Tag Archives: expenses

Budgeting for Retirement: The Long Term Costs of Maintaining a House Must Be Included

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It’s easy to remember to budget for water, electricity, natural gas and/or heating fuel, telephones, house insurance, property taxes, internet access and cable TV when planning for retirement. It’s also a good idea to include some factor for inflation in those costs. However what many of us forget to budget for is the costs of keeping and maintaining a home.

Yes, if you’re renting you may be able to skip this article. It could give you a good idea of what to expect should you choose to buy a home in the future, though.

Planning for Long Term House Maintenance, Repairs and Replacements

People vaguely know that many things in their homes will need to be replaced over the long term. But many people don’t save the money in advance that they will need to pay for these repairs and replacements.

While they are working, they tend to rely on hope and maybe a bonus at work to pay the bills. Some, even worse, rely on their line of credit or credit card to bail them out. If they can’t pay that back at the end of the month, though, ouch.

In retirement, however, you are very unlikely to get any bonus or any raise. When these replacements and repairs roll around you need to have the money ready and waiting. But how much is realistic?

Estimated Costs and Required Annual Savings to Pay for Long Term House Repairs, Replacements and Maintenance

Everyone’s home is different. Mine, for example, houses a raging herd of dust rhinos. The following costs, therefore, are just an example to get you thinking. You may be able to come up with a more realistic set of numbers for your home from past bills, ads or based on chats with neighbours.

Amount to Save Per Year Number of Years to Save Total Cost of Item Item
$200 15 $3000 new furnace, installed
$133 15 $2000 new air conditioner (You may feel the heat more when you’re old.)
$100 10 $1000 new refrigerator, with taxes and delivery
$67 15 $1000 new dishwasher, installed
$50 20 $1000 new stove with oven
$50 15 $750 new washing machine
$37 20 $750 new clothes dryer
$100 10 $1000 new snowblower (Remember, you’re going to be old!)
$10 20 $200 new lawnmower
$214 35 $7500 new tub/shower bathroom (They do start to leak.)
$467 15 $7000 new roof for house (Yes, it might last longer. Yes, we have a lot of roof.)

This adds up to $1428 / year.

Did you notice I didn’t include the cost to replace a Central Vacuum system? I told you I had dust rhinos, remember? If you are averse to them, you may want to add more to your personal savings
plan.

Your Personal Home “Reserve Fund” Needs Funding

That means every year, even the years where you’re paying for an expensive item like a new furnace, you need to save $1428 from your pension and other retirement income. Those savings are your personal “reserve fund” just like one a condo might have. You’ll need this money saved, ready and waiting to pay the bills when needed.

Other Items to Repair or Replace to Maintain a Home

The above list does not include replacing any of the following. Most of these items, though, will also wear out in 10-35 years.

  • storm doors
  • windows (the seals go and they permanently fog up)
  • foundations (they can start to leak unexpectedly)
  • bricks (can need re-pointing)
  • chimney repair or replacement (including liners)
  • aluminum and vinyl siding
  • toilets
  • bathroom or kitchen exhaust fans
  • electrical upgrading (the knob and tube wiring crowd thought they were state of the art, too!)
  • carpets
  • vinyl flooring
  • drapes and blinds
  • couches, chairs and other upholstered furniture
  • linens
  • fireplaces
  • garage door openers or doors
  • fences (If your neighbor wants to put one up, you have to pay half in most municipalities.)
  • small appliances (These include microwaves, blenders, toasters, kettles, coffee makers, hair dryers, humidifiers, dehumidifiers etc.)
  • doorbells (Have you priced buzzers recently? You’d be surprised what 10 cents worth of plastic costs.)

Okay, you get the idea.

Now you can see why many people on “fixed incomes” are so vocal about rising costs.  They can sit on their couch with the spring digging into them, while not needing a TV because they can’t afford cable or eyeglasses, but if they don’t fix the roof they’d better hold a bucket on their lap.

My Advice
Save. Lots.

Further Information

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Did the cost of an unexpected repair or replacement challenge you recently? Have you started a savings system to be ready when the roof goes? Please share your experiences with a comment.

Budgeting for Retirement Requires a Good Estimate of My Personal Rate of Inflation for 2012

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I find the rates of inflation quoted in financial plans for retirement fascinating. I remember in the late 1980s when they were estimating 10-15% rates of inflation. Now they tend to estimate 2 or 3% as the rate of inflation we should use for retirement planning.

The reality is that no one really knows. You have to pick a number out of a hat and use it.

However one number I can truly know is what my personal rate of inflation was for the previous year (2012.) Actually, since I track my expenses every year, I could figure it out for the last 13 years easily and for more with a bit of digging for an older file.

What Was My Personal Rate of Inflation for 2012?

There were a few surprises when I worked through it. The following are my rates of inflation on various goods and services:

  • Water 11.34%
  • Internet access 6.7%
  • Electricity 6.57%
  • Cable for TV 5.2%
  • Car 2 insurance 3.96%
  • Property taxes 2.1%
  • Telephone including long distance 1%
  • Car 1 insurance 0.7%
  • House insurance 0.1%
  • Natural gas -13.3%
  • Gasoline -38.1%

A bit of thinking led to the following interpretations:

Water rates went up to help fund waste water treatment. We only used 1 m3 more water despite the drought.

Electricity switched from a two-tiered pricing structure to time-of-use pricing in mid-year. Given the hot summer compared to 2011, it’s surprising our rate didn’t increase more. We did, however, only run the air conditioning after 7 p.m. and before 6 a.m.

The insurance increased on Car 2 because it is not the same car. It is now a 2012 to replace the former 2004.

Natural gas was much cheaper in 2012 due to shale gas production volumes. I went back and checked and the price is down 1% per m3. The bulk of the savings, though, was due to the extremely mild winter and therefore lower natural gas usage.

Gasoline was way down because we didn’t have 2 cars for 6 months, we only had 1. We also didn’t make a road trip to the Maritimes this year. The actual average price per litre was up for the year.

The Combined Rate of Inflation for 2012

Now the above figures are a good explanation for why percentages are not always reliable indicators. It’s very hard to look at those numbers and estimate our total inflation for 2012.

I did calculate the percentage increase in spending to pay for all of the above items, with gasoline included. Our rate of inflation was minus 3.1%. That’s right; we actually spent less on those items in 2012 than in 2011.

However, a more realistic rate of inflation took out the impact of the substantial savings for gasoline. When I recalculated without our gasoline costs, our personal inflation rate for 2012 was 1.6%.

That’s right, only 1.6%.

I was quite surprised. Admittedly, it would have been worse if we’d had 2 cars for the whole year and if the weather had been colder in the winter.

What Inflation Factor Do I Use to Plan for Retirement?

For retirement purposes, I usually assume inflation will be astronomical and investment returns will be pitiful. This gives me more incentive to save lots.

I doubt you can have too much money for retirement. Your heirs will love you if you can provide for your own needs in your old age. And your heirs will love you even more if you die prematurely and they get all the loot!

Further Reading

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Do you ever calculate your personal rate of inflation? What was it for 2012? Please share your experiences with a comment.