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SELLING A HOUSE should be easy. Hire a realtor, find a buyer, the realtor takes a percentage and it’s a done deal. If only.
Try this version instead. Before we could sell our house in 2020, we had to fix a list of defects, including power washing the roof, having a dead tree removed, digging up an already drained oil tank and tearing up the pavers in the driveway to get at the tank. I bet you wouldn’t have planned for those expenses. I sure didn’t, but they set me back around $13,000.
Shortly afterward, my wife’s car—for which she had great affection—developed electrical problems. No mechanic or dealer wanted to tackle the work, not even for the estimated payment of $10,000. The solution was obvious. Buy a new car.
What do these expenses have in common? They were all unplanned and they all happened to a retiree—me. It never ends.
My water heater just died. It was 12 years old and cost $10,000 to replace, in part because it’s in a closet and hence difficult to work on. Earlier this year, I had to replace the ignition coils on my car at 100,000 miles. I also had the parking brake repaired during the car’s routine annual service. It all came to around $3,000. What’s next?
My air-conditioning unit has been repaired twice for leaks in the past two years. Many of my condo neighbors have already replaced theirs and they’re all the same age, so the unit is living on borrowed time. Last year, I got an estimate that a replacement would cost around $15,000. I’m waiting for a new one—an estimate, that is.
I seem to recall reading—or maybe even writing—that living in a condo saves you money on maintenance costs. I take it all back. The homeowners’ association fee is going up again, too.
Have I made the case for setting aside a pile of money for retirement’s rainy-day events? As you and everything you own gets older, the risk of the unexpected just gets worse. Keep in mind that financial emergencies have no respect. A water heater doesn’t care how much income you have or how old you happen to be.
I retired in January 2010. I live on my pension and Social Security. That income adequately covers my basic expenses, with some money left over for discretionary spending, but there it ends. I need to rely on savings for life’s emergencies.
According to a Bankrate survey, 36% of adults have more in credit card debt than emergency savings. Only 43% would pay a large emergency expense from savings. Should we assume retirees are in better shape than their working brethren?
Nobody saves in retirement, I’m told, because it’s time to spend. Good luck with that. If your retirement income doesn’t have room for savings—meaning some excess so you can keep refilling your emergency fund—then I’d say you aren’t ready to retire.
Can’t save in retirement? Consider one person’s comment from my blog: “I’m able to save $1,000 per month out of my retirement income of $3,601. Social Security and U.S. Air Force inflation-adjusted retirement income have allowed me to save for the first time in my life. Never had a nest egg or emergency fund until age 65.” To top it off, this commenter lives in Montana, where the cost of living is higher than average. He’s sure got the right idea.
To my surprise, it turns out I’m not alone in thinking a rainy-day fund is necessary during retirement. One source says retirees may need three-to-six months’ worth of expenses in reserve. If your income significantly exceeds your spending needs, you may be the exception. But to pay for an emergency, I’d rather not sell investments or spend dividends that are designated for reinvestment. Above all, I don’t want to carry a credit card balance—although I’m happy to get the reward points when I do charge. I just pay the card off in full each month.
I used to maintain at least $25,000 in emergency funds. After my recent unexpected expenses, however, I now think that sum is insufficient. After all, the water heater replacement has run down the fund. Replacing the air-conditioning unit may wipe it out entirely.
Begin retirement with an emergency fund in place, and plan your retirement spending to include monthly contributions to it. Somewhere down the line, that fund will come in handy—and lower your stress level.
Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.
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Thank you for this column, Richard. As retirement nears for me, I have been wrestling with how much to have set aside for an emergency fund and how much to allot for monthly additions to that fund in retirement. Your article has been incredibly helpful at helping me to be realistic.
Dick, This post of yours has called forth many and varied responses. Congratulations on stirring up conversation. I think the only useful contribution I can make is to remind people that holding cash is an investment choice that, in time past and now again, yields a not inconsiderable return.
We hold about $85,000 in cash at Fidelity, most of which is in our joint “stuff happens” fund. Without boring the reader, stuff has happened, and money was not an issue. Other big things were, but not money.
I noticed on Tuesday that the 7-day return on our cash was 4.7% (annualized). In addition, even during past times of low interest, we can smile in our sleep. For that ease of mind, and the resources to create it, we are grateful for our good fortune.
I too do the same with Fidelity and each month they draw money from my bank into their account paying that percentage.
To summarize: in retirement, as in life, things break and you need to budget accordingly. And oh yeah, someone once said “Selling a house shouldn’t be easy. If you sold one and it was, you didn’t do it right.”
That’s for sure
Very sensible advice. We’re planning to retire in a bit over two years from now, and we’ve been talking about keeping our current emergency fund intact when that happens. I hadn’t thought about a line item in the monthly retirement budget for emergency savings, but I’m going to add that to the Excel sheet we have that estimates our current and future expenses.
Richard thanks for the up to date cost of retirement. I see the costs go up, but keeping a huge rainy day fund is important for a good night’s sleep after the repair crew completes the job. Our A/C unit is also on borrowed time as it has been in service since 1983. The used replacement unit sits outside waiting. It was hauled from a friend’s remodeling job back in 2004 with static from the better half.
From frying pan to the fire? I hope not.
It’s good you’re getting all your current problems fixed. I’m sure the biggest expense was the new car; that is, if you’re keeping your same lifestyle.
My lifelong goal was to be able to maintain a consistent lifestyle or even improve it in some ways after retirement which is one reason I didn’t retire until after age 66. At this point I have been retired over 13 years.
You really do live in a HCOL, don’t you? I’d say I live in a medium cost of living area, and replacing my complete HVAC system – gas furnace and electric AC unit – cost me $6,861 in 2015. Admittedly, prices have gone up, but even if they’ve doubled, which is unlikely, it would still be cheaper than the cost just to replace your AC. Similarly, a new hot water tank in 2013 cost $1,273.
Since I retired 23 years ago I have never saved in the sense of putting aside a set percentage of income each month. I had a healthy balance in my Vanguard money market fund when I retired. Any significant excess in my checking account after paying my monthly bills, including paying off my credit cards in full, went into the money market fund. Any major expenses came out of it. I did not have a budget but I did keep an eye on the balance. Some years I spent a few thousand under income, some years a few thousand over. Since I started drawing my own Social Security at 70 I have spent significantly less than income. When I move to a CCRC in the fall I will finally start spending from my portfolio, but that’s what it’s there for.
You down-sized to a condo. Friends of mine down-sized to a 55+ community. I am down-sizing to a CCRC. The condo and the community get you one-floor living, but you still have all the hassles of home-ownership. The CCRC will obviously need maintenance, and my monthly fees will go up each year, partly to cover that (and certainly to cover wage increases), but I won’t have to worry about it or keep an emergency fund for it. And the CCRC promises not to throw me out if I run out of money – although if my finances start looking shaky I will move from a two-bedroom apartment to a one-bedroom.
> The condo and the community get you one-floor living, but you still have all the hassles of home-ownership.
True dat
I spent $8,800 for an HVAC in Raleigh in 2021 which I assume was comparable then to prices where you live in NC. I also had a water heater replaced this spring for $2,300. Of course, the HVAC was installed before inflation took off.
I’m also in the Triangle. The water heater looks a bit higher than I would expect (hope?) but may be bigger than mine, and it has been ten years. Still nowhere close to $10,000.
Sounds to me like your strategy with money is quite similar to what I suggest. The only difference is I would make sure something goes to the MM before expenses, but the result is the same.
I can see the advantages of a CCRC especially for a single person. It removes a lot of worries, but not for everyone unless it becomes a necessity. I hope to avoid it though.
I don’t wish to be morbid, but at some point in the future virtually all couples will devolve into at least one single. Planning should take that into account.
Sadly true. Interestingly the community where I live has a significant number of singles. In my building of 12 condos there are three widows and one widower.
Aren’t all folks “gambling” with how they’ll spend their last years? The RCC people are attempting to minimize the risk of final care, but, in return, accept living with all elderly, eating communally, and watching as a sizable percent of their immediate neighbors move to more advanced care each year. Also, they don’t know how much assisted living or nursing home care they will ultimately need. It could be very little The age in place couples do face the sure fact that some point there will only be one single left. I see that in my neighborhood, where a lot of residents — including my husband and myself–have decided to stay. How the surviving spouse will handle being alone seems to be done “when the time comes.” At present, many are continuing to remain in their long-time homes. Again, there’s no info about how much care these singles will eventually need. But my casual reading of ads in the local newspaper and on my laptop indicate that, while there is a long wait for 2 bedroom apartments in independent living, the RCCs here have immediate openings for assisted living, memory care, and advanced nursing. The biggest local hospice also moved from offering residential end of life assistance to providing services to the increasing numbers numbers of people who wish to spend their final days in their homes.
Bottom line — I think the “how much money will I need in retirement” question is a lot easier than trying to pre-guess how and where will I die!
I think you make a very important point that virtually all couples devolve into one single. I’d also suggest ones’ planning should also consider the idea that there’s a waiting list and qualification requirements for many of the most desirable CCRC’s, and the surviving spouse may be left with less options than they expect if their plan is to wait until they’re forced to do something.
Very true. My CCRC now has a seven year wait for a one bedroom. It only costs a refundable $1,000 and a non-refundable $300 to join the wait list. You don’t have to accept the first unit to become available, although it costs you $500 to refuse the first two.
Great advice. Maybe I should rent an apartment and sell my house?
at least with an apartment, when something goes wrong the landlord is responsible
Lotta truth here – But some of the prices are scary – Had a new roof (2000 square foot home / 25 year shingles) last year for 7000 – and a 40 gallon gas water heater installed by a large national co. for 950 bucks
I had a new roof put on the same size single floor house 15 yesrs ago that cost $7,500 back then. You’d barely pay for a service call for $950 where I live.
I don’t know where some of these folks live, but sure wish I lived there. I received SIX quotes for an asphalt shingle roof a few months back. Each from an established, well rated company. Small house: 1800sqft.
Not a single quote was under 25k. Many far higher. I normally would stop at 3 quotes, but I thought they were outliers in terms of high cost, so pursued 3 more. Guess not!
Everything has become ridiculously expensive: far higher than the fairly low/med household income averages in my area seem to warrant. Retirement is a pipe dream for most.
I’ve never understood the need for separate accounts for different expenditures. Money is money and cash is a lazy asset. Yes, you need adequate liquidity, but it seems better to have your money invested and working for you.
I also wonder how this advice relates to Adam’s post on Sunday. Surely, you don’t need a rainy day fund if you also have seven years of expenses in short-term bond funds.
That is one of the problems with these posts in general. Each contributor gives advice about this or that, but it is ad hoc and usually out of context. For instance, one contributor suggests “buy the dip” and another says build your short-term reserves. Which should I follow?
What most people need is to develop a comprehensive plan that is suitable for them and as Jack Bogle suggested “stay the course.” There is a lot of free information on this site, but my bit of advice is to not get distracted by the posts. They aren’t designed to help you plan but to generate page views and thereby advertising revenue for the owner.
Interesting advice. Most ST bond funds dropped double digits in 2022. So if an emergency hit that year, I’d have had to cash out at a loss to pay for it? Doesn’t sound too wise to me.
Also thinking you could have just stopped at “stay the course” and posted a perfectly valid comment.
The remarks that followed are a clear sign that HD probably won’t be a good fit for you. Discussions here stay respectful. Folks bored by that usually get frustrated and leave for more volatile pastures.
I’ve been a reader (and occasional commenter on articles) of this blog site for awhile. The posts are simply different folks weighing in with opinions-which happens on many blogs. What is a big different here is that the author frequently is involved in the comments-as other other regular contributors. If you take the time to stick around and are a regular reader, one begins to understand the different perspectives. Sure, I don’t agree with some comments but I learn from all of it-the article and the comments. And I frequently don’t agree with Mr. Quinn, but I do in this case-your last sentence is inaccurate and unfortunate.
What? You frequently don’t agree with me? 😢. I’m crushed. 😢.
I agree with you that having the authors of posts comment and sometimes defend their writing is one thing that makes HumbleDollar valuable. I wish it would happen all the time.
Humble Dollar has a diverse set of authors, and I think one tends to align with a subset.
Geez Richard,
We all have what we hope is assistive input.
This blogs well designed, well run, and group-thinks adverted. It’s not wordpress, or similar.
I doubt its proprietor, Johnathan Clements, is attempting to do anything more than cover modest expenses and provide a platform for similar era’d folks in similar situations today, to offer financial & accompanying advice.
I’m the last one who’d comment respecting what’s not even a 1st amendment governed platform*,(there no 1st amendment here, its Johnathans blog.)
It’s well run, modestly moderated, and I wish JClements the best in todays heavily encumbered press policies & guidelines.
Gov.is hand in hand with I.T/A.I., if that goes down, It becomes quite problematic.
A.I, overcame that intelligence game called GO. Readily. What used to take days is now sometimes overcome in minutes, if not hours.
I also think your last couple sentences were uncalled for even on a bad days recognition.
Have a good day!
Well, you may be more disciplined than most people. Yes, one pool of money should handle it all, but for most people it is easier to manage money if they know what each fund is for. I know it is for me. Remember this? https://humbledollar.com/2020/07/banking-from-a-to-f/
Having years of expenses in a fund is not the same as covering emergency expenses and how many people do you know have even seven months of expenses saved?
By the way, your last sentence is not only inaccurate and unfair, but offensive, but of course you already know that.
In a period of three years, I had to shell out A) $ 21,000 for a new roof on a 3300 sq ft home, B) $ 49,000 on replacing a big chimney, brick facade and stone steps, etc., C) $24,000 on replacing rotted wood, painting and the like. I sold the house a few years later and cleared $489,000. So, for those whom insist a home is a great investment, better than index funds, and so forth, so, my “ house mutual fund” ,( aka a great investment) had a annual expense ratio of about 5 percent, for three years and then a 6 percent back end load , commission when I sold. Of course, prior to that , there were front end costs, annual costs with insurance and taxes and more. So, for wealth creation, index funds, and for living in , a home. Two entirely different entities. Really, no similarities in the two .
Three months after we moved into our beach house in 2015, the ocean-facing wall was found to be completely rotted out. With that and other repairs, we wound up putting $100K into the house in two years. But we did get a nice eventual return on the involuntary “investment” when we sold in 2021 — to a buyer who promptly tore the house down. Life’s little ironies.
I agree, but many people are really struggling just to pay basic expenses in retirement. Very few retirees who can save money out of income, as the money just isn’t there.
No doubt, but what do they do when stuff happens? I do question the inability to save anything, and a fund probably should be built up before retiring.
Great reminder Dick. I remember being impressed that my in-laws used the last five years of working to do a significant amount of maintenance to their home – roof, windows, painting, HVAC – and purchased a new car.They intended to stay in their home as long as possible, and this plan served them well for a decade and a half. We did a significant amount of upgrades the first several years of owning our current home. But living near the ocean accelerates the demise of exterior items. The compressor unit on your AC generally needs replacing every 10 years or so – in our suburban Philadelphia home a quality unit, well-maintained – worked well for 25 years.
I had trouble getting past the $10K for a hot water heater? Was this a high tech, instant demand system? I just replaced ours for $2358. It was also buried behind a closet, in a bedroom. I removed the doors to simplify the work.
This one is in the same closet as the furnace and they back up to one another. Nothing high tech that I know of. My knowledge of heating water ends with the tea pot.
Did you get multiple estimates?
I knew what many others in the same condo unit paid for the same situation. This community was built in 2011 and the builder did not use the top quality equipment- while charging top prices – so now many water heaters and AC units are being replaced. The AC units are not only difficult to install, but they don’t make them any longer and finding a replacement is difficult so I’m told.
We’re in a similar situation with our condo, which we bought new in 2019. We just had to pay over $2000 for HVAC repairs, which seemed horrendous to us when the unit isn’t even four years old yet. The elevators have had problems, and we live on the top (fourth) floor. We’re plenty fit enough now to take the stairs if we have to, but that won’t last forever. We have three neighbors in our building with serious mobility problems, so we see firsthand what a problem this could be. Plus our HOA fees are high and keep climbing.
We like our condo and our neighbors a lot, but our builder was also one that “did not use top quality equipment while charging top prices.” The community is now sold out as of last year, and there isn’t a similar property like it in our town. We’ve been talking about whether there’s a “sweet spot” where our condo is desirable and could fetch a good sales price (because there aren’t any more of them) but before things really start to run down. We’re wondering if we’ll make one more move before whatever the final stage is (CCRC or age in place).
I hate to say it, but mine cost $1200 two years ago. But, I think life is just less expensive here.
Depressing but very, very true.
For me, it was an unexpected phone call that the bushings of both my A-arms (automobile front suspension items) had worn out. Fine, what do new bushings cost? Oh, we don’t replace the bushings, we need to replace the entire A-arm assemblies.
Sorry about the auto electrical issue. Those are particularly evil problems to address. You probably made the right decision to buy a new/different automobile.
Dick, I agree. I wish I had tracked the total amount I’ve paid for “unexpected” expenses over the years, which should have been expected because things and people break down, wear out and get sick. That won’t change in retirement.
Exactly. “That won’t change in retirement” is a key point. Many people seem to see life in retirement as totally different money and experience wise. I see it as a simple transition with about the only difference being the source of one’s income stream. Everything else is just life – good and not so good.
Of course, the big difference in retirement is that the most dire financial emergency — losing your job — is no longer a risk.
No disrespect intended, Jonathan, but that’s not the most dire financial emergency by a long shot. Ask anyone who’s ever gotten badly injured or really sick with no health insurance. That’s the end of the world right there.
That may be true. But if you don’t bother getting health insurance, I can’t imagine you have an emergency fund, either!
Good point