My cost of living Q1 2009 thru Q2 2010, calculated two ways
I retired in Nov 2008. My cost of living (COL) for the six quarters from Jan 1, 2009 to June 30, 2010 was either about $24,000 or about $1,000. Say what?
I track my daily expenditures using a set of spreadsheets, something I started in 1989 when I found myself unemployed with a computer and a copy of Lotus 123. I’ve done it ever since, because I’m nerdy that way. This method says my COL is $24K.
The value of my taxable accounts (aka savings) dropped about $1,000 over the same period. From this point of view, my COL for the last year and a half is about the same as the cost of my plane ticket from Vegas to Manila at the start of retirement.
How was that possible? My savings is in three types of investments and a money market fund. There were big swings in the share prices, they're higher now then on 1/1/09. This accounts for most of the gains. The funds paid dividends and capital gains. I’ve also played with the asset mix, tried to buy low and sell high, made a wash sale, and took profits to take advantage of a tax law that expired at the end of 2009. Much to my surprise, all the moves either made money or cut taxes.
I’m living off savings. Both COL calculating methods are useful in predicting if I’ll not have to tap the IRA until I’m 59 1/2, which I want to avoid because of the tax penalty. I know the odds of gains in the value of my savings all but offsetting my COL are unlikely, so I’m treating it as good luck. It’s a relief that the rebound in value of my savings means it looks more likely I won’t have to touch the IRA early. However, the economic future seems just as uncertain now as it was when I retired, so that’s not going to affect my spending habits too much for the next year.
There has been some bad luck so far in this adventure. I’ve suffered Frozen Shoulder, multiple lung infections, Swine Flu and a broken heart. I’m thankful for the financial good luck – including the time playing Texas Hold ‘em when I held four of a kind and three other players had full houses. Too bad the pot total was about $10.