Determining ER annual living expenses

[MuirWannabe]

Today I track my expenses very detailed using Quicken. But I'm at least 8 years away from FIRE and my expenses are probably nothing like what they will be when its just me and DW around. I'm looking for advice on how to best figure out a reasonably accurate prediction of post ER annual living expenses. What have others experienced? Everyone seems to have a number in mind and it certainly drives the FireCalc. What methods have you used. If you are already FIRE'd what have you experienced?

Some categories will obviously decrease:
Certainly my taxes will be different when my w*rk income disappears although I'm learning (thru this Forum) taxes will likely still exist on SS benefits and 401K withdrawals.

Some categories will obviously disappear:
Such as college expenses.

Some categories appear to stay the same:
Such as auto services, home repair expenses, utilities. Medical will likely even rise over the years.

I apologize if this has been asked hundreds of times. I tried searching in the forum archives but did not find anything directly on this. It may exist but I'm still leanring my way around.

 

[W2R]

Today I track my expenses very detailed using Quicken. But I'm at least 8 years away from FIRE and my expenses are probably nothing like what they will be when its just me and DW around. I'm looking for advice on how to best figure out a reasonably accurate prediction of post ER annual living expenses. What have others experienced? Everyone seems to have a number in mind and it certainly drives the FireCalc. What methods have you used. If you are already FIRE'd what have you experienced?

I am not FIRE'd yet, but will be soon! The following is just a description of what I have been doing to come to a reasonable estimate.

Some categories will obviously decrease:

Certainly my taxes will be different when my w*rk income disappears although I'm learning (thru this Forum) taxes will likely still exist on SS benefits and 401K withdrawals.

While still working, I take home 64% of my gross pay. Obviously, my retirement "take home pay" will be a larger percentage than that since I won't be paying for social security or medicare, and my taxes will be less. To make a conservative estimate, I have been assuming 70% of gross, but from what I have read on the board I should probably assume 85% or so.

Some categories will obviously disappear:

Such as college expenses.

Exactly - - so my estimated expenses do not include, for example, money for formal meeting attire.

Some categories appear to stay the same:

Such as auto services, home repair expenses, utilities. Medical will likely even rise over the years.

Let's see -- auto expenses should be about the same. Home repair might even be a little less once I have moved out of hurricane country. Utilities will probably be about the same. I expect medical expenses to rise.

Basically, while working I have been spending less than what I make, and putting the excess into my nestegg. In retirement I will not have enough income to equal what I have been making. However, I plan to have enough income to cover what I have been spending, plus extra for hobbies and activities. The surplus for hobbies and activities really depends on how you envision your retirement. You will need travel money if you plan to travel (I don't).

During the last few weeks I have been using up my vacation time, prior to retirement. I have noticed that I am spending quite a bit less, because the things that I want most to do are free. I have been spending a lot of my time sleeping, straightening up the house, birdwatching, reading this forum, and playing on my Wii, for example, and none of those have cost me even one cent. I don't know if that will continue, but it is encouraging. I am eating at home more, which means a savings in my food expenses.

 

[superdave]

It is possible that travel and hobby expenses could just replace the college and work related expenses. But, the nice thing with travel and hobby expenses is that they are variable, and can be 'managed' if need be.

I have found that we go thru stretches where day to day expenses are very low, then we go on a golf trip or something and spend some dough.

 

[Amethyst]

You won't be Saving for Retirement any more, so that 401K deduction (or as in my case, pension deduction) won't be disappearing off the top any more.

On the other hand, as people age they may need to hire other people to do stuff for them that they have always done for themselves. The cost of services outpaces the rate of inflation.

Amethyst

 

[youbet]

After 39 months of RE, we're finding that we're spending about the same as when w*rking. We could cut back somewhat if necessary. We could spend more on things we'd like to have or like to do and would do so if we felt more confidence in the economy. But, for now, about the same level of spending as pre-retirement.

 

[teejayevans]

IMHO, health care costs are the wildcard, I can predict most and
cut expenses in many areas, but health care insurance can spike
20% or more as mine did when I wasn't working last year. I will have
a 10% miscellaneous category in my budget.
TJ

 

[MuirWannabe]

After 39 months of RE, we're finding that we're spending about the same as when w*rking. We could cut back somewhat if necessary. We could spend more on things we'd like to have or like to do and would if we felt more confidence in the economy. But, for now, about the same level of spending as pre-retirement.

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.

 

[FIREd]

I also track my expenses with Quicken. To figure out how much I am going to need (after income taxes) in retirement, this is what I do:

I take our current expenses and

1) I assume that basic expenses such car purchases/repairs/taxes/insurance, utilities, pets, groceries, home insurance, property taxes, etc... will remain the same.

2) I assume that mortgage payments, disability and life insurance policy premium payments will go away but will likely be replaced by health insurance premiums.

3) I assume that discretionary expenses (travel, clothes, dining, entertainment, furnishings, gifts etc...) will stay the same. We may spend less on clothes/furnishings once we retire but more on travel/dining perhaps.

So overall, I expect to spend just about as much in retirement as we do now.

 

[W2R]

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 think this is why a lot of us here LBYM (Live Beneath Our Means). If you can get your expenses down, then you not only save more for retirement but also you become accustomed to (and happy with) spending less. That can really speed up the time it will take to reach retirement.

 

[unclemick]

Can anyone here pull Dory36's original 33% That's My Story article/post up from circa 2003 or earlier?

That's what got me to join this forum with my trusty webtv/slow mo dial up.

12% to 22% of 1992 combined salary(his and hers). I was layed off and may I say may have overdid frugal in the early years of ER - she had colorful words - cheap SOB was perhaps the kindest.

Now with the march of time post Katrina (2005) expenses have drifted to as high as 89%(over 100% of just my salary). No I'm not going to calculate inflation.

Point is you have much more control over expenses than you think and after 15 yrs of practice ER it's easy to let them drift up to the infamous/famous safe withdrawal rate.

Cause you're not getting any younger! Or at least I'm not.

heh heh heh -

 

[W2R]

Can anyone here pull Dory36's original 33% That's My Story article/post up from circa 2003 or earlier?

That's what got me to join this forum with my trusty webtv/slow mo dial up.

12% to 22% of 1992 combined salary(his and hers). I was layed off and may I say may have overdid frugal in the early years of ER - she had colorful words - cheap SOB was perhaps the kindest.

Now with the march of time post Katrina (2005) expenses have drifted to as high as 89%(over 100% of just my salary). No I'm not going to calculate inflation.

Point is you have much more control over expenses than you think and after 15 yrs of practice ER it's easy to let them drift up to the infamous/famous safe withdrawal rate.

Cause you're not getting any younger! Or at least I'm not.

heh heh heh -

Here's the Dory36 article: http://www.early-retirement.org/forums/f28/33-thats-my-story-13934.html

I'm not as frugal as you were, UncleMick, but (with house and car paid off) my spending as a % of gross salary have been:

2007 and prior: 21%
2008: 30% (just inherited, whoopee!)
2009: 24%

As you can probably tell, I am in a rush to retire!

 

[Rich_by_the_Bay]

I can understand why the OP is discouraged at the possibility that post FIRE expenses could easily be the same as pre-FIRE (ignoring retirement savings, of course). But I think it is a distinct possibility for many of us.

For DW and me, travel costs will drive a lot of our expenses -- not touring the world and taking cruises, but rather flying across the country and back to visit kids and grandkids 2 or 3 times a year each. Maybe we'll move near one set of the other eventually.

But figuring pre-expenses = post-expenses is not unreasonable. As you get closer your estimates will probably become more realistic.

And remember - despite paying some taxes once you FIRE as noted, they will probably be lower.

 

[Gotadimple]

I think it's a mistake to look at your expense budget as a percentage of take home pay. When you retire, you won't have take home pay. Maybe, if you're lucky there will be a pension/social security of some sort. The real "base" is not take home pay, it's "base" living expenses.

Before I retired, I looked at my annual living expenses. I subtracted out the payroll taxes and retirement savings, and tripled my cost of health insurance. Because I knew I would be doing more travel, I added an amount to cover two trips a year. I'm spending about the same as when I was working (without the cost of taxes and retirement saving). That fits within what Firecalc and ORP told me were reasonable for my situation.

After 14 months, my living expenses are in line with what I calculated before I retired. Don't be optimistic about what you'll actually spend, be pessimistic. There will be unexpected events that takes $ to correct (for example, a new water heater, and replacing both the dishwasher and microwave all within the first 5 months).

You may have some spending you had been holding off on that you now want to pursue, i.e., repairs/upgrades to where you live, or replacing your car.

Don't shortchange yourself, you want your retirement to be one where you feel you are living the lifestyle you are comfortable with, and are reasonably comfortable that you won't outlive your money.

-- Rita

 

[LOL!]

Do not fool yourself. Your expenses (non-taxes) in early retirement will generally be the same as the are now. Why should your expenses go down at all?

Sure if you are paying for a college education now that will be finished when you retire, then your expenses may go down.

Your taxes may drop dramatically: No FICA, no medicare, little to no earned income. This is easy to figure out with a "what-if" run of TurboTax.

 

[Independent]

I think you've got the right approach. My personal list of "expenses" that need to be explicityly considered (4 went down, 2 went up):

Taxes
Savings
Mortgage
Children
Health Care
Entertainment (new stuff in retirement, like travel)

I figured food, clothes, house taxes/utilities/insurance/repairs, cars, gifts, and miscellaneous wouldn't change enough to be worth estimating. (I dropped my life insurance a number of years before I retired, so I didn't need to include it.)

 

[MuirWannabe]

Do not fool yourself. Your expenses (non-taxes) in early retirement will generally be the same as the are now. Why should your expenses go down at all?

Sure if you are paying for a college education now that will be finished when you retire, then your expenses may go down.

Your taxes may drop dramatically: No FICA, no medicare, little to no earned income. This is easy to figure out with a "what-if" run of TurboTax.

Well, won't be raising 3 kids then. Will have them off my dole (hopefully..maybe that is naive). Right now all my expenditures reflect cost of coverage for them. College expenses yes. But clothes, gas, groceries, car insurance, etc. So, there is some adjustment down for that.

 

[NW-Bound]

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.

 

[MuirWannabe]

Gotadimple;867286]I think it's a mistake to look at your expense budget as a percentage of take home pay. When you retire, you won't have take home pay. Maybe, if you're lucky there will be a pension/social security of some sort. The real "base" is not take home pay, it's "base" living expenses.

I agree. This approach makes more sense to me.

Don't shortchange yourself, you want your retirement to be one where you feel you are living the lifestyle you are comfortable with, and are reasonably comfortable that you won't outlive your money.

-- Rita

I'm all for being conservative in my planning. I agree...want to have fun in retirement. Have to balance that with wanting retirement sooner rather than later. I know that is what everyone wrestles with.

 

[Bestwifeever]

Overestimating your expenses is a good thing. Really overestimate them to earn a big sigh a relief when the time comes.

 

[Moemg]

None of our expenses changed in retirement . In fact hanging around the house I found lots of projects ,plus the dishwasher runs more often , my car insurance did go down but my car maintenance went up since my car is now ten years old . You usually wear more casual clothes in retirement so even though you are not buying work gear you are probably adding to the jeans , T shirts , shorts , gym clothes and of course Pj's since somedays that is your outfit .

 

[freebird5825]

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...

 

[NW-Bound]

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.

 

[unclemick]

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!

 

[Katsmeow]

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).

 

[FIREd]

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.