Occasional big expenses after retirement

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Bill M
Posts: 438
Joined: Sun Dec 30, 2012 10:10 pm

Occasional big expenses after retirement

Post by Bill M »

For all the usual expenses it is rather easy to estimate some kind of annual spending amount, and deal with the retirement "budget". Granted lots are unknown, like amount of travel and entertainment, but we can make guesses for annual amounts.

But there are some occasional big expenses that don't quite fit that model. These are things that we know are coming, but not sure of when. Examples: car purchase (~$20K every ~10 years), roof replacement (~$25K every ~25 years), furnace replacement (~$8K every ~30 years), etc. How do you deal with these?

Some alternatives come to mind:
(1) just make a larger than normal withdrawal from investment accounts that year.
(2) pay for it out of regular budget, possibly skipping a vacation trip or two.
(3) maintaining a set of separate "car fund", "roof fund", "furnace fund", etc; contribute something every year to cover the expense when it happens. (Separate investment policy statement for each??? How about if the separate account doesn't have enough?)
(4) like #3, but only keep one separate fund with a combined balance
(5) others???

My inclination is to go with (1), as I don't like (2) and the others are more complex than seem worthwhile. But (1) does seem susceptible to sequence-of-return risk.

Other methods? How do you deal with these things?
jebmke
Posts: 12571
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Occasional big expenses after retirement

Post by jebmke »

The most important thing is to make sure that your assets and other sources of income are capable of handling these lumpy outflows. Some people fail to plan for these.

I just sell something to generate cash to cover the expenditure when the bill comes.
When you discover that you are riding a dead horse, the best strategy is to dismount.
tomd37
Posts: 3578
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

Re: Occasional big expenses after retirement

Post by tomd37 »

Fortunately I am in a retirement situation where my RMD exceeds my budget needs by a certain amount. I keep about two or three years of budget needs in various types of cash accounts where they are readily available if needed and that is what I have used when those "special needs" arise. I would not have to sell low or spend additional money for taxes taking out of my retirement investments by doing it this way.
Tom D.
DFrank
Posts: 474
Joined: Thu Mar 20, 2014 10:44 pm
Location: North Idaho

Re: Occasional big expenses after retirement

Post by DFrank »

I look at this from two perspectives.

One is from a planning perspective - how do I account for these expenses when looking at whether I think we have enough to retire. In that case I usually include an annual capital expense line in my budget in which I include the costs of those sorts of items pro-rated over their expected lifetime. For instance, I'll include 1/10th of the cost of a car because we typically replace them on that interval. As an alternative some planning tools allow you to budget separately for infrequent expenses. Hebler's Analyze Now spreadsheet allows this, as does cFIREsim.

The second perspective is how do I plan to fund these items once I'm retired. I think my expectation is that it might vary a little depending on the state of our portfolio, but I hope most of the time it will just be a matter of paying for them out of our investment portfolio. If markets have been unkind we can either decide to defer some of those expenses, or spend less on other discretionary items.
Dave
Gill
Posts: 7234
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Occasional big expenses after retirement

Post by Gill »

I create an annual "Spending Plan" based on the amount I feel I can safely spend during the year. In that plan I create a reserve for automobile purchase, a reserve for contingencies and a third allocation for large house purchases such as air conditioner units or roof replacement. I base the amounts on my estimates of future expenses of this nature and the amount to be amortized each year. This automatically creates a reserve because it limits my other spending to the non-reserve categories except in the years I incur expense of this nature.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
tuningfork
Posts: 565
Joined: Wed Oct 30, 2013 8:30 pm

Re: Occasional big expenses after retirement

Post by tuningfork »

When I planned for retirement, I included monthly budget categories for these expenses. For example, I included a monthly car payment in my plan even though I always pay cash for cars. Similarly I included monthly amounts for home repair and medical expenses much larger than typical months. This satisfied the planning tools.

Now that I'm retired, I keep 2-3 years of projected spending in cash in a savings account. At the start of each year I sell some funds to beef up the savings account for another year. The extra padding in that account should handle the occasional large expenses as well as giving me more flexibility when to replenish it depending on market conditions. I've only been retired for a couple of years so I may tweak this approach as needed.
ourbrooks
Posts: 1575
Joined: Fri Nov 13, 2009 4:56 pm

Re: Occasional big expenses after retirement

Post by ourbrooks »

I'm also interested in this topic and I've done a bit of spreadsheet work. I think the following concept is important:

"Saving" out of retirement withdrawals from investment accounts isn't saving at all; you've ALREADY saved the money. What it is is (a) a shift in asset allocation from stocks/bonds to cash and (b) a possibly premature withdrawal from tax deferred accounts. Whether it's premature or not depends on whether the "savings" are in addition to your RMDs.

An example: Assuming 5.6% real returns from a 50/50 portfolio and a 15% effective tax rate, withdrawing $5,000 a year for five years will get you $21,250. Leaving $5,000 a year in for five years and taking out a lump sum will get you $25,098.

Before you decide to leave the money in until the last second, there are two other factors to consider: First, if the lump sum is large enough, it may knock you into the next higher tax bracket. Second, the stock market doesn't win every year; there's a 14% chance that you'll actually lose money over five years. If you can delay the expense a year or two, though, the effects of stock market aren't as bad, since the average bear market only last 18 months.

For things like a new roof or a new car, you might want to spend more if the markets have been kind. One way to determine that is to assume that you've withdrawn X dollars and then use whatever withdrawal method you're using and see whether you have enough going forward. For example, if you're using the 4% rule, and you're five years into retirement when you want to make the withdrawal, take 4% of what you would have after the withdrawal. Is it more than you're spending now? Go ahead and get the metal roof and/or the Mercedes. (Actually, you can safely withdraw a bit more than 4% because now you're spending over a 25 year period versus 30 years; the tables in the Wiki show this higher withdrawal rate.)
Ron
Posts: 6741
Joined: Fri Feb 23, 2007 7:46 pm
Location: Allentown–Bethlehem–Easton, PA-NJ Metropolitan Statistical Area

Re: Occasional big expenses after retirement

Post by Ron »

No differently than when we were still working.

For instance, my wife/me put $500/mo. into our respective car replacement savings; we always buy our vehicles for cash. That $500 really represented $500 plus the income taxes we paid to receive that money while each of us were employed.

In retirement, we still put $500/mo. into our respective car replacement savings (wife just purchased a '15 Subie before Christmas). Every month, that $500 is withdrawn from our respective portfolios (cash held) along with FIT paid on the withdrawal (we don't pay state/local income tax on our withdrawals in our state). The money resides in an interest bearing savings account until it's needed.

We do the same thing for home improvements/maintenance, earmarking 3% of our annual income/withdrawals for future needs.

Working or retirement, it makes no difference.

FWIW,

- Ron
earlyout
Posts: 1467
Joined: Tue Feb 20, 2007 5:24 pm

Re: Occasional big expenses after retirement

Post by earlyout »

I like your number 1 and we have used that approach now for 15 years. In normal years when there are none of these big expenses we stay at 2.5% or less of the retirement accounts. In years when we have a large expense like a car or special travel expense, the withdrawal may be 3 or 3.5%. Over the years the withdrawal will average below 3%. Sometimes it is possible to push the major expense back a year or two, e.g. a new car, so we have some flexibility if the market is way down.
User avatar
VictoriaF
Posts: 19566
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: Occasional big expenses after retirement

Post by VictoriaF »

I don't anticipate occasional big expenses, except possibly medical costs.
- I rent an apartment, and when my rent increases or I move, it will remain a regular expense.
- I now live in an urban area and rarely use my car. My 18 year old Civic may outlive me.
- My large vacation budget is a regular expense.

If I had significant medical expenses, I probably would not be able to travel for a while, and so the travel money would become the medical money.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
skibum
Posts: 24
Joined: Sat Feb 15, 2014 4:08 pm

Re: Occasional big expenses after retirement

Post by skibum »

Planning to retire soon myself and considering several looming big ticket expenses (costly roof, home improvements, auto restoration, a few new toys).

I am considering an earmarked cash sum of $xxK set aside for these pending expenses, this would be exclusive of the portfolio balance from which sustained withdrawals will be calculated in accordance with our IPS. After these expenses are settled, the remaining funds would revert to the retirement portfolio and subsequent withdrawals will include regular contributions for future home and auto expenses.

This seems to make sense, especially for the essential expenses, although I wonder if I'm drawing a semi-arbitrary line to justify some non-essential home improvements and new toys.

Interested to know if others have used similar approach for RV, boat, etc or see any flaws. Set aside funds would be approx 5% of portfolio, usage approx 70/30 essential vs desired expenses. BH approach would be to wait and save up for the non-essential expenses from the SWR. After a career of LBYM, I'm justifying a few essentials and splurges at the transition to a more measured financial independence.

Thanks in advance for any thoughts.
Last edited by skibum on Sat Apr 04, 2015 10:23 am, edited 1 time in total.
Dandy
Posts: 6490
Joined: Sun Apr 25, 2010 7:42 pm

Re: Occasional big expenses after retirement

Post by Dandy »

The way I've been handling it is using some of my taxable savings and my HELOC. I have a nice 2.74% HELOC. Then I usually pay off the HELOC over say the next 6 to months mostly from monthly income including some divs/cap gains. So bought a new car for about 30k. Put $10k down from short term savings and it probably took another year using monthly income and some divs cap gains from taxable accounts. Most lump expenses aren't that high. If I feel that a large expense is coming up e.g. car purchase I will start adding to my savings rather than reinvesting divs/cap gains.

I try not to take everything out of savings/investments every time I have a lump expense. It adds some restraint but costs a bit more. When the car is paid off then I feel better about incurring another expense. Sometimes emergencies double up so then I would take it out of taxable savings.

What is rarely discussed when addressing withdrawal strategies it that retirees need an emergency fund too. Loss of job is not the risk but cars, roofs etc can still require some lumpy expenditures. You can just tap your taxable investments or have some liquid assets as part of your taxable assets. Of course those are the same options most in the accumulation stage of live have.
Topic Author
Bill M
Posts: 438
Joined: Sun Dec 30, 2012 10:10 pm

Re: Occasional big expenses after retirement

Post by Bill M »

OP here. Thanks to all for the interesting responses. As several have pointed out, the planning process has to include these big occasionals to make sure enough is saved. But I never appreciated how much it throws off the withdrawal planning. It seems every one of the methods I had considered is being used successfully, and several more besides.

I really liked the approach by tuningfork -- keeping 2-3 years of normal spending in a savings account, covering big expenses as needed from that savings account, and letting the normal replenishment each year fix things.

Like skibum, we also have a list of pending major purchases (RV camper, new piano, etc), timing TBD, and a savings account already funded for them. I also wonder if the distinction there is rather arbitrary and justifying toys. But retirement should be fun, and sometimes that costs some.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Occasional big expenses after retirement

Post by The Wizard »

I have mainly tax sheltered 403b retirement funds.
I've just made a change to fund new vehicles and other lumpy purchases.
I used to withdraw about taxable $1200 a month directly to my checking account, much of which went into savings for this purpose.
I'm now doing a monthly Roth conversion with that same $1200 a month, using comparatively conservative investments which will grow tax free until the next major purchase.
I'm over 59.5, so can withdraw it all at any time...
Attempted new signature...
mptfan
Posts: 6492
Joined: Mon Mar 05, 2007 9:58 am

Re: Occasional big expenses after retirement

Post by mptfan »

There was a discussion on the early retirement forum about this issue...

http://www.early-retirement.org/forums/ ... 75829.html
User avatar
siamond
Posts: 5792
Joined: Mon May 28, 2012 5:50 am

Re: Occasional big expenses after retirement

Post by siamond »

I didn't hit this roadblock yet, but my plan is that a big lump sum should be viewed as a loan to myself, that I will reimburse by accordingly reducing my annual withdrawal. Why put money aside in advance in some sort of savings or emergency bucket, this would just be money sitting idle. Plus large expenses aren't always easy to predict.

Say I buy a new roof for $24k. Say I decide to repay myself over 8 years (I certainly hope I will not need a new roof in this timeframe!). That's $3K per year. Well, more precisely, with a 5% loan (a reasonable rate of return for my AA), it is PMT(5%, 8, -24000, 1), which is $3536. Now if I want to make it right, I should also account for inflation, hence make the rate of return in nominal terms, say adding 2%. So PMT(7%, 8, -24000, 1), which is $3756. Shesh, what a loan shark I am... :wink:

I now just have to subtract $3756 from my annual withdrawals for the 8 years to come. I'll maintain a very simple Excel spreadsheet with my withdrawals (planned and actuals) and my ongoing loans, et voila. No money sitting idle, no planning ahead, and this will cover expected and unexpected situations. I just need to decide the duration of the loan for a given expense.

PS. of course, if I spend less during a given year than planned, then this should reduce the principal of the ongoing loans. Or count as a negative loan.
Last edited by siamond on Sat Apr 04, 2015 8:57 am, edited 1 time in total.
User avatar
Bustoff
Posts: 1980
Joined: Sat Mar 03, 2012 6:45 pm

Re: Occasional big expenses after retirement

Post by Bustoff »

I set aside enough living expenses in CD's, 1% savings accounts and short-term bonds to reach age 70. I'm no longer interested in reaching for the stars.
We had to replace the roof and furnace in 2014.
We still haven't replaced our second vehicle ... I'm holding out for Tesla’s $35,000 Everyman Car.
Independent
Posts: 551
Joined: Tue Sep 22, 2009 1:09 pm

Re: Occasional big expenses after retirement

Post by Independent »

Bill M wrote: Some alternatives come to mind:
(1) just make a larger than normal withdrawal from investment accounts that year.
We use #1.

Unless I'm into market timing, there's no loss in just taking the money out when we spend it.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Occasional big expenses after retirement

Post by The Wizard »

siamond wrote:I didn't hit this roadblock yet, but my plan is that a big lump sum should be viewed as a loan to myself, that I will reimburse by accordingly reducing my annual withdrawal. Why put money aside in advance in some sort of savings or emergency bucket, this would just be money sitting idle. Plus large expenses aren't always easy to predict...
I think maybe it depends on how much one has in traditional tax-sheltered accounts vs after-tax accounts in retirement.

My stash is primarily tax-sheltered, so I try to have steady withdrawals from that to keep my income tax situation reasonable. Doing a $50K lumpsum withdrawal from tax-sheltered to buy a new car with would NOT be a good idea, either tax-wise or behaviorally.

So for me, once the $$ is in my checking account, savings account, or Vanguard taxable investment account, it's ready to be spent with wild abandon once the executive decision is made...
Attempted new signature...
User avatar
siamond
Posts: 5792
Joined: Mon May 28, 2012 5:50 am

Re: Occasional big expenses after retirement

Post by siamond »

The Wizard wrote:My stash is primarily tax-sheltered, so I try to have steady withdrawals from that to keep my income tax situation reasonable. Doing a $50K lumpsum withdrawal from tax-sheltered to buy a new car with would NOT be a good idea, either tax-wise or behaviorally.
$50k for a new car... Man, you have an expensive taste for a Boglehead! :wink:

Also, maybe one should go with a regular car loan if the rate is significantly lower than the AA's expected rate of return.

But still, your point is understood. Although I have to wonder if the tax optimization truly compensates for the lack of return of money sitting idle. Here you are, do some 'Wizard' math, prove me wrong! :wink:
jebmke
Posts: 12571
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Occasional big expenses after retirement

Post by jebmke »

The Wizard wrote:I think maybe it depends on how much one has in traditional tax-sheltered accounts vs after-tax accounts in retirement.
And whether you have much assets in total. Quite a few people still retire on nothing but pension/annuities + SS with only a little savings as a buffer.
When you discover that you are riding a dead horse, the best strategy is to dismount.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Occasional big expenses after retirement

Post by The Wizard »

siamond wrote:
The Wizard wrote:My stash is primarily tax-sheltered, so I try to have steady withdrawals from that to keep my income tax situation reasonable. Doing a $50K lumpsum withdrawal from tax-sheltered to buy a new car with would NOT be a good idea, either tax-wise or behaviorally.
$50k for a new car... Man, you have an expensive taste for a Boglehead! :wink:

Also, maybe one should go with a regular car loan if the rate is significantly lower than the AA's expected rate of return.

But still, your point is understood. Although I have to wonder if the tax optimization truly compensates for the lack of return of money sitting idle. Here you are, do some 'Wizard' math, prove me wrong! :wink:
Well, that $50K, after 28% federal and 5.2% MA tax would net me only $33k to spend. :(

But I agree with you that putting aside $10k, $20k, $30k in an online savings acct earning 0.8% interest isn't too great.
So I've started a second Roth IRA for this purpose. $1200 a month goes into this from my 403b instead of into my checking acct.

Taxes will be the same, but the Roth account grows tax free until time to make occasional lumpy purchases. I'm old enough that I can withdraw from this Roth at any time w/o penalty. Folks under age 59.5 might not.

Choice of what investments to use in this Roth IRA is a separate issue. Mine is with TIAA-CREF, so I'm choosing to use the TIAA Real Estate Account which has been growing at 10% per year lately. If I didn't have access to this, I might move that Roth to Vanguard and use a conservative balanced fund...
Attempted new signature...
montanagirl
Posts: 1492
Joined: Thu Nov 19, 2009 4:55 pm
Location: Montana

Re: Occasional big expenses after retirement

Post by montanagirl »

not to be morbid but with all the cancer stuff in the news, I'm wondering about chemo drug expense. I just had a rude awakening with my humana walmart part d, paying over 200 for eyedrops for my cataract removal post op. I wonder if chemo drugs are typically billed separately? that could leave a mark if my Roth doesn't have enough in it and I have to take from tIRA at an accelerated rate.
SQRT
Posts: 1521
Joined: Sat Feb 05, 2011 9:44 am

Re: Occasional big expenses after retirement

Post by SQRT »

This was a big issue for me when I retired 8 years ago. I had a significant amount of deferred employee comp (options and DSU's) that were dependent on subsequent stock prices. My challenge was to estimate what these might be worth over the 5 year period after retirement. In addition I wanted to buy more real estate but didn't want to reduce my earning assets below what was needed to support my retirement lifestyle. A complicating factor was the financial crises which occurred 2 years after retirement but before the bulk of my incentive comp was cashed out.

Long story short. I bought the real estate as I cashed out. Treated these amounts (several million) as unusual expenditures in my budget while ensuring there was enough left in the portfolio to support our retirement lifestyle. Needless to say, I had several spreadsheets going at a time.
livesoft
Posts: 75914
Joined: Thu Mar 01, 2007 8:00 pm

Re: Occasional big expenses after retirement

Post by livesoft »

As I read some of the posts in this thread I was thinking, "One just does what they did BEFORE retirement when it comes to occasional big expenses."

Presumably folks had occasional big expenses while working over all those years. So what did I do? I either did without (ride bike while waiting to buy a car) or sold some investments to pay for it or got a loan to pay for it. Why should retirement be any different?
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Bustoff
Posts: 1980
Joined: Sat Mar 03, 2012 6:45 pm

Re: Occasional big expenses after retirement

Post by Bustoff »

The Wizard wrote:
But I agree with you that putting aside $10k, $20k, $30k in an online savings acct earning 0.8% interest isn't too great.
So I've started a second Roth IRA for this purpose. $1200 a month goes into this from my 403b instead of into my checking acct.

Taxes will be the same, but the Roth account grows tax free until time to make occasional lumpy purchases. I'm old enough that I can withdraw from this Roth at any time w/o penalty.
Wizard - How do start a second Roth after retirement? Do you mean conversion?
obgraham
Posts: 1311
Joined: Mon Jan 28, 2013 7:30 pm

Re: Occasional big expenses after retirement

Post by obgraham »

I do like some others here. In retirement I pretty much spent down my taxable savings before starting to live of the IRA as I am now.

I keep a HELOC loan in place in case some big transaction comes which would require me to make a big IRA withdrawal at a time not in my best interest tax-wise. Then repay it in whatever time frame makes the most sense.

Right now that HELOC is in play because I bought a new snowbird place before the sale of the prior place has closed. As soon as the old place closes, the HELOC loan balance will go away. The few dollars of interest makes it worthwhile to me.
User avatar
Just sayin...
Posts: 301
Joined: Tue Oct 09, 2007 10:12 am
Location: Desert & Triopics

Re: Occasional big expenses after retirement

Post by Just sayin... »

livesoft wrote:As I read some of the posts in this thread I was thinking, "One just does what they did BEFORE retirement when it comes to occasional big expenses."

Presumably folks had occasional big expenses while working over all those years. So what did I do? I either did without (ride bike while waiting to buy a car) or sold some investments to pay for it or got a loan to pay for it. Why should retirement be any different?
Before retirement, some large expenses were either non-existent (new company car every 2 years, better/different medical insurance, etc.), or were somewhat offset by the occasional, unexpected work-related bonus or award - in addition to the normal planning process. I get what the OP is asking, and was wondering how to realistically plan for similar events in my upcoming retirement (2 yrs, 8 mos away).
jebmke
Posts: 12571
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Occasional big expenses after retirement

Post by jebmke »

Just sayin... wrote:unexpected work-related bonus or award
Right, sort of like an unusually good equity run-up.
When you discover that you are riding a dead horse, the best strategy is to dismount.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Occasional big expenses after retirement

Post by The Wizard »

Bustoff wrote:
The Wizard wrote:
But I agree with you that putting aside $10k, $20k, $30k in an online savings acct earning 0.8% interest isn't too great.
So I've started a second Roth IRA for this purpose. $1200 a month goes into this from my 403b instead of into my checking acct.

Taxes will be the same, but the Roth account grows tax free until time to make occasional lumpy purchases. I'm old enough that I can withdraw from this Roth at any time w/o penalty.
Wizard - How do start a second Roth after retirement? Do you mean conversion?
Good question.
My original Roth IRA is with Vanguard and I contributed to that in my latter working years with no particular goal in mind, just tax free accumulation for the long run.

After doing this year's taxes a while ago, I figured out that saving up to purchase my new F-150 could be done more efficiently by accumulating funds into TREA yielding 10% in a Roth IRA rather than accumulating into my taxable online savings account yielding 0.8%.

So I opened a Roth IRA with TIAA-CREF, my 403b custodian, and had them start doing a $1200 per month Roth conversion rather than continuing to send that $1200 per month to my checking account.

So the "second" Roth refers more to funding a tax free slush fund on a continuing basis rather than the fact that a second custodian is involved...
Attempted new signature...
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Occasional big expenses after retirement

Post by The Wizard »

livesoft wrote:As I read some of the posts in this thread I was thinking, "One just does what they did BEFORE retirement when it comes to occasional big expenses."

Presumably folks had occasional big expenses while working over all those years. So what did I do? I either did without (ride bike while waiting to buy a car) or sold some investments to pay for it or got a loan to pay for it. Why should retirement be any different?
Yet another good question.
Retirement is different for many of us since we have a lot more options at our disposal in dealing with finances...
Attempted new signature...
User avatar
Bustoff
Posts: 1980
Joined: Sat Mar 03, 2012 6:45 pm

Re: Occasional big expenses after retirement

Post by Bustoff »

The Wizard wrote:
Bustoff wrote:
The Wizard wrote:
But I agree with you that putting aside $10k, $20k, $30k in an online savings acct earning 0.8% interest isn't too great.
So I've started a second Roth IRA for this purpose. $1200 a month goes into this from my 403b instead of into my checking acct.

Taxes will be the same, but the Roth account grows tax free until time to make occasional lumpy purchases. I'm old enough that I can withdraw from this Roth at any time w/o penalty.
Wizard - How do start a second Roth after retirement? Do you mean conversion?
Good question.
My original Roth IRA is with Vanguard and I contributed to that in my latter working years with no particular goal in mind, just tax free accumulation for the long run.

After doing this year's taxes a while ago, I figured out that saving up to purchase my new F-150 could be done more efficiently by accumulating funds into TREA yielding 10% in a Roth IRA rather than accumulating into my taxable online savings account yielding 0.8%.

So I opened a Roth IRA with TIAA-CREF, my 403b custodian, and had them start doing a $1200 per month Roth conversion rather than continuing to send that $1200 per month to my checking account.

So the "second" Roth refers more to funding a tax free slush fund on a continuing basis rather than the fact that a second custodian is involved...
Gotcha ... thank you for sharing. Good idea keeping that Roth separate from the original.
User avatar
midareff
Posts: 7496
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Occasional big expenses after retirement

Post by midareff »

I think the OP has posted a great question for us retired folk. My monthly budget with a 3% WR includes both unallocated funding (slush money) and money allocated for international travel. Medical issues stopped my travel for 3 years so all the slush and travel money was reinvested in the portfolio. We live in a condo so maintenance with reserves is included in the monthly fees. Medical issues seem resolved so Europe's Longship cruise this summer will be a suite rather than a room.

I think the answer, at least from me, is the spare funding in your retirement draw. You can accumulate it in cash, you can reinvest, ... I guess it boils down to how tight your budget and SWR are.
Post Reply