One Offs

One very overlooked aspect of retirement planning is the things that cannot be planned for–one offs. I’ve written about the concept quite a few times because depending on events and luck, one offs could be ruinous…unless a generous cushion is built in to the plan.

Things in the one off category that I’ve brought up before have included veterinary bills, new tires, replacing the roof, an unexpected dental event and there are of course others. Add to the list refrigerators as our appears to be crapping out on us. Fortunately we don’t need a big fridge–actually a big one won’t fit through our front door–but this will be somewhere between $1000 and $1200 depending on the various sales prices that all seem to end the day we are looking.

There are also various forms maintenance that need to be done and costs money. This year we have had to re-stain our house and deck. Earlier in the year I got an eye exam and new glasses. These can be nuisance expenses but if you don’t maintain your house properly then the expense later will be much more than a nuisance.

A modest but comfortable lifestyle in today’s dollars might require $50,000 for regular expenses and maybe another $5000 for some sort of annual trip. If $30,000 might come from social security (combined his and hers) then these folks might need a portfolio of $625,000 to make up the difference assuming the 4% rule and that neither spouse has a job.

If these folks take their annual trip in June and then later that summer the transmission goes out on the car, their dog needs hip surgery, there is a failure with the heating/cooling system in their house and their portfolio goes down 20% in a 30% stock market decline and these folks have a real problem. And I would guess that going into this little scenario these people were in much better financial shape than the vast majority of people, one very unlucky summer and something will have to give immediately.

A few months ago a reader on Seeking Alpha tried to argue that the notion of one offs was not really a problem and rationalized away whatever examples I used. I imagine that if you live in a rent controlled apartment in NYC with no pets, with a grocery store and subway stop within a block then you will have no one offs with where you live, and no one offs with your car (this assumes you wouldn’t own one) and if you have the best possible insurance you will have no out of pocket medical expenses.

I know someone who lives in a rent controlled apartment in NYC, with no car, a subway stop one block away with a supermarket and more than one drugstore close by as well. He does not have a pet and I don’t know the particulars of his health insurance. So it is possible to mitigate many of these issues.

Part of the planning process then perhaps needs to include looking at where you are likely to be with one offs (if you own a house, pets and cars then you’ll probably have more one offs than the person I mentioned above) and then pad your estimates accordingly. I would not simply take your salary and multiply by 0.7, this is too simplistic. Some expenses will go away and some new ones will pop up. If you live below your means then figuring expense become far more important than relating to your salary. Likewise if you live beyond your means.

Not everything will go as planned for everybody. If you’re numbers juuuuuuust squeeze by you might want to change something in your plan.

9 Comments

  1. Don’t forget the tax bills – property taxes and paying the income tax needs planning also…

    Reply
  2. I have had one offs all my life. They are to be expected and budgeted for.

    Why would anyone expect not to have these types of expenses in retirement after experiencing these expenses for several decades?

    Reply
  3. Roger, Your assessment of “One Offs” is right on. So now we have the monthly expenses and “One Offs” properly identified, what is your estimate for a proper percentage adder year over year for inflation?

    Reply
  4. There was recently an article out about how few people could come up with $2000 within 30 days to pay for the one off of replacing a car’s transmission.

    One idea might be a little savings account where a $12,000 balance is maintained (or hopefully maintained). Personally we have had very few $2000 one offs, maybe none, but we have had plenty of $700-$1100 one offs but not every month, maybe two or three per year that big. A $12,000 account would provide some cushion in case the $2000 you take out for a new trannie can’t be replaced immediately.

    Anyone have other thoughts?

    Reply
  5. Taxes are not one-offs.

    I’ll say this: My wife and I established a separate savings account (i.e. not our usual checking account) with an amount we estimated to cover at least 4 to 6 months expenses. that thing provides an incredible amount of calm to me sometimes.

    My wife discussing a big Disney vacation? Trying to fill the Roth IRA at the end of the year? Big medical bill? I know it’s not going to cause us any pain (even though I still try to pay for it without dipping into that account).

    You can attempt to budget for one-offs, but all you’re really doing is setting aside money – i.e. saving.

    Reply
  6. I don’t know if this fits into the discussion but I hope it will. Having most of my life behind me, my experience was “one-offs” every so often. However, I also had-for lack of a better word-“one-ons”. That is to say, a lucky windfall. As it was, I used my first “one on”(the church next door wanted a part of my lot to expand a parking lot and paid handsomely for it)to set aside just the kind of fund that was spoken of here. If you should ever experience a “one-on”, resist the temptation to blow it on something extravagant but rather, set it or most of it aside for tougher days.

    Reply
  7. So I wonder if there’s a way to find a pattern or behavior there and attempt to create a “one-on”

    Reply
  8. Roger, you are very correct. One offs are a fact of life and maybe more so in retirement as more than your possessions start to break down.

    I just found out last week that I will need carpal tunnel surgery on both hands this summer. That will cost me about $5000 out of pocket because of my high deductible insurance policy. This sure qualifies as a one off because a few months ago I had no symptoms and then….whammo….
    You can’t really budget for these kinds of things BUT you can plan for the possibility by living beneath your means so that unexpected speed bumps won’t throw you off the road and into a ditch….

    Reply

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One Offs

One very overlooked aspect of retirement planning is the things that cannot be planned for–one offs. I’ve written about the concept quite a few times because depending on events and luck, one offs could be ruinous…unless a generous cushion is built in to the plan.

Things in the one off category that I’ve brought up before have included veterinary bills, new tires, replacing the roof, an unexpected dental event and there are of course others. Add to the list refrigerators as our appears to be crapping out on us. Fortunately we don’t need a big fridge–actually a big one won’t fit through our front door–but this will be somewhere between $1000 and $1200 depending on the various sales prices that all seem to end the day we are looking.

There are also various forms maintenance that need to be done and costs money. This year we have had to re-stain our house and deck. Earlier in the year I got an eye exam and new glasses. These can be nuisance expenses but if you don’t maintain your house properly then the expense later will be much more than a nuisance.

A modest but comfortable lifestyle in today’s dollars might require $50,000 for regular expenses and maybe another $5000 for some sort of annual trip. If $30,000 might come from social security (combined his and hers) then these folks might need a portfolio of $625,000 to make up the difference assuming the 4% rule and that neither spouse has a job.

If these folks take their annual trip in June and then later that summer the transmission goes out on the car, their dog needs hip surgery, there is a failure with the heating/cooling system in their house and their portfolio goes down 20% in a 30% stock market decline and these folks have a real problem. And I would guess that going into this little scenario these people were in much better financial shape than the vast majority of people, one very unlucky summer and something will have to give immediately.

A few months ago a reader on Seeking Alpha tried to argue that the notion of one offs was not really a problem and rationalized away whatever examples I used. I imagine that if you live in a rent controlled apartment in NYC with no pets, with a grocery store and subway stop within a block then you will have no one offs with where you live, and no one offs with your car (this assumes you wouldn’t own one) and if you have the best possible insurance you will have no out of pocket medical expenses.

I know someone who lives in a rent controlled apartment in NYC, with no car, a subway stop one block away with a supermarket and more than one drugstore close by as well. He does not have a pet and I don’t know the particulars of his health insurance. So it is possible to mitigate many of these issues.

Part of the planning process then perhaps needs to include looking at where you are likely to be with one offs (if you own a house, pets and cars then you’ll probably have more one offs than the person I mentioned above) and then pad your estimates accordingly. I would not simply take your salary and multiply by 0.7, this is too simplistic. Some expenses will go away and some new ones will pop up. If you live below your means then figuring expense become far more important than relating to your salary. Likewise if you live beyond your means.

Not everything will go as planned for everybody. If you’re numbers juuuuuuust squeeze by you might want to change something in your plan.

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