Figuring Out Retirement Budget

[PandaBear]

My dh and I have been thinking about our retirement budget for a few years and now it seems to be getting a lot closer. Dh will retire in a year (May 2019). I will need to work an additional 4 years (to June 2023).

I have the opportunity to work part time those years (2019-2023). Dh feels I should work full time, for at least the first year, to ensure we are doing okay financially. I'd like to reduce to a 60% contract, so we have a little more time for long weekends to travel.

I have tried to figure our budget. I took his pension amount and my salary, and tried to estimate taxes/medicare/union dues/medical benefits. I am estimating we want $117,816 in at least the beginning years of our retirement. (That's our current take home cash, but without college tuition and mortgage, which will be gone after February).

Dh's pension is 75K per year. My salary at 60% would be 78K. I am estimating we'd take home $109,885, which is quite close to our my estimate. I thought we could take a little out of our retirement accounts (basically about 10K). Then we could either begin to have him take SS at 62, which would cover that withdrawal or let SS accumulate and still pull out 10K.

We have (in my mind) two types of money. One is retirement accounts to supplement our income (wanting a conservative withdrawal) and the other (smaller) accounts are for "extras" like travel.

Does this seem reasonable? Am I missing something? Is there something else I should be considering?

 

[Scuba]

I would do a detailed budget. Some expenses will go down when you retire (gas, car maintenance, clothes, dry cleaning), while other expenses are likely to increase (travel, entertainment, healthcare). Figure out your current spending by category and then estimate what will change and by how much. This will give you comfort that you have enough or if not at least you’ll have a better idea of the gap so you know how much more you need to save.

 

[joeea]

Dh will retire in a year (May 2019). I will need to work an additional 4 years (to June 2023).

Dh feels I should work full time, for at least the first year, to ensure we are doing okay financially.

Is there something else I should be considering?

Is there a reason you aren't considering having both you and your husband work part time for the next 4 years? It's seems odd that your husband wants you to work full time while he doesn't work at all.

Then we could either begin to have him take SS at 62, which would cover that withdrawal or let SS accumulate and still pull out 10K.

You should run the numbers on having him take SS at all ages between 62 and 70. And you should do the same with your SS, if any.
I've been very pleased using the calculator at https://maximizemysocialsecurity.com/. It's $40, but well worth it, IMHO.

We have (in my mind) two types of money. One is retirement accounts to supplement our income (wanting a conservative withdrawal) and the other (smaller) accounts are for "extras" like travel.

Well, money itself is fungible, so in that regard there is only one kind of money.
But the accounts you draw from aren't fungible. Depending on your ages and the account types, drawing money from one account may have tax/penalty implications that wouldn't happen using a different account.

You may wish to enlist the help of a fee-only fiduciary financial planner for a few hours. They could help you get a better handle on your budget, while considering your over goals for retirement compared to your income and assets. And they could help you come up with a plan that would allow you to achieve your goals.

 

[DrRoy]

I would just say make sure you have accounted correctly for taxes, medical, and RE activities.

 

[Bir48die]

Is there a reason you aren't considering having both you and your husband work part time for the next 4 years? It's seems odd that your husband wants you to work full time while he doesn't work at all.


We do not know the reasons her husband wants to retire. My wife retired seven years before I did. There was no resentment and she took a lot of pressure off me by doing the majority of the duties to run the house. They are just personal decisions you make as a couple and since my wife had a pension, I felt like she was contributing plenty.

 

[Rianne]

I would just say make sure you have accounted correctly for taxes, medical, and RE activities.

+1 Medical is the big question. We basically know our taxes and can scale back on activities if needed. But medical is totally out of our control. That's the scary part.

 

[RunningBum]

Think in terms of future expenses, not current income. Your current take home pay now means nothing unless you also account for how much, if any, you are saving, and how much things will change in retirement. You may spend less on commuting, but more on hobbies and travel, for example.

Also, you have to watch for irregular expenses. If you haven't bought a car in 10 years, that expense doesn't factor into your recent calculations, but you're probably going to have to replace it soon. There are also irregular major house repairs which you may or may not have had any of recently. Like I said, think hard about expenses, both regular and irregular.

 

[COcheesehead]

+1 Medical is the big question. We basically know our taxes and can scale back on activities if needed. But medical is totally out of our control. That's the scary part.

I went through the process of actually getting quotes for medical coverage. Several different approaches. If you can stay under the ACA limits, that usually is best, healthshare plans are next, but not regulated. Last is the high deductible/HSA route. Just budget a lot for HC and you should be OK.

 

[mountainsoft]

I have tried to figure our budget.

I calculated our current expenses two different ways. The first was to take the income we are living on now and subtract things that will go away after retirement (union dues, parking fees, SS/Medicare taxes, retirement savings, etc.). The second was to make a list of our expenses we'll still have after retirement and add them up. Ideally I should come up with roughly the same number with both methods or else I'm missing something.


Once I know our current expenses we'll still have after retirement, I add in new expenses for medical, vacations, recreation, and an emergency fund. I used the ACA state marketplace to estimate what our medical costs will be.


Our retirement expenses should work out to roughly 80% of our current expenses. But I suppose we won't know for sure till we get there.

 

[Live And Learn]

When I did my "can I retire" budget I used an estimate for unsubsidized ACA healthcare assuming that we are both 63 (we were actually 52 and 56) and assumed that we would both his the out of pocket maximum each year. My hope is that by doing this I have mitigated some of the risk of rising healthcare costs.

 

[jollystomper]

We have used Quicken to track our expenses for 20 years now. What I did was to go back and look at 10 year and 5 year averages for the expenses category. Then DW and I reviewed the categories to figure out which ones would definitely go down (e.g. kids college tuition, auto repairs/insurance, groceries with no kids in the house), and which ones would go up (e.g. vacation related travel, medical, clothing) to get an estimate.

For taxes I used one of the tax software packages to create a return based on our pension income, expected IRA?401K withdrawals, and expected interest/dividends/capital gains to get an estimate of what our taxes would be.


Already being LBYM, and saving/investing between 30-40% of our income, the issue was more how much we wanted to "live it up". We came up with an estimate of $125K for very comfortable budget, of which the pension will cover close to 60% of it at start (it is a non-COLA pension so will cover less as the years go by), and can be supplemented with a SWR below 3%. We wanted to test this. For periods of 2015 and 2016, and all of 2017, we tried living on that budget. That gave us confidence we could still have comfortable retirement. We found definite slack that we could reduce if we had to tighten our belts.


Your numbers are in the same ballpark so you should be fine. For now we are planning to be more flexible with SS, the best case scenario would be pension + SS covering our planned budget completely. But we are going to evaluate it year by year.

 

[HI Bill]

I did not see your ages. Is your husband retiring simply because he qualifies for the pension payout? How stable/guaranteed is the pension? Any possibility it could be reduced in the future? We don't know your assets, reserves, housing situation, etc. Too many unknowns to evaluate the situation properly.

 

[brett]

We did a tape on our after tax spending for the few years prior to retirement.

It was easy to do since spending usually comes down to credit cards, ATM withdrawals or pre-approved bank withdrawals. We do not use cash very often. We did not go down to the micro level. It took very little time to audit our monthly bank statement.

We then adjusted for travel, some inflation, and an percent error factor. We do not have significant health care costs so this was one less item that we need to be concerned about.

After five years of retirement we are spot on where we thought we would be, net of taxes. We were somewhat surprised by this. But....we have changed our lifestyle substantially more that we had planned. Lots of puts and takes over the past five years.

We keep an eye on recurring expenses with a view to maximizing value but we would never consider keeping a budget past monthly cash burn, net of taxes. Just did it for May. It was a five minute exercise. We go over our anticipated spend on some months and under on others. We review the annual number, not the monthly. Our insurance and home costs are down significantly, food is probably the same, clothing and auto expenses down. Travel and donations up significantly.

We don't care what we spend on food, gas, clothing etc. We do not keep track of spending/inflation by individual line item. Some things go up, others down. We spend a fair bit on travel. The spending is often contingent on where we travel and on currency. It can vary widely on a per diem basis. It is what it is. As long as the cash flow meets our means we are happy campers.

 

[COcheesehead]

We did a tape on our after tax spending for the few years prior to retirement.

It was easy to do since spending usually comes down to credit cards, ATM withdrawals or pre-approved bank withdrawals. We do not use cash very often. We did not go down to the micro level. It took very little time to audit our monthly bank statement.

We then adjusted for travel, some inflation, and an percent error factor. We do not have significant health care costs so this was one less item that we need to be concerned about.

After five years of retirement we are spot on where we thought we would be, net of taxes. We were somewhat surprised by this. But....we have changed our lifestyle substantially more that we had planned. Lots of puts and takes over the past five years.

We keep an eye on recurring expenses with a view to maximizing value but we would never consider keeping a budget past monthly cash burn, net of taxes. Just did it for May. It was a five minute exercise. We go over our anticipated spend on some months and under on others. We review the annual number, not the monthly. Our insurance and home costs are down significantly, food is probably the same, clothing and auto expenses down. Travel and donations up significantly.

We don't care what we spend on food, gas, clothing etc. We do not keep track of spending/inflation by individual line item. Some things go up, others down. We spend a fair bit on travel. The spending is often contingent on where we travel and on currency. It can vary widely on a per diem basis. It is what it is. As long as the cash flow meets our means we are happy campers.

I have done something similar. A monthly capture of expenses for the last three years. I could fit them all into seven categories. It really helps to see the reality of your spending.

 

[Mdlerth]

Always in motion is the future

Think in terms of future expenses, not current income. Your current take home pay now means nothing unless you also account for how much, if any, you are saving, and how much things will change in retirement. You may spend less on commuting, but more on hobbies and travel, for example.

Also, you have to watch for irregular expenses. If you haven't bought a car in 10 years, that expense doesn't factor into your recent calculations, but you're probably going to have to replace it soon. There are also irregular major house repairs which you may or may not have had any of recently. Like I said, think hard about expenses, both regular and irregular.

^^^ This


OP is planning on her own RE to be five years from now. That's a significant way off in the future. Inflation, health changes, family considerations might alter her cost picture a good bit.

Consider also that one benefit of empl*yment is it's hard to spend when you're busy w*rking. Once she reaches the Era of Limitless Free Time she might find herself engaging in activities that require additional spending.

It's probably not a good idea to compute costs to the penny and use that exact threshold as the trigger to FIRE. Better to pad it with an arbitrary buffer (e.g., 20%). If "without college tuition and mortgage" means that she'll have that much extra as discretionary funds, then she's probably ok; otherwise, the whole plan could be hosed by a simple, short run of bad luck.

 

[Surewhitey]

Using MINT to track actual spending for a few years now. It breaks it down into categories and you can determine which will increase / decrease. We took a few years off and found our spending went way down (in another country, albeit). Groceries went down and didn't eat out much. Our diet changed...

Clothing and dry-cleaning reduced a lot too (no work clothes). Travel and insurance went up, but not as much as we expected. HC today is a big ?? though. We were spending under $30k / yr in Mexico beach town of Playa del Carmen. Exchange rate is around 20-1 right now and helps on your COL there.

Both of us back to w*rk now and insurance is negligible, but we spend more on food & housing (prop tax). We also are back to 2 cars too. All in all, we still keep our annual spending under $50k, so not so bad IMO. If you added in for insurance and reduced the xtra car expense, we should still be under $55k in TX.

 

[PandaBear]

Thank you to everyone for your comments. I apologize for my delay in responding. I work in education and the end of the school year has been unusually crazy busy for me.

I really think financially we'll be fine. It's more for me to ensure I am thinking of everything! I wanted to make sure that I'm nit missing anything.

Ironically, we were at a graduation party last weekend and dh and a friend were chatting about their upcoming retirements. Dh told him that I was going to be working part time when he retired! So either I misunderstood him, or he was joking (and dh always says I can't tell when he's joking) or maybe he just needed some time to let it sink in. (Ironically, the more I think about it, the more I am wondering if I really want to work part time. I really like my job and since I work a school schedule, I get a lot of time off). Obviously, we have to really give it more thought.

I have added some comments/additional info below.

I would do a detailed budget. Some expenses will go down when you retire (gas, car maintenance, clothes, dry cleaning), while other expenses are likely to increase (travel, entertainment, healthcare). Figure out your current spending by category and then estimate what will change and by how much. This will give you comfort that you have enough or if not at least you’ll have a better idea of the gap so you know how much more you need to save.

Yeah, I know we should, but we've never followed a detailed budget in 25+ years of marriage. That will go on the list of "things we should do and probably won't"!

Is there a reason you aren't considering having both you and your husband work part time for the next 4 years? It's seems odd that your husband wants you to work full time while he doesn't work at all.

He can't work part time.

You should run the numbers on having him take SS at all ages between 62 and 70. And you should do the same with your SS, if any.
I've been very pleased using the calculator at https://maximizemysocialsecurity.com/. It's $40, but well worth it, IMHO.

Thank you. We'll take a look at it.

We do not know the reasons her husband wants to retire. My wife retired seven years before I did. There was no resentment and she took a lot of pressure off me by doing the majority of the duties to run the house. They are just personal decisions you make as a couple and since my wife had a pension, I felt like she was contributing plenty.

Dh has been working a very difficult job a long time. We've put three kids through college (well, one with one year left). He was a super involved dad (Little League Coach, Boy Scout leader, volunteer at their schools). I believe absolutely he should retire and support it 100%. He deserves some time for himself. No resentment at all.

+1 Medical is the big question. We basically know our taxes and can scale back on activities if needed. But medical is totally out of our control. That's the scary part.

That's one of the reasons I will work until 60 or 61. I have really good medical (currently about 3K per year). Even if I go part time, I pay medical as if I work full time. So if I work until 61, dh will almost be at medicare and then I get 4 years of medical at that same rate. So we have medical covered until medicare.

Think in terms of future expenses, not current income. Your current take home pay now means nothing unless you also account for how much, if any, you are saving, and how much things will change in retirement. You may spend less on commuting, but more on hobbies and travel, for example.
Also, you have to watch for irregular expenses. If you haven't bought a car in 10 years, that expense doesn't factor into your recent calculations, but you're probably going to have to replace it soon. There are also irregular major house repairs which you may or may not have had any of recently. Like I said, think hard about expenses, both regular and irregular.

Thank you.

It's probably not a good idea to compute costs to the penny and use that exact threshold as the trigger to FIRE. Better to pad it with an arbitrary buffer (e.g., 20%). If "without college tuition and mortgage" means that she'll have that much extra as discretionary funds, then she's probably ok; otherwise, the whole plan could be hosed by a simple, short run of bad luck.

Basically I've been taking what we are spending now and taking out the mortgage and college tuition and saying our budget is what's left. So with me part time we'd be 10K a year short of that target. I am figuring when we are both retired, we can take 45K from our retirement accounts, which is 3%. I am figuring that's pretty conservative. So 10K is maybe 1%? So that's why I was thinking we could take that amount out until I retire. Actually, when I retire, I'll make about 18K more than my part time salary.

 

[joeea]

He can't work part time.

Can't? Why not?

 

[PandaBear]

Can't? Why not?

To clarify, no he cannot work part time in his current job. We’re not interested in looking at him working, part or full time.

 

[pb4uski]

....You should run the numbers on having him take SS at all ages between 62 and 70. And you should do the same with your SS, if any.
I've been very pleased using the calculator at https://maximizemysocialsecurity.com/. It's $40, but well worth it, IMHO. ....

....Thank you. We'll take a look at it. ....

You may want to try this one.... https://opensocialsecurity.com/

Not only is it free, IMO it is better.

 

[PandaBear]

You may want to try this one.... https://opensocialsecurity.com/



Not only is it free, IMO it is better.

Thank you.