Wizard wrote:Heading off topic a bit, but in addition to 'income shocks' if one is lucky enough to have a long drawdown phase there is likely to be a need for 'lumpy capital spend' such as changing cars, new kitchens, major maintenance such as repainting, etc.
Agreed.
For the "lumpy" spend, from replacement car through to decorating and general maintenance, I have a monthly figure embedded into the budget, so each month, x% of my "income" is diverted to a savings account and the various subtotals (car pot, house maintenance pot, annual holiday pot etc) managed in a spreadsheet. It means that I have an understanding of what the cash floating around various accounts actually represents, in addition to just knowing I have a cash buffer to smooth the lumpiness of dividend payments.
Having (in my case) around 10 separate "pots" of money that are accumulating for various purposes (planned expenditure of the "lumpy" kind) I also have flexibility to borrow from one pot to help out another. E.g. if we decided that the kitchen was a more important item than the car replacement, we could divert funds accordingly, then "repay" the car fund from the house fund until things were back on track. So long as the total of all the pots is on track, I'm relaxed if some pots are ahead of plan and some behind.
Where I've heard retirees having problems is where they splash out on retirement day 1 (e.g. new car, new kitchen, nice holiday) but have no plan to accumulate savings for similar expenditure later. A variation of "living beyond your means" sadly.
Oh, and we have a pot called "emergencies", which is for guess what?
When I retired, I had accumulated a "retirement toys" pot, which was for new things I wanted to try out. Woodworking courses and tools, a motorhome, new bicycle etc. etc. Essentially a capex budget that would take a big hit in the first year, but then be managed as part of the regular opex and capital accrued for those things I decided I wanted to continue with. Since I like spreadsheets, this was a fun thing to model as I got closer to actually retiring.
Last point. What I didn't do (desperately trying to drag my post towards being on topic) was sell capital to support excess expenditure. The excess income from my portfolio was NOT used for these retirement plans, but reinvested, which helps to balance the portfolio a little.
VRD