How to handle lumpy expenses in retirement?

[secondcor521]

Hi all,

For the longest time I've just been frugal, saving a bunch of money into tax-advantaged accounts, and projecting a FIRE date out there in the future.  Lo and behold, that FIRE date looks like it will be sometime in the next few months to a year.  So now I am looking at some of the practicalities of, you know, actually stopping work.

I am in my mid-40's and will have a large traditional IRA, a moderate Roth IRA, and a modest amount of taxable.  I'll have college funds set aside for the kids which I segregate and don't consider part of my FIRE stash.  I'll own my own home and have very modest expenses of perhaps $18K per year.  I can work through the math on a SEPP or a Roth pipeline (which, by the way, is hard to find a detailed explanation of on this website despite assertions to the contrary).

But how do I handle the situation, say, in 20 years when my house needs a $15K new roof?  Or my daughter wants a big fancy wedding to a great guy and I'm sappy enough to want to throw $20K into her wedding fund?  Or I decide to replace my car in 5 years with a $10K upgrade?  These kinds of large lumpy expenses dwarf my regular annual budget.

Ideas I've thought of:

1.  Adjust my SEPP upward to say, $22K, set the $4K extra aside in a taxable account and accumulate that for these bigger expenses.  I'll unshelter some tax-protected dollars too soon, but this would be easy to do.
2.  Use my Roth IRA contributions.  Again, easy to do, if somewhat limited.
3.  Split my traditional IRA into a larger and smaller IRA.  Do the SEPP for my normal budget on the larger one, and then take irregular withdrawals from the smaller one.  Yes, I'll pay taxes and penalties, but it's doable.
4.  Save up additional money into a taxable account over the next few OMYs and use that.
5.  Any combination of the above.

Are there other options I haven't thought of?  What do you actually do to handle these kinds of things?  Thanks to any and all for your insight!

[Catbert]

I'm retired but way from a hard core MMM disciple so take this with a grain of salt.  I've found that every year there is some irregular expense of around 15K.  I have a 90 y.o. house, several rentals and a husband who likes fast cars.  So every year or so there is something:  new tile roof, rehab of older rental, new wood windows, major trip for milestone anniversary.  Some of these are purely optional while others are closer to necessities.

I would suggest that you figure what number fits these irregular expenses and figure it into you retirement stash.  I wouldn't  necessarily withdraw it from your investment portfolio until you need it (depending on how you'll have everything set up) but I would include in the overall yearly budget. 

[Dynasty]

One option would be to list all the large expenses you can anticipate. Estimate how much they will cost, double it, and work long enough extra to set the funding for those expenses aside.

Then you're not caught by surprise when something expensive happens. 

I'd also be cautious about your stache over the next year or so. The market has had a huge run up over the past few years, and might be coming back to earth soon.