Your Money
One of the quiet planning mistakes we see most often shows up in spending forecasts.
Human nature tends to discount past one-time expenses. A roof repair. A car issue. Help for a family member. Each event feels isolated, so it is often excluded from future planning. The problem is not that these expenses repeat in the same form. It is that there is always something.
Research from the Center for Retirement Research estimates that unplanned, one-time expenses occur every year in retirement and consume roughly 10 percent of a retiree’s annual spending. When plans do not account for that reality, cash flow stress tends to show up at exactly the wrong time.
There are two practical tools to address this.
- Budget for higher cash flow. This means deliberately setting a spending target that exceeds expected needs and allowing the surplus to accumulate, often in a separate savings account. If the year passes quietly, the balance remains untouched. It is not a vacation fund. It exists for the month when multiple surprises arrive at once.
- Maintain an emergency fund. In retirement, emergency cash is not about job loss. It is about preventing disruption. A reasonable target is roughly 10 percent of annual spending, held in liquid, low-risk vehicles.
Both approaches are designed to buffer day-to-day life from market noise. Ready cash reduces the need to sell long-term investments at inopportune moments and allows decisions to remain calm rather than reactive.
At PWM, we intentionally combine both strategies in our Vault approach. We manage short-term, low-risk investments covering the next 0 to 3 years to provide approximately 36 months of cash-flow clarity. Longer-term assets, held for four years and beyond, are harvested thoughtfully over time to replenish the next window. Clients see this structure reflected each quarter in their allocation reviews.
Unexpected expenses take 10% of retirees’ income, on average, research shows
by Sarah Agostino
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