Author Topic: How do/did you work out your retirement budget?  (Read 4682 times)

deborah

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How do/did you work out your retirement budget?
« on: November 24, 2014, 03:01:57 PM »
In another thread Escape Velocity said
If I retired and needed 100k in year one, then I could be screwed.  If I estimated my expenses at 25k/yr and 'one off events' kept my spending at 40k every year, I could be screwed.  On the other hand, if I budget for 100k/yr and only spend 40k, I also would be writing articles about how comfortable and easy FIRE is.
And I started to think about that - it is a good point - you have to be really careful and honest with yourself before you retire about your retirement expenses.

However, before I retired I had spent $x each year for 5 years. This had included money I'd spent on things that needed fixing around the house. And I honestly thought this was my budget. I didn't think that I'd put off things (people on low budgets sometimes/often put off maintenance or renewal of stuff, and you can do that for a while, but not for all of retirement), and I had been through what I wanted from retirement, and thought that I wouldn't be doing much different, so I believed that $x was a reasonable retirement budget.

Well, the first few years it was $x - $7K each year. Fantastic! How did I get it so wrong? Retirement is so much cheaper!

And then last year came - was it a shocker! Things I didn't to expect needed to be replaced, and fixed... My father got cancer and I needed to drive 7.5 hours each way to my parents every 2 weeks to help them cope...  a once in a lifetime costly bucket event came up without warning. So much for $x or even $x - $7k! And once I got over the shock, I realised that I had managed to average $x per year - so I was on track.

But how do other people work out their retirement budgets? What do you take into account? How much slack do you add? Most of us would be a little annoyed if we had budgeted for $100k and actually spent $40k (like in his example), and would have a very rude awakening if it happened the other way around.

MDM

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Re: How do/did you work out your retirement budget?
« Reply #1 on: November 24, 2014, 04:23:11 PM »
Yours is a good example that "average" does not imply "constant."  Applies to annual expenses, stock market returns, etc.

What we did was pretty much what you did: looked at actual spending in recent years (using Quicken), then modified based on expectations for retirement (using Excel).  Applied ~25% contingency "just because", and to account for unspecified once-every-many-year expenses.

So far so good.


ShortInSeattle

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Re: How do/did you work out your retirement budget?
« Reply #2 on: November 24, 2014, 04:45:58 PM »
My method is:

1. Track actual expenses closely each year to get a realistic baseline.
2. Adjust actual expenses for changes that will occur when jobs are gone. (cancel life insurance, but pay for health insurance, for example)
3. Add a nice buffer for unforseen expenses.

I suppose it would be easier without a buffer, but I like wiggle room. :)




Zikoris

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Re: How do/did you work out your retirement budget?
« Reply #3 on: November 24, 2014, 05:05:51 PM »
I keep it simple and go with what we spend now, which is pretty extravagant.

We live in Canada, so crazy medical bills are out of the question. We're never going to own a home or car, so expenses related to those are out as well. If we ever needed to be closer to a relative with a medical condition, we would just move there temporarily rather than go back and forth, and moving is very cheap and easy for us given how little stuff and roots we have. Basically, there's not much that could happen to us that would cost huge sums of money.

mozar

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Re: How do/did you work out your retirement budget?
« Reply #4 on: November 24, 2014, 08:00:37 PM »
I'm saving twice as much as I actually need, and I intend to go over 4% a bit during expensive kid years and then when mortgage is paid off and unborn child is gone I will go to 2% withdrawal most years. I anticipate many expensive things coming up. Most of my relatives are not prepared for aging.

Exflyboy

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Re: How do/did you work out your retirement budget?
« Reply #5 on: November 24, 2014, 09:20:45 PM »
I still don't know but we are Dinks, the house is paid off and RE taxes are $1700 a year. live in Western Oregon, warmish and wet. do all our own car repairs.. actually we repair everything on anything needed.

We ASSume we must spend 25 to 30k a year.. because thats what MMM spends and he's got a kid.

Wife is still working and gets HC bennies.

So in Feb we will have a complete year of spending after I slashed everything... I guess then we can pull our accounts and find out for sure.

Frank

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Re: How do/did you work out your retirement budget?
« Reply #6 on: November 25, 2014, 01:01:22 AM »
I used my pre-ER year record of expenses as a budget template, adjusted for expected ER differences (eg. higher amenities, lower transport, higher travel, lower groceries) and went with that. I also created a ten year major expense budget to cover those infrequent, high cost expenses that, as you experienced last year deborah, would excessively distort a normal annual expense budget. I add the annual expense budget to the yearly average of the ten year major expense budget and that is my total annual budget which my stash needs to support.

For my first year of ER, my normal annual expenses and major expense budget tracked about 20% and 50% under budget respectively (ie. I was too pessimistic with my budgeting). The annual expense underspend was due mainly to lower than expected medical expenses for me (yay Medicare!) and a major reduction in discretionary spending (damn you MMM and your anti-consumerism brainwashing!). The major expense underspend was due mainly to having to axe my solar panel installation project due to excessive shading by a neighbour's monster tree (oh, the environmental irony!).

I am now into my second ER year and am happy with my budget revisions. The good news, again as you experienced deborah, is that budgets are trending down, not up, so my stash longevity estimates are holding strong. Coupled with better than expected investment returns to date, I won't need to be returning to work anytime this century :)

Catbert

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Re: How do/did you work out your retirement budget?
« Reply #7 on: November 25, 2014, 01:28:07 PM »
I never really tracked spending or budgeted in a formal way <hanging head in shame>.  I was, however, well aware that pretty much every year there was "something" and if there wasn't it would somehow be double next year.

So I worked it the other way:  What have I earned the past few years?  What would I save by retiring (IRA contribution, TSP contribution, pension contribution, other long term savings)?  I knew there were other things I would save on (e.g., lower car insurance, no panty hose, cheaper/fewer clothing, fewer lunches, etc.) but figured that might be offset by higher spending in other areas (e.g., travel).   

Current earnings - obvious saving by retiring = my retirement budget



 

arebelspy

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Re: How do/did you work out your retirement budget?
« Reply #8 on: December 03, 2014, 12:32:46 PM »
This is a really good post on putting together a retirement budget:
http://rootofgood.com/developing-a-retirement-budget/
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RootofGood

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Re: How do/did you work out your retirement budget?
« Reply #9 on: December 03, 2014, 06:39:28 PM »
This is a really good post on putting together a retirement budget:
http://rootofgood.com/developing-a-retirement-budget/

Thanks for sharing that, and hi to the 23 people that stopped by earlier today. 

As for the OP's "one off spending that adds unexpected thousands", I try to plan for it explicitly and accept that there are unknown unknowns, but when the $hit hits the fan, it's rarely all at once (the HVAC may die prematurely, but it's unlikely to be the same year I am diagnosed with cancer or total the car or...). 

Take housing, for example.  I estimated I would have around $1,600 per year on average for major house repair/replacements on top of the normal repairs and maintenance I experienced while working.  That covers replacing the roof, painting, flooring, HVAC, appliances, etc. 

Fast forward to today, and I'm in the middle of a $9,000 major renovation to replace windows, siding, and partial roof replacement.  It's pretty close to what I budgeted.  When it comes to things like house repairs, they are largely predictable in the aggregate.  You'll have some systems die prematurely, but other systems will last longer than expected (or you can put them on life support to prolong the life). 

Also step back and look at the big picture.  If you are driving 7 hours to help take care of aging parents every few weeks, you probably aren't out spending money on cruises, international vacations and shopping for hardly anything.  Right now, I'm in the middle of overseeing all the house construction, so we decided to skip the December vacation so I could watch over the contractor.  Sure, we are spending $9k but we "saved" a thousand or two on the vacation. 


GuitarJim

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Re: How do/did you work out your retirement budget?
« Reply #10 on: December 04, 2014, 11:48:35 AM »
I tried to build conservatism into ever facet of my model (# of trips per year, various costs, # of times we'll eat out, etc.).  In essence, I built my model on a reasonable plan for the lifestyle that we'd LIKE to live, knowing that should something happen, we can cut back in various areas to reduce our withdrawal requirements.  We are also planning to relocate to an area where we are happier being, should the need arise to go a few years without traveling.