Estimating retirement expenses...

[Koolau]

I am curious how those who haven't mentioned lumpy expenses, accounted for them? There are some major expenses that only land every 10-20 years like replacing a roof, replacing cars, replacing AC/furnace, etc. Reviewing your last 2-4 years won't capture them?

We haven't worried too much about lumpy expenses. We built some extra into our savings and that has been adequate for the lumpy stuff. You can't outguess everything so be prepared for anything. YMMV

 

[aja8888]

I am curious how those who haven't mentioned lumpy expenses, accounted for them? There are some major expenses that only land every 10-20 years like replacing a roof, replacing cars, replacing AC/furnace, etc. Reviewing your last 2-4 years won't capture them?

In the past, we were forward thinkers, and after years of tracking expenses with Quicken and kind of knowing where we were spending our money anyway, we gave up using Quicken as past history was fairly useless due to all the one time variable costs that were showing up, and somewhat unplanned. I knew our fixed costs just from habit alone (taxes, utilities, insurance, food, auto maintenance, etc). Forward planning for very large expenditures was not part of the Quicken exercise for us.

Since we always attempted to make sure we had enough non-retirement savings money to cover "lumpy" expenses, we just talked about when they would be expected to happen and planned on that spending. We never kept a detailed "budget" as our life was not that predictable. Plus, we were a "blended family" at that time with up to 5 kids at home or in and out from time to time.

Past spending was just that, history, and a good portion of it probably won't repeat due to life changes (kids at home, multiple cars, heath issues, etc).

For instance...."our roof is 15 years old and is starting to look bad. I guess we should plan on replacing it within the next 5 years or so lets make sure we have enough funds to cover it then." (and we did just that) Halfway intelligent people should be able to figure out when a roof is in bad shape (or should be) and when their cars are nearing their useful life (maybe I am wrong here, though). I'm looking at lumpy expenses being those which cost several thousands of dollars, not a few hundred for a TV or appliance.

Even now in retirement, I (widowed now) really don't keep a detailed budget plan as I have enough to last for quite a long time.....actually, much longer than I expect to last!

Lumpy expenses are just that, lumpy, and I'll handle them as I go along the path. And all those 30 years of Quicken files are sitting on my old desktop never to be looked at again.

 

[brett]

I tend to follow the 80/20 rule. I don't sweat the details. What we spend is what we spend.

I find it much more beneficial to spend more time on our investment returns and on our tax strategy then I do spreadsheeting/analyzing our day to day expenses.

 

[TheWizard]

I developed a detailed spreadsheet of expenses back before I retired, including $500/ month for a new car, $200/month for new appliances, etc.
But that dollar amount was much lower than my monthly or annual income back then, so it wasn't much help, since I wasn't aiming for a low-ball retirement.

I basically aimed for roughly the same income in retirement as in my last working years and it's worked out well, with thousands of extra dollars most months that I spend on travel or invest in my taxable account for possible spending on something later on.

 

[Aerides]

When looking for your "how much is enough?" number, ie, 30xexpenses, or whatever multiplier you like, you only need the bottom line number. With a healthy swag on top.

The most effective way is to get the real actual data of what you spend. Not what you think you spend.

Dump your checking account data into a spreadsheet (or whatever your single place is for paying everything). This catches everything, hopefully: Credit card payments, cash withdrawals, checks you write for taxes, to service/repairs, venmo's the the kids, everything comes out of that bigger bucket for me. Nothing can hide!

Do this for at least 2-3 years of real numbers.

So that gives you a basic outgoings total. Then, assuming it didn't include a new roof and a new car, put estimates for those on top, say, 30k for a new car over 10 years - whatever you are likely to spend.

For healthcare, if you go with an HSA/HD plan (we do), you'll want to put a placeholder with a lot of padding beyond your premiums. I think we estimated 1k per month, and fortunately only one year has been near that high.

But other things might increase in retirement: Travel, home improvements, etc. So put another 10k on top of whatever your number came out to if you think this might be you.

 

[motley]

What many people fail to plan for are lumpy expenses - large but infrequent spending. Replacing a roof, AC, furnace, hot water, cars, laundry and kitchen appliances, consumer electronics (computers, smartphones, tablets), bedding/furniture, etc. Remodeling your house. Re-landscaping. Re-painting inside and/or out. Unexpected home repairs (mold, water damage, foundation, termites, plumbing, electrical, septic). Bailing out family member. Uninsured medical. Long term care.

I’m finding lumpy expenses to be a good 20% over and above normal spending in retirement so far. Some plan for a substantial annual amount toward a “sinking fund” or “accruals” to cover all those large infrequent big ticket items. It could easily be $10-20K/year…

Wow 20%. Yeah that's a tricky one to me, as I don't know when such things will hit and how. Some are known and a question of time...new roof, etc...I think it's mostly the unknown/unexpected home repair that could be a pinch, esp when I sell the house, like foundation work etc. I've already accounted for LTC for the last 3 yrs of my life, which could be more, but odds are not, and I should still have money to spare if so.

 

[motley]

I don't think this is the OP's situation, but if I may ask, what do people do who do not plan to live in the same place or do the same things in retirement as they did before? For example, retiring in a different country. Do they just wing it when it comes to trying to estimate the cost of a new life?

That's a good question and should apply to me as I plan to sell the place, but unsure where I'll move to. It won't be a diff country, but could be a somewhat diff part of this country. I don't expect prices where I go to be a lot more or less overall, but the moving costs, fixing old house costs etc could bite.

 

[Exchme]

As others noted, even if you can't categorize your spending, it should be easy to get the total by downloading bank statements and brokerage statements going back a few years, along with your W2 and other tax return information.

Things wear out. If your total spending for was low on big ticket items during the time you can reconstruct your spending, you should add a margin for them. For instance, if you keep a car for 15 years, then a plan should include 1/15 of a car each year. When you start thinking about how many expensive things you have that are wearing out each year - roof, carpet, air conditioner, water heater, garage door, paint, fence, electronics, heck even gas and sewer lines are our responsibility - you can see that these lumpy expenses are easy to underestimate.

The one that has surprised us is health care/dental/eye care. From almost nothing, those have jumped to nearly $8K/year and this year will be twice that.

 

[Koolau]

The one that has surprised us is health care/dental/eye care. From almost nothing, those have jumped to nearly $8K/year and this year will be twice that.

Yeah, that can be very lumpy indeed. Replacing a bridge or a couple of crowns can be quite a wallop to the wallet. I had to buy new glasses this year - first time in 8 years. Uh, they've gone up. Colonoscopy, implanted TENS, crowns, etc. This has been a big health care year for us.

 

[scrabbler1]

I am curious how those who haven't mentioned lumpy expenses, accounted for them for projecting 20ish years of retirement expenses? There are some major expenses that only land every 10-20 years like replacing a roof, replacing cars, replacing AC/furnace, etc. Reviewing your last 2-4 years won't capture them?

All I’m saying is overlooking lumpy expenses when projecting 20ish years of retirement spending could be a painful mistake.

I have a slush (bond) fund which will cover large, unforeseen expenses. Also, I live in a large co-op complex, so any of its large expenses are paid for by the co-op with me owning a very small share of it.

 

[teej1985]

I have a slush (bond) fund which will cover large, unforeseen expenses. Also, I live in a large co-op complex, so any of its large expenses are paid for by the co-op with me owning a very small share of it.

I know that some co-ops have shifted responsibility of HVAC replacement to the homeowner.

 

[brett]

My unexpected expense was 6K for DW's optical and 12K for my implants.

How is got covered off....because we are not going down to budget to the penny, we used conservative numbers, and we included an estimated amount for errors and omissions.

You cannot foresee everthing fifteen, twenty years down the line. It is unreasonable to do that but it is not unreasonble to ackowledge that these things happen. That is exactly where being conservative in your retirement COL and building in some O&E dolllars into a retirement.

We certainly do not bother with anything like a sinking account. When we spend less that fcast it simply means that more money stays in our equity account that year. I am not running a business, not subject to audit, nor do I have to follow GAAP.

 

[DrRoy]

I started out assuming about the same as before RE, but with buying a new car twice in 7 years, remodeling the house several times, and copious travel, we have spent between 1/3 more to double per year. This year 1.8X.

 

[Koolau]

I started out assuming about the same as before RE, but with buying a new car twice in 7 years, remodeling the house several times, and copious travel, we have spent between 1/3 more to double per year. This year 1.8X.

This doesn't surprise me. We spent a lot more the first few years of retirement and remodeling was a big part of it.

 

[Aerides]

Wow 20%. Yeah that's a tricky one to me, as I don't know when such things will hit and how

None of us do, that's why we pad. It's very easy to have a whole bunch of unplanned stuff hit at once, which is why a very lean retirement with a fixed income and inflexible withdrawals can be rough.