Rule of thumb about expenses before you retire: Multiply by 1.5?

[FIREin2018]

this Former financial advisor says before pulling the trigger on retiring, multiply your expenses by 1.5:
https://www.facebook.com/reel/1178033197331649

I Fired using 1.2x, I think. It's just a # i pulled from thin air.
So is 1.5x expenses the general rule of thumb if using the 4% Rule?
Why that #? (Just curious)

[Much Fishing to Do]

Well, obviously out of thin air and is obviously gonna be very specific to each person (kids expenses maybe going away as they leave the nest, travel expenses maybe increasing, etc etc).  But in the end I do think that one of the most ignored risks in retirement planning is unexpected changes in expenses (beyond just inflation), even just for the "basics", and so building some kind of buffer over what you calculate you might need makes sense.  But that number may be higher or lower than your actual pre-retirement spending just given your particular situation.

[Retire-Canada]

In the many years you'll have between deciding to FIRE and actually doing it you should build yourself an actual retirement budget and then fund it appropriately. How much you spend while working FT could be way more or way less than in retirement so any rule of thumb is pretty worthless. A lot of people pay off their mortgage and/or move to a lower COL area as they get to retirement reducing spending a huge amount for example.

Personally I built out a retirement budget and lived on it for several years pre-retirement to ensure it was realistic.

[obstinate]

By my calculation, our expenses will go down by quite a large amount. We'll be moving to an MCOL city and reducing our housing exposure by approximately 66%. Taxes where we're moving are lower, and we will take care of the kids more, cook more, and go out less. We will vacation using road trips rather than planes. I will buy things on EBay and the Craigslist clone used at my destination, rather than buying new on Amazon. I'll shop around goods and services, and DIY all my household cleaning.

My expectation is that our expenses will fall by ~50% after adding in health insurance costs. (Bear in mind that about half our current expenses are housing and childcare, so such a decline would nearly be accomplished just by having a paid off house and taking care of the kids ourselves, changing nothing else.)

[Laura33]

This makes no sense to me.  If anything, I expect to "feel" like I have even more money, because I will no longer have to save for retirement or college, mortgage and college will be paid for, and I will have the flexibility to manage my marginal tax rate based on which accounts I pull from in any given year.  Given that house and kids have been by far the biggest fixed expenses we've had for years, just having those gone gives us a shit-ton of extra income to play with, even if we maintain the same overall budget.

Plus, frankly, I have gotten out of good habits during my working life, just because I don't have the mental headspace to do things like efficient menu-planning, grocery shopping, and cooking.  Less brain cells spent on jobs and kids means more energy to re-devote to those better and healthier long-term habits. 

[Morning Glory]

this Former financial advisor says before pulling the trigger on retiring, multiply your expenses by 1.5:
https://www.facebook.com/reel/1178033197331649

I Fired using 1.2x, I think. It's just a # i pulled from thin air.
So is 1.5x expenses the general rule of thumb if using the 4% Rule?
Why that #? (Just curious)

I've never heard it described this way, but mathematically it's the same as using a lower withdrawal rate. (E.g. 1.2x base expenses at 4% is the same as 1x base expenses at 3.33%). That's fine for some people.  Personally I was fine with 4% because I was desperate for a break and I'm in a field where it's east to find part time work should I need it later.

[Lady Stash]

By my calculation, our expenses will go down by quite a large amount....we will .... cook more, and go out less. We will vacation using road trips rather than planes. I will buy things on EBay and the Craigslist clone used at my destination, rather than buying new on Amazon. I'll shop around goods and services, and DIY all my household cleaning.

This was my expectation too, but when I did a dry run I found that I wanted more $$ and not less.   My utilities went up since I was home more.  I wanted more to spend on hobbies and travel.  Groceries to cook at home cost more than I expected for high quality, fun meals.  I didn't *want* to do the chores myself.  Craigslist was surprisingly expensive (or I'm not great at negotiating). 

YMMV since child care costs are a big factor for you.   I'd suggest doing a dry run if at all possible, to ensure you like the new lifestyle and have some wiggle room. 

[Metalcat]

This could be a great idea for some people and an idiotic one for others.

Most FIRE folks are pretty conservative with their spending estimates as it is, so this is probably a terrible idea for most people here. There are better, more strategic ways to factor in buffers into financial plans than just fudging your numbers even more arbitrarily then they're already estimated.

[mistymoney]

seems like it is the advice du jour with the subtexts that you'll never really have enough. It seems copletely disengenuous at this point and almost like a parody to me.

and also - is contrary to this forum in which you can make do and be happier on a lot less than you think you need.

[HenryDavid]

We just tracked spending for 3-4 years leading into retirement.
Maintained the same or similar since then.

Once you decouple spending from quality of life, your actual spending number need not rise in retirement and may well drop.

[secondcor521]

Completely inapplicable to me.

I was saving about 60% of my income pre-FIRE.  My single largest expense was income taxes, and that category was greater than all of my other spending categories combined.

A better approach, as others have already described, is to figure out what you'll spend in FIRE and fund that.  For me, I intended to spend in FIRE the way I lived pre-FIRE.  So I took my actual spending, adjusted down for some things (income taxes), and adjusted up for others (health insurance premiums).

I also paid off my house and car and fully funded my kids' college.  After addressing all those big rocks, my remaining FIRE budget was quite modest.

Worked like a charm for me.

[vand]

Might not be the worst rule for general population, but for people who are on top of their money like on MMM it offers nothing but misdirection.

[GilesMM]

Our spending more than doubled once we stopped working and no longer had the need to maximize savings.  YMMV.

[AuspiciousEight]

Mustachians usually have a really good idea about what they spend money on and what their future expenses will look like.

Usually this sort of broad generalization is probably not a good idea if you know specifically where the money will be going.

This would be sort of like being told exactly how many eggs you need in a recipe, then randomly adding 50% more eggs, just because a random person on the internet said you need to add 50% more eggs to every recipe.

It just doesn't really make sense for anyone who knows exactly how many eggs are needed in the recipe.

[obstinate]

This was my expectation too, but when I did a dry run I found that I wanted more $$ and not less.   My utilities went up since I was home more.  I wanted more to spend on hobbies and travel.  Groceries to cook at home cost more than I expected for high quality, fun meals.  I didn't *want* to do the chores myself.  Craigslist was surprisingly expensive (or I'm not great at negotiating). 

Yeah, I don't expect that to happen for us. Groceries where we're moving are a little cheaper in general, and we already eat high quality, fun meals at home, so I expect there to be no delta on that front. Utilities are already a de minimis expense for me, so if it goes up by 10% or 50% I won't notice. My hobbies are inexpensive and I have already done most of the necessary capital expenditure anyway. (I do want an oscilloscope and a logic analyzer, but that's about it.)

Travel is a question mark. I expect for the first year or two to explore the West by road when the kids aren't in school. That should be pretty cheap compared to vacations we've taken the last few years. Maybe we'll open up the throttle in three or four years when the kids are a little older, depending on how the market's doing.

All that being said, if our spending does go up, it won't be a problem, based on how much we've saved.

[partgypsy]

I hope that's not true otherwise I'll never be able to retire. Main thing (on assumption don't lose my job) track this year now that house is paid off. Other than spending for dd college (and lesser amount for other child's schooling), what I'm spending now should be pretty? Consistent with retirement spending. The only thing not sure about, is irregular large expenses like car, roof, etc. 

[Retire-Canada]

The only thing not sure about, is irregular large expenses like car, roof, etc.

If you track your "normal" expenses you can add in an additional annual amount that accounts for larger sporadic expenses when you are determining your "FI" status.

[Metalcat]

The only thing not sure about, is irregular large expenses like car, roof, etc.

If you track your "normal" expenses you can add in an additional annual amount that accounts for larger sporadic expenses when you are determining your "FI" status.

This is one of the main benefits to tracking for years, you can clearly see the patterns of lumpy spending.

[reeshau]

He says in the video it's to provide a margin for error, and cover what you don't know.

Or, you could track the details, ask a few people on the other side, and leave when you can, rather than working a few more years.

Personally, I tell people expenses are going to go down,  most people starting on this journey think about their paycheck, then think about what's left over after everything is taken out.

When you aren't working for a paycheck, you no longer pay FICA taxes, and no longer save for retirement!  That's 20% right there.

Add in work-related expenses like wardrobe, commuting, and convenience eating, and it's not hard to come out ahead in retirement.

[Metalcat]

He says in the video it's to provide a margin for error, and cover what you don't know.

Or, you could track the details, ask a few people on the other side, and leave when you can, rather than working a few more years.

Personally, I tell people expenses are going to go down,  most people starting on this journey think about their paycheck, then think about what's left over after everything is taken out.

When you aren't working for a paycheck, you no longer pay FICA taxes, and no longer save for retirement!  That's 20% right there.

Add in work-related expenses like wardrobe, commuting, and convenience eating, and it's not hard to come out ahead in retirement.

While this may be true on the average, it all depends on the individuals.

I spent less when I was working full time than I did in retirement. I also expect to spend more as I age. We just had a whole thread discussing it.

It may be very common to spend less, but for people like Mustachians who are already outliers, that assumption should be examined very closely to see if it feels true under various possible circumstances.

Even MMM has written about spending more in retirement. So spending less is not a default that Mustachians should just assume is true.

[achvfi]

He says in the video it's to provide a margin for error, and cover what you don't know.

Or, you could track the details, ask a few people on the other side, and leave when you can, rather than working a few more years.

Personally, I tell people expenses are going to go down,  most people starting on this journey think about their paycheck, then think about what's left over after everything is taken out.

When you aren't working for a paycheck, you no longer pay FICA taxes, and no longer save for retirement!  That's 20% right there.

Add in work-related expenses like wardrobe, commuting, and convenience eating, and it's not hard to come out ahead in retirement.

While this may be true on the average, it all depends on the individuals.

I spent less when I was working full time than I did in retirement. I also expect to spend more as I age. We just had a whole thread discussing it.

It may be very common to spend less, but for people like Mustachians who are already outliers, that assumption should be examined very closely to see if it feels true under various possible circumstances.

Even MMM has written about spending more in retirement. So spending less is not a default that Mustachians should just assume is true.

That's true in my case.

When I was single my expenses were very low. Low even for MMM standards. I was not thinking much about marriage, home, cars, pets, kids, medical expenses, daycare, travel, inflation

I got married expenses increased by 50%. Then we had kids and expenses more than doubled. Although not accounting for inflation. 

My experience tells me to be cautious. Little bit of buffer makes lot of sense.

I suppose it depends on which stage of life you are in.

[Laura33]

He says in the video it's to provide a margin for error, and cover what you don't know.

Or, you could track the details, ask a few people on the other side, and leave when you can, rather than working a few more years.

Personally, I tell people expenses are going to go down,  most people starting on this journey think about their paycheck, then think about what's left over after everything is taken out.

When you aren't working for a paycheck, you no longer pay FICA taxes, and no longer save for retirement!  That's 20% right there.

Add in work-related expenses like wardrobe, commuting, and convenience eating, and it's not hard to come out ahead in retirement.

While this may be true on the average, it all depends on the individuals.

I spent less when I was working full time than I did in retirement. I also expect to spend more as I age. We just had a whole thread discussing it.

It may be very common to spend less, but for people like Mustachians who are already outliers, that assumption should be examined very closely to see if it feels true under various possible circumstances.

Even MMM has written about spending more in retirement. So spending less is not a default that Mustachians should just assume is true.

That's true in my case.

When I was single my expenses were very low. Low even for MMM standards. I was not thinking much about marriage, home, cars, pets, kids, medical expenses, daycare, travel, inflation

I got married expenses increased by 50%. Then we had kids and expenses more than doubled. Although not accounting for inflation. 

My experience tells me to be cautious. Little bit of buffer makes lot of sense.

I suppose it depends on which stage of life you are in.

I think this pretty much illustrates why this general rule of thumb is even more meaningless for folks on the FIRE train.  If you're trying to FIRE at 35 or 40, you may have a whole variety of life changes in front of you that can affect your budget -- marriage, kids, buying a house, college, eldercare, etc.  And your investments are the sole source of income to cover those changes over the next 50+ years; you can't even know whether your promised pension will stick around, or how much any pension/SS might be.  OTOH, someone at standard retirement age has already gone through most of those big life changes that are going to happen; sure, things can and will happen, but a lot of those major things are behind you, so your future needs are more predictable, as is the baseline income you have to support them.

A one-size-fits-all multiplier is thus a lot more supportable when applied to a a population that is largely at the same point in life than it is when applied to a collection of individuals at all different ages and stages of life, and with all different goals and dreams for what that future life will be.

[Metalcat]

He says in the video it's to provide a margin for error, and cover what you don't know.

Or, you could track the details, ask a few people on the other side, and leave when you can, rather than working a few more years.

Personally, I tell people expenses are going to go down,  most people starting on this journey think about their paycheck, then think about what's left over after everything is taken out.

When you aren't working for a paycheck, you no longer pay FICA taxes, and no longer save for retirement!  That's 20% right there.

Add in work-related expenses like wardrobe, commuting, and convenience eating, and it's not hard to come out ahead in retirement.

While this may be true on the average, it all depends on the individuals.

I spent less when I was working full time than I did in retirement. I also expect to spend more as I age. We just had a whole thread discussing it.

It may be very common to spend less, but for people like Mustachians who are already outliers, that assumption should be examined very closely to see if it feels true under various possible circumstances.

Even MMM has written about spending more in retirement. So spending less is not a default that Mustachians should just assume is true.

That's true in my case.

When I was single my expenses were very low. Low even for MMM standards. I was not thinking much about marriage, home, cars, pets, kids, medical expenses, daycare, travel, inflation

I got married expenses increased by 50%. Then we had kids and expenses more than doubled. Although not accounting for inflation. 

My experience tells me to be cautious. Little bit of buffer makes lot of sense.

I suppose it depends on which stage of life you are in.

I think this pretty much illustrates why this general rule of thumb is even more meaningless for folks on the FIRE train.  If you're trying to FIRE at 35 or 40, you may have a whole variety of life changes in front of you that can affect your budget -- marriage, kids, buying a house, college, eldercare, etc.  And your investments are the sole source of income to cover those changes over the next 50+ years; you can't even know whether your promised pension will stick around, or how much any pension/SS might be.  OTOH, someone at standard retirement age has already gone through most of those big life changes that are going to happen; sure, things can and will happen, but a lot of those major things are behind you, so your future needs are more predictable, as is the baseline income you have to support them.

A one-size-fits-all multiplier is thus a lot more supportable when applied to a a population that is largely at the same point in life than it is when applied to a collection of individuals at all different ages and stages of life, and with all different goals and dreams for what that future life will be.

Exactly this.

For FIRE folks all rules of thumb are just vague starting points.

[NastyWarNob]

From personal experience (retired December 2024), our expenses have gone “through the floor” in that they are much lower than when I was working.  I tracked everything in Personal Capital/Empower for over a year pre-retirement and now into this year and the difference is pretty staggering.  Having the power to choose when and where to spend your money and time allows you to optimize choices and realize opportunities at a discount.

That being said, we have no appetite to go on an African Safari three times per year now retired, and the house is paid off, with one auto loan at .9 percent with a year remaining on it.  Ongoing expenses matter.