Expect the unexpected

[mickeyd]

It's easy, in some ways, to project future streams of income from pensions, annuities, Social Security, investment income, and retirement plan income. It's even easy to determine what your expenses might be.

The hard part is planning for those unexpected expenses. :-/

"Don't forget to leave some room for the unexpected -- increased medical expenses, death of a spouse, changes in the tax system or a few bad years of investment returns," says Susan Ransden, a senior manager at Deloitte Tax. "Running the numbers several years before you plan to retire gives you some time to make any necessary adjustments to your retirement savings, your investment strategies, and spending habits so that you when you enter retirement, it's with your eyes wide open."

Catherine Gordon of Vanguard Investments adds that planning early for both the expected and unexpected has benefits: "Like many other things in life, if 'events' are planned well to include both the expected and unexpected, they tend to be better executed," she says.

 

[retire@40]

That's why I laugh when I see people here forecasting budgets of $10K to $12K per person when they are in their 20s. It's just not reasonable to think you are going to go through life with linear expenses. If you think you are going to RE with an inflation adjusted budget that doesn't include surprise expenses, I don't think you have done proper planning. Even with such an allocation in my budget, I'm still concerned with surprises beyond for which I have allocated.

Everyone should have a miscellaneous line in their budget to reflect *something* for those unexpected expenses.

 

[Martha]

Yeah, Retire@40, I have thought the same thing. A leap I never would have made is retiring in my 30s with a budget of $20,000 a year.

Nevertheless, we have talked a lot about the unexpected, such as market crashes, rising health costs, replacing roofs and sewers and trying to plan the best we can for the unexpected. One thing rarely mentioned is the divorce rate. A spouse taking half the portfolio could send many back to work. See what that does to the SWR.

Nevertheless, to jump into early retirement most of us have to take some risk. After all, we could be dead tomorrow.

 

[farmerEd]

>>After all, we could be dead tomorrow.

Ain't that the truth...nobody wants to grow old and be forced to live on the charity of others, but there is a decent chance for everyone of us to be dead before 60 if not earlier (except of course you geriatrics that have 60 in the rear-view mirror ) ...enjoy life while you can instead of "working just a few more years so I am sure I'll have enough".

In the past year alone, 5 people I either new personally, or indirectly died or were killed in accidents. Ages 36/42/45/50/51. The most recent, the 45 year old, was killed just last week in a freak farming accident.

The string of all these unexpected deaths has caused me to throw a bit more caution to the wind and start spending some of what I have saved and worry a little less about "tommorrow" (which I can do to excess sometimes). Somehow, tommorrow will work out just fine...it usually does.

You can't plan everything, but one definte known is the fact that you are going to die someday; I hope not to have too many things on my "things to do someday" list when I go.

 

[AltaRed]

Had a fellow co-worker drop dead of a heart attack less than a week ago. Late 40's leaving a family of 3 boys ages 10-16. You never know when it is your time to go.

 

[Donner]

Great dichotomy here for would be ERers. Save,save,save and lead a BYM lifestyle vs. live life today because tomorrow is not guaranteed. I guess the moral is balance in everything.

Donner

 

[Jay_Gatsby]

Great dichotomy here for would be ERers. Save,save,save and lead a BYM lifestyle vs. live life today because tomorrow is not guaranteed. I guess the moral is balance in everything.

Donner

Exactly. Several of the posters here were kind enough to emphasize that point in response to a previous thread on compulsive saving that I had posted.

The difficulty is knowing where to draw the line. For example, I don't believe in the $4/day Starbucks habit. Starbucks coffee just isn't that good, especially where the cost of that habit (like pack/day of cigarettes) adds up to $32,000 in retirement assets after 20 years (at 5% interest per year). Maybe drinking the coffee at work isn't so bad after all.

I'm a big believer in contingency planning. Thus, it's not a bad model to spend a few years buying only what you need, rather than what you want to save up an emergency fund for the unexpected. Doing so will also give you a chance to make the foregoing distinction, which most people have never bothered to do (they just increase their spending with annual increases in their paychecks, perhaps even going over just a little bit). If you don't use the resulting fund for an emergency, so much the better, since you can just leave it alone and it will grow on its own if carefully invested. On the other hand, if you feel deprived after such saving "exercise", you can take 10-20% of it and buy a few new toys. The rest can be left alone to grow.