Contingencies/Reserves... how do you plan for?

[DawgMan]

So you have set your RE budget, thought through all your RE expenses. How are you managing your larger non-reoccurring contingency/capital/other expenses (i.e. new roof, cars)? Are you plugging in an X % contingency line item or a set $$ amount that is swept into a cash holding account every month which you pull from for these expenses, or do you just wing it and pull out the extra needed dough when the events occur? I suppose the obvious answer is if you know for sure you need that new roof in year 3, you allocate accordingly. However, I can also see if maybe that roof could wait until year 4 or 5, you might make a decision to do some of these bigger 1 time pops when the market spikes up and you have more shillings in your bucket.

 

[pb4uski]

I make a special transfer from retirement savings to our local bank account when we make major purchases.... our automatic monthly transfer and my small pension are sufficient to cover our normal living expenses.

I'm more likely to decide to make those major purchases when times are good, but if times are tough and it needs to be done then it needs to be done, so so-be-it.

 

[RunningBum]

When I was prepping for retirement I slaved over a budget, trying to fine tune it. Mostly I was just making sure I had everything covered and a reasonable amount for it. I included items for home maintenance, car repairs, capital expenses, and vacations. This was over 25% of my total budget.

Since retirement I've been winging it. I transfer money as I need it, and sell funds as I have to. I pretty quickly gave up tracking expenses to budget, and just track total outflow monthly. When I have extraordinary expenses, I put notes on that spreadsheet. It's worked fine for me. I've been slightly high in years where I did have some major expenses, like buying a new car, or the deck repair/painting project, and well under in years with very little of that.

I do repairs as needed, and don't try to squeeze more time out of them. I don't know what it'll cost to replace my roof but $10-20K is not worth trying to time the market, especially to risk weather damage to my home. I may feel different in a downturn, which I haven't really faced in retirement.

 

[Choices]

Tried to talk DH into setting up a sinking fund for property tax, winter fuel bills, etc. but so far we just pull it out of our slush fund.
It probably makes no diff. We are gonna spend what we spend. Last year we bought a house suffering from delayed maintenance so it is always something.

 

[ShokWaveRider]

I am a bad boy, I keep 5 x annual expenses in a cash account and just use it as I need it. And.... Yup crappy interest rates not withstanding..... Thinking of moving it to a Vanguard MM paying 1.6 (I think)

 

[pb4uski]

I would think that would be a no-brainer to move it from next to nothing to Vanguard Prime MM fund that currently yields 1.89%

 

[ncbill]

All exterior maintenance included in my HOA fee.

And since I've been on the board for over a decade I know if and when the above increases.

 

[Golden sunsets]

We have a sinking fund not included in our "investment assets", but accounted for in Net Worth ( in an Ally HY savings AC ). We plan our major expenditures in advance knowing that SH*T can happen. But so far our schedule has been maintained and just knowing that next year is the year for (fill in the blank), we are less tempted to cause spur of the moment uneven major expenditures. Last year was the year of the "inside if the house", this year is the year of "the outside of the house", next year is new car year, the following year is landscaping redo, possible porch. I haven't planned out beyond 2020, but our routine of spending something every year, keeps our house well maintained and ready to hit the market at any time should we choose and we've managed to avoid knee jerk reactions.


Sent from my iPad using Early Retirement Forum

 

[RunningBum]

I would think that would be a no-brainer to move it from next to nothing to Vanguard Prime MM fund that currently yields 1.89%

Did the VG MM yields recently shoot up? I have been keeping my cash at Capital One, and I thought it was because their rate was a lot better. But I'm only getting 1.6% there. Time to move it back, I guess.

 

[97guns]

We don’t keep an expense account or budget for expenses but we keep around 8x annual income in gold. when we have an added expense I sell gold, when we don’t I buy

 

[aboatguy]

Caveat NOT RETIRED YET but here's how I budgeted for the expenses that would/could be onerous on a fixed income:



I have friends in the trades. So I received estimates for: new roof, new windows, new kitchen, and new HVAC. (house is 11 years old so with the exception of HVAC, we have some time before having to replace them)



I have the money for estimated costs for roof, windows, kitchen and HVAC in a 2.48% CD that matures in March 19. If interest rates keep climbing I will roll it into another 12-18 month CD. If I need to replace any of the items I probably will pay from our emergency savings account (currently paying 1.6%) and repay the savings when CD matures.


I don't count emergency funds in my retirement fund. However, I'm not retired / retired yet. Still working but living entirely on my Military pension and putting all of my salary into retirement accounts. According to my spreadsheet 385 days until I retire/retire.

I could go now, but literally staching for OMY!



Mike

 

[Dtail]

I am/will be building up a separate account for this large expense spending which I will not include in my "investment assets".
For lumpy expenses, I fund these expenses generically on a monthly basis as part of my WR into a separate account and use as needed.

 

[pb4uski]

Did the VG MM yields recently shoot up? I have been keeping my cash at Capital One, and I thought it was because their rate was a lot better. But I'm only getting 1.6% there. Time to move it back, I guess.

Not sure about the first part on the trajectory, but it is currently 1.89% compound yield.

https://investor.vanguard.com/mutual-funds/profile/VMMXX

 

[RunningBum]

https://investor.vanguard.com/mutual-funds/profile/performance/vmmxx/cumulative-returns shows what I was looking for. I'm not crazy, it was returning almost nothing for a few years. But the yield is better now, so I will be moving it back over for the extra 0.29%. I don't necessarily chase returns for small fractions of a %, but this is just a transfer back to my existing VG account, not going through the trouble of opening a new account.

 

[W2R]

I don't actually have a budget in retirement, although I watch my spending closely and record it to the penny. That seems good enough to keep me on track since I am a bit of a tightwad by nature. When I have had an unexpected big expense, usually I am not inspired to incur big discretionary expenses for a while.

So, I guess you could say that I have a buffer amount built in, that either goes to unexpected big expenses or if not, then it is available for bigger discretionary items.

The nice thing about retirement, is that I don't have to borrow money if I need a new roof or something. I just get it and then cut back until I am back on track. It's sort of like borrowing from myself, I suppose. In August of 2016 I had to buy an entire new HVAC system, except for the ductwork. I ended up spending no more than usual that year because I didn't feel like spending much on discretionary stuff for a while after that.

 

[razztazz]

When I retired I kept about 30 thou off the books, on the side for things I might have to pay for but didn't want it upset my retirement withdrawal math. Over the years I increased it to the 90-100 thou range. Shotgun in the closet money. If I ever end up having to clean out that account the emergency was probably something on the order of that asteroid people here keep talking about.

 

[daylatedollarshort]

We have have money set aside in the budget every year for home repairs, plus I usually have money left over from my discretionary spending I can use, too, as needed. I used to have a budget category for replacement cars, but we tend to buy good value, used cars so after trade-in of the current car, replacement cars just aren't a big budget item for us and I left it out. We helped one of the adult kids buy a used car this past year we just took the money from our savings. Our current cars should have 200K miles left between them, so even if we trade them in for newer models with lower mileage the net difference won't be a huge budget item.

 

[RobbieB]

I just sold a bunch of equities to cover my upcoming marriage, a new car and more home improvements.

So yeah, convert assets to cash as needed and blow that dough!

 

[foxfirev5]

We set up a CD ladder with an online bank for major capital expenses. In addition we max out Series I bonds each year for the next wave. You really need to evaluate your situation. Our dream house is now 23 years old and the clock is ticking. Last year we replaced the roof, the HVAC and water heater are original so they're on borrowed time.

On top of that our lakehouse is 17 years old and will be on the heels of the first. It would appear we have excessive reserves, but not so much.

Our cars are another matter. One is 13 years old and the new one is 3. We plan to keep the same age spread in the future. There should be enough cushion in the capital budget. If not we just buy a cheaper model.

 

[bizlady]

We keep 5k cash available and budget 1K annually to add to that amount. We know that down the road a furnace will need to be replaced, and most anything else major would get covered with insurance and a 1 deductible. But this covers auto repairs, new tires, and other non maintenance repairs for us

 

[target2019]

I started a family bank, and we borrow big item funds from this. For example, we wrote a $15K check as partial payment for a new car. We are paying back the amount as if it were a loan. Either this year or next, we will be replacing the roof, and will have sufficient funds to cover that.
There is also equity in the account, which generates sizable dividends.
I have a thread about the family bank, on this forum.

 

[Dd852]

I do all our planning on the basis of a trailing five year average of expenses. I’ve found that over five years the emergencies and repairs and new computers work their way through the system pretty well. So in other words, if our trailing five year average is within tolerances like the SWR calculation, I rest easy. If not, I cut back a bit but that hasn’t had to happen. Yet.

 

[Red Badger]

Like runningbum, I replace major items before we have an emergency - - - not interested in squeezing another year out of a "fully depreciated asset." 2017 was entire HVAC; used bonus for that. Planning for a new roof in 2019 and have a $12K CD earmarked for that.

Replacing 20 YO water heater this fall (not a big expense and should have done it earlier).

We have another ~$25K in CDs for non-discretionary big ticket items that could occur.

 

[HI Bill]

In my retirement budgets (not quite there yet), I have line items for house repairs and 'saving back' $ for a new car every 8 years, and for a new DSLR every 3 years. Instead of creating a new pool of money and making monthly transfers (a lot of work and rebalancing), I'll just reduce my monthly budget by the sum of those 'saveback' amounts, so when the time comes, it will just come out of the retirement assets.

 

[dvalley]

https://investor.vanguard.com/mutual-funds/profile/performance/vmmxx/cumulative-returns shows what I was looking for. I'm not crazy, it was returning almost nothing for a few years. But the yield is better now, so I will be moving it back over for the extra 0.29%. I don't necessarily chase returns for small fractions of a %, but this is just a transfer back to my existing VG account, not going through the trouble of opening a new account.

Not sure about the first part on the trajectory, but it is currently 1.89% compound yield.

https://investor.vanguard.com/mutual-funds/profile/VMMXX

Do you guys buy the VMMXX separetly? I ask because VG assigned my default/settlement fund as VMFXX automatically that pays 1.69% https://investor.vanguard.com/mutual-funds/profile/VMFXX

While the yield is lower than VMMXX it also has a slightly better expense ratio too so prob about the same unless we're splitting hairs.