Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-15-2011, 08:10 PM   #21
Recycles dryer sheets
 
Join Date: Jan 2011
Posts: 122
Quote:
Originally Posted by W2R View Post
I categorized and tracked my expenses for several years while working.

Then I adjusted as follows:

(1) subtracted expenses that I thought I would not need in retirement (cost of gas for commuting, work clothes, etc.).

(2) added expenses that I might want to add in retirement (entertainment, shopping, etc).

(3) considered long term, planned expenses (my daughter's wedding during my last year of working, my new car right after retirement)

This gave me a pretty accurate idea of how much I would spend in retirement.

What surprised me was not my spending, but the fact that my taxes were so low in retirement - - 14% for federal and state combined. I had read this from others on the board, but really didn't believe it until I had the numbers in front of me.

My financial advisor has estimated that when I retire, and with our projected retirement income needs, our tax rate will be around 14-15%. I too find that hard to believe.
__________________

__________________
LightningDawg is offline   Reply With Quote
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!

Old 05-15-2011, 08:13 PM   #22
Recycles dryer sheets
 
Join Date: Jan 2011
Posts: 122
Quote:
Originally Posted by rockyj View Post
RE: tracking current expenses we have used two methods.

1) very anal saving of all receipts, recording cash payments at end of day, etc., (e.g. $.25 to coffee can at work, etc.) in an attempt understand how we're spending our money (i.e. expenses categories).

2) Using monthly bank statements as a check on above and as a somewhat easier way to get to actual amounts (in the end, *all* our relevant expenses move through the bank account, except for payroll deductions for taxes and medical, but we lose the detail (and the PITA of tracking the detail).

Seems we are consistently missing some things with method 1, because method 2 always comes out higher. But between the two I think we have a good idea on both amount and types of spending.

We do not expect much reduction in work related expenses (no big commute, no special clothes, no professional tools/education, no daily lunch out, etc.). Reduced taxes can be estimated based on amounts and type of income. We will stay on company medical until medicare - same plan with same premiums as active employees. We will likely increase frequency of travel, more shorter US trips, but foreign trips will likely be of longer duration and with fewer participants (i.e. kids are grown), which I think may even out a bit (e.g. more longer term rentals, fewer hotels, reduced "daily" cost of airfare to gt there, etc.) . Probably some increase in hobby and leisure expenses generally. These "lifestyle" changes are admittedly difficult to quantify, so we'll just make our best estimates, see how it goes and adjust accordingly.

For me, it has been harder than I thought it would be....to accurately estimate what our retirement expenses will be.
__________________

__________________
LightningDawg is offline   Reply With Quote
Old 05-15-2011, 08:41 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Quote:
Originally Posted by lark_L View Post
I did it with a simple spreadsheet. Came up with an estimated annual amount. Guesstimate monthly/annual needs for food, shelter, clothing, entertainment, recreation etc.
Same here, using a budget spreadsheet template I found online at the Microsoft template library. I was already living on my own w*rking salary plus a modest survivor pension, and was paying WAY too much income tax.
I customized the spreadsheet to match my basic COL expenses, entered actual data, then copied and pasted it all to an identical column and padded a few key categories from as little as 5% to as much as 20% (worst case increases) and relabelled those as Projected expenses.
I also added what I refer to as "OMG" categories, i.e. unexpected large ticket items such as new car, furnace, septic system, etc to estimate the effect on my basic COL baseline.
I knew exactly what my survivor pension was, and annuity income would be, so I ran the income numbers against the COL baselines (actual, projected, and multiple OMG scenarios) and came out smelling like a rose.
I also have my own small pension coming at age 56, so between the age of 48 (FIRE) and age 56, I knew I would need to be frugal for 6 years but not severely lacking financially.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 05-15-2011, 08:49 PM   #24
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Quote:
Originally Posted by gary m View Post
I read of many varied ways to calculate how much we'll need when retired as a % of what we are currently earning.
That media soundbite is very popular but a waste of time.

What you're going to spend in retirement has no relation to what you're going to spend while you're working.

We've had posters on this board who felt as if anything less than $120K/year was durance vile. (I think they left to seek "better" answers elsewhere.) We have a number of other posters here who are quite happy with $20K/year.

Take your current budget and remove all your work-related expenses. Add in some major home repairs or replacement vehicles or a kid's wedding or a fantasy vacation. Add in whatever else you plan to do in retirement. Give yourself a safety margin.

We found that our bare-bones budget was too conservative in a recession, let alone during a bubble, but we live a pretty low-key lifestyle.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 05-15-2011, 09:04 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Then there are those of us who simply winged. I had amount of money which seemed like a lot, a vague idea that if I buy $2 million worth of California muni bonds it would generate a $100K a year in after tax income. (True back in 99 and 2000) and that was plenty.

I will say I learned a lot about more retirement finances my during my first few months being retired than I did in the few years thinking about. In part because I had more time, and in part because it seemed more real.

For the record I don't recommend the wing it approach.
__________________
clifp is offline   Reply With Quote
Old 05-15-2011, 09:56 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
Quote:
Originally Posted by rescueme View Post
One last thought. Since the SPIA was purchased with only 10% of our joint portfolio value (in early 2007), we still have 90% of our portfolio to "make up" for inflation loss. BTW, as of this point in time, our joint portfolio slightly exceeds its value of when I retired - even with the purchase of the SPIA.

I guess the plan is working. Once we have our respective SS payments starting, the SPIA (even if worth less) will just be "icing on the cake" when the time comes.
Thanks rescueme. Understand your logic for doing things this way. Instead of lifetime joint I was looking at a shorter term SPIA. For now my plan is to buy a shorter term 5 year SPIA. Save my other income sources for that same 5 years...(does not include investment income or SS). At the end of the 5 years turn around and do it again. But I may go back and research the lifetime quotes and benefits....to see if that is something that makes more sense. It is certainly less leg work than having to revisit it every 5 years.
__________________
sheehs1 is offline   Reply With Quote
Old 05-16-2011, 09:45 AM   #27
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
We kept detailed spending records for many years before retirement. So I just looked at the categories and figured which would go up, down, or stay the same (allowing for changes in family size).

That provided a baseline "continue spending" level. Then I added some for fun spending (travel) that we hadn't been doing, for gifts to kids (e.g. weddings), and put a cushion on top of that. It turns out the cushion was significant.
__________________
Independent is offline   Reply With Quote
Old 05-16-2011, 01:40 PM   #28
Thinks s/he gets paid by the post
 
Join Date: Apr 2007
Posts: 1,304
Forever, we have lived on what we called a tight budget. As our fortunes increased, so did our spending, but not extravagantly. So our new budget was what we were spending minus work related expenses, plus planned travel. We also threw in some 'fluff' for emergencies, like a new (used) car every (?) so often), a new roof, something major breaking (which was business as usual actually). So our FIRE budget actually was about the same as our old budget.

We came out about where we thought we would be.
I believe we are fairly disciplined (and still cheap).
__________________
Life is GREAT!
megacorp-firee is offline   Reply With Quote
Old 05-17-2011, 07:57 AM   #29
Recycles dryer sheets
Backpacker's Avatar
 
Join Date: Feb 2011
Location: On a dirt road
Posts: 189
@ Gary M: Thanks for starting this topic, I had searched past posts for this very topic and couldn't find one. I have long thought the "experts" and various calculators that claim you need to shoot for 80% of your pre-retirement income were whacked. I just can't imagine needing that much. We are on track to payoff the house in 7 years (which is our only debt). My wifes pension will be approx $30k per year and I don't think it will take much beyond that to support the basics needs. 401k's, Roth's and liquidating rental properties, not to mention possible SS should all be icing on the cake.

@Katsmeow: Yeah if we needed to duplicate 70-80% of our income I think we'd have to work til we dropped dead at the office. I'd rather control the expense side, retire early and enjoy life while we are physically able to.
__________________
"Up sluggard and waste not the day, in the grave will be sleeping enough." Benjamin Franklin
Backpacker is online now   Reply With Quote
Old 05-17-2011, 08:57 AM   #30
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,871
I echo the posts of many others here.

In the years leading to my ER in late 2008, I was often updating and fine-tuning the spreadsheet I had created to compare and project my income and expenses in an early retirement. I never, ever, used as a starting point a percentage of my income. I calculated my expenses from the ground up, not the top (i.e. income) down.

I did use some of my current expenses as a starting point. Those included things such as utilities, car insurance, and home insurance. From my then-current expense list, I removed FICA taxes and commutation expenses. I made small adjustments to my general cash expenses (i.e. food, which decreased slightly because lunches were cheaper at home than at my office; entertainment, which increased slightly because I would be dancing one more night per week; these items nearly offset each other).

I had to adjust my health insurance upward because an individual HI policy would cost more than COBRA. However, my dental costs compared to COBRA+deductible+copay would be about the same.

The toughest part of my new budget was determining my income taxes. I included in my spreadsheet a skeleton version of my federal and state income tax forms, similar to what I do now for my current budget. I, too, was pleasantly surprised at how much lower they became in my ER budget. For example, more of my income was not taxed (i.e. 0% cap gains and muni bonds) and I would now be itemizing my med expenses on Schedule A.

Also in my spreadsheet was a projection of my income which included reinvesting any surplus investment income as well as a projected growth in my IRA for the next 15 years until I could tap into it at age 59.5. I separated my overall expenses into 2 categories (medical and non-medical) so I could assign separate inflation rates for each.

All of this gave me a pretty good idea of what my income and expenses would be from age 45-60, the key years of my ER, before I could begin tapping into the first of three "reinforcements," my IRA, to be followed later by my frozen company pension and Social Security. I felt I needed to run a surplus in these early years because inflation would cause my expenses to rise more quickly than my income, probably erasing that surplus in my late 50s.
__________________
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!"
scrabbler1 is offline   Reply With Quote
Old 05-17-2011, 01:34 PM   #31
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 118
I envy those who were able to track their actual expenses prior to retiring and thus use those figures as a starting point for estimating their post-retirement needs. Having lived the last 10 years overseas (on a military base) my wife and I don't have a very good sense of what it actually costs to live in the United States. We have been forced to create an estimate based on SWAGs that may or may not be accurate. The net result is that I have felt compelled to work longer to help ensure that we have enough to cover shortfalls in our estimating. BTW, I fully concur that one's pre-retirement income bears no direct relationship to what one's post-retirement expenses will be.
__________________
Geoffrey is offline   Reply With Quote
Old 05-18-2011, 11:02 AM   #32
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
For those that believe they can estimate retirement expenses to very high precision...

What about future medical expenses, future tax rates, inflation, diminished SS and Medicare payments and so on.

Everything is in play now. And really, I wouldn't assume that current taxes/entitlements/expenses/inflation are what they will be going foreward.

And for those of you who have enough now in retirement... The future doesn't look so bright. Things could get kind of grim going foreward.

To characterize Rumsfield... The known - unknowns, and unknown - unknowns need to be (somehow) factored in.
__________________
MasterBlaster is offline   Reply With Quote
Old 05-18-2011, 04:05 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,884
Quote:
Originally Posted by gary m View Post
I read of many varied ways to calculate how much we'll need when retired as a % of what we are currently earning. I am interested in how close folks have come to estimating what they need and how they calculated it.

Hey Gary,

Been retired for a few years now and seem to have plenty of money to do just about anything or buy anything that we need. When I first started saving for retirement I had no clue what I would need or how I would get there. Easy to use retirement calculators were not available in the 70's. I assumed that SS would not be there when I retired (it's there and it's big). I'm fortunate to have qualified for a couple of pension plans. I always maxed out IRA, thrift savings plans, 401Ks etc. for myself and spouse and stashed as much as I could into taxable accounts. In other words, I saved as much as I could save and never looked back. It was a very easy plan that I feel lucky to have followed for over 40 years.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 05-18-2011, 04:20 PM   #34
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 424
2 of the things I don't quite have a handle on are taxes and auto expenses.

I should probably run some scenarios in turbo tax with the reduced income or 401k withdrawals.

Our vehicles are currently 2000 and 2003. Who knows when they'll need to be replaced. I've never bought a used car before and I've never had a car for less then 7 years. Not sure how to account for new/used vehicle expense.

This might put off our early retirement if we need 2 vehicles at the same time.

JD
__________________
JohnDoe is offline   Reply With Quote
Old 05-18-2011, 11:15 PM   #35
Thinks s/he gets paid by the post
 
Join Date: Apr 2007
Posts: 1,304
Quote:
Originally Posted by JohnDoe View Post
Not sure how to account for new/used vehicle expense.

This might put off our early retirement if we need 2 vehicles at the same time.

JD
We have a 'guideline' budget (it's my 'whatif xcel file) which grossly lays out our yearly portfolio, i.e. our portfolio with a 5% (I am conservative) growth rate minus our budgeted expenses, when it happens I add in SS payment. Every 5 years, I deduct the cost of a (used) car. I guess I could amortize the expense each year, but it's not the way I did it. My 'planned budget' shows that due to our LBYM ways, we will actually have growth in our portfolio.
__________________
Life is GREAT!
megacorp-firee is offline   Reply With Quote
Old 05-19-2011, 12:45 AM   #36
Dryer sheet aficionado
lovinglife1's Avatar
 
Join Date: Sep 2010
Posts: 36
Same situation.....10 years in Europe and Asia so I made the decision to purchase a home one year before retirement, set it up, establish costs, furnish etc....Now I know the naked truth on the costs to live in my retirement venue...some good news, some surprising..ahh...But, I am glad I did it.
__________________
lovinglife1 is offline   Reply With Quote
Old 05-19-2011, 07:05 AM   #37
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by JohnDoe View Post
This might put off our early retirement if we need 2 vehicles at the same time.

JD
So you are saying that you are putting off retirement (for the rest of your life) just because you may have to purchase two cars, at the same time?

In that case, you are not ready for retirement IMHO...

BTW, I've been retired four years thus far, and even though my car(s) have been paid off for many years, I still throw in $500/mo into my expense budget for vehicle replacement (it just sits in my TIRA, but I do have a separate budget line item to see what the accrual is thus far).

It's nothing more than what I did during my wor*ing years. Vehicles have to be repaced somewhere along the line, and you need to account for that eventual expense - regardless if you pay cash or have car payments.
__________________
rescueme is offline   Reply With Quote
Old 05-19-2011, 07:39 AM   #38
Confused about dryer sheets
 
Join Date: Jul 2004
Posts: 4
Gary_M

I too have established a budget that seems to be accurate (but I still wonder sometimes), and then I decided I would need a safety cushion of $10,000 per year to allow for extra expenses like travel, vacations, etc. This extra $10k is about 15% greater than the budget I want to live on.

I read somewhere that "you should not enter retirement undercapitalized" and that struck a responsive cord with me.
__________________
jkirzec is offline   Reply With Quote
Old 05-19-2011, 09:15 AM   #39
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
While I don't track every dollar of expenses, I do have an excel spread sheet for a projected retirement budget. It is current expenses minus mortgage and is running fairly true to form. I call it my "bare bones" budget..which is basically the way I am living now (to test drive it). Probably like others here...I am more comfortable knowing my bare bones budget is a percentage of the income projected to be coming in. I've also set up buckets of years (again like others here), that are in 5 to 7 year increments.
Bucket 1 is now and the percentage I spend relative to income is 30%. Bucket 2 is age 59 - 65 and the percentage moves up to 45%. Bucket 3 is to age 65 to 70, percentage moves down to 40%...etc. Same for 75 and beyond. Knowing I have "buffer" between expenses and income is all I really need to know. This does not include "investment income" since I can't predict it...and will consider it gravy in the good years and something to ride thru in the bad. Also plan on continuing to save and LBYMing...until I'm 65 or beyond,,...giving my investments more time to appreciate along with additional contributions. (just turned 56-). The "paycheck" stops at age 59...but I will have money coming in.
When I get anxious worrying about health care costs, inflation and the "unknown", I go back to my spreadsheet to see that I am "projected" to be just fine. It's the best I can do.
__________________
sheehs1 is offline   Reply With Quote
Old 05-19-2011, 10:01 AM   #40
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,871
Quote:
Originally Posted by jkirzec View Post
Gary_M

I too have established a budget that seems to be accurate (but I still wonder sometimes), and then I decided I would need a safety cushion of $10,000 per year to allow for extra expenses like travel, vacations, etc. This extra $10k is about 15% greater than the budget I want to live on.

I read somewhere that "you should not enter retirement undercapitalized" and that struck a responsive cord with me.
When developing my long-range ER budget, I made sure to include a surplus, or cushion, in the early years not only to cover any unforeseen expenses but because it was likely my expenses would rise more quickly than my investmnent income as the years went on. Having this cushion measn that if something arises (generally a small expense but it could be larger), I won't have to worry about whether I can cover the expense.
__________________

__________________
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!"
scrabbler1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
To close, or not to close? (No-interest credit card accounts). Amethyst FIRE and Money 6 05-24-2009 12:12 PM
Advice for My Close-to-Retirement Parents sarahsays Life after FIRE 12 04-23-2008 06:38 AM
Retirement ADVICE needed from all you guru's! hcho3528 Hi, I am... 13 11-17-2007 09:08 AM
Advice on Early Retirement needed Rob Other topics 21 12-04-2004 05:00 PM

 

 
All times are GMT -6. The time now is 10:30 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.