special expenditures vs consumption

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I am using ESPlanner to help my retired parents do some financial planning. I have used the Help/Tutorial/Guide/Forum resources to decide as best I can which pieces of their overall financial picture should be put in to the various categories in ESPlanner-- and which of them should be left out, i.e. treated as "consumption". Along the way, I've had some confusion between special expenditures and consumption.

I put the following in to Special Expenditures, recurring each year for the foreseeable future with the same real amount, and checked off as a "medical expense":

* Social Security Part D
* Medigap Insurance Premium
* Prescription Drug costs

(I've left the growth rate at zero for now but realize it will need to be adjusted.)

I put the following in to Special Expenditures, one-time:

* Home maintenance, e.g. have the house painted, or A/C installed
* Replacement car
* One-time big vacation

I left the following out of ESPlanner, in effect treating them as consumption:

* Personal Liability Insurance premium
* Groceries/restaurants
* Automobile expenses (gas, maintenance, insurance, registration)
* Utilities (gas, electric, water, phone, tv, internet, garbage)
* Yard maintenance
* Regular, annual charitable contributions
* Investment management fees

I would appreciate it if one of the experts would look over my shoulder and confirm that my approach for each of these is reasonably correct, and/or advise me on alternative/better ways to handle them.

Thank you in advance.

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Submitted by dan.codiga on 28 June 2009 - 3:08pm.
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Comments

1
From: Dan Royer

That looks like a very typical way of handling these things. The decision to put something in spec expen vs leaving it in consumption is often not "right or wrong" so much as it is a decision about how you want to think about it. If it's in special expenditures, you have to remind yourself that your consumption is what's left after you've paid that item. So it's really up to you in a sense to determine what you want consumption to mean. The most straightforward way to think about it is, as you have, though some might want to treat that insurance premium as "off the top" and thus put it in special expenditures. However, if doing so means that you always have to do a mental gymnastic and remind yourself--consumption my discretionary spending (but not including my insurance premium!) then that might be too unnatural.

I would do it very much the way you have reported here. Well, perhaps I'd leave home maintenance in consumption unless it really was an unusual item, one I thought of as not normal.

Dan

2009-06-29 05:59
2
From: Dick Munroe

Looks reasonable. From a "management" standpoint, special expenditures are intended to be used for things big enough to notice, cars, vacations, weddings, housing additions, that sort of thing. This leave the consumption figure to be the amount you have to figure out how to spend (or not) to cover the rest of your living expenses that aren't special enough to make.

Best,

Dick Munroe

2009-06-30 07:35
3
From: pollyanna54@msn.com

A few months ago I lobbied for adding the cost of Medigap policies to the Benefits tab on the Economic Assumptions dialog box (over on the side with the Part B costs). I still think this would be a good idea, and would cover part of the initial poster's concerns. The premiums for these policies are likely to grow at a greater rate than general inflation, so this seems like a good spot to add this feature.

2009-07-09 17:22
4
From: Dick Munroe

Medigap isn't a benefit per se, it's an expense you've elected to incur and can be handled via the special expenditures screens so we probably won't make that change.

If we ever handle thing like disability insurance then that would appear in the assumptions, like part B but probably not on the benefit screen since it isn't a benefit either.

Best,

Dick Munroe

2009-07-10 05:38