Do you really spend "your number" in retirement?

[Ron Scott]

Years ago I used to ride with a few buddies, 30 miles or so, Saturday mornings, same route.

Half the time we’d run across this older guy and talk with him for a mile or so. We thought he was in his late 60s because he was slower than us but one day we asked him. Turns out he was 84.

[Gardencat]

I live in a town that seems to have thousands of extremely fit 70, 80, even 90-somethings. Like way more active than me and I’m no slouch. I’m able to do a lot of very enjoyable camping out here, and I don’t really like to fly so don’t spend too much on travel. Still, 3 plane trips for me this year.

To answer the original question, spending for my first two full years equaled my estimates. In 2023 I was over by 44 cents. Yes, cents. This amount was a best guess/bottom of the range, I did not use up any of my buffer. I’m not including expense for taxes due on my Roth conversions.

I seem to have some sort of spending homeostasis, I keep an eye on my credit card bills but I don’t closely track or budget during the year. I’d have been fine with spending more, I just didn’t.

[flyingaway]

My in-laws spent 6-9 months out of he year in their RV.  He's now 81, and she turns 80 next year, so they're slowing down.

They are currently on a tour of South America, culminating in a cruise to Antarctica.  It's their fourth time.  Next summer will be her 80th birthday party in Alaska for a couple months, where BIL lives.

I hope I'm able to match their trajectory as they slow down.

To be fair, they both have a few long-term health conditions, and both DW and I are amazed that they have kept going as they are.  But travel is both important to them, and something they are used to--so, they don't have delusions of idealized travel; they know the ups and downs, as they have traveled extensively their whole lives.  They also plan 3 years in advance.

Go to Antarctica in their 80s? I'm really impressed.

[catccc]

Having set and passed our NW goal now at least 3 times, only to announce a new number, I bet when the time comes to draw down, we will not be spending our number.  But having seen our annual spend go from 50-60k-ish to over 100k during the last few years (home ownership!  maintenance and improvements) I am really wanting to make sure our number is higher than what we are spending now by a good margin.  Idk what that margin is, so conveniently, I do not need to make any hard decisions and just keep working.  I mostly like my job, but some weeks are harder than others…

[jimmyshutter]

Having set and passed our NW goal now at least 3 times, only to announce a new number, I bet when the time comes to draw down, we will not be spending our number.  But having seen our annual spend go from 50-60k-ish to over 100k during the last few years (home ownership!  maintenance and improvements) I am really wanting to make sure our number is higher than what we are spending now by a good margin.  Idk what that margin is, so conveniently, I do not need to make any hard decisions and just keep working.  I mostly like my job, but some weeks are harder than others…

Since I started this thread I've been debating on changing my number AGAIN. And it's not because I think I need it but it's because I want my NW to be closer to my brother's. I could probably get there working another 6-7 years but that's just stupid.

So, I am now content with my NW and I'm working now to burn down time, give money to my son, and will work until I no longer feel like it. I'm now hoping by the time I'm sick of working I'll be comfortable with a high enough NW to buy him a condo. :)

[Ron Scott]

Having set and passed our NW goal now at least 3 times, only to announce a new number, I bet when the time comes to draw down, we will not be spending our number.  But having seen our annual spend go from 50-60k-ish to over 100k during the last few years (home ownership!  maintenance and improvements) I am really wanting to make sure our number is higher than what we are spending now by a good margin.  Idk what that margin is, so conveniently, I do not need to make any hard decisions and just keep working.  I mostly like my job, but some weeks are harder than others…

Think of it like an 80-20 Rule.

80% of the value is in FI; 20% in RE.

[Cranky]

Yeah, my in laws were traveling to Europe into their 80s because they loved it. There are lots of travel groups set up largely for older people who are not wanting to sprint up mountains.

what about old people who do want to sprint up the mountains?

Have at it! My point is that if you live to travel you can do that even if you aren’t up to mountaineering.

[Metalcat]

Yeah, my in laws were traveling to Europe into their 80s because they loved it. There are lots of travel groups set up largely for older people who are not wanting to sprint up mountains.

what about old people who do want to sprint up the mountains?

Have at it! My point is that if you live to travel you can do that even if you aren’t up to mountaineering.

I traveled this year while barely able to stand. I even went out to a UNESCO site on a boat tour that required a long hike to get to the fjord, but they provided a free all-terrain wheelchair.

[Car Jack]

So what's "my number?".

For about 5 years, I built and refined my "retirement spending" list that has everything from Medicare cost to gas for the car.  I'll mention that it is so far away from my "while working spending" list that that one can mostly be thrown into recycling.  But we retired last June and the final number was $75k a year, dominated by health care expenses.  It's pretty much right on.  Now, if you used the Trinity study 4% number, because we way over saved, that would be (today) $168,000.  And we obviously don't spend that. 

[tj]

@RootofGood has not.

https://twitter.com/RootofGoodBlog/status/1746003033278885918

[Money Badger]

Been reading and re-reading this thread for inspiration...  Now, more for my own accountability, such that I check back after 3 months or so with how it goes, my "number" is $6750 per month split from a SEPP account's dividends and an after tax withdrawal of income-only from an after tax account.  This also includes saving for auto replacement and hopefully maxing the funnel from IRA to my Roth starting next month for the first year of FIRE. This is with a working spouse covering medical while still maxing her 401K so we keep our top federal tax max tier to 12%.  Now, let the game begin!

[Ron Scott]

For about 5 years, I built and refined my "retirement spending" list that has everything from Medicare cost to gas for the car…the final number was $75k a year…  Now, if you used the Trinity study 4% number…that would be (today) $168,000.

So a “frugal” 1.8% WR against a $4.2M stash? Sounds like robust FI with meaningful flexibility. I like.

[weebs]

Been reading and re-reading this thread for inspiration...  Now, more for my own accountability, such that I check back after 3 months or so with how it goes, my "number" is $6750 per month split from a SEPP account's dividends and an after tax withdrawal of income-only from an after tax account.  This also includes saving for auto replacement and hopefully maxing the funnel from IRA to my Roth starting next month for the first year of FIRE. This is with a working spouse covering medical while still maxing her 401K so we keep our top federal tax max tier to 12%.  Now, let the game begin!

<picard> Engage! </picard>

I'm curious to hear the 3 month report because I'm contemplating doing something similar as soon as next year.  What withdrawal method are you going to use with the SEPP?

[Money Badger]

Haha!!   Engage indeed!   

On the SEPP, single annual payment, amortization option.   There are good (and bad) financial planning blogs and some well done white papers online that talk about the pro's and con's.  What I liked on this is I don't screw up on the withdrawal equal amounts each year by doing this annually and gave the maximum annual payout (which I'll use partially and use to feed to the "normal" Roth IRA limit annually.  Also ensures I shrink that part of my IRA funds to minimize future RMD taxation in the "elder years" whatever they may be).   I keep the "spendable" part of these payout funds in a separate after-tax account with auto transfers to my checking as the baseline income each month to avoid spending the SEPP's annual "lump" prematurely in the year.   Also put the "taxes on the payout" aside in a 12 month CD to get some useful interest at least until tax time next year.   Used the Fidelity SEPP calculator and printed the baseline details for the distribution for future tax filing or audit purposes.   This also leaves a partial-out for a single time I could reduce the payments by transitioning to a "RMD" option in the future in case of heaven forbids (change in financial situation, divorce, etc.).  We're being very careful with any other investments to keep our joint adjusted income below 94K to stay in or below the 12% max federal bracket as well.  It's early days, but it seems a pretty simple system as long as we don't mess-up in years 2 thru 5.   Time and the IRS will tell I suppose.

[weebs]

Haha!!   Engage indeed!   

On the SEPP, single annual payment, amortization option.   There are good (and bad) financial planning blogs and some well done white papers online that talk about the pro's and con's.  What I liked on this is I don't screw up on the withdrawal equal amounts each year by doing this annually and gave the maximum annual payout (which I'll use partially and use to feed to the "normal" Roth IRA limit annually.  Also ensures I shrink that part of my IRA funds to minimize future RMD taxation in the "elder years" whatever they may be).   I keep the "spendable" part of these payout funds in a separate after-tax account with auto transfers to my checking as the baseline income each month to avoid spending the SEPP's annual "lump" prematurely in the year.   Also put the "taxes on the payout" aside in a 12 month CD to get some useful interest at least until tax time next year.   Used the Fidelity SEPP calculator and printed the baseline details for the distribution for future tax filing or audit purposes.   This also leaves a partial-out for a single time I could reduce the payments by transitioning to a "RMD" option in the future in case of heaven forbids (change in financial situation, divorce, etc.).  We're being very careful with any other investments to keep our joint adjusted income below 94K to stay in or below the 12% max federal bracket as well.  It's early days, but it seems a pretty simple system as long as we don't mess-up in years 2 thru 5.   Time and the IRS will tell I suppose.

I'm also leaning towards the amortization method, mostly due to its simplicity.  Being able to transition to the RMD method is a nice bonus.  I love your approach of putting the money used to cover the tax burden in a separate interest bearing account.  I also like how the periodic autotransfer from the after-tax account containing the annual payout simulates a paycheck. 
Thanks for the detailed response.  Reading through stuff like this really helps me marshal my thoughts about how I'm going to make this happen.

[John Doe]

I’m not really sure what you mean by “your number”. We retired about 4 years ago and the way we  determined our spending needs was simply tracking our current lifestyle - ignoring vacations.  So for example our current lifestyle has our spending at about $70k (before vacation).  This covers our bills, entertainment, charity, Christmas, property taxes etc (we are Canadian so now medical insurance costs).  Our investment income generates around $100k after tax plus we have a pension that generates around $33k after tax. We do not touch the principal of our investments - around $2.2m when we retired and at the same level now (some sizeable ups and downs in those years thanks to Covid and the associated market gyrations).  I guess I am saying we didn’t plan for “a number”, other than making sure our cash flow covered our lifestyle and left a nice buffer for vacations.  Do we spend it all right now….. yes, as we like to travel and get out of cold Canada for three months to a warmer place and I have no concerns on spending a decent amount on doing that.  Our number was never about the percentage of our stash but rather living off of what our stash generates.  If we have to dip into the stash at some point for a big ticket item, so be it as it will not impact our lifestyle.   

[Ron Scott]

I’m not really sure what you mean by “your number”.

I think it means the amount of money you budgeted to spend on an annual basis in retirement.

[Dicey]

DH and I just figured out that between his pension and our FRA SS estimates (when we start collecting) we will be earning 60% more than we ever earned annually. Bonkers! That's not including investments. Who'da thunk?

[jimmyshutter]

I’m not really sure what you mean by “your number”.

This is actually a good question and one I should have clarified when I made this post. I should have posted "What was your projected SWR percent before retirement and what is your actual WR while in retirement".

I ask because the 4% "rule" has had such a high probability of success yet many still err on the side of caution with how much they believe they may need (including myself). I am considering buying a second home for my son to live in (and probably gift it to him at a later time) but I don't want to keep working for the sole purpose of increasing my NW when I'll likely not need it.

[Financial.Velociraptor]

I’m not really sure what you mean by “your number”.

This is actually a good question and one I should have clarified when I made this post. I should have posted "What was your projected SWR percent before retirement and what is your actual WR while in retirement".

I ask because the 4% "rule" has had such a high probability of success yet many still err on the side of caution with how much they believe they may need (including myself). I am considering buying a second home for my son to live in (and probably gift it to him at a later time) but I don't want to keep working for the sole purpose of increasing my NW when I'll likely not need it.

I FIRED with a projected WR just about 10%.  Actual spending came in lower than projected and my first year had really good returns.  I've been as low as about 6% and sitting about 7.5% now.  Plan was always to do part time work but I've never gotten serious about finding something.  Looking a little harder now but focused on non profits to ensure I do something aligns with values rather than help a huge faceless corp destroy the planet for fun and profit.

[spartana]

I’m not really sure what you mean by “your number”.

This is actually a good question and one I should have clarified when I made this post. I should have posted "What was your projected SWR percent before retirement and what is your actual WR while in retirement".

I ask because the 4% "rule" has had such a high probability of success yet many still err on the side of caution with how much they believe they may need (including myself). I am considering buying a second home for my son to live in (and probably gift it to him at a later time) but I don't want to keep working for the sole purpose of increasing my NW when I'll likely not need it.

I FIRED with a projected WR just about 10%.  Actual spending came in lower than projected and my first year had really good returns.  I've been as low as about 6% and sitting about 7.5% now.  Plan was always to do part time work but I've never gotten serious about finding something.  Looking a little harder now but focused on non profits to ensure I do something aligns with values rather than help a huge faceless corp destroy the planet for fun and profit.

I know you've mention the high WR before and Im curious if you have a back up plan besides going back work again? A future pension? Selling and downsizing or renting? A rich Sugar Daddy/mommy footing the bills? How long do you predict your money will last if you don't use any of those options?

[Financial.Velociraptor]

I know you've mention the high WR before and Im curious if you have a back up plan besides going back work again? A future pension? Selling and downsizing or renting? A rich Sugar Daddy/mommy footing the bills? How long do you predict your money will last if you don't use any of those options?

The plan was always what we call BARISTA FIRE around here.  I didn't know about the FIRE movement when I pulled trigger so didn't have a word for that.  I never got the part time job b/c the markets have been too kind.  I have six opportunities I'm applying for tomorrow.  That started as 9 opps but I ruled 3 out as unpalatable.  I'm being picky b/c I still have FU money.  I'd be delighted to just win the lotto though!

[achvfi]

7 years ago I came up with my "number" after reading MMM blog, based on expenses from years past. In those 7 years our expenses have increased by 50% higher even beyond inflation. Mostly due to growing family, medical costs, daycare and Travel with larger family. While most of these additional expenses are onetime or in rearview, it still gives me pause. Now I am inclined to pad our stash well for any future shocks. 

Reading through this thread was comforting though. Thanks.

[Money Badger]

@achvfi,  Breathe deep.   7 years is about the time it takes for investments to double.    So 50% increase in expenses is rather small in comparison.   But reality is reality.  If the expenses are growing, the first question is how to cut them by 50% NOW.   Really.   Travel is discretionary.   I went to a party with a whole group of spendypants friends in their late 50s all bragging about their trips to Italy.  And half of those also complained about "having to work for years still" and how "scary healthcare insurance is if they retire early".   This is of course financial stupidity.   The real problem is spending.    So the question now is how to cut 50% off your expenses.   Truly, no one will die.  It'll be fine.

[flyingaway]

7 years ago I came up with my "number" after reading MMM blog, based on expenses from years past. In those 7 years our expenses have increased by 50% higher even beyond inflation. Mostly due to growing family, medical costs, daycare and Travel with larger family. While most of these additional expenses are onetime or in rearview, it still gives me pause. Now I am inclined to pad our stash well for any future shocks. 

Reading through this thread was comforting though. Thanks.

You make a NEW number and you will be fine.

[spartana]

I know you've mention the high WR before and Im curious if you have a back up plan besides going back work again? A future pension? Selling and downsizing or renting? A rich Sugar Daddy/mommy footing the bills? How long do you predict your money will last if you don't use any of those options?

The plan was always what we call BARISTA FIRE around here.  I didn't know about the FIRE movement when I pulled trigger so didn't have a word for that.  I never got the part time job b/c the markets have been too kind.  I have six opportunities I'm applying for tomorrow.  That started as 9 opps but I ruled 3 out as unpalatable.  I'm being picky b/c I still have FU money.  I'd be delighted to just win the lotto though!

Would you be OK (and satisfied with your life style) if you never worked or earnedvagain? Im pretty risk tolerant but I'm not sure I could go into a long period of unemployment with a 9 % WR. I started out at lean FIRE at what was approx a 4% WR (although I use a bucket method and not the 4 % rule) but ended up not needing or spending as much as I though I would so it morphed into FIRE. Plus the high karketband housing market helped ;-).

[spartana]

7 years ago I came up with my "number" after reading MMM blog, based on expenses from years past. In those 7 years our expenses have increased by 50% higher even beyond inflation. Mostly due to growing family, medical costs, daycare and Travel with larger family. While most of these additional expenses are onetime or in rearview, it still gives me pause. Now I am inclined to pad our stash well for any future shocks. 

Reading through this thread was comforting though. Thanks.

You make a NEW number and you will be fine.

This. I always assume that when people plan to RE and leave their jobs, or take a lower paid role, they account for any potential life changes that will happen in the future and not just what's happening in their life currently. Marriage, kids, housing, medical stuff, elderly parents, travel, inflation, etc... Lots of those costs can be pre-planned as part of the FIRE stash if you know you're likely going to want those things. It's the un-planned, unexpected and often catashrophic shit that may get you. So change your number to reflect the normal changes if you're still working and able to do so.

[the lorax]

[/quote] Would you be OK (and satisfied with your life style) if you never worked or earnedvagain? Im pretty risk tolerant but I'm not sure I could go into a long period of unemployment with a 9 % WR. I started out at lean FIRE at what was approx a 4% WR (although I use a bucket method and not the 4 % rule) but ended up not needing or spending as much as I though I would so it morphed into FIRE. Plus the high karketband housing market helped ;-).
[/quote]
Hi @spartana would you mind taking a quick look at my case study please as I'm also planning using the bucket approach. I got a couple of responses which were really helpful but would be good to test with someone who used the same approach, cheers

[spartana]

^^^Hi - I'll take a look but I'm not as financially smart/sophisticated as most of the people here. I know @Laura33 uses a bucket method and she MUCH wiser then me.

[the lorax]

thanks @spartana :) it's this one here: https://forum.mrmoneymustache.com/case-studies/sense-check-please-staged-approach-to-fi-(nz)/
mspym walked me through using the rich broke or dead calculator which was great and I think we're pretty ok given we are prepared to be flexible. I need to take the bucket approach as our income and expenses will go through quite distinct phases and I can't access our personal or the govt super funds until we are 65 at least, cheers

[Woodshark]

Short answer is no. Well, last year maybe.  If you believe and use the 4% rule then most years we're under that. BUT......the wife hit 60 last year and I'll be hitting 64 soon enough.  We've seen several friends have the rug pulled out from under them, health wise, in the past year so our thinking has started to change.

I'm not a Dave Ramsey groupie. He's great on getting out of debt, but his investment advice is questionable. Still, one his famous sayings is "Live like now one else, and one day you can live like no one else. Well, for us....that one day has arrived!

[Car Jack]

So I'm going to say that we're close but likely over.  First, I will say that I'm pretty adamant that people do an "in retirement" spending list as it's not going to be close to what your "while working" list is.  The number may end up close but it could easily be way off.  We're retired for 10 months now.  Our "in retirement" list brought our spending to $75k a year, 50% more than our "while working" $50k a year.  Here's some places it's off.

Travel:  We put in $5k.  Shortly after retirement, our cat started having seizures.  The medicine she's on was 3 times a day, every 8 hours.  Now revised to twice a day.  Either way, we're pretty stuck to day trips.  No, we're not considering bringing a 17 year old cat with us.  So that's pretty near zero.

Health Insurance:  We put in $20k.  I'm on Medicare and DW is on Cobra.  We're all on Cobra for dental.  I have done my homework and now am on a Ferris wheel with where I get meds.  I'm at the "preferred" pharmacy for most but off to Wegmans with a GoodRx card for one because it's cheaper than it would be using insurance.  Also, I'm well aware of the Medicare "doughnut hole" that's sort of like a first level out of pocket max but instead of going to zero cost, they triple the cost.  So I'm playing doctor and have substituted some OTC meds for huge dollar "TV drugs" (drugs that have TV commercials) because those would put me into the doughnut hole and I'm not paying $90 a day for 2 meds (and yes, that's what they would cost in the doughnut hole).  So we are probably just under $20k.  Also, my income from 2 years ago put me into IRMAA territory second level which doubled my Medicare cost.  I appealed and they agreed so the premium is normal for both last year and this.

Taxes:  I was way off.  I put $5k.  I did not realize that I would be doing so much Roth conversion.  Why am I doing so much Roth conversion?  Most of my and DWs savings over the years were in 401k's pre tax.  So at RMD time, we'd be forced to take over $250k out.  Add 2 social securitys and interest and dividends and we'd both be paying big time into IRMAA.  So I'm converting on the order of $200k a year in Roths.  Of course that means we're paying like $50k a year in federal and state income taxes.  I count property taxes separate so that's right on the spot.

If you haven't figured it out yet, we wickedly over-saved.  And we're not spendy people so in the 10 months of not working, our investments haven't dropped to support us.  They've risen about $300k so far.  I have said many times "why the hell was I working?".  I've never made $300k working in any year of my life.  And the year's not done yet.

You will have a different story entirely if you barely have enough to live through retirement.  There are medication non-profits that can bundle meds together and give you a much better price.  With Roth conversions, our income is too much.  Maybe you get ACA with subsidies.  DW can't because with the conversions, we make too much.  There are even town programs to reduce our property taxes but again....yup.  We make too much.

Anyways, I could revise our "in retirement" list but it doesn't really matter at this point as we're only spending around 1.7% of what's saved.  That, of course doesn't include our paid off house or 4 debt free cars.