We hadn’t tracked spending for quite a while, then dh got a wild hair about it last month. I had to point out that over half the money went to one time gifts and donations, so he needed to relax.
I recall reading years ago that a good rule of thumb is to set aside 2% - 3% of the value of your home each year for repair and replacement expenses. When I added up what we’ve spent on our current home, I was surprised it hadn’t exceeded 3% because it seemed like a lot more as the money was being spent.
Do you mean the (re)building cost of the house, or the market value? The market value could fluctuate significantly, and not necessarily in relation to (re)building cost or maintenance cost (since the market value includes land and location).
I managed to track my actual expenses, but it wasn’t quite as easy as @ucbalumnus described because I have multiple accounts, get reimbursed from kids or husband for some expenses, and things like that.
I used my credit card statements and my bank statements, along with writing down cash withdrawals and things like that. Eventually I put it all in a spreadsheet. I may have missed something, but it’s close enough. This year I may get a little more advanced and learn more spreadsheeting skills.
We live within our means, max out retirement, etc. I know a lot of money went to travel last year. We also eat out a lot more than we need to. (We’ve said if we’re going to continue to work, we’re going to enjoy ourselves now, while we can, and not wait for retirement). I’m not worried about the number, but I would have guessed it was lower, and when we tried to estimate, we came up with a lower number. At some point I will start analyzing credit card bills, just to see where most money was spent. (See travel and dining comment above :)). The kids are almost completely off our payroll now, but we will have to decide what we are willing to contribute to in the future (Not much for weddings, for example, but there are endless possibilities). We (more like I) also like to take the kids on trips occasionally.
It’s certainly better to be prepared and know what your expenses are going to be BEFORE you give up the paycheck.
To me, it’s just the opposite. Kids will be taking RD’s while they are presumably working at the top of their game. Thus, the RD will be taxed at their then marginal tax rate. If your kid is making bank in a high tax state, that marginal tax rate could approach 50% (cough, cough, NYC.)
So, a Roth conversion now could be more beneficial, assuming your tax rate in retirement is less than your kid’s.
You can cram more “value” into a Roth than a tax deferred account per dollar of nominal value.
In MA, the estate tax kicks in after $1M. So, $1M in Roth assets, for example, incurs no estate tax. The equivalent amount in tax deferred would be, say, $1.5M which gets taxed.
For some, that’s a strong incentive to do some conversions. And, while the Federal exemption is a very generous $22M for a couple, it will revert in 2025, and potentially become lower still.
Doesn’t holding in a trust hurt the spousal inheritance rules? The Secure Act makes a change to holding IRA’s in trusts, too. Check with your attorney. (or just google a bunch of current articles, such as:)
There are a bunch of trusts that have different purposes and come into play depending on which of us dies first. We are meeting with the attorney next week.
Do the new rules about inheritance of IRAs re: stretch apply only to new inheritors? Or is it retroactive? I inherited an IRA from my father about 3 years ago, and am wondering if this applies to me…
I have been tracking my expenses (at least pretty well) for years. My executive assistant pays bills with Quicken (fewer and fewer of these) and via credit cards (that get itemized somewhat) and now ACH and the like. My office manager pays the corporate bills including the company that employs me. What’s complicated is that the company that employs me pays my medical and other expenses (car, subscriptions, etc.) that an employee at a big company might pay themselves except for medical, which they pay partially. But, I know how much gets spent on various categories.
I had forgotten about the snapback of estate taxes in 2025. I think I have been planning for that by reducing the amount of assets we hold and enabling the assets the trust holds to grow. So most of my non-trust assets are in 401k/Roth/etc.
I am hoping to be able to assist my kids and not spend everything down, though the help will likely come if they need help with a downpayment for a house and education for grandchildren, should the kids decide to (get married and) and procreate. With luck, this help would be well before I die. If I live another 25 years, my kids will be 54 and 51 and probably will have their financial life largely in order. Thus, any assets I leave are more likely to be for grandkids generation than kids generation
I think the advice was based on the purchase price of the house, which would include land value. Since our land value is only about 1/10 of the total I didn’t bother to net that out. In our case, I might justify it because we spent a good chunk on the property - better storm water drainage, fortifying a retaining wall, etc. - to prevent damage to the house and driveway. My greatest concern is the cost of replacing our roof when that becomes necessary. I hope to convince dh to sell before then.
I would use the 2-3% repair figure based on the current (not purchase price) value of the house (including land), since contractors, merchants are charging for time and materials based on current prices.
I’ve received proposals for master bath repairs that are close to 20% of the current value of the house. It’s not even a high-end reno, and MBA is 7x9.
Over the past two years, we’ve had a main water line replacement, seven large trees taken out, new water heater, new front walkway, and non-covered storm damage. Cost was still less than the MBA, which is why that hasn’t happened yet!
I get putting money aside for housing repairs/maintenance/upgrading. Not sure I get the 2-3% concept though (other than putting away a set amount gives your targets other than simply saving “we need to save”). If you build a house, you have a long time before roofs/HVAC systems need to be replaced. You presumably picked out what you like and should have some time before major remodels.
If you buy a 20 year old house, its likely all of those items will be on the list in the next 5-10 years. And if someone has done all of those things in the 20 year old house, the price should be at least somewhat higher than similar aged houses in the area without those repairs/updates. Under the 2-3% of cost/value, you would be putting more aside with the house that has a longer runway to major expenditures and less for the one with the shorter runway.
But again, I get if the idea is we want to have a set amount we are setting aside so we go with the percentage.
I had an interesting conversation with a friend and wondered what the collective wisdom of folks here thought. She and her DH have an HSA and a health insurance plan with a $5K deductible. Their strategy is to pay their copays, etc OOP and let the HSA money grow. Then, down the road, when they plan to buy something (say for example, a car) that is not a medical expense, they then would withdraw the funds from the HSA with the receipts for valid medical expenses that they have been holding onto for several years. They feel that this allows the $ to grow and they can then pull it out tax free (and penalty free) when they want it.
To me this sounds like a colossal PITA, to have to keep up with all the documentation for the medical expenses and copays over the years, and there is a risk that some things that are currently qualified medical expenses might possibly be eliminated in the future (no idea if this would affect their pulling the $ out of it was a qualified expense when it occurred… just musing). It also seems ripe for the company managing their HSA questioning this, and of course they’d have to submit all that documentation.
Has anyone done this? Is it really worth the hassle? The friend that I talked to about this is in her early 60s and her DH is a few years younger.
We have an HSA credit card and its just so much easier to pay copays/coinsurance/deductible expenses when they are incurred. Fortunately for us it typically hasn’t been all that much $ for us.
Seems like a hassle to try to game the system that way (if is even legal).
Many of those letting HSA money make investment gains until retirement age presumably expect a higher likelihood of medical expenses then, so that finding qualified ways to spend HSA money then is unlikely to be a problem (and if it is, they probably would be glad to have such good health without needing much medical care then, even if they cannot use the HSA money).
We have never used our HSAs for co-pays/deductibles or any other medical bills. We’ve just let the $ keep growing tax-free. We don’t have any specific plans for how we’ll use the $, but probably for medical expenses in the future.
It is perfectly legal to reimburse yourself out of the HSA for eligible medical bills you’ve paid out of pocket. The bank where we have our HSAs will charge a fee if there’s no activity on the account for one year, so we reimburse ourselves for a small medical bill, usually meds. Should the IRS question you, you need to have the documentation to support your reimbursement.
I mean I guess you could do this. It would take forever to submit and scan all of your receipts to what? To save a bit of money?
I don’t know about others but my HSA doesn’t make that much money in investment. There’s not that much in there and I put the max in each year and have since they changed the rules so what 3 or 4 years?
Also I keep $5,000 to pay for any medical expenses I have in short term funds. To get more than that, you have to sell investments to pull out that money. I think that there is a fee to do that, but it’s clear as mid to me on that.
I figure it will pay for medical expenses after retirement and that money won’t come out of our 401k investments.