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Expenses after FIRE - Huh??
Old 07-12-2006, 08:35 PM   #1
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Expenses after FIRE - Huh??

I'm confused. Most recommendations I've seen tell you to plan on ~80% of pre-retirement expenses. Dory and others argue that it's often MUCH less, maybe 50%. This number is a big deal at my stage, just a few years from FIRE.

So I looked over our 2005 expenses. For the life of me, I don't see how it would be much different after FIRE, unless we make some substantial changes (not necessarily a bad thing). The only big one I can see is that taxes will drop from the way-high bracket to maybe 20% marginal bracket.

Expenses that almost surely will drop: commuting and clothing.

Expenses that almost surely will rise: recreation, travel, own cell phone bill.

Expenses that almost surely will not change: housing, food, insurance, everything else.

Either I'm seriously overlooking something, or we'll be spending about the same as we do now, except taxes.

What happened to you? What percent of pre-FIRE did you really use post-FIRE. What am I missing?
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 08:40 PM   #2
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Re: Expenses after FIRE - Huh??

If I'm not mistaken, those guidelines are based on income, not expenses.* The standard guideline is that you will need ~80% of your pre-retirement income post-retirement.* I never understood that approach because your methodology makes much more sense.* If you know what you spend now, you can just tweak your current budget to adjust for things that you know will change.*
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 08:52 PM   #3
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Re: Expenses after FIRE - Huh??

Yep, the percentages everyone sees bandied about relate to income, not expenses. Not a very useful measurement, a lot like using a ruler to measure temperature.

We're comfortably living on 50% of our pre-retirment income, but our expenses are virtually unchanged. Reductions in work related expenses for commuting, etc. have been offset by increases in health insurance and entertainment costs.

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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 08:55 PM   #4
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Re: Expenses after FIRE - Huh??

Quote:
Originally Posted by 3 Yrs to Go
If I'm not mistaken, those guidelines are based on income, not expenses. ... I never understood that approach because your methodology makes much more sense. If you know what you spend now, you can just tweak your current budget to adjust for things that you know will change.
Oh. Right.

So, how much did your expenses drop post-FIRE. Are you seeing what I see -- that they will drop little if at all?
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 08:57 PM   #5
 
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Re: Expenses after FIRE - Huh??

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Originally Posted by Rich_in_Tampa
Oh. Right.

So, how much did your expenses drop post-FIRE. Are you seeing what I see -- that they will drop little if at all?
Expenses won't drop much, and may increase due to more time to spend money. If you include taxes or malpractice insurance in your expenses - they should drop
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 08:58 PM   #6
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Re: Expenses after FIRE - Huh??

Right, epressing retirement spending as a % of pre-retirement income makes no sense to us here. It might make a lot of sense to folks who spend everything they make (i.e. income = pre-retirement spending).

One category of "spending" that you likely won't have after retirement is the amount you've been squirrelling away into your retirement stash. Of course, this isn't truly "spending," but it's probably a big hunk of where your present income goes.

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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 09:03 PM   #7
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Re: Expenses after FIRE - Huh??

I haven't retired yet, so I can't speak from actual experience. *But after all the pushes and pulls (mostly no mortgage payment vs. increased health insurance and travel) I'm planning on keeping total spending (excluding taxes) at the same level it is now.
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 09:03 PM   #8
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Re: Expenses after FIRE - Huh??

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Originally Posted by Cut-Throat
Expenses won't drop much, and may increase due to more time to spend money. If you include taxes or malpractice insurance in your expenses - they should drop
You really know how to hurt a guy .

Interesting hijack of my own topic: as a university employee, I technically work for the state of Fla. My malpractice falls under "sovereign immunity." I like being considered sovereign. Sue me, you sue Jeb Bush. I am not a defendant, but only a witness to the case. After retirement, malpractice insurance for part-time practice is prohibitive. However, firms that arrange "locum tenens" type situations pick you up on their own national policy.

Anyhow, back on topic, I could easily live on 45% of my current gross after FIRE.
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 09:09 PM   #9
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Re: Expenses after FIRE - Huh??

Each ER is different - you gotta run your own numbers.

Conveniently we peaked at 100k income in 92 dollars counting *rental income.

Ran a lot of 18's or less, hit some 30-35's during remodeling years. Ran 79k post Katrina. Best guess going forward - somewhere in the 40-50 range - house mortgage, health insurance, higher taxes(tapping IRA more), more expensive travel.

Drum roll please - all time low- one year at 12k - she almost killed me over that one.

Told ya I was cheap. 1993-2005. Dory's ancient post - 33% That's My Story got me hooked on this forum in 2003 when surfing with my trusty webtv/dial up line - before I totally lost discipline. Now I have to spend more before I get toooo old to enjoy it. I'm a humper - cheap first ten, higher, plan lower starting when I hit my 70's or whenever I get slower.

25 times expenses - and when in doubt, cut expenses. Two rules I like. Real life is more complicated with pension and SS streams, etc - but good rules of thumb for me - learned that here.

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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 09:09 PM   #10
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Re: Expenses after FIRE - Huh??

If you are currently contributing to an IRA or 401k then those expenses go away if you have no earned income after FIRE. Your social security tax payments go away. If you are presently saving any of your after tax income in order to reach FIRE then that expense can go away. Those items could easily be consuming 20% of your current income.

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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 09:13 PM   #11
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Re: Expenses after FIRE - Huh??

My expenses have gone up 5% since checking out.

Biggest expense increase: *property tax, dental insurance and the electric bill.

Biggest expense decrease: *dry cleaning, office gifts and clothes.

However, since the price of gas has gone up greatly since I stopped working I am paying more now then when I was working. *

I can still remember the good ole days when gas was $1.59 per gallon for premium. *
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 10:20 PM   #12
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Re: Expenses after FIRE - Huh??

Quote:
If you are currently contributing to an IRA or 401k then those expenses go away if you have no earned income after FIRE.* Your social security tax payments go away.* If you are presently saving any of your after tax income in order to reach FIRE then that expense can go away.* Those items could easily be consuming 20% of your current income.
based on past polling of a lot of folks on this board saving over 40% of their income and no more s.s. taxes, maybe we are back to the 50%.
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 10:45 PM   #13
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Re: Expenses after FIRE - Huh??

I am in the camp of ignoring %'s based on pre-retirement income. Start with your expenses as you have done and that is the basis for what you need in 'after tax' income.

I haven't been retired long enough (2 months) to establish a pattern yet, but all the work I did pre-retirement was based on changes in expenses and my conclusion was that overall it was going to be approximately the same (reductions in work related expenses were offset by higher entertainment, hobby and travel expenses). Your mileage will vary depending on what step change, if any, you make in your travel budget.
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 11:26 PM   #14
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Re: Expenses after FIRE - Huh??

AltaRed, I'm with you!

I never found any sense in using a percentage of my pre-retirement income as a marker for my post retirement needs/wants.

I've been retired less than two weeks, and so far DW has jumped on an airplane to visit a retired girlfriend in Maine and signed a contract to have our main bath remodeled.* I've gone up to northern Ontario with some school chums chasing walleyes.* There seems to be no end to the things we'd like to do now that time is not an issue.*

As you've probably guessed, our RE budget shows no net reduction in expenses from our working days! And it's a good thing I planned it that way.
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 11:40 PM   #15
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Re: Expenses after FIRE - Huh??

For planning purposes we use the following as expenses we won't have after retirement. We will have other things that will cost more like travel but we won't have to pay the following:

Social Security tax....6.2% up to the max. of $5840
Medicare tax............1.45% no max.
401k-mine..............20% up to the max allowed
401k-hers...............24% up to the max allowed
Business clothing.....5%
Fed and state taxes.reduced by about 10% post retirement--long story

Other stuff is a wash.
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Re: Expenses after FIRE - Huh??
Old 07-12-2006, 11:45 PM   #16
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Re: Expenses after FIRE - Huh??

Quote:
Originally Posted by SteveR
For planning purposes we use the following as expenses we won't have after retirement.* We will have other things that will cost more like travel but we won't have to pay the following:

Social Security tax....6.2% up to the max. of $5840
Medicare tax............1.45%* no max.
401k-mine..............20% up to the max allowed
401k-hers...............24% up to the max allowed
Business clothing.....5%
Fed and state taxes.reduced by about 10% post retirement--long story

Other stuff is a wash.*
On this basis it is important to ensure definitions are the same. When I refer to 'expenses', I would not consider the first 4 items expenses. I would consider them deductions from income..... and expenses are those things I need to pay for to live out of my net pay. Hence why it is dangerous to use percentages based off income.
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Re: Expenses after FIRE - Huh??
Old 07-13-2006, 12:00 AM   #17
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Re: Expenses after FIRE - Huh??

Red,

As I stated in my post, the numbers are what we use for planning purposes. These figures are relevant to my planning and are in fact items that will not need to be funded from an income stream post retirement. If my income is the same post retirement as pre-retirement and I don't have to pay for the items I noted, then my income can be spent on other things or I can lower my income because I will not have the expense associated with these items. In my planning those items are in fact expenses that I will be avoiding because I will no longer have wage income nor will I be saving for retirement. The values I use in my spreadsheets are not percentages but actual dollar amounts based on the max. amounts I expect to spend each year paying for these items.

Call them whatever you want but to me they are truly expenses associated with wage income and retirement savings I will not have after retirement. I fail to see any danger using any method that works for to estimate an income stream post retirement.

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Re: Expenses after FIRE - Huh??
Old 07-13-2006, 02:05 AM   #18
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Re: Expenses after FIRE - Huh??

For me my expenses dropped in FIRE, mostly because I had to reduce spending in order to be FIRE. I was spending perhaps $60-70k while working and in FIRE I'm spending $40k-$50k. The biggest thing I gave up is buying expensive toys... e.g. while working I put together a frugal but very nice home theater system. Now that I'm not working I'm enjoying the toys I've accumulated, but realizing that I won't have the budget to replace them as they break and become obsolete.

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Re: Expenses after FIRE - Huh??
Old 07-13-2006, 02:07 AM   #19
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Re: Expenses after FIRE - Huh??

We just hit year 4 of retirement, and our expenses have fluctuated wildly over the years; this year they have dropped significantly (mostly due to selling our second home).
  • Health insurance costs initially went up (but recently, they went down a bit)
  • Taxes initially went *way* down, but I expect them to creep back up
  • Travel costs were initially significant, but we no longer *need* to escape or vacate anything, so we actually have a lot more fun (and spend less) staying local
  • Transportation costs dropped a bunch (used to pay for parking, ferry commuting, more gas, etc)
  • Home maintenance costs dropped a bunch when we stopped contracting out stuff I could easily do now that I have the time and inclination
  • But home improvement costs soared now that I have the time and inclination
  • In retirement, you can volunteer your time rather than your money to your favorite charities

Bottom line: there is no rule of thumb.* *Some costs will increase, others will decrease, but you'll always have control over your discretionary spending.

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Re: Expenses after FIRE - Huh??
Old 07-13-2006, 02:25 AM   #20
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Re: Expenses after FIRE - Huh??

Yep... there are lots of subtle ways in which I'm saving money in retirement. For instance I needed a plumber to fix a leak recently. If I was working I'd have had to pay more for rush service but since I'm not working I could wait a couple of days while changing buckets and pay less.

In another case my toilet bowl cracked and started leaking. When I was working I would have bought a new toilet, but in retirement I had the time to try patching it up with fiberglass and epoxy, and the patch seems to be holding.

Making my own meals instead of going to restaurants for lunch as I did when working is another big one.

And not needing to do "stress relief" activities like travelling to some far away beach to sit and read. I can do that at home with much less stress! But any savings there is more than offset by wanting to get out and do more things because I have the time.

I think if I weren't trying to change my spending, I'd be spending a little more in ER than when working due mainly to having to pay my own healthcare premiums.
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