4 or 5 in a year. I do have contingencies in the budget which would cover this and if they aren't used either reduce the planned WDR or can be used for a month in Tuscany
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Sinking Fund?
Old 10-17-2014, 02:41 PM   #10
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Sinking Fund?

Never have really consciously set anything aside for these items.

I think most of the stuff that breaks down usually is less than $1,000 so somehow there is enough somewhere to pay for it.

Bigger items like car replacement or roof replacement not sure. We keep our cars about 10 or 15 years so somewhere along the line a bonus, inheritance, or investment gain happens to buy another one.

Come to think of it I have never paid for a new roof. Sold first house after 10 years and the current house roof is concrete so looks the same as the day we bought it.

I think the way you are doing it is better.
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Old 10-17-2014, 02:41 PM   #11
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Wow some of these numbers look really big to me and I live in a high COL area. I would estimate we have spent less than 10K/year on our house...
I have two homes, and they take turn needing maintenance. Or the motorhome needs 6 new tires, or the car wants a new A/C, etc...

ďItís always something ó if it ainít one thing, itís another.Ē - Gilda Radner
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Old 10-17-2014, 04:51 PM   #12
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We have a virtual sinking fund for some anticipated costs in our credit union. We put $500 per month for home repair/improvement and $250 a month for car repair/replacement. The funds have built up a bit over my 6 & DW 8 yer retirement. But I assure you DW will see that the home improvement funds get spent. We recently bought a new wash stand and faucet for the bathroom, old one just wouldn't do. Nice to have the money set aside, not as part of our monthly budget.
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