Estimating Expenses

slowsaver

slowsaver

Recycles dryer sheets
Joined
Aug 8, 2013
Messages
249
Location
Norcal, Silly-Con Valley
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?
 
Last edited by a moderator:
What will you be doing 11 years from now that you are not doing today? How will that affect what you spend?
 
pb4uski said:
What will you be doing 11 years from now that you are not doing today? How will that affect what you spend?
Click to expand...

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... :)
 
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 :)
 
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.
 
Last edited:
slowsaver said:
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?
Click to expand...

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! :D

What would FireCalc say if your expenses doubled? If you kept on saving, could you still RE at 50?

Do keep on saving, BTW!
 
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.
 
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.
 
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.
 
slowsaver said:
Does anybody have a solid idea how much health insurance will cost per year in the future?
Click to expand...

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.
 
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.
 
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.
 
Last edited:
Thanks for all the great comments! Don't worry, I won't quit saving. Both my husband and I are natural savers anyway.

Fermion said:
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.
Click to expand...

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).
 
Which Roger said:
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.
Click to expand...

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.
 
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!
 
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.
 
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).

jerome len said:
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?
Click to expand...

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?
 
slowsaver said:
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).
Click to expand...

FIRECALC assumes the spending you enter includes taxes. Therefore you need to add State and Federal Income tax into your expenses when you are retired. (you'll stop paying FICA and Medicare when you don't work)
 
slowsaver said:
Thanks for all the great comments! Don't worry, I won't quit saving. Both my husband and I are natural savers anyway.



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).
Click to expand...

Income tax is an expense to FIRECalc, so be sure to include them in the expenses input. FIRECalc doesn't know anything about taxes. Health insurance costs will be pretty clear once ACA exchanges open, unless you have some form of employer subsidy. Be sure to include HI deductibles in your planning if they end up being significantly different than your current expenses. And, as mentioned before, be sure to budget for those "unplanned" expenses like house maintenance and new cars.

Your situation is similar to a few others here. You can stop saving, but not necessarily stop working. This lets your portfolio grow without withdrawals for a few years. If you look at your yearly retirement savings versus your average yearly portfolio gain you may see that your savings are actually a small part of your portfolio's growth. Or, you can keep up the savings and be FI that much earlier.
 
Congratulations, you're in great financial shape.

If you're really planning to work another 11 years, you'll have plenty of time to watch your "lumpy" expenses go up and down and get a good feeling for them. I expect Obamacare will be clearer 11 years from now, too.

I'd start thinking about things I'd like to do in retirement. You might decide that you want to allow for some expensive hobbies or entertainment. Buy a motorhome and do one lap of America? Take a round-the-world cruise?

Your mother might be keeping you somewhat tied down mentally right now, so it's hard to think about those things.
 
You must log in or register to reply here.

Similar threads

ShokWaveRider
What is the best way to pay estimated Federal Taxes in Retirement?
5 6 7
Replies
159
Views
8K
RetiredHappy
R
R
Final Approach Planning for Retirement
Replies
15
Views
1K
Route246
R
A
Top Ten Expenses?
2 3
Replies
73
Views
5K
Zathras
Z
FiveDriver
Calculator for Estimating Roth Conversions?
Replies
16
Views
1K
Exchme
E
R
ESOP sale Tax implications
Replies
7
Views
281
Raymond01
R

Latest posts

Back
Top Bottom