|
|
09-13-2013, 07:38 PM
|
#1
|
Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
|
Estimating Expenses
I was reading some other threads about estimating expenses before retirement, and I think the consensus was that you should start with looking at your actual expenses over the last 1-3 years.
My DH and I spent $37k last year, and similar the previous year (it was higher 3 years ago because we still had a mortgage). We were not trying to be frugal, but our health care is currently "free" (thru work) and we didn't happen to have any major purchases in the last 3 years.
When I plug this number into firecalc, it reports I could stop saving now, retire at 50 (11 years from now), and have plenty of money till I'm 90 years old ... 95% success rate.
This sounds way too optimistic for me -- and I'm thinking it's because $37k is *not* a good estimate of my expenses in 11 years from now. Are there any tricks to better estimate future spending?
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
09-13-2013, 10:24 PM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,373
|
What will you be doing 11 years from now that you are not doing today? How will that affect what you spend?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
09-13-2013, 10:29 PM
|
#3
|
Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
|
Quote:
Originally Posted by pb4uski
What will you be doing 11 years from now that you are not doing today? How will that affect what you spend?
|
Being that I always planned to work till I was 65 (or even older), I really have no idea what I'd do with myself (or money) if I retired. Now that I think about it, that's kindof pathetic...
|
|
|
09-13-2013, 10:43 PM
|
#4
|
Moderator Emeritus
Join Date: Sep 2007
Posts: 17,774
|
Firecalc will adjust spending for inflation. Don't forget to add a percentage of the cost of replacing a car, or big home maintenance items. Or a trip to Ireland
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
|
|
|
09-13-2013, 11:06 PM
|
#5
|
Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
|
Does anybody have a solid idea how much health insurance will cost per year in the future?
|
|
|
09-13-2013, 11:32 PM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2013
Posts: 9,358
|
If the ACA stays as is and you can keep your MAGI low in retirement / semi-retirement years, your health insurance from the exchanges may be largely subsidized up until you are 65 and old enough for Medicare. And if you have a small business going into semi-retirement, the exchange premiums you do pay may be a deductible business expense.
|
|
|
09-13-2013, 11:36 PM
|
#7
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
|
Quote:
Originally Posted by slowsaver
I was reading some other threads about estimating expenses before retirement, and I think the consensus was that you should start with looking at your actual expenses over the last 1-3 years.
My DH and I spent $37k last year, and similar the previous year (it was higher 3 years ago because we still had a mortgage). We were not trying to be frugal, but our health care is currently "free" (thru work) and we didn't happen to have any major purchases in the last 3 years.
When I plug this number into firecalc, it reports I could stop saving now, retire at 50 (11 years from now), and have plenty of money till I'm 90 years old ... 95% success rate.
This sounds way too optimistic for me -- and I'm thinking it's because $37k is *not* a good estimate of my expenses in 11 years from now. Are there any tricks to better estimate future spending?
|
Estimates become more accurate the closer you get. A lot can change in 11 years! But it sounds as if the last 3 years have been very easy on your finances. Chances are the roof will leak, the furnace will need replacing, your car will be stolen, or you need a new one, your family will need financial support from you, or some other major costly item, any day now!
What would FireCalc say if your expenses doubled? If you kept on saving, could you still RE at 50?
Do keep on saving, BTW!
|
|
|
09-14-2013, 05:23 AM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,330
|
If you are not planning to ER for 11 years, keep tracking expenses. Get a better feel for what they look like over several years and watch general US health care costs. After a few years we will have a pretty solid understanding about what will happen with Obamacare - a big factor on ER expenses. And keep saving. A cushion is always in order.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
|
|
|
09-14-2013, 05:43 AM
|
#9
|
Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,893
|
Quote:
Originally Posted by slowsaver
Does anybody have a solid idea how much health insurance will cost per year in the future?
|
No ! I'm pretty sure Nostradamus said something about it though.
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
|
|
|
09-14-2013, 06:24 AM
|
#10
|
Dryer sheet wannabe
Join Date: Sep 2013
Location: Apple Valley
Posts: 15
|
Tracking expenses for only 3 years most likely does not capture the big items for home ownership like new roof, water heater, HVAC, new lawn mower, exterior house paint, etc. We made an estimate of these items and converted it into a monthly expense to be included as part of our basic required budget calculation.
|
|
|
09-14-2013, 07:00 AM
|
#12
|
Thinks s/he gets paid by the post
Join Date: Feb 2012
Posts: 1,495
|
While some would consider it a bit much, we always kept track of expenses, all expenses, in Quicken starting in early nineties. Having that much track record as approached retirement made it pretty easy to judge asset adequacy. Highly recommend tracking expenses as one stuffs money in retirement accounts; knowledge generates confidence. Still do it to this day.
|
|
|
09-14-2013, 07:03 AM
|
#13
|
Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 1,019
|
Quote:
Originally Posted by slowsaver
Does anybody have a solid idea how much health insurance will cost per year in the future?
|
If you're around age 50, and will be paying the full premium, a reasonable amount to use in your computation (at present, who knows about the future) is a few hundred per month per person (400-500). This will increase as you get older.
Regarding the other spending: As others have pointed out, you should prorate big expenses and include them in the spending. Maybe a couple of thousand per year per car (for buying a $20000 car every 10 years), and a couple thousand for major home repairs. Also consider taxes, since they can change significantly in retirement even at a similar spending level.
|
|
|
09-14-2013, 07:32 AM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2012
Location: Seattle
Posts: 6,023
|
Are you counting saving for retirement in the $37,000 spending you have had for the past 3 years? If so, then you can eliminate that from your spending.
Unless you have a big pension or won the lottery, I find it hard to believe you were counting retirement in the $37,000 you spend though. That would mean you actually were living off of $20,000 a year or so and saving $17,000 in a 401K.
|
|
|
09-14-2013, 09:25 AM
|
#15
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2009
Posts: 6,695
|
Living in a co-op apartment, I can't speak about the larger, infrequent expenses associated with home ownership. Back in 2007-08, when I was planning for my ER, my co-op was undertaking some costly renovations and my share was about $3,000. But that was the first and only special assessment we ever had. So when I began my ER, I actually lowered my projected monthly maintenance charges because that assessment got removed a month after I ERed.
When I was planning my ER budget in 2007-08, I made the following adjustments to my current expenses (besides the removal of the aforementioned assessment):
(1) I removed the FICA taxes I had been paying.
(2) I removed the commutation expenses I had been paying.
(3) I added quite a bit to my health insurance because I was buying it myself.
Ironically, Items (1) and (2) were about the same as Item (3) so my expenses were pretty much unchanged overall. My income taxes dropped a little bit, too (I was working part-time so I wasn't earning much to begin with). I had stopped contributing to my 401k but I would have been able to remove that, too, if I still had one.
I had just bought a new car in 2007 so I did not expect any big expenses in that area any time soon. I also had some costly dental work done in 2007-08 while I still had dental coverage. Not having dental insurance now and paying 100% of the fees OOP came out to about the same as dental insurance premiums, copays, and deductibles as long as I did not have more than one cavity per visit (and I have kept that up over the last 5 years, yay!).
The ACA will enable me to resume buying a broader HI policy than I have now for the price I had originally projected I would be paying (my original HI policy's premium jumped 50% in 2 years, forcing me to ditch it in 2011). I will qualify for a subsidy which will make it affordable.
ETA - as donheff wrote, build in a cushion, at least a small one to cover small, unforeseen expenses in a month, so you won't bust your budget. That was a must in my ER plan.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
"I want my money working for me instead of me working for my money!"
|
|
|
09-14-2013, 10:12 AM
|
#16
|
Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
|
Thanks for all the great comments! Don't worry, I won't quit saving. Both my husband and I are natural savers anyway.
Quote:
Originally Posted by Fermion
Are you counting saving for retirement in the $37,000 spending you have had for the past 3 years? If so, then you can eliminate that from your spending.
|
I did not include savings or income-tax in my total. I categorize my expenses (and income) in a checkbook balancing program called Moneydance. The categories I included in the estimate include: Automotive (gas, insurance, repairs), grocery, Internet & phone, utilities, condo expenses (my mom lives there), property tax, eating out, entertainment and personal items, travel, misc cash withdrawals (not categorized).
|
|
|
09-14-2013, 10:17 AM
|
#17
|
Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
|
Quote:
Originally Posted by Which Roger
If you're around age 50, and will be paying the full premium, a reasonable amount to use in your computation (at present, who knows about the future) is a few hundred per month per person (400-500). This will increase as you get older.
|
That last line, "this will increase as you get older," makes me a little anxious. I've heard horror stories about health care costs skyrocketing for people the last several years. I had hoped Obamacare would at least make costs more predictable, like my California Prop-13 tax bill (only allowed to increase 2% per year, max). Hopefully the answer will become more clear over the next 10 years.
|
|
|
09-14-2013, 10:28 AM
|
#18
|
Full time employment: Posting here.
Join Date: Nov 2008
Posts: 728
|
Not mentioned but you're still young......how about kids? And, if you are paying condo expenses for your Mom......will she need financial help in the future?
I've always added in about 2% of the value of my home for updating/replacement on a yearly basis.....more if the home is over 10 years old and all the appliances and roof haven't been updated. On the car side, I try to anticipate the cost of my next new car and divide that cost by 7 or eight to compute my yearly cost. That could be high or low, depending on miles driven and how new a car you would like to own.
On health care, take a look at what an individual policy would cost you and your husband today. Unless either of you are employed by goverment or a generous employer, you'll probably have to buy health insurance when you about 50 years old. That could change over the next couple of years based on Obamacare.....no one knows. And, would you want to travel.....what will the two of you do all day at age 50? That needs to be discussed and planned as well.
You're smart to be thinking and asking questions. I remember when I was in my 30's, just had bought a home and told the home seller that I was "all set" now that I had my home.....he laughed, told me how much I would change in the next few years and, boy! was he right. The same could happen to you. Good Luck!
|
|
|
09-14-2013, 10:47 AM
|
#19
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2013
Posts: 9,358
|
If you really want to be conservative you have to plan and budget for health care costs for premiums for 50 - 65 years olds as they are now, plus some increases above and beyond inflation and, if you end up with some serious illness or accident, maxing out your out of pocket family maximums every year.
An insurance agent we worked with told me he has clients with multiple family member with serious illnesses who have such expensive medical bills they go through their family out of pocket annual maximums by the end of January each year.
|
|
|
09-14-2013, 12:42 PM
|
#20
|
Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
|
Lots of great ideas, including looking at the current cost of health care for 50 year olds. Estimating house expenses is tricky for me, because we already have a 50 year old house (which is pretty common in this part of California). It's in pretty good shape now, but I'm not sure I've ever seen a 70-100 year old house in great shape. I'll try not to put off maintenance, and get it done while I'm working (as much as possible).
Quote:
Originally Posted by jerome len
Not mentioned but you're still young......how about kids? And, if you are paying condo expenses for your Mom......will she need financial help in the future?
|
Well, I will be 40 next year. That doesn't feel young to me. We decided not to have kids till now, and biology being what it is -- I only have 0 to 5 years to change my mind. I don't think it's gonna happen.
Mom is not in great shape, financially or medically. She has medi-care, ss/disability and my sister takes care of her (I live 100 miles away) -- thank goodness for my sister. Mom qualifies for a lot of low-income things too. I pay for the roof over her head. I don't really factor her into my future expenses because, honestly, I don't think she will live very long. My assumption is that I will sell the condo when she passes, and that might be around the time I retire. That might be a poor assumption. Who knows?
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|