What They Don’t Tell You About Retirement: Part 1 – Everything Breaks
As I struggled out of the electrical retailer with an enormous box, a thought crossed my mind. I was grateful I had taken a pessimistic view of life in one particular area. The box contained a new flat-screen TV to replace our old one, which had recently given up the good fight. My pessimistic thoughts had led me to create a large emergency fund on my retirement spreadsheet specifically for replacing items that wear out.
I suspect, though I have no data to back me up, that some approach retirement spending with too much optimism regarding the longevity of their possessions. If life has taught me anything, it's that this lumpy spending can come fast and often. Not giving it due consideration can be unwise.
Taking my recent past as a good example, my wife Suzie and I have had to replace a tumble dryer and a cooker extractor fan. We also had storm damage on our roof repaired and replaced seven Velux skylights that had reached the end of their lives. Other things come to mind, like an iPad my granddaughter dropped, breaking the screen, and a full exterior repaint of our home.
Sudden, significant expenses force a choice: dip into your emergency fund or sell a portion of your investments. If you haven't planned for these "lumpy" costs, you might be forced to sell assets during a market downturn, locking in losses and eroding your future growth potential. This series of unplanned withdrawals can seriously derail even the most carefully crafted financial plan.
These costs can mount quickly and become substantial. This is an area where you need to be realistic, not optimistic. My personal advice is to think back over the past few years to get a feeling for costs. Also, consider the end-of-life components of your house's structure and research repair and replacement costs. While this won't give you an exact amount, it will provide a better-informed guess. Whatever figures you arrive at, double the amount and then sleep soundly at night.
Back to reality with my new TV, I was pleased with my purchase. More importantly, I was very happy that Suzie didn't come with me. But the only cloud in my immediate future is explaining why I thought a 70-inch, all-singing, all-dancing flat screen was a direct replacement for the much smaller, recently deceased one it's replacing. I'm sure the drive home will bring some inspiration. But it just shows even a sound plan can be derailed by "necessary" upgrade costs.
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