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Introduction with questions about spending estimate
Old 10-24-2014, 08:29 AM   #1
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Introduction with questions about spending estimate

Hello. I recently joined the site and have been going through the posts a little at a time, trying to learn. I thought it best to introduce myself before asking too many questions.

Me: 49, planning to retire from Megacorp next year at age 50
DH: 61, retired from 37-year federal career.

Two grown daughters, finished college with no debt. Both living on their own.

Primary home paid for.
Vacation home paid for (we use this home frequently now; and plan to spend about half our time there once I retire).
Residential rental property paid for. This generates $1300/month (gross).

Spending in retirement: ~100K. (this is where I need help see questions later)
DH pension: 100K, COLA eligible (50% survivor payment)
DH contract work: ~20-30K per year since retirement, but not guaranteed and he will retire for real at some point
My pension: 18K at age 55, 24K at age 60 (partially COLA the plan changed 5 yrs ago)
DH SS (age 66): 10K after GPO
Me SS (age 67): 22K
550K in TSP, 550K in my 401K, 150K total in Roth IRAs, ~50K in TIRAs and SEP IRA, 300K in taxable mutual fund account

We had always planned for me to retire at age 50. Now that its close, I think we hit our target but Im not sure. I hope we have - I've grown frustrated with my work situation and want out!

The 100K per year spending is based on our spending (from Quicken) over the last three years. I did not count expense that we no longer have for example tuition payments. However Im not sure that was the best way to estimate expense, because some things (like health insurance) are paid out of my paycheck so never get noted in Quicken.

Would it be better to make a list of anticipated spending categories, and then use the data I have to estimate the yearly cost? Real estate taxes, utilities, food, health insurance, etc. What are some budget items that typically get overlooked?
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Old 10-24-2014, 08:30 AM   #2
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Hey -- I just saw my first post and the tagline under my name. I don't know how that got there -- I read the FAQ about dryer sheets. Time to find the "edit" feature.

BTW, I have always re-used dryer sheets.
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Old 10-24-2014, 09:01 AM   #3
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Welcome to the forum, Philliefan33. No worries about the tagline, it is an automated SW feature that just reflects how many posts the member has. It's like an 'inside forum joke" .
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Old 10-24-2014, 09:06 AM   #4
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Welcome to the forum, Philliefan33. No worries about the tagline, it is an automated SW feature that just reflects how many posts the member has. It's like an 'inside forum joke" .

If you hang around long enough, it may change to "I re-use YOUR dryer sheets".
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Old 10-24-2014, 10:33 AM   #5
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Welcome

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The 100K per year spending is based on our spending (from Quicken) over the last three years. I did not count expense that we no longer have – for example tuition payments. However I’m not sure that was the best way to estimate expense, because some things (like health insurance) are paid out of my paycheck so never get noted in Quicken.

Would it be better to make a list of anticipated spending categories, and then use the data I have to estimate the yearly cost? Real estate taxes, utilities, food, health insurance, etc. What are some budget items that typically get overlooked?
I would personally do a stand alone budget. I don't have Quicken so I'm not that familiar with what it has/does. State and Federal taxes on your income is something that can be overlooked. Also Deductibles on HC. You would want to budget for trips that you could take now that you had more free time and were not restricted to x number of vacation days/year. Sit down and try and think of all the things you might be spending on in the future.
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Old 10-24-2014, 11:10 AM   #6
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I handled the situation as follows:

- Took my gross income from all sources from quicken.
- Subtracted out things that would no longer apply when I retired: 401k contributions, other savings contributions, medicare tax, SS tax. Mortgage payments. (My plan was to retire when mortgage was paid off - your plan may differ.)
- Added in new expenses that were anticipated - specifically health insurance. I used a combo of resources to come up with an accurate guess for premiums - I "what-iffed" on the ACA website, I looked at my company's cobra charges, I talked to an insurance broker.)

That gave me an accurate picture of what I actually had been spending - without breaking down into categories. (Everything I didn't save, was spent.)

I've only been retired 4 months - but it's tracking as I expected.

If you do break it down as a stand alone spending budget make sure you account for
- infrequent large bills: (property taxes, insurance if you don't pay monthly, etc.)
- slush fund for big ticket items (replacement car every X years, new roof, big plumbing disasters.)

Also - be realistic about your rental income - there will be gaps between renters, maintenance and retrofitting, etc. I've seen some landlord blogs that suggest the true net income is 1/2 of the (gross income - mortgage).

So... as someone who used to live in the Philly metro area - which Jersey beach town is your vacation home in? My husband's family has a (literally falling down) bungalow in North Wildwood.
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Old 10-24-2014, 12:16 PM   #7
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Make sure income taxes is included in your spend.

Based on your husbands pension alone it looks like you are more than set. You can retire now and never have to withdraw principal until RMDs.

Nice work and welcome.
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Old 10-24-2014, 06:51 PM   #8
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Philliesfan33, below is an extract from a draft of a book I'm casually working on on the subject of retirement planning. YMMV. Taxes is commonly overestimated - you can get a good idea on them by taking a recent tax return, eliminating your earnings and making other appropriate adjustments to reflect expected changes in retirement. I have found this calculator to be useful because it handles both federal and state income taxes.

Quote:
In the ideal situation, one will have detailed records on actual spending for the last couple years in Quicken or Mint of some similar tool that could serve as a starting point for developing a retirement budget. If such information isn’t available, then you will need to do some analysis of your expenses for the last couple years to get to that starting point. A “top-down” approach would be to take your take-home pay for the year and reduce it for any additional savings you made – presumably the remainder was spent on living expenses. While this approach is a bit crude, it is better than a wild guess.

A more refined approach is to build a “bottoms-up” retirement budget looking at various categories of spending. There are plenty of forms and templates available that can serve as a guide. A broad approach is usually sufficient. For example, we have two vehicles and put about 10,000 miles a year on each. Vehicle 1 gets 20 miles per gallon and uses regular gas that averages $3.50 a gallon. Vehicle 2 get 23 miles per gallon but uses premium gas that averages $3.75 a gallon. So our budget for gasoline for the two vehicles is $3,380.

Many other expenses you will have good knowledge of based on past experience and some insights as to how your living expenses might change in retirement. Commonly, there will be changes for items previously obtained through employment may be purchased independently in retirement, such as health insurance, health club memberships, auto costs if you had a company car, etc. Assuming that your retirement standard of living is about the same as your pre-retirement standard of living then historical information on your spending for the couple years prior to retiring is a useful starting point. In fact, it is highly recommended that you “live on” your retirement budget during your last couple years of work, especially if your retirement budget is low in relation to your take-home pay to make sure that you are not being overly optimistic about the amount you need to live on in retirement.

In addition to typical expenses, you should also provide for major home repairs or improvements (such as replacing a roof, or air conditioner or furnace or rehabbing your kitchen or whatever) and periodic car replacements. Since such costs tend to be “lumpy”, typically such costs are estimated for a multi-year period of time and then converted to an annual amount that would then be added to the retirement budget.
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Old 10-24-2014, 07:27 PM   #9
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Congrats on being so close to retirement, and on 3 houses paid for!

Sounds like you have covered most I could offer, but I would get specifics on how will you get health care until you hit Medicare age. Then you will have co-pays or other expenses. I'm not there yet but I hear people sped more on health care than they expect. You are both still young, what activities will you do and what will they cost.

However, it seems that you are well prepared financially.
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Old 10-24-2014, 08:28 PM   #10
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Originally Posted by Philliefan33 View Post
Hey -- I just saw my first post and the tagline under my name. I don't know how that got there
Here ya go:

"What's the deal with the dryer sheets?!?"

Welcome to the forum!
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Old 10-24-2014, 09:54 PM   #11
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Welcome, and you are certainly brave to choose that username after the season they had this year (I know because I'm an Orioles fan and BIL is a Philly fanatic).

I agree that looking at your expenses in categories would be useful. But if taxes are included in your expenses then things look better, and even better if you live in PA because of the favorable treatment for state taxes of pension and IRA $$.

Welcome and don't be shy about asking questions - we're generally a pretty friendly and knowledgeable bunch!
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Old 10-25-2014, 03:06 PM   #12
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Thanks everyone! I'll get to work on making a better estimate of our spending after retirement.

rodi - reasonable guess regarding the Jersey shore, but we head the other direction. Our second home is in the Poconos, sixty miles (but a world away) from our primary home.

MBAustin - I've been a Phillies fan since moving here in 1987. There have been some bad years but that makes the great years sweeter.


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Old 10-25-2014, 05:42 PM   #13
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Originally Posted by Philliefan33 View Post
Hello. I recently joined the site and have been going through the posts a little at a time, trying to learn. I thought it best to introduce myself before asking too many questions.



Me: 49, planning to retire from Megacorp next year at age 50

DH: 61, retired from 37-year federal career.



Two grown daughters, finished college with no debt. Both living on their own.



Primary home paid for.

Vacation home paid for (we use this home frequently now; and plan to spend about half our time there once I retire).

Residential rental property paid for. This generates $1300/month (gross).



Spending in retirement: ~100K. (this is where I need help see questions later)

DH pension: 100K, COLA eligible (50% survivor payment)

DH contract work: ~20-30K per year since retirement, but not guaranteed and he will retire for real at some point

My pension: 18K at age 55, 24K at age 60 (partially COLA the plan changed 5 yrs ago)

DH SS (age 66): 10K after GPO

Me SS (age 67): 22K

550K in TSP, 550K in my 401K, 150K total in Roth IRAs, ~50K in TIRAs and SEP IRA, 300K in taxable mutual fund account



We had always planned for me to retire at age 50. Now that its close, I think we hit our target but Im not sure. I hope we have - I've grown frustrated with my work situation and want out!



The 100K per year spending is based on our spending (from Quicken) over the last three years. I did not count expense that we no longer have for example tuition payments. However Im not sure that was the best way to estimate expense, because some things (like health insurance) are paid out of my paycheck so never get noted in Quicken.



Would it be better to make a list of anticipated spending categories, and then use the data I have to estimate the yearly cost? Real estate taxes, utilities, food, health insurance, etc. What are some budget items that typically get overlooked?


Have you run your numbers through FireCalc? If FireCalc says your good, then you are good. --Nomad


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Old 10-25-2014, 06:27 PM   #14
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It's a good question. I don't agree that plugging numbers into Firecalc and calling it good is correct, because Firecalc is only as accurate as the numbers you input.

Past expenses are a good place to start, but you have to consider the uneven expenses that don't happen every year. At some point your house will probably need a new roof, maybe new windows, a new furnace, etc. You will need to replace cars sooner or later. Do you plan on taking more vacations in retirement? What about weddings for your daughters? And so on.

I use my past budget to help track the known expenses: everything from a mortgage (which you don't have), utilities, basic car maintenance, gas, food, dining out, etc.; and then budget in an annual amount for large home repairs, capital replacement (such as cars) and vacation (some years bigger than others).

For example, you and your hubby might get 8 years out of each car, and maybe spend 30,000 on your main car and 20,000 on a second car. That's 50K every 8 years, so you have to budget a bit more than 6250 per year. If you've replace a car in the last 3 years, your past 3 years of spending may be correct or overstated, but if you haven't, it is definitely short.
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Old 10-25-2014, 06:38 PM   #15
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Welcome, and you are certainly brave to choose that username after the season they had this year (I know because I'm an Orioles fan and BIL is a Philly fanatic).
Well I like the user name (for obvious reasons). Never forget 2008 Welcome.
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Old 10-26-2014, 08:39 PM   #16
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Ok. I went through our projected expenses again and came up with a number that is lower than before and comfortably lower than DH's pension. Then we still have some income from our rental and any contract work that DH does. He likes what he is doing and will probably continue that for a couple of years. Beyond that, a SWR of 3% on our portfolio adds more if we need it. I think we are financially ready for me to ER. I'm thinking the end of March will be the day.

Now I just have to keep quiet about my plans until after the yearly performance reviews are done at work. If my manager knows I'm leaving 1Q 2015, he will likely stick me in a low performance band to fill his quota. That would effect my 2014 bonus payout...don't want that to happen.

But maybe I will smile a little more at work, knowing I have just about five months to go!


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Old 10-27-2014, 11:01 AM   #17
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Congrats on the decision and your preparations.
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Old 10-27-2014, 11:07 AM   #18
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Originally Posted by Philliefan33 View Post
Ok. I went through our projected expenses again and came up with a number that is lower than before and comfortably lower than DH's pension. Then we still have some income from our rental and any contract work that DH does. He likes what he is doing and will probably continue that for a couple of years. Beyond that, a SWR of 3% on our portfolio adds more if we need it. I think we are financially ready for me to ER. I'm thinking the end of March will be the day.

Now I just have to keep quiet about my plans until after the yearly performance reviews are done at work. If my manager knows I'm leaving 1Q 2015, he will likely stick me in a low performance band to fill his quota. That would effect my 2014 bonus payout...don't want that to happen.

But maybe I will smile a little more at work, knowing I have just about five months to go!


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I hear you. My plans are July and they are pretty firm. It could be sooner but for some reason my wife is pushing to hold that date. I believe it is so there is time to get everything prepared. Knowing the end is near makes it even harder to show that I care. But there are potential bonuses and I would be foolish to waste it.
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Old 10-27-2014, 12:31 PM   #19
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....I'm thinking the end of March will be the day. ...
Congratulations!!! A couple things to consider regarding your end date.

Where I worked if you were on payroll on the first of the month you were eligible for employer subsidized insurance for the month, so my last day on payroll was the first of the month. Since we got paid twice a month, my last paycheck on the 15th reflected that one work day plus any unused vacation and included a the usual semi-monthly deduction for health insurance for the second half of the month. That all gave me more time after I was done to get my health insurance sorted out than if I have resigned as of the last day of the month.

I also resigned early in the year and changed my 401k deductions to a high percentage so I had minimal income from earnings because the vast majority of it went into my 401k. In retrospect, I might have had a little less withheld so my taxable earnings (salary less 401k deductions) was the maximum amount that I could contribute to a Roth as all my 401k savings reduced what I could contribute to my Roth that year below the maximum.
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