Do you continue to save in retirement for high ticket items?

[Sunset]

I have learned that I need to consider large purchases, to simply smooth out taxable income. By having a cash cushion and even spread withdrawals over a couple of tax years.


When newly retired I went and bought a new vehicle for $31K cash, which because I had not considered taxable income, forced me to scrimp more than I wanted as I was suddenly having a cash flow problem.

I could have simply used Roth money, or took more out of IRA, or sold some more stock, but I wanted to avoid more taxes. I refuse to pull from my Roth at this time.

 

[mystang52]

I can't break a lifetime of habit. I maintain sinking funds for car, home, and vacation. Obviously, if I had a major home repair and my sinking fund was low, I'd just pull from savings.

 

[old medic]

We plan on continuing to build our savings as we can.... That way when we come across something... just say yes

But that does bring up a question....
say you wanted to pull 50K out of your 401K to buy a new truck... for the purpose saving or spreading the taxes out...
pull 25K in dec, then 25 in Jan

 

[NW-Bound]

We plan on continuing to build our savings as we can.... That way when we come across something... just say yes

But that does bring up a question....
say you wanted to pull 50K out of your 401K to buy a new truck... for the purpose saving or spreading the taxes out...
pull 25K in dec, then 25 in Jan

Sure, if having the entire 50K withdrawal in 1 year pushes you over to a higher tax bracket, or to a higher health insurance cost, whether that's ACA or Medicare. If it does not put you in a higher bracket, then it does not matter.

If it does not help, it does not hurt to split.

PS. Ugh, I take back the above. Sometimes, it may make sense to bundle the WR in one year. Others will want to chime in here.

 

[38Chevy454]

No. We simply pay from our savings.

It's that simple for us too.

 

[FIREd]

No I don't save for big ticket items any longer. My regular withdrawal rate is quite a bit below what FIREcalc allows so I don't worry about it.

 

[MrsHaloFIRE]

Yes we still do buckets. Its all an accounting exercise but we like to see them fill then turn off that stream of savings in favor of another. If they ever all fill up it once we will turn them all off and dump into the market again.

 

[Gumby]

We have income in retirement from pensions and social security that more than covers our expenses, including our normal vacation spending. We also have a portfolio that would more than cover our expenses at a 4% WR. Our current actual WR is zero. I do budget a certain amount for home and vehicle repairs every year, which we usually don't spend in full, so that piles up over time and helps with normal things like replacing the dishwasher, new tires on the car, etc. If we have a lumpy spending need beyond that, we'll just pull it from our portfolio. We keep enough in after tax cash to cover several years of the most conceivable types of extraordinary expenses, which at this point mostly would be luxury travel if we ever again get the opportunity.

 

[Nature Lover]

Yes, I do continue to save for high ticket items. Like some others having mentioned, I have non-portfolio income (pensions, etc...) and what I don't spend, I either keep in my short-term fixed income holdings to fill several savings buckets in my mental accounting, or I add to my longer-term investment holdings, if those buckets are full.

 

[Ready-4-ER-at-14]

Monthly amounts for items that are somewhat random say like appliance repair or replacement are line items in our lean retirement plan calculation as are things like property tax etc. Dave Ramsey had a chart with suggested % amounts of income for each of them. I made a similar spreadsheet and that is how we determined our annual expenses without missing anything significant. We have certain banking accounts reserved for some of the major categories. I know it limits the upside, but it buffers downside.

Our goal was to have conservative buckets to handle 7 years of lean expenses without having to sell stock. Again it calms the % of change in the portfolio.

And yes the car replacement/repair acct is funded monthly as is the property tax/housing account.

 

[bclover]

No budget or money set aside for larger items. If we need it, we we get it, that is how we have done it from the start.

this is me. generally I don't have a lot of "high" ticket items. I will have to replace my car soon (it's currently at 178K miles) but no need to have a separate account for that.

 

[Koolau]

I'm actually trying to think what I'd call a big ticket item now. Last car was $13K used. We just wrote a check - well, talked the dealership into accepting $5K on the cash-back CC and wrote a check for the rest. A couple of gifts (kids or charities) have been bigger than that and we just wrote checks from our RMD that year.

Never thought I'd find myself in this situation - but it's kind of nice. I don't need much, but if I do, I just write a check. Yeah, I'm sure I could finesse a bit more interest, growth or income from my cash-stash. It's just more effort that I want to invest since it will all be gone by the end of each year anyway. IF I need more, I can always go back to the 401(k) and get it. Don't even consider breaking into a ROTH, though, that's what it is there for, so YMMV.

 

[jimbee]

I don't continue to save because all of my funds are savings. I have no pension/annuity/soc.sec. income (yet). When my and DW's soc. sec. comes on line, I don't expect it to exceed our annual expenses so we still won't be saving.

 

[FANOFJESUS]

I just pull whatever we need from equities on a regular basis. No savings, no budget, no buckets.

I guess you have a lot of built in gains over the years. So you don't have to sell in the red?

 

[teejayevans]

Most high ticket items are optional in my experience, so no need to save or have buckets. Whether the market is up/down will effect my decision to buy.

 

[TheWizard]

We plan on continuing to build our savings as we can.... That way when we come across something... just say yes

But that does bring up a question....
say you wanted to pull 50K out of your 401K to buy a new truck... for the purpose saving or spreading the taxes out...
pull 25K in dec, then 25 in Jan

This, I think, is really the central point of the question, which is how to manage your AGI and hence, your taxes in retirement, including Medicare IRMAA for many of us.

For folks with large tax-deferred accounts, a key strategy is doing at least modest Roth conversions in the years prior to age 72. My annual Roth conversion amounts are computed, not by my Federal income tax bracket range, but by the next higher IRMAA tier threshold and by my projected AGI once I start RMDs at age 72.

And if you are fortunate enough to have excess retirement income from SS + pensions + annuities, then that $$ can be invested in a taxable account.

Then when the time comes to do that $50,000 purchase, you withdraw funds from some combination of your Roth and taxable accounts.
Funds from your taxable account will generally have capital gains to be dealt with, so sell the lots with lower gains, so as not to impact your AGI too much...

 

[TheWizard]

I'm actually trying to think what I'd call a big ticket item now. Last car was $13K used. We just wrote a check - well, talked the dealership into accepting $5K on the cash-back CC and wrote a check for the rest. A couple of gifts (kids or charities) have been bigger than that and we just wrote checks from our RMD that year.

Never thought I'd find myself in this situation - but it's kind of nice. I don't need much, but if I do, I just write a check. Yeah, I'm sure I could finesse a bit more interest, growth or income from my cash-stash. It's just more effort that I want to invest since it will all be gone by the end of each year anyway. IF I need more, I can always go back to the 401(k) and get it. Don't even consider breaking into a ROTH, though, that's what it is there for, so YMMV.

This is a good point: defining the approximate boundary for Big Ticket items in retirement.
I have no savings account but do try to have around $10,000 in checking, so this, combined with normal monthly income, has proven sufficient to cover all travel and household expenses with one exception.

The exception is new vehicle purchases, including a travel trailer if I ever decide on that.
These purchases are in the $50k ballpark and require a different strategy to put the money together...

 

[meleana]

When you have no income (no pension and delaying SS) there is no income really to save from. In drawing down mode, not savings mode. Preserving becomes the priority for both living and unexpected expenses.

 

[RunningBum]

I viewed the question as how we account for big ticket items (separate bucket, or what?), not actually saving a portion of some income.

 

[Deej]

OP here. I mean did you continue (if you even started) putting a bit of cash into each savings "bucket" for vacation, car repair, new car, house repairs, etc) from your monthly income during retirement, or stop doing so once you became retired.

 

[d.davis]

With no mortgage, pre-retirement planning for estimating retirement expense cash flow included putting away 2000 per year in the house maintenance fund because at some point we're going to need a new air conditioner, roof, paint, etc.. That's on top of [known] taxes and insurance. It's not actually kept in a separate fund but it's a spreadsheet column entry so that when we have to buy that roof or HVAC we're not blindsided. Initially budgeted 1% of house value but capped it at 2k when the zirp everything bubble started.

 

[Out-to-Lunch]

OP here. I mean did you continue (if you even started) putting a bit of cash into each savings "bucket" for vacation, car repair, new car, house repairs, etc) from your monthly income during retirement, or stop doing so once you became retired.

Confusion arises because many people do NOT HAVE MONTHLY INCOME once retired. Some have a pension, annuity, or SS. Others live solely from their investments.

 

[meleana]

Confusion arises because many people do NOT HAVE MONTHLY INCOME once retired. Some have a pension, annuity, or SS. Others live solely from their investments.

Right. What you have saved overall is what you have for any expense. When we retired we had a lot of cash and we did - and still do- have a couple of savings accounts so for specific things like a new car or vacations. But really not necessary now because all our emergency/cash/ and some investment money is considered one big bucket now in a way.

I understand the OP- it does take getting used to the fact that if the furnace breaks down you can take the money out of the new car fund or the vacation fund- it really doesn’t matter anymore.

But my comment refers to people with no additional income coming in other than their own investments.

I suppose if you have large pensions and SS income and with left over money after expenses you could put the excess into specific buckets.

 

[audreyh1]

Some of us retirees treat our steady annual withdrawals as income in terms of annual cash flow, so budgets for big ticket items can certainly be filled from that.

 

[Car-Guy]

No real budget anymore.... I have a number set (total NW) that I will start watching my spend rate, if I ever reach it. A few years ago, I never thought I'd get to that number in my lifetime, but with inflation really picking up, it's possible.