There are a variety of approaches. Actually this type of planning seems easier to me in retirement than while working. Simply because income variability (risk of layoffs, salary changes, relos, and bonuses) is now gone. That was always a bigger unknown to me. In terms of expenses, flexing withdrawals (where most of our expenses get covered) is not necessarily a big challenge, if your portfolio is designed to accomodate it. Unless you also want to get into long-term care expenses, which I don't, this type of planning is not really that unique to retirement.
Using your list, which pretty much covers all the irregular expenses we encounter:
Under my current Medicare arrangements, I don't consider out-of-pocket medical and rx to be material - they are essentially a fixed yearly expense for us (although wife isn't on Medicare yet and that is a separate component of expense). I just budget for premiums and deductibles/copays as always. Hearings aids, incremental costs of cataract surgery, etc. - those I plan for on a realistic and specific schedule (i.e. put in my budget when applicable). Same with dental and eyeglasses (I find a flat yearly estimate is close enough based on our dental health).
Normal replacements and repairs - again we just budget an aggregate number each year that will likely cover a reasonable range. In early retirement, I tended to push too much of this stuff off, and it piled up. Now I am a bit more proactive and find this aggregate range of expenses to be reasonably narrow. So we actually put this in a rough annual budget, as an overall realistic amount, without detail. I know many hate budgeting, but having one (in our case) allows us to spend purposefully, plan cash flow/withdrawals, and better manage taxes. So we address most of what you list in that way.
Huge stuff - mainly the largest of home repair and improvement stuff, large discretionaries, and car purchases. To us this is the biggest variable area, and the most difficult to predict accurately. So I wing it since these are infrequent. I handle them via portfolio withdrawals mostly, sometimes loans if terms favorable. No real planning, budgeting or reserves. We just make sure our portfolio and savings can accomodate without tax issues, IRMAA issues and other negatives. Having portfolio withdrawal options in Roth, traditional IRA and taxable helps with that flexibility.
So we don't create formal reserves or such, just design portfolio to accomodate the occasional jarring expense. All the other lesser "possibles" are just handle by a budgeted spending "fudge factor".
Using your list, which pretty much covers all the irregular expenses we encounter:
Under my current Medicare arrangements, I don't consider out-of-pocket medical and rx to be material - they are essentially a fixed yearly expense for us (although wife isn't on Medicare yet and that is a separate component of expense). I just budget for premiums and deductibles/copays as always. Hearings aids, incremental costs of cataract surgery, etc. - those I plan for on a realistic and specific schedule (i.e. put in my budget when applicable). Same with dental and eyeglasses (I find a flat yearly estimate is close enough based on our dental health).
Normal replacements and repairs - again we just budget an aggregate number each year that will likely cover a reasonable range. In early retirement, I tended to push too much of this stuff off, and it piled up. Now I am a bit more proactive and find this aggregate range of expenses to be reasonably narrow. So we actually put this in a rough annual budget, as an overall realistic amount, without detail. I know many hate budgeting, but having one (in our case) allows us to spend purposefully, plan cash flow/withdrawals, and better manage taxes. So we address most of what you list in that way.
Huge stuff - mainly the largest of home repair and improvement stuff, large discretionaries, and car purchases. To us this is the biggest variable area, and the most difficult to predict accurately. So I wing it since these are infrequent. I handle them via portfolio withdrawals mostly, sometimes loans if terms favorable. No real planning, budgeting or reserves. We just make sure our portfolio and savings can accomodate without tax issues, IRMAA issues and other negatives. Having portfolio withdrawal options in Roth, traditional IRA and taxable helps with that flexibility.
So we don't create formal reserves or such, just design portfolio to accomodate the occasional jarring expense. All the other lesser "possibles" are just handle by a budgeted spending "fudge factor".
Statistics: Posted by DetroitRick — Mon Jul 15, 2024 10:48 am — Replies 26 — Views 1601