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Old 10-20-2009, 07:28 PM   #21
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If a retiree likes to travel, and couldn't before because he or she was busy working, then watch out! The sky is the limit.
Guilty as charged!
Seriously, any travel we do has to be saved up for on an annual basis, after continued accumulation investing for both of us and after all expenses are paid.
We pulled it off by shorting our food and dining out budget for over a year. Neither one of us touched our portfolios for our recent big trip.
When I did our real budget before I FIREd, I added a line item for really nice annual vacations. It continues to be a valid "expense" just like school taxes and groceries and...well you get the picture.
It never hurts to put some "fun" padding in...
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Old 10-20-2009, 07:35 PM   #22
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And don't surf the Web for travel deals. Don't open the E-mails sent from the frequent-mile airline accounts. Program the Travel channel off your cable TV box.

Oh the temptation, the siren call of travel. Please, let me have strength to resist.
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Old 10-20-2009, 07:51 PM   #23
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And don't surf the Web for travel deals. Don't open the E-mails sent from the frequent-mile airline accounts. Program the Travel channel off your cable TV box.

Oh the temptation, the siren call of travel. Please, let me have strength to resist.
That's the one - travel -----and to a lesser extent remodeling.

Ya gotta know when to say whoopee and go and when to sit on your wallet-as it were,so to speak.

heh heh heh - And keep those ho hum core keep the household running expenses down. Not counting food treats of course!
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Old 10-20-2009, 08:29 PM   #24
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I disagree with the concept of thinking that retirement expenses will be the same as working expenses. This varies a great deal from person to person. We are not retired yet, but DH will likely retire in 3 years and I'll retire as soon thereafter as we feel confident in our numbers.

I've spent a lot of time on estimating what we will need. Currently my estimate is somewhere between about 20% and 25% of our current gross income. How do I get to such a small number?

1. Right now we contribute to retirement savings that we won't have to save in the future.

2. We have had high child related expenses due to various factors. Even though our children won't all be out of college in 3 years, their college expenses will be less than what we have been spending in the past.

3. We plan to move. Right now we live in a very expensive to maintain very large house. We plan to move to a house half the size of what we have now with much lower maintenance costs. So, yes, we do expect electric bills and home maintenance to be less. On the other hand, we would be home all day so we wouldn't program our thermostats during the day so that might cause electricity usage to go up somewhat.
I've gone through each category in the budget to estimate this.

4. Work related expenses. Right now we spend about $300 a month for toll road charges each month to go to work. We each have a long drive so high fuel costs. We each have to buy clothes for work that are not of the type we would buy in retirement. I, especially, have to have clothes for work that are much more expensive than what I would wear in retirement. And, it isn't just clothes. For example, I wear makeup every day at work and rarely wear it when not at work. That is not a huge expense but one that does decrease.

5. I mentally picture life during retirement and what I want to do. I realized recently that one reason I have such a disconnect with people who talk about needing their fully working income during retirement is that I picture retirement life differently. In my personal life, most of the relatives and people that I have known who were retired lived modestly. It was understood that they live on a "fixed income" and so couldn't spend a lot of money. They usually lived quietly focused on family and friends. They didn't do a lot of travel. They didn't buy a lot of stuff. So, somehow, to me that is how I picture retirement. In my own mind, the time to do expensive vacations, to buy new gadgets, to go out to eat frequently and so on was during your working life. And, I have done plenty of it! But, for retirement, I want and expect a different lifestyle.

6. One thing that has helped me in planning retirement expenses is to to plug in numbers for absolutely necessary expenses versus those that are more discretionary. That is, I plug in a fixed number for real estate taxes, or basic groceries. OTOH, my big indulgence is I love high powered computers. So, I do one budget that indulges this and has fairly frequest computer replacement in the budget. But then I have another budget that is more frugal since that really isn't a necessity. I aim for a retirement budget that allows for a reasonable amount of the indulgences but must feel that we can solidly cover the necessities budget.

7. The big variable that I have difficulty with is medical expenses. DH has subsidized retiree benefits from his company. I do not. I would like to retire before medicare eligibility and I'm just not sure how to evaluate that. I currently have an absolutely huge number in the budget for medical expenses (about 40% of the budget).
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Old 10-20-2009, 08:49 PM   #25
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I disagree with the concept of thinking that retirement expenses will be the same as working expenses. This varies a great deal from person to person. We are not retired yet, but DH will likely retire in 3 years and I'll retire as soon thereafter as we feel confident in our numbers.

I've spent a lot of time on estimating what we will need. Currently my estimate is somewhere between about 20% and 25% of our current gross income. How do I get to such a small number?
You are talking here about 2 different things that are not necessarily mutually exclusive. I estimate that my retirement expenses will be the same as my working expenses yet my retirement expenses will still represent only 21% of our current gross income. LBYM makes it possible.
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Old 10-20-2009, 08:54 PM   #26
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In my own mind, the time to do expensive vacations, to buy new gadgets, to go out to eat frequently and so on was during your working life. And, I have done plenty of it! But, for retirement, I want and expect a different lifestyle.
One of the reasons I wanted to retire early was so that I could spend a lot of time traveling, and I still wanted to enjoy fine dining and other things that I finally had time for.So, I didn't retire until the budget was sufficiently padded to support those activities.

I didn't have a lot of time to spend money while I was working. I expected that I might have lots of time to spend money when I retired!

We spend more retired than we did working. Another reason is because we did so much saving while we were working.

Audrey
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Old 10-20-2009, 08:55 PM   #27
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The way I see it, traditionally folks retire at 65 or so, and often die or have health issues shortly thereafter. When you ER, you may have 10-20 years of very good health to be mobile and do what you want to do. Ideally, by LMYM , you will be able to indulge in some travel or whatever if you choose to.

Now, in times of recession ( gee... ) you may want to defer some travel or hobbies to when the cash flow is better. In my case, maybe I cycle more and golf less. Or play more guitar. Thats fine. As well, you may not want to budget very much for hobbies/travel so that you can retire earlier. Thats fine too.

I really am not a detailed budget type of guy, but kid costs will not likely disappear after college. There are weddings, birthdays, and what not. Not college level costs, but probably ongoing costs none the less.

The real success of ER is not really a budget thing anyway. If you are happy and fulfilled most days, the budget will look after itself just fine.
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Old 10-20-2009, 09:00 PM   #28
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Something I read about sailboat cruisers many years ago stuck with me. There was some talk about how much it costs to go cruising and one veteran sailor had this to say: if you have $1000 a month to spend, you'll spend that. If you have $5,000 a month to spend, you'll spend that. Everyone "spends up" to their max.

If you choose to live cheaply in retirement (and that includes kicking the kids firmly off the dole) then you will. If you choose to work "just one more year" (ask Rich about this one) to pad the kitty so you'll have more to spend, well then you'll spend that much.

It is entirely up to you how you want to live in retirement and how much it will cost you. This is what I believe. Now don't get me wrong, I am an FA and I've calculated this stuff to the approximate penny for my own FIRE plans (just like most of the folks here giving you advice), but the above is still true. Don't get discouraged!
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Old 10-20-2009, 09:16 PM   #29
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If you choose to work "just one more year" (ask Rich about this one) to pad the kitty so you'll have more to spend, well then you'll spend that much.
Et tu, Brute?
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As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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Old 10-20-2009, 09:26 PM   #30
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Et tu, Brute?
Keep on keeping on Rich. I know they cut you deep. But someone has to prop up SS
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Old 10-20-2009, 09:26 PM   #31
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Talk about travel, most people when working, ourselves included, usually go for 1-week vacations. But once retired with all the free time, one usually takes a 2 or 3-week tour in a foreign land in order to make the most out of that mind-numbing air travel. Then, he wants to do it 2 or 3 times a year. Little money here and there, but it all adds up. Better be careful here, because before long, he may have to tell the kids to drop out of college or sell some stocks cheap. Don't want to do that!

I am taking up some part-time work to not only make some money but perhaps also to keep us from travelling.
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Old 10-20-2009, 09:33 PM   #32
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I disagree with the concept of thinking that retirement expenses will be the same as working expenses.
Perhaps what you need to say is that you don't think that your retirement expenses will be the same as your working expenses. Through our first three years of retirement, our expenses have been approximately the same as our pre-retirement expenses.

Unlike your projected situation, not much changed regarding our expenses at retirement:

We had been empty nesters for several years at retirement, so family raising expenses were behind us.

We stayed in the same house.

Our expenses associated with w*rking were minimal, maybe 5% - 10% of our budget, so small savings there.

We stopped contributing to 401k's, IRA's, etc., at retirement, but those aren't an expense. They are a form of saving. So stopping those contributions didn't reduce expenses but rather reduced our rate of saving.

What little we save by not working is offset by higher medical insurance costs, more travel and vacation spending and gifting to the kids and grandkids. And now that the economy is improving (we hope!) we are picking up the pace on some remodeling projects and looking at buying an RV.

So......... I think expressing retirement expenses as a percentage of pre-retirement expenses is relative to the individual and his/her particular circumstances. We planned on our expenses being about the same in retirement as they were in the years just before retirement and that is indeed the way it is turning out.

YMMV
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Old 10-20-2009, 09:53 PM   #33
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Yikes. If this is the case then my plans are in serious shortfall. 8 years until retirement may be out the window. But I can say my inital calculations based upon current spending patterns do show my annual expenses being much higher than I thought. Not quite current spending levels while still raising 3 kids. But high enough that FireCalc is not encouraging. Was hoping I might hear responses that showed me my estimates are way to inflated. Instead, maybe I'm hearing its time to wake up and smell the coffee that ER is well beyond my 8 year plan of age 55. But not ready to give up yet.
I'm 5-6 years from FIRE. All I can do is give my situation.

I start with gross, then:

1) Following items will go to zero:
* mortgage, 4 years left on 15 year term
* FICA/SS payments since no more j*b
* 401k savings are gone
* Roth/Traditional IRA savings

2) I assume the following will decrease slightly (~10%)
* Car insurance
* Clothes
* Gas for car
* Car payment (we'll share a "nice" car and have a beater rather than two nice cars)

3) Assume following will increase by 10-20%
* Home repairs (house is getting older)
* Property taxes (states are running out of money)
* Groceries (since we'll eat lunch at home)
* Dinners out (this is a luxury we'll indulge)
* Flowers/lawn care/landscapign (wife's hobby)
* Utilities

4) Assume following will increase by 40%
* Vacations
* Hobbies
* Events/entertainment (plays, sporting events, etc)

5) Income taxes (this is a bit tricky, but I filled out a mock return to estimate). For us they will decrease significantly...about $18k less than today

6) Health care is a wildcard, we'll have to buy on open market. I assume $4k/year each

As a result of the above, for us we need only about 55% of current gross income. I know this seems low, but it's important to note the three biggest factors above...
1) We currently save 32% of our gross income
2) Mortgage payments are moderately high and will disappear
3) Income taxes will decrease significantly

The more you save today, the lower % of current income you can live on.
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Old 10-20-2009, 10:01 PM   #34
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You too? I don't know if there has been a better time to buy than now, but I have seen a local dealership putting a 2004 diesel pusher class A with 48K mi on eBay and got only $70K final offer, no reserve. It looks plenty nice to me. Although the dealer is local, I did not go see it because I made up my mind to stay with a class C, and the deal was just too tempting.

Look up eBay #330368813336. Someone, please tell me if there is any gotcha with this baby. I am learning.
We're thinking much smaller NW. Think of my already-owned pickup with two kayaks on the roof rack pulling a small trailer. Need to get a little work done on the truck to get it ready. Total with the cost of the trailer should be in the $20k range.

Although..... friends are already warning us that our modest beginnings probably won't last long and we'll be looking for something more substantial before long! I accept that.

I can't comment on that Class A you mentioned. No real knowledge about those big boys......
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Old 10-20-2009, 10:15 PM   #35
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As a result of the above, for us we need only about 55% of current gross income.
In retirement my expenses are about the same as pre-retirement. But, like yours, are only a fraction of my peak earning years income.

It doesn't seem to make any sense (to me) to look at retirement expenses as a percentage of peak earning years income. Your income is going to go away when you retire. I like to compare retirement expenses to pre-retirement expenses.

How do you think your retirement expenses will compare to your expenses just before retirement? Don't count 401k or IRA contributions as expenses. That's just a movement of your money from one account to another. You still have the money.
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Old 10-20-2009, 10:28 PM   #36
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Some great advice here. We do want to travel and will plan for this. It's the 'normal' costs we need to be better at LBYM'ing. I do think my overall expenses will go down. But travel, medical, and some of the other categories make sense to plan upwards.

The variety of feed back, the thought processes each of you have had, and the specific examples have been great. Keep 'em coming if you wish.

Bottom line for me. I've got to increase my savings rate now to have any chance of ER'ing in 8 years and living the lifestyle we will want.

Thanks to all of you great posters!
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Old 10-20-2009, 10:40 PM   #37
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Although..... friends are already warning us that our modest beginnings probably won't last long and we'll be looking for something more substantial before long! I accept that.
....
I think this escalation has generally been proven to be in vain; usually it leads to a net loss in pleasure while costing a lot more money and taking a lot more effort, planning, and maintenance, etc. Social science researchers show this over and over, and so will most of our own personal experiences when looked at honestly.

Ha
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Old 10-21-2009, 09:44 PM   #38
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It's not for everyone. However, our FIRE solution is to move to Costa Rica. We love the people and the climate. Situations vary, but our expenses will drop by at least 30% maintaining a similar life style. Include the former 401k contributions, it's more like 50% less.
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Old 10-22-2009, 09:17 AM   #39
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One thing many of us have done is to estimate expenses in retirement from two viewpoints -- a minimal, but realistic, budget and another budget with healthy discretionary expenditures included. You might then decide that you're comfortable with a FIRECalc 100% success rate on your basic budget and, say, an 80% success rate on your loaded budget.

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Old 10-22-2009, 02:48 PM   #40
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One thing many of us have done is to estimate expenses in retirement from two viewpoints -- a minimal, but realistic, budget and another budget with healthy discretionary expenditures included. You might then decide that you're comfortable with a FIRECalc 100% success rate on your basic budget and, say, an 80% success rate on your loaded budget.

Coach
I think this has a lot of value. If you are sure that you can flex spending down if things get bad, then you can start your retirement spending more than the "standard" 4% SWR.

I don't see that FireCalc provides exactly this option - the "Percentage of Remaining Portfolio" gives the flexibility, but I'd like a fixed (inflation adjusted) floor instead of the limit on annual drops.
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