I respect those who have the tolerance and desire to track to that level, but I certainly don't. If I felt like we needed to tighten up, I could see getting down to that level of detailed tracking. For us, I know the details of what we pay in taxes, what we save, and other big bills like college (and when we still had a mortgage). Everything else? We spent.
And that includes sporadic expenses over the years like new cars, home maintenance, vacations, etc., as well as regular interval expenses like utilities, car maintenance, food, etc.. Our current pretax spending - excluding expenses that will be reduced in retirement (i.e. retirement savings, SS tax, and college and other kid costs) - is only about 54% of our pretax income.
I do agree though that we'll also need to add estimates for future sporadic large expenses like cars, weddings, and home repairs, as well as any potential new regular-interval expenses in retirement, as we haven't had any of that size the last few years. That is the key component I was missing.
Just because current large expenses like college will go away, that doesn't mean that every now and then others won't pop up (albeit, not occurring over 4-6 years like college costs).
So though we currently only spend 54% of our pretax income, that number could jump to 60-75% after considering these other expenses. Or it could stay the same if I've also omitted other possible reductions once our kids move out?
The challenge is that those big expenses are sporadic; so they can't really be directly added to our annual spending needs. So do you calculate an annual average
of these major sporadic expenses or try to find and use retirement calculators that allow for estimating these types of purchases and expenses (which I'd assume those calculators would then annualize?). My point though on how I arrived at our original current spending (minus these missing sporadic expenses) was that I don't really need to track every penny to do that; I can back into it from our income minus savings and expenses that will go away in retirement.
Until I find some retirement calculators that account for these types of sporadic expenses, I've downloaded these two spreadsheets from Budget models of retirement spending
and have begun entering data:
- Simple Budget Worksheets
- Retirement Living Expenses Calculator
I took a deeper look at the Bogleheads wiki and the method I'd come up with to estimate our retirement spending seems pretty similar to something like the GSU/Aon RETIRE project
below, with this
being the part I've already done and this
being what I was omitting and still need to do.
Thank you for your patience and for continuing to help fill in the blanks.
Solving the "Do we have enough to ER?" riddle is a rather daunting task!
GSU/Aon RETIRE project
Aon Consulting has teamed with the Georgia State University's Center for Risk Management and Insurance Research to support the RETIRE Project. RETIRE is an acronym for Retiree Income Replacment. The Georgia State University publishes the results as the GSU/Aon RETIRE Project Report ; Aon Consulting publishes its summary and extension of the findings as the Replacement Ratio Study™ . The latest studies, released in 2008, are the seventh update in the series. The primary question targeted by this study series is, "How much income will I need at retirement to maintain my standard of living?" Thus it must be understood that the replacement ratios being envisioned by this study assume no changes in lifestyle upon retirement. These are desired income replacement rates.
The replacement ratios estimated in the 2008 study are derived primarily from the Bureau of Labor Statistics' Consumer Expenditure Survey for 2003, 2004 and 2005.  The replacement rates were calculated based on data for 12,823 "working" households and 6,498 "retired" households.
The baseline calculation is for a married couple with one wage earner who retires at age 65 (i.e. when Medicare eligibility begins). Their non-working spouse is age 62. The calculation starts with an average, pre-retirement gross (pre-tax) income. From this income are subtracted average taxes and retirement savings. This gives the average pre-retirement spending. This is then converted into after-retirement spending by either adding
or subtracting retirement-related average changes in spending. Finally, post-retirement taxes are estimated and added to the average spending to arrive at an average post-retirement income.
The final replacement ratio is the post-retirement income divided by the pre-retirement income. These calculations are shown in detail in Appendix II and III of the latest study.