No. of Recommendations: 12
You're absolutely correct - money is fungible. From a completely rational perspective, it does not make a difference whether the unexpected cost is financed via the emergency fund or the retirement account. That said, humans are not rational economic automatons capable of optimizing all investment/finance decisions. In fact, our ability to reason is clouded by our emotions, so we've devised tricks to help us to save and invest more.

One of those tricks includes setting up different "mental accounts", where we allocate funds to different accounts to serve different purposes. For example, many individuals set up retirement accounts to build up a nest egg that is not available to use prior to retirement. Occasionally tapping into this account would have the effect of removing the self-imposed restriction and freeing the funds for immediate use, with potentially disastrous implications to the individual's retirement goals. I suspect the temptation would be too much for many, including myself, so it's best to partition our savings, even if this exercise is only imaginary.
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No. of Recommendations: 10
Even if you do have a robust retirement fund, if you withdraw more than you should one year to cover an unexpected cost, that could potentially throw off the rest of your retirement plan. Also, considering it's unlikely you'll only face one unexpected expense over several decades in retirement, overspending each time you face one of these costs could lead to running out of money too soon later in life.

That's a very long and complicated way to say "If you withdraw too much you will be in trouble."

It's a really stupid article. Likely written to fulfill her daily quota wordcount.
Cleverly, there are no comments allowed to he column.

Otherwise I would ask her, "What do you do after you've tapped your emergency fund? Leave it alone in its depleted state? Refill it so it's available for the next emergency?" Oh, but I see she has an answer for that. "Start your retirement with an emergency fund that is large enough to cover every expected emergency for the rest of your life. Enough to cover 20-30 years of emergencies."

Useless crap. This is Money Magazine level of uselessness. But Money Magazine folded a long time ago. That's why I do not bother reading stuff like that.


As you said, your entire net worth is your portfolio. Mentally separating a chunk of it and pretending that is somehow outside of the portfolio is just nonsense.
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No. of Recommendations: 12
You're absolutely correct - money is fungible. From a completely rational perspective, it does not make a difference whether the unexpected cost is financed via the emergency fund or the retirement account. That said, humans are not rational economic automatons capable of optimizing all investment/finance decisions. In fact, our ability to reason is clouded by our emotions, so we've devised tricks to help us to save and invest more.

One of those tricks includes setting up different "mental accounts", where we allocate funds to different accounts to serve different purposes. For example, many individuals set up retirement accounts to build up a nest egg that is not available to use prior to retirement. Occasionally tapping into this account would have the effect of removing the self-imposed restriction and freeing the funds for immediate use, with potentially disastrous implications to the individual's retirement goals. I suspect the temptation would be too much for many, including myself, so it's best to partition our savings, even if this exercise is only imaginary.
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No. of Recommendations: 8
One of those tricks includes setting up different "mental accounts", where we allocate funds to different accounts to serve different purposes. For example, many individuals set up retirement accounts to build up a nest egg that is not available to use prior to retirement. Occasionally tapping into this account would have the effect of removing the self-imposed restriction and freeing the funds for immediate use, with potentially disastrous implications to the individual's retirement goals. I suspect the temptation would be too much for many, including myself, so it's best to partition our savings, even if this exercise is only imaginary.

That's fine. It is okay to have different financial goals at the same time. It is okay to save for retirement in the far future and save for a new car in the near future. Lots of people, me included, set mental accounts like "I'm going to need a new roof in a couple years, I want to make sure I have cash for that when the time comes, so that's new roof money and not the trip to Vegas money." etc.

But read this word salad from the article:

Those who still have several decades left before retirement may want to give more focus to an emergency fund, however. Although you should still be saving what you can for retirement, if you don't have an emergency fund and an unexpected expense pops up, you'll need a safety net so that you won't need to withdraw money from your retirement savings to cover it.

Translation: You need to save more in your emergency fund, which means you can save less in your retirement fund. Because if you don't, you'll have less money in your retirement fund.

Math Alert! Either way you have less money in your retirement fund.

There is no way you can parse her sentence where it makes a lick of sense. It is just stupid advice.
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No. of Recommendations: 4
Sounds like TMF may soon begin to market annuities.

Kowie52
Hopefully only on April 1
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No. of Recommendations: 6
I disagree. In my view, the advice is simply counter-intuitive and, for many, appropriate.

You're right to point out that saving more for your emergency fund takes away from your retirement fund, in that one is left with less funds in his/her retirement account. But, for many, this is not the same as removing money from the retirement account. The act of removing money from the retirement account can have the psychological effect of opening the flood gates, i.e. one begins to treat the retirement account as an on-demand checking account. The mental partitioning of funds between short-term and long-term availability attempts to limit this risk.

If you view this practice as unnecessary, then pat yourself on the back, as you are more rational (optimal) in your approach. That said, I assume that the majority of individuals need to adopt this approach if they hope to ever meet their retirement goals.
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No. of Recommendations: 6
The true purpose of an emergency fund is so that you can continue to buy groceries and make the mortgage/rent and car payments if you lose your job and thus lose your income.

But when you are retired you cannot get laid off and lose your paycheck. You can't lose what you don't have.

Your income is guaranteed sources like pension and Social Security, and withdrawals from your retirement account(s). And a 4% SWR withdrawal from your portfolio is the next best thing to guaranteed there is. None of these will give you a pink slip.
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No. of Recommendations: 4
"The true purpose of an emergency fund is so that you can continue to buy groceries and make the mortgage/rent and car payments if you lose your job and thus lose your income."

*************************************************************************

Yes Virginia, losing your job is an emergency.
But so is having a major car repair - having a medical problem crop up
- needing to help kids or parents or others - when the market conditions
may not be favorable to sell equities or fixed income items.

There is nothing that would prevent a person wanting to have an emergency
fund in retirement.

But if you prefer you could call it a "cash on hand" bucket or a "splurge" fund
or even an "insurance" fund

Howie52
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No. of Recommendations: 0
Doesn’t this go back to the fact the market goes up more often than it goes down, so an emergency fund just costs you money in the long run?

This falls in with other stuff like whether to invest a windfall all at once or spread it out. Or keep several years of expenses in cash instead of the market to cover the early years of retirement.

Different people have different risk tolerance. I’ve never had an emergency fund. Worst case I would sell my taxable account. Now getting closer to retirement I’m getting more conservative.

Rich
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No. of Recommendations: 1
Doesn’t this go back to the fact the market goes up more often than it goes down, so an emergency fund just costs you money in the long run?

This falls in with other stuff like whether to invest a windfall all at once or spread it out. Or keep several years of expenses in cash instead of the market to cover the early years of retirement.


This is just the usual "feel good" analysis. Viva Las Vegas!
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No. of Recommendations: 2
I posted my thoughts about e-funds a couple of years ago. I called them a cycle of life thing. At some points in the cycle, you need them. At others, you might not.

Rather than try to re-hash that, here's a link to that post.

https://boards.fool.com/my-thoughts-on-an-e-fund-e-funds-are...

--Peter
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No. of Recommendations: 14
In my view the Emergency Fund while working is not the same as in retirement.

In retirement, the Emergency Fund is a stash of cash or cash equivalents that in combination with insurance precludes people from being forced into a Buy High - Sell Low investment plan.
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No. of Recommendations: 0
"In retirement, the Emergency Fund is a stash of cash or cash equivalents that in combination with insurance precludes people from being forced into a Buy High - Sell Low investment plan."

*************************************************************************************
Pretty much spot on.
I have also heard folks argue that a cash-equivalent "bucket" provides a portion of your
net worth outside of the typical investment risk areas. Similar to an annuity but without a
fee - outside of lost upside potential. Course this assumes that negative interest rates do
not become a banking feature.

Howie52
I read about companies supplementing their pension funds through buying annuities.
Seems like a way of increasing costs without asking the contributors.
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No. of Recommendations: 1
In retirement, the Emergency Fund is a stash of cash or cash equivalents that in combination with insurance precludes people from being forced into a Buy High - Sell Low investment plan.

If you accept the premise that you should be fully invested all the time to maximize your long term return, the question then moves to how to account for unexpected expenses. There are two risks here.

Risk 1: Not having enough money
Risk 2: Having the money; but not wanting to liquidate assets (due to depressed valuation)

I would surmise that the solution to Risk 1 is simple - save more. The solution to Risk 2 is more nuanced; and the use of low cost borrowing products is probably a good place to start (ie: having access to low cost credit that can be used until asset prices recover).

An article on this would be much more valuable IMO (both for those in retirement and those still in the workforce - the strategies might be different).

PS: Getting a secured loan using investments as collateral is a good start; as is a home equity line of credit.


tecmo
...
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No. of Recommendations: 9
The day after I retired, I came to the realization that my retirement savings included all of the money in my checking and savings accounts, money and securities in my investment accounts, and money and securities in my IRA accounts.

As long as my income from Social Security and other "guaranteed" sources of retirement income exceed my normal living expenses that include taxes, my retirement savings become, in essence, a large emergency fund. I fail to see how designating a portion of my retirement savings as an emergency fund will allow my retirement savings to last longer.
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No. of Recommendations: 4
Pretty much spot on.
I have also heard folks argue that a cash-equivalent "bucket" provides a portion of your
net worth outside of the typical investment risk areas. Similar to an annuity but without a
fee - outside of lost upside potential. Course this assumes that negative interest rates do
not become a banking feature.


The problem as always is how do you re-fill the cash bucket? That has to come from other investments, right?

Back in the day, I took the usual advice and raised my insurance deductibles as high as possible, and pocketed the difference. Then I realized if you are going to self-insure, you actually have to self-insure, so I created a separate savings account where I would save the difference in premiums. After a while, the savings account was overflowing with cash far beyond the deductible, so I just started investing the difference.

After a longer while, I realized the investment part was bigger than the savings part. So I invested all of it and closed the savings account. If you are just starting out, you absolutely should have some cash on hand for protection from some unexpected bill. But as you save more and more money, the less and less protective value that cash has. After a while, that cash actually becomes a liability, because that cash drag costs you money. And the less money you have, the less able you are to weather some financial storm.
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No. of Recommendations: 2
"After a longer while, I realized the investment part was bigger than the savings part. So I invested all of it and closed the savings account. If you are just starting out, you absolutely should have some cash on hand for protection from some unexpected bill. But as you save more and more money, the less and less protective value that cash has. After a while, that cash actually becomes a liability, because that cash drag costs you money. And the less money you have, the less able you are to weather some financial storm"

***********************************************************************

Also, as you age, the risk of an "emergency" becomes somewhat more limited.
You may still have an issue about healthcare - long-term care type things.
But suddenly - or gradually, you find that the worries are related to "What
would DW do? What might the kids or grandkids or great grandkids need?

Perspectives change quite a lot after you get past the point of "when should
I take Social Security/" and "Is the company going to discontinue the
pension plan?".

The worries about the house repairs and a new auto purchase and redoing the
kitchen become a tad mute.

Howie52
Not there yet by a long shot - but just getting to retirement has shifted
the items that worry me by a bunch.
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No. of Recommendations: 0
Rayvt:

"This is Money Magazine level of uselessness. But Money Magazine folded a long time ago. That's why I do not bother reading stuff like that."

I didn't see the item in question, but Money Magazine is/was useless. I recall many years ago, when I used to read it, they ran an article about a family who earned X amount and could not manage to get by. However, they made a mistake: They listed the $ value for all the family's expenses vs income. I did the math and found out they had omitted some $12,000 or so from their supposed available money and wondered where it was. So I wrote the mag, quoting chapter and verse and taking them apart for their obvious error(s).

They apparently actually called on the phone and got my wife while I was out. She had no idea what I had said or what they said, etc., so it all died. I never bothered to call them and they gave up, too, and the matter died.

Point is, they used to publish a lot of crap that was sensational (and MAYBE some good info, too), and I gave up bothering with them.

Vermonter
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No. of Recommendations: 1
"I read about companies supplementing their pension funds through buying annuities.
Seems like a way of increasing costs without asking the contributors."

Some companies bought their retirees an annuity at the retirement point. That ended all future pension obligations - and got them 'off the books'.

My former employer was one that did it. However, they ended the pension plan about 1990 or so when the law changed, which required all pension funds be 'fully contributed each year', and started a 401K. If you had less than (years plus age =55), you got your 'pension money' dumped into your 401K as company stock you couldn't sell till age 55. If you exceeded the '55' you could retain your pension. On the date you retired, they'd buy an immediate annuity for you,not inflation adjusted. The company was off the hook.

I suspect many other companies had similar plans. That way, they didn't have to worry about COLAs and inflation , or bad years of earnings where they still had to pony up bucks for the pension plan no matter what.....for retirees. Or future retirees since most of them were now in the 401K.


t.
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No. of Recommendations: 1
Howie:

"The worries about the house repairs and a new auto purchase and redoing the
kitchen become a tad mute."

Really.

What REALLY can keep you awake at night, as you age, is the BIG "What if...?" "What if my spouse or I contract a serious, life-threatening illness or condition that costs gihumungous sums of money, far beyond what we have?"

With some medicines and procedures costing hundreds of thousands of dollars, how many of us can deal with such things -- unless you are truly wealthy (a millionaire) or a D.C. politician (with platinum medical coverage)?

THOSE worries are real, certainly in this country!

Vermonter
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No. of Recommendations: 1
RetiredVermonter writes,

What REALLY can keep you awake at night, as you age, is the BIG "What if...?" "What if my spouse or I contract a serious, life-threatening illness or condition that costs gihumungous sums of money, far beyond what we have?"

With some medicines and procedures costing hundreds of thousands of dollars, how many of us can deal with such things -- unless you are truly wealthy (a millionaire) or a D.C. politician (with platinum medical coverage)?

</snip>


I don't know how things are in Vermont, but in WA State you can get a Medicare supplement plan for less than $200/month that caps your out-of-pocket cost at $2,300/yr even if you get a $1 million hospital bill. That seems to be doable for most people.

Same thing with drugs. Monthly cost of $15 to $75 for a Part D drug plan that provides catastrophic coverage where you only pay 5% of the cost of even the most expensive drugs.

Of course long-term care is a problem if you end up in a nursing home, but with a little knowledge most people can get their medical & drug costs covered without the risk of bankruptcy.

intercst
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No. of Recommendations: 0
"I read about companies supplementing their pension funds through buying annuities.
Seems like a way of increasing costs without asking the contributors."

Some companies bought their retirees an annuity at the retirement point. That ended all future pension obligations - and got them 'off the books'.

My former employer was one that did it. However, they ended the pension plan about 1990 or so when the law changed, which required all pension funds be 'fully contributed each year', and started a 401K. If you had less than (years plus age =55), you got your 'pension money' dumped into your 401K as company stock you couldn't sell till age 55. If you exceeded the '55' you could retain your pension. On the date you retired, they'd buy an immediate annuity for you,not inflation adjusted. The company was off the hook.

I suspect many other companies had similar plans. That way, they didn't have to worry about COLAs and inflation , or bad years of earnings where they still had to pony up bucks for the pension plan no matter what.....for retirees.


The quoted sentence seems to be a different thing that the response.

When I retired, my former employer (Motorola) had already stopped offering a pension for new employees a few years earlier. Of course the pension plan continued for all us the were already in the pension plan. And when I retired I indeed got my pension payments for several years.

Then they decided to get rid of their pension headache and decided to get it off the books. In 2014 Motorola handed it over to Prudential and it converted to a group annuity. Out benefit amount did not change--good thing! Moto said, “Our retirees’ benefits are not changing, just who provides them,” IIRC, they handed to Prudential the Plan funds of $3.1B plus another couple billion in cash.
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No. of Recommendations: 8
Risk 1: Not having enough money
Risk 2: Having the money; but not wanting to liquidate assets (due to depressed valuation)

I would surmise that the solution to Risk 1 is simple - save more. The solution to Risk 2 is more nuanced; and the use of low cost borrowing products is probably a good place to start (ie: having access to low cost credit that can be used until asset prices recover).


No, the solution to Risk 2 is to believe math and statistics. Accept the 4% SWR withdrawal rule and accept that some years are bad and some years are good, but over the long run you do not need to obsess about the volatility and gyrations of the market.

But people don't want to do that, so they take steps to try to avoid the volatility--and doing so costs them more than they gain.
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No. of Recommendations: 2
No, the solution to Risk 2 is to believe math and statistics.

More fetishization of data. Hey, it's not like it's the Bible or a Rabbit's foot
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No. of Recommendations: 0
"No, the solution to Risk 2 is to believe math and statistics.

More fetishization of data. Hey, it's not like it's the Bible or a Rabbit's foot"

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Beyond every 100 year storm is a 500 year storm, eh?
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No. of Recommendations: 4
Howie52 writes,

Beyond every 100 year storm is a 500 year storm, eh?

</snip>


But there may not be a financial planning solution to the 500 year storm. That's why Bill Bernstein observed that cutting your withdrawal rate below 4% doesn't provide that much additional safety. It just increases the chance that nuclear war or a worldwide flu epidemic will be the source of your demise rather than banal financial planning.

intercst
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No. of Recommendations: 0
GWP: "In retirement, the Emergency Fund is a stash of cash or cash equivalents that in combination with insurance precludes people from being forced into a Buy High - Sell Low investment plan."

There may be good reason to have additional cash in the last few years leading up to retirement and in early retirement if this 'glide path'' analysis is correct:

https://www.kitces.com/blog/managing-portfolio-size-effect-w...
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No. of Recommendations: 1
Accept the 4% SWR withdrawal rule and accept that some years are bad and some years are good, but over the long run you do not need to obsess about the volatility and gyrations of the market.

But people don't want to do that, so they take steps to try to avoid the volatility--and doing so costs them more than they gain.


To be clear, no one here is advocating for a retirement portfolio of 100% stocks, are they?

The 4% studies originally used a mix of stocks and bonds. We can do our own studies with cFIREsim and Firecalc. We tend to get a better result by adding in a few bonds.

We like to keep some cash on hand and have a mix of stocks and bonds. Might not be optimal in the very long-term, but who cares about the very long-term?
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No. of Recommendations: 0
But there may not be a financial planning solution to the 500 year storm. That's why Bill Bernstein observed that cutting your withdrawal rate below 4% doesn't provide that much additional safety. It just increases the chance that nuclear war or a worldwide flu epidemic will be the source of your demise rather than banal financial planning.

This is probably the Bernstein article you're referencing:

http://www.efficientfrontier.com/ef/901/hell3.htm

The historically naïve investor (or academic) might consider reducing his monthly withdrawals to a very low level to maximize his chances of success. But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.

Mind you, this is not a call for wild abandon. The above table constrains the retiree desiring a theoretical 97% success rate (of portfolio survival) from spending more than 3% per year of the initial real amount of his nest egg. Taking the accident propensity of the species into account would allow him to spend about 4%. But if you believe that we’re about to encounter a bad returns sequence or simply wish to leave a few baubles to your heirs, you’re right back to 3% again.
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No. of Recommendations: 1
No, the solution to Risk 2 is to believe math and statistics. Accept the 4% SWR withdrawal rule and accept that some years are bad and some years are good, but over the long run you do not need to obsess about the volatility and gyrations of the market.

My issue is, the 4% SWR is supposed to cover my monthly expenses (not covered by SS, etc.)

But what are my monthly expenses? The $5K I spent last month? Or the $15K I spent during the same month a year ago when my A/C finally died and I had to get a new one?`
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No. of Recommendations: 3
But what are my monthly expenses? The $5K I spent last month? Or the $15K I spent during the same month a year ago when my A/C finally died and I had to get a new one?

You got to make your best pro-rated estimates or WAG. Here's some of my assumptions:
- Two new cars every 10 years
- New AC, furnace, appliances, etc, every 10 years
- Max out of pocket medical spending for one person every year
- Health insurance increases by 13% every year until age 66, then I assume SS will cover us
- No ACA subsidies
- All other costs go up with general inflation

If I can get all that into 4% then I'm good. I'm good.
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No. of Recommendations: 0
"
My issue is, the 4% SWR is supposed to cover my monthly expenses (not covered by SS, etc.)

But what are my monthly expenses? The $5K I spent last month? Or the $15K I spent during the same month a year ago when my A/C finally died and I had to get a new one?"


Simple. Figure it on a year basis, and take the AVERAGE of the monthly spending........

Some years your a/c craps out. Another year your roof needs replacing. Another year your re
fridge dies or your car needs new tires and a $800 repair.

Figure in car depreciation each year if you don't have car payments because sooner or later you'll need a new car.......and some year, you'll fork out cash for a new car or take on car payments.


t
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No. of Recommendations: 6
But what are my monthly expenses? The $5K I spent last month? Or the $15K I spent during the same month a year ago when my A/C finally died and I had to get a new one?`

Quite possibly neither.

First off, you can't deal with a single total. You need to dig down a bit into some of the details. And you certainly can't look at one month. I'd look at yearly figures, then divide by 12 to get an estimate of average monthly expenses if you prefer to think that way.

Start with the easy stuff - housing, utilities, food, clothing, routine medical care (including health insurance), household supplies. Get the basics covered. What are your annual costs for these items.

Then go on to things like communications (TV, cell phone, internet - unless you want to include those in utilities, which is perfectly fine). Gasoline and maintenance for cars. (Personally, I'd toss a bit in for repairs as well, unless you are the type to swap out cars when the warranty expires.) Car payments, if that is part of your plan. Entertainment and dining out (if you haven't included the dining in food above). Travel and vacations. I'm sure you can add in a few categories of your own - things you spend money on regularly, although perhaps not evenly each month.

Don't forget to plan for income taxes.

Lastly, there's the big lumpy expenses. Things that are significant (say $3-4k or more), that you know will happen, but you might not know exactly when. Home heater and A/C. Washer and dryer. Refrigerator. Roof. New cars (if you prefer to pay cash). Major medical expenses. Home painting. These require some serious thought.

If you know some of these are coming in the first couple years of your retirement, I'd mentally pull their cost out of your total investments and base your regular withdrawals on the reduced amount. Basically, treat it as if you spent the money already and it wasn't available for long-term retirement withdrawals.

For anything else, I'd make an educated guess as to how long it will be until each of these items will be needed. Maybe your roof is 10 years old and it should have a 25 year life. So your guess might be that you'll need to replace it in 15 years. Figure up what a roof might cost today. Precision is not important, but being in the right ballpark is. Picking $15k or $16k won't make any significant difference. But picking $10k instead of $20k (or the other way around) will. When you've got that number, divide it by the estimated remaining life. That much of your 4% annual withdrawal really needs to be set aside for this expense. Let's say you think you'll need to replace your furnace in 5 years, and you estimate that will cost $5k. So $1000 of your annual withdrawal really needs to be set aside for this longer term expense. It's not available for current spending.

Naturally, you probably don't want to actually put that money into a savings account. You probably want to leave it invested. (Although I'm not going to fault anyone who does choose to stick that money aside into a separate account, if that helps you.) You could instead reduce your annual withdrawal by $1000 (in my furnace example above) and leave that wherever it is currently invested.

In short, you can't actually spend the whole 4% SWR. Some of that SWR needs to be earmarked for long-term, lumpy spending.

After all of this is done, add up your annual totals for each of these kinds of payments and give it a sanity check. Does the total make sense compared to what you are spending currently? If all this adds up to $4k a month, but you are currently spending $6k a month, something may be wrong. What are you forgetting? Or is there some expense you currently have that will go away in retirement? Is the retirement total $10k a month when you're currently spending $7k? Again, look for something wrong. Keeping track of your current spending will help tremendously with this whole process.

Yes, this gets a bit involved. But you really only get one shot at retirement. If you are at all close on your numbers, it makes sense to me to run through the details. You might only need to do this level of planning once or twice. And a second run through should be quicker, particularly if you keep track of the first go around.

--Peter
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No. of Recommendations: 7
Here is a spreadsheet from "Engineering Your Retirement", chapter 3 to help deal with non-periodic expenses in your budget. The numbers in the sheet are at least 15 years old and are not meant to represent any particular retiree, but you can build your own version of the sheet and put your own estimates in:

CAPTIAL ITEM.....COST....LIFESPAN (YEARS)......ANNUALIZED COST
Car.....................$24,000......5.......................$4,800
Water heater............$250........13.......................$19
Furnace.................$2,000......20.......................$100
Air cond................$4,000......15.......................$267
Housepaint..............$100........10.......................$10
Refrigerator............$600........17.......................$35
Freezer.................$240........20.......................$12
Dishwasher..............$350........10.......................$35
Range...................$400........12.......................$33
Microwave...............$175.........6.......................$29
Washer/dryer............$750........15.......................$50
Car tires...............$600........2.5......................$240
Computers...............$600.........5.......................$120
Printer.................$130........10.......................$13
Television..............$300.........8.......................$38
Stereo..................$500........15.......................$33
Living rm set...........$4,000......15.......................$267
Bedroom set.............$1,700......15.......................$113
Dining rm set...........$1,000......10.......................$100
Patio furn..............$400.........7.......................$57
Gas grill...............$500.........7.......................$71
Exercise equp...........$425........10.......................$43
Vacuum Cleaner..........$115........17.......................$7
Steam Cleaner...........$650........10.......................$65
Major House maint......$7,500.......14.......................$536
TOTAL........................................................$7,093

I have produced this list in the past only to have the discussion turn immediately to debates about costs/lifespans etc. for individual items. This list and these costs/lifespans are not intended to represent any particular person's needs. Many of the items won't apply to everyone. Any particular individual may have other non-periodic expenses that need to be added. The costs/lifespan of most items will vary depending your specific use. For example, car tires wear based primarily on mileage. If you drive a vehicle that requires expensive tires and you drive a lot of miles, this figure is going to be much higher than for someone who drives a small car a few miles per week. And the same line is $0 if you don't own a car. So you still need to go through the list and apply your own lifestyle specifics.

But this is one way to address these kinds of expenses that will not be captured by keeping track of your exact spending for a month, or even a few years. Track your normal spending then do your best effort to build the non-periodic expenses char and add that bottom line to your annual budget. Notice that this method assumes that inflation of these items is roughly the same as all your other budget items, so if you want to use this method combined with the 4% rule, you need to make sure the costs listed are estimates for that item in the year you retire.
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Nice list, and it's exactly what I was talking about.

I know you said not to pick on the numbers, instead pay attention to the process. And that's excellent advice.

I can't help but point out that you definitely need to think about these for your personal situation. I have to laugh at the 5 year life for a car. I'm a used car kind of guy. I generally buy them when they're 5 years old or so.

--Peter
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"I have to laugh at the 5 year life for a car. I'm a used car kind of guy. I generally buy them when they're 5 years old or so."

Yes, that's been my philosophy also.

The message of this thread should be that you still have to manage your budget in retirement. Possibly even more so than when you were working.
Your 4% and other known income (SS, pension etc.) gives you your income and you have to budget within that.
But some things won't be used up at the same rate as they were in working life.
One post mentioned several things being replaced 'twice more'.
Once you hit 65, the next item you buy with a 15 - 20 year life will possibly be the last time. You'll be 80+ by the time it needs replacing and likely will be in an entirely different frame of mind as to necessity. For instance, you might be more likely to just sell the home and move to a retirement community or already be in one so you never have to replace it. Maybe reduce to a single car etc.
Lifestyle matters a lot.
Also, you can finance things so they don't hit as a lump in a given year but simply come out of your 4% at some annual cost.
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""I have to laugh at the 5 year life for a car. I'm a used car kind of guy. I generally buy them when they're 5 years old or so."

Average age of cars on the road last year was 10.8 years.........so lots of folks keep their cars for 2 decades or so.

My 1990 Honda went 17 years and 165,000 miles before I sold it. Still mechanically good but seats definitely worn out, probably could use struts (never changed) and some rubber bushings in the suspension. Maybe $2000 in total repairs whole life - one half axle/CV joint, new muffler/exhaust pipe...... but at 90K miles they replace the timing belt/water pump and that's a lot of $$$.....like $600 if I remember right. Supposed to do it again at 180K miles.

I had a couple LeSabres...drove them to over 200K miles and 8 years and got rid of them. Transmissions went flakey at 200K miles.

Last Malibu went 7 years and 175K miles......traded it in on 2016 Malibu LTD and now 3.5 years old and 106K miles. I'll run it to 180K or 200K miles if no major issues with it - another 3.5 years likely. Just had to replace oxygen sensor ($280) and now need 2 new tires.....

Well, the around town Prius is 12 years old...but just turned 6oK miles.....still going strong...... had to put new HID head light in it....$400...ouch...you've got to take the front end of the car apart to get to it!.......otherwise, good car. It does have a little Gel-Cell battery that only Toyota has in the rear.....$280 to get replaced 2 years ago......another 'ouch'.....lasted 10 years. Stuff happens.

There are a lot of old cars on the road in TX.......they don't rust out. You can tell the older ones when they drive along in summer with their windows down because the a/c gave up the ghost years ago....and it cost more to fix the a/c than the car is worth.


t.
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My issue is, the 4% SWR is supposed to cover my monthly expenses (not covered by SS, etc.)

No it is not.

4% SWR is how much you can safely withdraw from your portfolio.

Your monthly expenses are an entirely separate and distinct matter.

The one has nothing to do with the other.
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My issue is, the 4% SWR is supposed to cover my monthly expenses (not covered by SS, etc.)
--------------------
No it is not.

4% SWR is how much you can safely withdraw from your portfolio.

Your monthly expenses are an entirely separate and distinct matter.

The one has nothing to do with the other.


Pettifogging It is obvious he means that his expenses need to be met by the 4%. Yes, That's what the whole 4% thing is about. You are being lawyerly.
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I have to laugh at the 5 year life for a car. I'm a used car kind of guy. I generally buy them when they're 5 years old or so.

Every time it was time for us to buy a car, we always started out looked at the 3-5 year old used cars. Pretty quickly I realized that they were cheaper than a new car by the just about exact amount of mileage depreciation. IOW, it was cheaper not because it was a bargain, it was cheaper because it was partially used up.

But we generally kept them until they died. We still laugh about the time we were going to the dealer to trade in our Honda Civic to pick up the new car. The front quarter panels had rusted through, so they flapped like a goose taking off from a pond. A block before we turned into the dealer's lot, the red alternator light came on. Wife and I looked at each other and said, "Ohhhh. We won't tell them about that." We coasted down the driveway, got out of the car and never looked back.

But now that we are long retired, we thought, "Do we want to drive to the nursing home in a 10 year old junker? Or would we rather have new(ish) cars for the rest of our time on Earth?"
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Do we want to drive to the nursing home in a 10 year old junker?

Yes. Yes, I do. Well, sort of.

If it's junk at 10 years, you're not taking care of it. My current daily driver is celebrating its 20th birthday. When I take the time to wash it, it still looks good. No rust anywhere. (It helps that I live in a place where cars don't turn into rust buckets in 5 years.) Engine and tranny are strong. Paid $3500 for it 12 years ago. Could sell it for $2000 today - or at least some time this week. So it's cost me less than $150 a year in depreciation. Yes, it also takes about $1000 a year in maintenance and repairs.

I'd rather have the money this car - and several predecessors - has saved me over the years than the new car smell that wears off after a month.

--Peter
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Interesting. The last time I produced this sheet for an early retirement discussion, the posters latched onto the house paint and longevity of paint. People in large wooden houses that lived in rainy and snowy climates thought both the expense was low and longevity too long. Since I live in a brick home, it was a "don't care" to me. But car buying and car care habits also vary widely.

So everyone really does need to go through the list themselves. Also, you should note that for cars, for example, the amount you place in the cost column must actually be cost minus trade-in value. If you tend to keep autos for decades and hundreds of thousands of miles, trade-in value is usually relatively insignificant. If you trade every year or two years, it is more important.

You also need to note that auto maintenance, insurance, registration, and gas all should show up in your regular monthly expenses. These also change as a function of your auto ownership choices. So evaluating your auto purchase and maintenance habits requires you examine a lot of different things. And, like a lot of the things we discuss here, there are factors that are not financial. I've noticed, for example, that because I tend to keep cars for 10 years or more before trading, by the time I do trade, there are a lot of features common on cars that I have been doing without for a decade or so. Mostly, I don't find these features worth the extra expense, but some of the safety features that have emerged in the past several years are significant in saving lives. I don't tend to give a carp about the impression my car might have on people. Heck, I don't even keep the dirt off my cars or the squalor out of the seats and floor. But some people have jobs or other reasons why they need to (or at least think they need to) impress clients, friends, etc. If that's the cost of a successful business, then that's what you have to do.
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But some people have jobs or other reasons why they need to (or at least think they need to) impress clients, friends, etc. If that's the cost of a successful business, then that's what you have to do.

But this is about retirement...should be no clients to impress!

The list is a good idea, in general.
But for many years I've tracked my car and home repair expenses so I have a good estimate of what I "actually" spend on a yearly basis.

Mike
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We drive a car until the wheels fall off. Our 1999 Chevy Venture went almost 200,000 miles before we donated. Change the oil twice a year
That's about it. Bought it new.
We are literally planning our trip to Old Folks Home. Going down to only one car. The OFH has jitney bus we can use for many local trips. Will keep one car for longer trips.
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With regards to new vs old cars, I have bought both types over the years. I now prefer to buy new cars because I know exactly how the car was maintained and how it was driven. With a used car, I can't be sure the oil changes were made on schedule or if the person was horrible at missing potholes and curbs along with being a drag racer at every light. I keep my vehicles for a long time. I have been driving my current vehicle for 12 years and have over 209k miles on it. I see the lifetime cost difference between new and used vehicles to be much larger if you are a person who frequently buys replacement vehicles.

PSU
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But this is about retirement...should be no clients to impress!

Good point. I do generally try to understand why people value things differently than I do and not simply assume they are shallow or bad at math. I suppose someone could value a volunteer commitment that involved use of their car.

The list is a good idea, in general.
But for many years I've tracked my car and home repair expenses so I have a good estimate of what I "actually" spend on a yearly basis.


Of course, using actual expenses is better if you have it. When I was originally planning retirement, I had about 5 years worth of actual expense data I was able to consider. But you likely would need to have over 20 years worth of data to evaluate both cost and longevity of a new roof, for example. The list also needs to be inflation adjusted to provide costs of all items in the year when you actually retire. The cost of that washer/dryer you bought 10 years ago might not apply next year when you actually retire. And the fact that you are using that washer/dryer today doesn't actually tell you how many more years before you might need to replace it. But with a combination of your own expense data and some internet searches for cost and product average lifetime, you can get a decent estimate of what you need to add to your recurring expenses in order to plan retirement. I think it is typical for these kinds of non-periodic expenses to add about 10% or even more to a family's annual budget requirements.
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Of course, using actual expenses is better if you have it. When I was originally planning retirement, I had about 5 years worth of actual expense data I was able to consider. But you likely would need to have over 20 years worth of data to evaluate both cost and longevity of a new roof, for example. The list also needs to be inflation adjusted to provide costs of all items in the year when you actually retire. The cost of that washer/dryer you bought 10 years ago might not apply next year when you actually retire. And the fact that you are using that washer/dryer today doesn't actually tell you how many more years before you might need to replace it. But with a combination of your own expense data and some internet searches for cost and product average lifetime, you can get a decent estimate of what you need to add to your recurring expenses in order to plan retirement. I think it is typical for these kinds of non-periodic expenses to add about 10% or even more to a family's annual budget requirements.

At one point do you say enough is enough when it comes to estimate the annual impact of non-annual expenses? If you mess up a washer/dryer lifetime estimate by a few years and the result is that you will end up living under a bridge in a cardboard box, then it seems you may have retired too early. I'm somewhat conservative. If I calculate I need $40k for expenses, I don't retire on the exact day my retirement accounts have $1,000,000.01 in them.

PSU
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"If it's junk at 10 years, you're not taking care of it"

**************************************************************

Folks have a different ability to handle a "breakdown" situation -
and the odds of a breakdown do increase with the age of an auto.
We replaced the "traveling" car after 10 years/185.000 miles simply
because I was leery of DW sitting in the car waiting for a tow truck
for a hour or two.

Howie52
Different folks will always have different perspectives and perceived needs.

One reason why 5-year plans fail in directed economies. People's needs and
wants rarely match predictions.
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"At one point do you say enough is enough when it comes to estimate the annual impact of non-annual expenses? If you mess up a washer/dryer lifetime estimate by a few years and the result is that you will end up living under a bridge in a cardboard box, then it seems you may have retired too early. I'm somewhat conservative. If I calculate I need $40k for expenses, I don't retire on the exact day my retirement accounts have $1,000,000.01 in them.

PSU "

**********************************************************

Gee.
Sounds like an emergency fund might be needed.

Howie52
Trying to keep an innocent look on my face.

Not succeeding.
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If it's junk at 10 years, you're not taking care of it. My current daily driver is celebrating its 20th birthday. When I take the time to wash it, it still looks good. No rust anywhere. (It helps that I live in a place where cars don't turn into rust buckets in 5 years.) Engine and tranny are strong. Paid $3500 for it 12 years ago. Could sell it for $2000 today - or at least some time this week. So it's cost me less than $150 a year in depreciation. Yes, it also takes about $1000 a year in maintenance and repairs.

Isn't that dependent on how much you drive? I agree a 10 year old, 10k miles per year vehicle should not be a junker but a 10 year old, 30k miles per year vehicle may be.

PSU
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Isn't that dependent on how much you drive? I agree a 10 year old, 10k miles per year vehicle should not be a junker but a 10 year old, 30k miles per year vehicle may be.

Yes, I suppose so. On the other hand, if you're driving 30k miles a year, you are a professional driver - no matter what it says you do on your business card. Professional drivers should think of a car as a work tool. And that takes it out of the realm of what a typical retiree needs when they're, well, retired.

--Peter
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Sounds like an emergency fund might be needed.

Replacing a w/d is maintenance, not an emergency. Money is money. If you feel that it looks different with a label, have at it. For me, what I have is what I have and it gets used for whatever.
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Peter:"Yes, I suppose so. On the other hand, if you're driving 30k miles a year, you are a professional driver - no matter what it says you do on your business card. Professional drivers should think of a car as a work tool. And that takes it out of the realm of what a typical retiree needs when they're, well, retired."

Wrong! the first year I retired, I put 50K Miles on the car. The next year I put 50K miles on the car. I finished going to all 3077 US counties. Traded that car in with 225K miles on it for a new one.

I regularly put 25-30K miles a year on my car and I've been retired 23 years. At 7-8 years of age, it's time to let someone else worry about mechanical failures.

I probably drive more than a 'typical' retiree......but I bring the average miles up....


t.
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At one point do you say enough is enough when it comes to estimate the annual impact of non-annual expenses?

Of course. Whenever you feel comfortable, your job is done. Twenty something years ago when I was first starting to plan for retirement, I did not know in advance whether accounting for my non-periodic expenses might add 1% or 30% to my budget as determined only by recurring expenditures. Going through the exercise of making best estimates of these expenses helped me decide how much I needed to add to my safety margin. As with retirement simulators and other tools, I played around with costs and longevity on the items that made sense for me until I felt comfortable that the range of average annual non-recurring expenses was easily manageable. I don't even recall what the number or percentage was and I certainly haven't re-visited those calculations at all until this thread reminded me of how I addressed that issue many years ago.

I tended to be as thorough as I knew how to be when I first started planning because I held such limited knowledge about how to finance a satisfying retirement. I wrote my own historical simulator (very crude and clunky) just so I understood how it all worked together. I developed many many linked spreadsheets to examine how different things might impact my plans. I used Monte Carlo analysis for all kinds of estimators and developed perturbation analysis code to consider variations on the historical simulator results. I read countless books on the subject and even submitted myself to lunches and dinners with financial advisers who wanted to convince me that I needed their guidance.

Today, I pretty much do what I want and spend what I want because I am very comfortable in my understanding of my investments and retirement funding. To the extent that I do any work on planning my own retirement, I focus primarily on how to deal with changes in the banking and tax laws. And sometimes I try to provide what information I can to people who raise questions on retirement boards.
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I have two cars, one is 18 yrs. old with 93k miles and the other is a 2012 with a whole lot less than that...I’m not going out there to check it but it’s a “young” car. The one I take on the road 50 miles plus is the younger one. I just figure my chances are better with the younger car that something won’t break down. Both are utilitarian vehicles and the older one has dents in it so that goes to parking lots for shopping trips. I still park far out for the exercise and get away from the popular parking spots where more folks would have the chance to add another “ding” to the car.

People are something else.

The emergency fund is an illusion with those of us who have been retired for a long time. There is always a cash and/or easily accessible money for the “stuff” that comes up. However, to those young folks starting out, they have to start somewhere so whether it’s the envelope method or something else to get to understand how they are spending their money and how they can save their money for the future....these are good things to start with. Money devoted to various categories with a goal of saving, say, $50 at the end of the month.

We all started somewhere and weren’t perfect in any of it. Plus, as it has been said, stuff happens, unpredictable expenses surprise us all the time....we do without, delay getting it, think of other options. Life goes on.

Lucky Dog
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