How to deal with saving for one off expenses in retirement

[themagicman]

Part of my retirement budget includes $2,400 a year for home expenses (I also have a category for car replacement and healthcare). Most years these are almost zero and I roll it over into the next year and build up a balance.

My question is how are people (or how will people) treating these type of expenses in retirement? Do you take the money out of your investment accounts and put in cash or bonds (I will be 100% stock) ? Or do you allow it to continue to grow and hope that you are not going to need to use it during a bad down market year?

For example if my overall budget is $40k a year and $6k of it are these accrual type expenses what do I physically do with the $6k a year, if anything? Let's say I do nothing and it builds up to $60k and then have some major repairs and car or health costs and use it all, would I just pull out the normal $40k and the $60k on top of it and would that hurt my retirement success chances?

[maizefolk]

For example if my overall budget is $40k a year and $6k of it are these accrual type expenses what do I physically do with the $6k a year, if anything? Let's say I do nothing and it builds up to $60k and then have some major repairs and car or health costs and use it all, would I just pull out the normal $40k and the $60k on top of it and would that hurt my retirement success chances?

If you're using a 4% withdrawal rate (or lower) with 100% stocks, failures come from sequence of return risk where the market crashes early in your retirement and you spend down too much of your principle to recover even when when it starts growing again.

If you last enough years, the compounding of growth of your 100% stocks protfolio gets far enough up, even with taking out 4% each year that even bigger crashes aren't going to derail your retirement.

So anything that pushes part of your budgeted annual spending out of the early years after you retire and further into the future is going to increase your success rate, not decrease it.

Also remember that withdrawal rates are usually adjusted with inflation, so taking out $60,000 after ten years is actually less spending in inflation adjusted terms than $6,000 a year for ten years, so the first would represent a smaller hit to your portfolio than the second.

[Monerexia]

The short answer is to have more than you need. As Munger said, the vast majority of problems come from optimistic accounting. Years ago I realized a simple truth, I don't know what the question is, but the answer is Make more money. Bomb it with much more than you need. The short answer to how do you deal with a 50% drop is to have double what you need--whenever I look at my investment accounts I always divide by two. You can get granular after you are operating from this principle.

[Greystache]

When I was getting ready to retire, I took care of as many big maintenance items as possible (new roof, new windows) before I retired.  I put enough money in Roth IRA and municipal bonds to cover big lumpy expenses for the first ten years of retirement.  After five years of retirement, I have not really tapped the "big lumpy expense fund". My ancient cars refuse to die and only one appliance (refrigerator) has died. I was able to replace it within my regular budget.