Author Topic: undercalculating retirement expenses?  (Read 3000 times)

Iron Mike Sharpe

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undercalculating retirement expenses?
« on: July 17, 2013, 07:25:32 AM »
Here's a question that I haven't seen addressed.  I'm sure it's been discussed somewhere, I just haven't seen it.

I've seen a lot of talk about planning for retirement around making sure that an X% SWR meets your spending needs.  But when people are calculating their spending needs, are they taking into account future car purchases, home repair needs (new AC, furnace, water heater, roof, etc.), medical costs, appliances, furniture & electronics replacement costs, and so on.

It seems a lot of people like to brag about their low level of spending, but I don't see anywhere where they are accounting for these irregular expenses that will pop up at some point or another.

I started budgeting and living more mustachian back in December.  In my budget, I am actually devoting part of my pay to setting aside money for all of these future expenses.   It might not be the most efficient way at earning a return, but I'm at least accounting for it.  I think if you just look at your out of pocket costs each year, you won't get a true accounting for what you actually need in retirement.  While you might only be spending $20,000/year right now.  If you were to prorate these big, irregular expenses, you might actually be spending $23,000 if you prorate these expenses.  (these numbers are just pulled out of my butt for illustrative purposes, don't get fixated on them).

I just want to sound a cautionary alarm that people really need to be careful when calculating the amount they need to retire if they aren't accounting for these irregular expenses.

I'm sure this has been addressed somewhere before.  I'm just really tired from a bout of insomnia last night and can't think of seeing it addressed before.


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Re: undercalculating retirement expenses?
« Reply #1 on: July 17, 2013, 07:36:33 AM »
Yes, when people first forecast a retirement budget, it could be wrong. However, when people who have been doing this for a while add up their expenses, they do so based on data over the past year or several years, which would include the expenses you list. For example, last year, I had a new furnace installed, and I took on a small car payment. Both of those are factored into my savings rate and my retirement budget.

Your cautionary alarm is a good thing to keep in mind. On the other side is the temptation to keep working another year just in case. The best forecasts avoid both wishful thinking and falling-sky thinking, and the experience gained during the inevitable time it takes to accumulate savings will help to correct both of these.


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Re: undercalculating retirement expenses?
« Reply #2 on: July 17, 2013, 07:52:00 AM »
Your monthly budget should already have a figure in for 'maintenance' for all those things, replacement cost for your car, etc - every expense there is should be roughly accounted for.

So my monthly includes my half of the 1% house maintenance, a small amount for car maintenance, plus I depreciate both our cars every month. Do you spend that money? No. But it's there in 'the list'.


  • Magnum Stache
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Re: undercalculating retirement expenses?
« Reply #3 on: July 17, 2013, 07:56:31 AM »
My current expense calculation is based on several years worth of data. It takes into account a PC I built, car repairs, irregular vacations (some cheap, some not so cheap), wedding gifts...etc.

A good idea in preparation for FIRE and while you revisit your information is to re-calculate your expenses. Don't assume flat just keep reworking the numbers, it's just something you will do as you revisit your plan on an annual or biannual basis.


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Re: undercalculating retirement expenses?
« Reply #4 on: July 17, 2013, 09:45:35 AM »
That's a good point.  It's important to me to track my spending for many years in order to make sure these things are covered.  It's also why everyone needs a safety margin too.