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07-13-2016, 06:20 AM
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#21
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Moderator
Join Date: Nov 2015
Posts: 13,846
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We have been tracking actuals the past 3-4 years as RE got closer. We don't break that down by category, but we wanted to just spend what we spend, figure an estimate for insurance/taxes that will change, etc.
We lbym, but we also don't scrimp to do that. Certain expenses will change now, maybe a bit more travel, but we accounted that in. "ok we're spending X, lets add Y as a a reasonable buffer and we're still 100% on firecalc? Go"
We'll continue to adjust and track as we go. Now that we are RE, for the first year I'll be tracking monthly to see if we are on target vs. yearly, but assuming we're not way off I figure that will be a short term thing.
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07-13-2016, 06:54 AM
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#22
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Gosport, IN
Posts: 1,213
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I started my budgeting/tracking spreadsheets 4 years prior to retiring. As I went along I adjusted my future retirement budget based on actual info and projected new and periodic costs broken down into monthly amounts, (this escrows dollars for future needs). Then I added in changes in our retired years to account for Healthcare pre-medicare and post-medicare.
Of course I ran all the retirement calculators, Firecalc, I-orp, Fidelity RIP, etc to see when we would reach FIRE with a good size cushion!
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07-13-2016, 07:06 AM
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#23
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Recycles dryer sheets
Join Date: May 2013
Posts: 68
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As someone said to me recently "You can't change who you are". No doubt you amassed $13M by working hard and living below your means. So I would create a budget that doesn't include travel, vacation rentals, etc. Then calculate a SWR (3 or 4%) of your investments and try to somewhat change who you are by spending at close to your means. Do this soon, because your health will deteriorate as you age. Congratulations!!
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07-13-2016, 07:29 AM
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#24
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Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 1,396
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Quote:
Originally Posted by medved
Part of me says given that we will retire with something like $13 million in invested assets, and a house that is fully paid for, and no debt, I should just not worry about it, and retire when I want to retire.
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Um, is this a serious question? If you put all of your money in cash or money market funds and got zero return for the rest of your life, you could spend more than $400,000 per year for 30 years before you run out of money. Making a more reasonable and conservative estimate, you could expect to get a 3-4 percent return with a conservatively diversified and allocated portfolio, and you could safely withdraw more than half a million dollars each and every year, for the rest of your life, and not run out of money. Ever.
The average American household spends about $52,000 per year. You have the resources to spend 10 times that amount, every year, for the rest of your life and not worry about money. If those numbers cause you to worry, you do not have a money problem, you have an problem with your perspective on life. Seriously. Do you realize that you have more than 99.9% of the U.S. population, and more than 99.999% of the world's population? Adjust your perspective on life and money and come to terms with this and your "worry" about retirement will go away.
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07-13-2016, 07:56 AM
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#25
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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It doesn't matter how much you have, it is always possible to overspend. Underspend too (depending on your spending philosophy). Also, comparing yourself to "the average" when you are in the top 1% or .1% is of little use. In fact, I could make the case that the more you have the more useful expense tracking and budgeting is.
I have tracked spending in detail for decades, have a rolling 3 year budget all while having a net worth well in excess of the OP. I would be lost without my financial "tools" I feel these are necessary to get the biggest "bang" for my "bucks". This is true at any spend level in my opinion. I found this particularly useful in the years just before and after retirement. I had so many decisions to make, ie when to retire, where to live, how much to spend,etc. It would have been more difficult to make these decisions without adequate data. (Currently 66 retired 10 years)
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07-13-2016, 08:31 AM
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#26
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Thinks s/he gets paid by the post
Join Date: Feb 2012
Location: Northern Ohio
Posts: 3,180
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Quote:
Originally Posted by Danmar
It doesn't matter how much you have, it is always possible to overspend.
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+1
Seriously. No matter what your net worth is it's very possible to over spend.
No different from having a $1,400,000 net worth and spending $75,000 each year instead of $50,000.
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07-13-2016, 08:53 AM
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#27
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Recycles dryer sheets
Join Date: Jul 2013
Posts: 385
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MedVed, we have exchanged private messages in the past. Just sold my firm and I am working three days per week until December 31 and then full time retirement. I am 56. Never did a budget. I determined that 3% of my investable assets will be more than enough for us to live on, so after procrastinating for 4 years took the plunge. I do have an idea of our annual expenses (+/- $50,000.00 per year). However, I am also receiving a 5 year payout that exceeds our expenses on an annual basis. Also, I believe my kids are older than yours.
The issue for me was not money. I simply no longer liked going to work and running the business and realized that more than half my gas tank has been used. My father owned a different type business, worked until he was 75 then came down with Alzheimers and passed away. Since money was not the issue, there was nothing stopping me from pulling the trigger. Already booked 5 vacations and auditing a history class at a local university. Shopping online for woodworking equipment to make furniture. I actually go out to dinner now without my telephone. It has only been two weeks since the closing but the ball and chain has been removed from my ankle.
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07-13-2016, 09:13 AM
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#28
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Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 3,024
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I've been tracking our monthly spend since 1989. I use 19 categories in Excel. I also have the same 19 categories projected to age 100. Each category has it's own rate of inflation, and most have a carefully planned consumption profile based on age and other planned lifestyle changes, like downsizing the house and reduced travel. I don't really consider this a "budget," since it doesn't guide our spending. It's just a baseline projection, mainly used to assess the soundness of the overall retirement plan.
Most of our basic living expenses didn't change dramatically after retirement. Obviously some work-related expenses went away, like commuting, clothes, dry cleaning, and expensive lunches. We also cut some other areas like cable and insurance just because we had more time to pay attention to those items. However, these reductions have been offset by increased travel and increased health insurance.
What DID change dramatically after ER are the large discreet items... income tax down by a factor of 10, payroll tax gone, mortgage paid off, kids out of college and off the car insurance, health insurance, and cell phone plan. Once these larger items were "in the books," the remaining spend is rather stable and predictable. But I still like to track it monthly and tweak the projections from time to time. Just my way of making sure we don't drift too far in either direction.
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
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07-13-2016, 09:43 AM
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#29
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2010
Posts: 5,830
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We always lived below our means and were careful so to speak.
Never got granular, not even after retiring. Prior to retirement I simply took a tape of our monthly after tax burn. Very easy for us to do from our bank statement. Then we added some travel dollars, a ten percent cushion for error and another five percent for just in case. We based our projections on that. We just add up the credit card payments, automatic debits, and cash withdrawals.
Four years into retirement I still take a monthly tape of our bank statement to verify our burn rate. Still on budget. Some months we go way over due to travel or prepaid, other months are well under budget. Extraordinary items like daughter's wedding is outside of this number.
We are not as much focussed on monthly as we are on annual. Seems to have worked out well for us. I am just not interested in keeping track of every meal, every grocery purchase, every gas fill up, etc. No cheese for us in doing that.
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07-13-2016, 09:44 AM
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#30
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Recycles dryer sheets
Join Date: Apr 2016
Posts: 284
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It is interesting to read all the responses, and I sincerely appreciate all of them (even the slightly snarky one about how I have saved more money than most people and I should realize that -- which I do, and I am grateful for it, and I know that it is as much a function of luck as anything else). It is particularly interesting to see the range of responses -- from no budgeting at all, to super-detailed 50+ line spreadsheets updated frequently -- mostly without regard to net worth. It suggests to me this may have more to do with personality or inclination than with economic circumstances. I suspect people on this Board tend to do more financial planning and monitoring than the general population -- and perhaps even more than the universe of early retired people.
I was most amused by the observation that if things go worse than expected, I could "sell one of the mansions and dump the Tesla." Smiled when I read that. (I drive a car that I bought new for $15,000 out the door and we have a nice but far from elaborate house -- and no vacation homes, etc.).
One of the things I am thinking about is my spending habits versus my wife's. I spend very little. I just don't care much about material goods. My wife spends more. Not ridiculous, by any means, but certainly cares more about material goods than I do. There is a potential for that to become more of a concern -- at least psychologically, if not financially, when I retire. Just something for me to think through...
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07-13-2016, 09:46 AM
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#31
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Gosport, IN
Posts: 1,213
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Brett - what is a bank statement? Ha JK!! We haven't balanced a checkbook in decades!
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07-13-2016, 10:52 AM
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#32
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,599
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Medved,
Keep thinking - you'll get there. Retirement is not just a physical change, it is a change in mindset. If you are to enjoy retirement, you need to be comfortable with your circumstances (whether in the mansion, or the very well-maintained comfortable home), physically and emotionally.
Rita
__________________
Only got A dimple, would have preferred 2!
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07-13-2016, 11:05 AM
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#33
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,677
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Quote:
Originally Posted by Danmar
I had so many decisions to make, ie when to retire, where to live, how much to spend,etc. It would have been more difficult to make these decisions without adequate data. (Currently 66 retired 10 years)
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Five years into retirement, I knew exactly the impact of purchasing our condo in Mexico. It reduced our annual spend, giving us more runway.
__________________
For the fun of it...Keith
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07-13-2016, 11:26 AM
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#34
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,677
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Quote:
Originally Posted by medved
My wife spends more. Not ridiculous, by any means, but certainly cares more about material goods than I do. There is a potential for that to become more of a concern -- at least psychologically, if not financially, when I retire. Just something for me to think through...
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Glad to see you are normal. DW looks after the spending and I look after earning and paying. She even spends on me.
__________________
For the fun of it...Keith
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07-13-2016, 11:32 AM
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#35
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Location: St. Louis
Posts: 1,563
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Quote:
Originally Posted by medved
I never before tracked our expenses. We just spent what we wanted/needed, and saved/invested the rest. To be honest, I never had any idea what we spent. I suppose that is a real luxury. Or maybe we are just careless. I did know that we lived well below our means, but never got much more granular than that.
Some people on this board suggested that, before one can think seriously about ER, need to know what your annual burn is. That made sense, so I had a look at what we spent in 2015. And at the end of this year, I will do the same for 2016.
What I am struggling with is how to use this information. What I mean by that is our expenses these days (last year, the prior year, this year) will be very different than our expenses in retirement. There are some significant expenses we have now that we will no longer have, but then other expenses we will have more of (e.g., travel). I tend to think the expenses in retirement will be so different from our expenses these days that what we spend these days is not all that relevant.
Part of me says given that we will retire with something like $13 million in invested assets, and a house that is fully paid for, and no debt, I should just not worry about it, and retire when I want to retire. But I am risk averse, so am trying to be thoughtful about this.
Are there others here who felt like your pre-retirement expenses were very different than what your expenses would be in retirement? If so, how did you deal with that? Did you try to get granular about what you would spend in retirement? Like mortgage every month, food, car and house expenses, travel, etc? Or just get a very rough idea? Thanks.
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How much are you spending a year right now?
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07-13-2016, 12:33 PM
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#36
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Full time employment: Posting here.
Join Date: Dec 2015
Location: Vancouver
Posts: 915
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Quote:
Originally Posted by mpeirce
+1
Seriously. No matter what your net worth is it's very possible to over spend.
No different from having a $1,400,000 net worth and spending $75,000 each year instead of $50,000.
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This is kind of an oddball example but one example that sticks in my mind is in the Michael Jackson interview like a decade ago where he was in a high end store in Vegas selling ridiculous/impractical items saying "I want that one, two of those, this one too, and that one." In later years, the discussion point was that MJ's finances were not as strong as expected because of his heavy spend.
The other examples that pop to mind are all the professional athletes that pulled in millions, some over $100M in career earnings, and had to file for bankruptcy.
So, yeah, watching your spend is pretty important.
---
For me, the exercise in documenting and categorizing your cashflow/spend in prior to retirement is to determine if you are on track for your goals and to determine if there are any areas of leakage you may want to adjust for efficiency. Eg. My electrical bill was somewhat high, particularly due to a second fee tier if above a, so I changed our incandescent bulbs to LED which seemed to do the trick.
In prep for retirement, I'm forecasting potential changes to regular costs (eg. Our electric company announced they will be raising rates over the next five years at 9%, 6%, 4%, 3.5%, 3%) and adding in new spends (eg We want to travel 6 months of the year) to determine if my forecasted retirement spend will be able to support it on top of a margin of safety.
The cashflow exercise is to confirm how much buffer room one has and how much lifestyle change one would consider if circumstances/needs change. eg Maybe you have a sailboat that has significant yearly maintenance costs and sailing is a core activity for you. But in retirement, you have a child that wants to get a post-graduate degree overseas that you want to support.
If the OP knows they are living significantly within their means, the exercise is likely moot, particularly since it sounds like scale is working in their favour. At worst it serves as a bit of a sanity check and spending tune-up.
__________________
Good Riddance. April 2022
"Yes, there's some shady stuff going down but it's fuelled by stupidity."
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07-13-2016, 12:34 PM
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#37
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Syracuse
Posts: 3,501
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My after Retirement budget work out:
How much did I withdraw and receive back from IRS minus what's in my checking account equals my spending.
When money runs low I stop traveling and eating out.
FIDO retirement calculator (used to be RIP) is good for building an estimated retirement budget.
__________________
“No, not rich. I am a poor man with money, which is not the same thing"
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07-14-2016, 07:26 AM
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#38
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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Obviously it depends on your circumstances and personality/ experience. Both my wife and I are accountants and have a huge need to fully understand and control our finances. This personality was crucial in my working life (CFO of large bank), and it has carried on in retirement. As long as you have the data you need to make spending/investment decisions it doesn't really matter where you get that data or how precise it is. If it works for you, carry on.
As to spousal spending, we have worked out the following. She has her own portfolio and pension which throws off enough income for her personal spending, ie her clothing, shoes, hand bags, gifts, etc. I don't budget for her income nor her expenses. My income from our main portfolio and my pension pays for all joint expenses as well as my modest personal items. I manage both portfolios with her full involvement and understanding. I find that keeping the day-to-day personal items separate works well.
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07-14-2016, 07:57 AM
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#39
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Dallas
Posts: 1,148
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As lot of people said, 14M or 4M, you CAN always run out of money if you overspend so I would really encourage you to figure out how much you spend today and how much you want to spend in retirement.
I am years away from RE but I have been tracking my expenses for a decade now. It is fairly automated with "My Portfolio" service from Bank of America (backend is Yodlee). This free service will auto-download and auto-categorize the transactions for you. I download the transaction CSV file once in a while and keep them in a giant spreadsheet. I use "pivot tables" to track monthly personal spending, earned income saving, cashflow form investments, Cashflow from rentals, Networth, IRR of net worth, IRR of investments, "MY" spending inflation, etc.
This spreadsheet is my compass to gauge my financial health and my path forward.
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