Planning for Large Costs in Retirement | Beyond the 4% Rule

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Listener Sherry asks a good question: How do large, one-off expenses (like a new roof, new car, etc.) fit in the 4% Rule?
James explains the concept of the 4% Rule and its limitations while demonstrating how it can be an effective guideline in planning and forecasting retirement success.
He addresses the importance of anticipating one-off expenses and, depending on your portfolio withdrawal rate, using sinking funds to get a reality check on where you stand.
Questions answered:
Are one-off expenses covered in the 4% Rule?
Who should be concerned with creating sinking funds for one-off expenses?
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⏱Timestamps:⏱
0:00 - Sherry’s question
3:19 - Shortcomings of the 4% Rule
5:30 - Look at income and outcome
6:58 - Portfolio withdrawal rate
10:51 - Example of no margin
13:02 - Sinking funds
16:57 - New reality check
18:49 - Consider the duration of expenses
20:17 - The wrap-up
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Опубликовано:

26 июн 2024

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Комментарии : 28

@Jupe367 7 дней назад

i learn alot from James Conole's presentation.

@RichardTouchfaith 15 дней назад

My retirement is sitting on the front porch rocking chair with some lemonade with my dog and not having to go to work. 4% may be too much!

@BadPhD777 14 дней назад

Feel free to send the surplus to me 🙂

@liveandretireusa 9 дней назад

A very wonderful wish for retired people

@momhouser 15 дней назад

This is an excellent question. Thanks for addressing this issue. Sinking Funds are SO powerful. Even if you don't actually pull the money and store it in an HYSA, planning out your monthly sinking fund amounts as part of your budget is really useful for deciding how much you can withdraw.

@williamrogers1219 7 дней назад

Major medical bills can be mitigated using Medicare Supplement plans which pay for all expenses except the Part B deductible. This allows the retiree to budget for healthcare. Assuming one has a surplus of income over expenses, the excess funds could be placed in a high-yield savings account for future large expenses. Another issue to consider is that future portfolio growth could put the retiree in a higher bracket or cause IRMAA surcharges on Medicare premiums as Required Minimum Distributions (RMDs) increase as we age. One may want to withdraw a higher distribution if they have space in a lower tax bracket and place it in a savings account.

@hhuuzzzzaahh 14 дней назад

car rule: buy any car you want, as long as it's used, and half the price of when it was new.

@markb8515 15 дней назад

Thanks James for another very informative video!

@jpturner171 9 дней назад

Great video. Over the past 10 years my wife and I have created an awesome program on Excel using our past experiences budgets and “ what if” scenarios.

@slimdawgwoof 15 дней назад

Good question

@livinforlessinsingapore3601 15 дней назад

All very informative. But I guess the problem is the desire to live bigger than our retirement monies allow. I do have larger than typical retirement savings. For peace of mind, I only intend to draw down a maximum of 2% per year. With the capital amount increasing every year. So this should take care of the multitude of unforeseen expenses mentioned. If retirement savings are not much, then the most probable answer is to achieve happiness on less. Smaller home. Share a home. Take nearby holidays. Etc. I can live quite happily on $1,500-$2k a month in very expensive Singapore. I have my own paid up home.

@liveandretireusa 9 дней назад

I really like the 4% rule, it's very helpful

@bobbert1945 13 дней назад

Some of our money is in an IRA managed by a Vanguard advisor. It's certainly not managed to the level of what your team does, but it does give us access to seeing how a one time expense, or new ongoing expenses, affects our Monte Carlo retirement analysis. We've used it so far on deciding on a car purchase that was unexpected.

@Laura-kb5sr 14 дней назад

A lot of "unexpected" expenses are unpredictable in timing, but predictable in the sense that big things happen. Thank you for talking about budgeting for these things in advance. Car, roof...these are relatively palatable emotionally. Thank you too for mentioning medical & long-term care expenses--I work in healthcare and am surprised by how many people feel shocked and betrayed, not to mention unprepared, when they can no longer be independent in everything (either temporarily after a surgery or longer-term). But statistically, that'll be many (most?) of us. Long-term-care insurance is full of problems, I think, but as a budgeting tool (having some money available and earmarked) it's useful--but more useful would be to budget for it in advance.

@M22Research 15 дней назад

Just because you’re retired - doesn’t mean you should dump the emergency fund and the sinking fund (reserve) (haha great minds, I wrote this comment before watching the video, after only seeing the title) for large one time expenses like a new roof, HVAC, or replacement car… just like you had BEFORE retirement…. right? Right?

@dawightg9787 15 дней назад

Perhaps build an emergency fund in retirement to handle those emergency expenses. Just like you do when your not in retirement.

@gizmobowen 14 дней назад

This is a good exercise to understand how to plan your retirement spending. I recently watched your budgeting video and I see how this connects. What I'm not sure about is the actual implementation of this plan. If I was still working and getting a paycheck, I could imagine putting a portion of my paycheck into the sinking fund each month to cover large expenses. In retirement, I don't have a paycheck, I have a big lump of money that I'm managing so it lasts my lifetime. Isn't my retirement account my sinking fund? I'm not going to withdraw money from my retirement account, to just put it into a sinking fund in case I needed it. That would be silly, since I'm just taking it from one account and putting it into another. This really just seems to be an exercise for trying to determine your expenses in retirement and reinforcing the idea that your annual expenses are more than your standard monthly expenses and it needs to include large expenses that can occur sporadically throughtout the year. I appreciate the video and your willingness to explain that large expenses need to be included in your budget when you retire. I'm just not sure that the idea of a sinking fund is really the best way to set aside the money. Maybe I'm missing something?

@proudmoon3 6 дней назад

That's what I was thinking, too. I'm guessing as long as enough of our financial assets are liquid, it doesn't really matter what we call the fund.

@genier7829 15 дней назад

As a caregiver (retirement age myself), I can only say LOOK AT LONG TERM CARE COSTS. My mother is healthy but 98 with severe dementia. None of her care is covered by medical insurance/Medicare. Memory care costs about 12k per month here, but I am able care for mom myself due to my personal circumstances. Most people are not able to, even if they want to, and there is no reason one should care for loved ones directly. Paid care can be excellent and a better choice for many families. However, it is a huge expense that I don't hear addressed usually, even in my Alzheimer's support group.

@Wazup4177 15 дней назад

Good video

@linybob 4 дня назад

Good video as all of your videos are. I have a separate account for car replacement, big expenses, etc that I deposit into regularly. One thing to comment on - this video was difficult to watch - look into the camera, not at my waist. It was very disconcerting. I couldn't watch the whole video because of that. The content is great, the presentation was not fun.

@mrbuttons2065 15 дней назад

When planning, how does one consider an inheritance. Is it safe to consider a large % withdrawal in the early years, knowing an inheritance will adjust the "savings bucket" larger, resulting in a smaller than 4% withdrawal, at some point later. However, one doesn't know (or, hope) that the inheritance happens too near in the near future. For, estimation's sake, the inheritance would be equal to 30% of the original available capital savings amount.

@meemka8251 15 дней назад

Is that a Thinking Fund or a Sinking Fund? (Kidding). Presumably, these funds should be kept in a very liquid account- a CD or a Money Market.

@KimberlyFlores-kr1bz 14 дней назад

I’m 25 years old, zero debt, living my best life. I set up a retirement trust fund when I was 17. I’ll be able to access it when I’m 60, and it will be a million dollars. I don’t get how these people can be so irresponsible. Save now people.

@dandarnulc7730 8 дней назад

Please see a financial planner. 1m is a good# now. But 35 years from now you will likely need to shoot for a greater number than 1m. Awesome mindset though.

@shawnakettell6564 13 дней назад

What is the difference between Root Retirement Financial Academy and Ari's Early Retirement Academy? I am eligible to retire in 2025 at 56 with a pension from the federal government and my husband is retired military with a pension and medical care. We are currently working with Fisher but don't see the level of service and details you provide from them. Weneed help planning for the future and make sure we are financially set. Thank you.

@robertcarver4067 14 дней назад

I never knew the name. "Sinking Fund," right?

@mkmac9539 15 дней назад

In the case where you are spending > 4% of the portfolio, you addressed expenses going down as expenses of mortgage, insurance, kids, etc go down. I hear this a good bit. But for those who will retire at around 62, spend > 4% of portfolio; then start Social Security at 70, the portfolio goes down between 62 and 70. But SS comes in to save the retirement. Does this make sense?