Poll:Big Ticket spending

[lemming]

I have financed some big items with a HELOC that gives me a flexible repayment plan, interest under 4%.Plan was to pay off in 10 months or for the largest project 2 years.
For the kitchen remodel, I thought about it for a couple of years-so that is the saving up part-mental only, no actual money was moved. That was the only year I went over a reasonable withdrawal rate. I also just financed a car.
I just pulled out a chunk of money from a stock sale that paid off half the remaining balance of my mortgage. If I pull the rest out I will have a 8k tax bill. If I wait til next year I will only have a 3k tax hit. But it will free up cash flow so much that I can live on SS and one quarterly dividend that I take in cash. So future RMD's will be reinvested as taxable investments to draw on. I keep dithering about what I want to do.

 

[aja8888]

I just buy something when I need it?

Yes!

 

[Cobra9777]

IJBSWINI

I just buy something when I need it?

I had assumed something more colorful for the S.

 

[Midpack]

Examples in the OP were >$50K expenses like a new car, home improvement or RV. Many choose or are forced to retire on a budget that can't afford things like that. If you were forced out due to health reasons and unable to find other work, you may have to accept that. Hopefully they can afford to make necessary home repairs and replace an old car with a reliable newer pre-owned one, but that wasn't in the OP, nor are those >$50K.

Fair caveat, though I didn’t see any indication the OP was a forced retirement. And sadly, if you’re forced to retire I’d think you still want to budget for infrequent big ticket expenses along with manageable spending overall.

 

[Golden sunsets]

I answered C. We tend to plan things out way in advance. If an emergency occurred then we would suck it up and buy the item. But the planning in advance allows me to feel better about the total expense for the year, because we have planned for it. In 2017 we spent a lot on updates to the inside of our home, knowing that in 2018 we would be spending quite a bit on the outside of our home. This year we tackled some major landscaping issues. Next year is the replacement of our 10 year old SUV. That will be expensive, but we have kept our current car for 10 years and our other vehicle which is a sweet convertible is a 2007 and only has 53,000 miles on it. I've sketched out what we will do in 2021 as well. Handling things in this manner gives me a sense of control that I find comforting.

 

[btdt22]

D. Include this extra spending in the pre-retirement finances calculation.

+1


If you saved and planned well than $50k should not be such a 'significant' amount

 

[GenXguy]

E. Pull the large amount from the retirement account, and reduce future income by recalculating your SWR.

Just another option.

Bingo. E. I would make the determination if I wanted or needed the previously unplanned big ticket item enough to justify the reduction in my future drawdown to compensate for the money taken from my $tash.

The D option I would say it true for predictable spending. Someone mentioned buying a new car. I have a sinking fund in my budget for that future expense. The C option is somewhat correct, except I'm not actually withdrawing anything - I'm leaving the money where it is until I need it, and I'm simply "accounting for it" with the sinking fund.

 

[brett]

Buy as needed. Pull the money out of savings or investments account. No real impact since we comprehended these these infrequent expenses in our projected expenses prior to FIRE.

 

[tofer]

Thanks for all the replies. I'm glad most of the votes were for "C" and missing option "D" because those are what make sense to me. For those who said "I just buy something when I need it", my reply is that maybe the better way of asking my question would be "How do you decide if you need to say 'no' to something you want"? You can't always say yes.

 

[sengsational]

I'm in the JBSWINI (actually JBSWIWI because my Dad taught me we have very, very few true "needs") camp, generally, but I've got a "struggle" (if you want to call it that), in that I'm balancing the impact of the tax impact with spending. IOW, I'm spending less than I "could" if I didn't mind giving up the PTC. That will be out of the way in a handful of years, then the next damper is that I'll need to "unbury" some after-tax funds. At that point, I might make a big purchase on a toy of some kind because the spend won't have a tax impact. I'd be seriously considering such a toy now if it weren't for the smack-down I'd get from the tax collector.

 

[Aerides]

...For those who said "I just buy something when I need it", my reply is that maybe the better way of asking my question would be "How do you decide if you need to say 'no' to something you want"? You can't always say yes.

There is a point for everyone where "what I can afford" and "what I am willing to spend" will no longer diverge. Then there's always "yes but I'd never pay THAT for one of those even if I can afford it." For example, I don't think I'd ever buy a domestic first class ticket for a flight under 3 hours, unless it was a really spectacular deal, even though it would probably not dent my annual budget to do so once or twice a year.

As mentioned throughout the thread, budgets with plenty of wiggle room allow for normal flexibility - even for a Big Want. Beyond that is a matter of trade offs and choices. Very few decision on big ticket non-necessary things are going to be made in a vacuum.

 

[Ted_Shepherd]

C. Set aside a certain amount of your SWR to "save up" for them. Just bought a fine new Cadillac for cash. I have more cash than I planned. First, an irresistible offer came for part of the family farm. Then, a few years later, I sold one of my stocks when an acquisition gave me no real choice. My two houses have no mortgages -- paid cash in the first place for one in 2000 and the other a few years ago. My new young husband is much more a spender than I am, but it's a pleasure to indulge him. We can afford his tastes. Now, living and happy, I get to see what he might do with the money when he inherits from me. He is a generation younger than I am, and I'm nearly 80.

 

[GravitySucks]

Thanks for all the replies. I'm glad most of the votes were for "C" and missing option "D" because those are what make sense to me. For those who said "I just buy something when I need it", my reply is that maybe the better way of asking my question would be "How do you decide if you need to say 'no' to something you want"? You can't always say yes.

I have very few wants, quite a few needs this year. Needs get bought when they happen. Don't put off that new roof when the time comes, it will cost you more. Don't wait on having that dead tree fell, it will cost more when it hits the house.
I'm thinking of buying a toy car or truck. That is a straight want, not a need. It will just come out of the unspent travel budget if I do. I trade off for most every want from the travel budget as that's my largest discretionary budget category. So that's what I look at, buy this toy now and cut back on traveling for a few months. I can afford either, but not both.

 

[ychuck46]

No Plans

Since we are currently spending only about 2.5% of our assets (if that) I never am concerned about big ticket items. Although we have a truck, an SUV, and two motorcycles, we buy new and try to hold onto vehicles and toys forever. Otherwise we just travel through our timeshare points (4+ months out of the year - we paid them off in cash awhile ago) and we are now also into cruising (cruise lines, that is).

Bottom line - no interest in buying big ticket items. We prefer experiences nowadays over things.

 

[imoldernu]

House and furniture in 2004.

Since then... 1 42" TV, and an Echo Show.

Today, a pkg. of baby back ribs @ Aldi's.

 

[gooddog]

If the house needs to be fixed, it gets fixed - with the best materials. If the car needs to be replaced, it gets replaces - with a quality new car. If you have the $ to do it that way, it is easy. If you don't have the $ to do it that way, then the questions you ask come into play.

 

[NC 57]

Big item purchases

D for us. In addition to my annual budget, which shows monthly totals for routine living expenses, I have a 20 year “big expenditures” budget which sows yearly expenditures for such items as new cars, replacement RV, daughter’s wedding, home renovation, major home repairs (roof, replace, air conditioner, etc). I update the big expenditure plan when I develop my annual budget. So far this has worked well.

 

[Elizrogers]

I don't have many Wants I can't afford. Most big expenses are needs. Replacement windows, sinks, a/c or other home or auto maintenance, so like $5k-$15k. That's when I look for a 0% interest option that let's me make payments without interest. $20-$50k. I would finance and take small distributions from retirement funds to pay off. To take that much at one time and pay in full would incur high Fed Income Tax for the year.

 

[HI Bill]

I'd be seriously considering such a toy now if it weren't for the smack-down I'd get from the tax collector.

I watched a Vanguard broadcast that was talking about people not wanting to pay taxes on capital gains while rebalancing. VG said that you shouldn't mind that...it's the cost of achieving the gains (or something to that effect).

That said, I have a really hard time deciding to pull out $ and pay a large amount of taxes. While I COULD buy a house right after retirement, I've decided to wait a few years (3-5), so that I can harvest LTCGs without paying any taxes from a brokerage account. Pulling out something like $700K over 5 years (30% are LTGSs), and paying no federal taxes....sweet!

 

[brett]

Just took $30K out of the cash balance in our investment accounts.

Not for a large capital purchase. Rather, four or five smaller items, including income tax installments in a short time frame that added up to $30K plus. They can all add up quickly. I think I am sending our dentist to Hawaii this winter.

Back to normal after that....hopefully until the new year.

 

[tofer]

I feel like the decision making process should go something like this:

1. Make some assumptions about future unknowns. e.g. life expectancy, ROI, market volatility, etc.
2. Feed those assumptions into a function that computes probability of success, where success is defined as dying before the money runs out.
3. Never spend a dime if it causes your probability to go below some number you are comfortable with (say, 80%?).

I guess I just defined SWR. I just wish there was a tool that was centered around the Big Ticket spending decision process using this approach. Some "magic 8 ball" that you could ask that would give you the answer in this format. Actually, I've built my own in Excel, but can't say that I trust my own math.

 

[HI Bill]

I just wish there was a tool that was centered around the Big Ticket spending decision process using this approach. Some "magic 8 ball" that you could ask that would give you the answer in this format. Actually, I've built my own in Excel, but can't say that I trust my own math.

While not centered around big ticket spending, just re-run FIRECALC with your investments value after the purchase. You have to assume the life expectancy and ROI (or just input your AA), but it will account for market volatility based on past numbers, as well as inflation, and SORs. You can run it for 80% success. It's a bit cumbersome if you want to make multiple large purchases over a number of years, but your starting value after each major purchase will change due to market volatility and withdrawals over years (or now, days), presumably. While there's no tool that is that versatile that I know of, running FIRECALC each time should give you a pretty good idea whether the purchase is likely to bankrupt you.

I have this same dilemma, as I plan to sell a condo, rent for a number of years, purchase another condo, then by age 68 or 69, take a large chunk out to buy a really good house if the market appreciates at the right time. Hope to get a good 10 years or so in the house before selling and downsizing to a condo in an urban core.

 

[RunningBum]

While not centered around big ticket spending, just re-run FIRECALC with your investments value after the purchase. You have to assume the life expectancy and ROI (or just input your AA), but it will account for market volatility based on past numbers, as well as inflation, and SORs. You can run it for 80% success. ...

That seems like playing Russian roulette. If you keep running at 80%, eventually you might hit one of those failure scenarios. That's not a plan I'd follow.

 

[HI Bill]

That seems like playing Russian roulette. If you keep running at 80%, eventually you might hit one of those failure scenarios. That's not a plan I'd follow.

That's not a plan I'd follow either. I'd use 100%.

 

[bolt]

I'm wondering how FIRE folks (those who are retired) think about "big ticket" expenses like new cars, home improvements, and perhaps new RV's (if you're into that lifestyle). i.e. things that cost upwards of $50K and come every 5-10 years. Do you...

A. Deprive yourself of these things for the rest of your life, or
B. Allow them only if your portfolio is beating expectations, or
C. Set aside a certain amount of your SWR to "save up" for them

Putting it another way, is retirement living a constant struggle to stay within budget and say no to anything that doesn't fit?

50k'ish is one not shopping enough for any of your examples.

Besides a SWR should be changed to a VariableWR.
There must be yrs when you need nothing other than your established floor rate of expenses.
IMHO. Good luck!