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Old 03-20-2013, 03:29 PM   #41
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I also have non-COLA pensions and I plan on using the investments (40/50/10) to cover inflation going forward. Currently, into our 4th year of ER and this year we expect to withdraw 2.4% from retirement stash to supplement pensions. That % will slowly increase until SS adds to the income stream.

As for self insuring for LTC, I have been setting aside money every year for the last 10 years and not counting it as part of the retirement money to draw on. It is now at ~$270k in an IRA so I'm not going to set any more money aside. If we need LTC in 10, 20, 30 years time then I'm hoping that pot plus our current income stream will suffice.
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Old 03-20-2013, 03:56 PM   #42
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Originally Posted by Sandman62
I just realized I'd made a mistake in calculating our retirement spending and income needs: I had calculated our pension benefits knowing what we'll get when we retire in 5 years. However, that's in "5 years from now" dollars, so don't I have to adjust for inflation?

So, taking our current $75/yr (after-tax) spending and adding 3% inflation for 5 years makes that ~$86k. Adding federal and state taxes onto that means we'll need more like $115k pretax income.

Does that make sense? If so, then for the 15 years until SS (unless we do so spousal benefits earlier), we'd need to either withdraw $15k/yr from our portfolio or tighten up our budget.

That said, when entering Spending in Firecalc, is that today's dollars or as of retirement date?
It is definitely prudent to plan for inflation, and I applaud you for doing that. However, with a little fortune, you may find that the compounded inflation rate of the next 5 years may not take an $11k toll on your budget. If many of your base costs are " fixed " such as a mortgage payment, that part of your budget would be immune to inflation. For example, in my situation, I spend roughly $3500 a month, but a full third of my monthly budget (mortgage and child support ) is immune to inflation. FWIW, I have been retired 3 years and my monthly expenses are actually lower than 3 years ago. Mostly because of taking some of my free time to rate shop all my insurance, Internet, and cable. My travel expenses have declined too because I now travel when I can go on dates when the true "fire sales" occur.
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Old 03-20-2013, 03:57 PM   #43
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I'd suggest starting tracking your current spending for the next few years and see if you'll have any wiggle room for cuts if needed in the future. You are planning to do 'catch-up' for your 401k, what about doing the same for your DW or would it really scrimp your current lifestyle?
I have seen this advice in many places on this site and think it is one of the most important things one can do to prepare. Every person will budget a different way from conservative to aggressive. It's a great way to see where you fall. I think we are very conservative and we have been tracking closely the last three months. So far we are tracking about 15% ahead of target. Things stay this way for the entire year and my RE may be moving up from Jan 2015 to Jan 2014
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Old 03-20-2013, 06:25 PM   #44
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...I'm hoping that pot plus our current income stream will suffice...
Heh
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Old 03-20-2013, 06:37 PM   #45
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Old 03-20-2013, 07:40 PM   #46
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You might try some mustard on her once in a while to spice things up.
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Old 03-21-2013, 06:57 AM   #47
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You might try some mustard on her once in a while to spice things up.
At the beginning I didn't understand what REWahoo meant, but then I read Sandman62's quote and cracked me up
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Old 03-21-2013, 07:26 AM   #48
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Honestly, we've never really tracked our budgets because we live below our means. We've never really scrutinized our spending for "Where else can we tighten up?" because we really haven't needed to. I'm not trying to be flippant; just being honest. We save for retirement, pay our bills, eat, live, etc, and bank the rest. We don't take annual extravagant vacations or have other expensive hobbies. We put one kid through college with no loans and we don't anticipate any for DS. No car payments. No mortgage.

I actually thought I was being conservative by arriving at our curent annual spending by simply starting with our income, then deducting taxes, what we save, what we currently spend on college and other kid costs - all things (except for taxes) that will go away before retirement (notwithstanding the chance of college grad kids possibly still needing some support). Then I just assumed that "We spend the rest".
My italics and underline....This is the flaw of your planning which I understand. Your and your DW's jobs have been totally safe (your company sounds exceptional in today's private sector), so it was easy to start calculations from the income. When planning for the retirement is other way around. You would start with your annual expenses, add wedding expenses for your DD (maybe some for DS too), charity, grandchildren's gifts, etc.(e.g. savings for LTC in case you're planning to self-insure would be addn'l expense) and then state/Fed taxes on top. That's the income you need in retirement. Compare this amount to what your pensions and SS will cover. The difference will have to come from your retirement savings. See, your retirement is a totally different vocation.....Mr. Market is not a stable "employer" like your employers. In addition, hopefully nothing changes with your companies over the next 40 years and pensions are not cut and continue to offer you health insurance at favorable rates.

I liked FUEGO's planning here: My plan to retire at 35 You don't need to read the thread. His first post shows retirement planning mathematically that I liked.
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Old 03-21-2013, 08:11 AM   #49
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With $100K in pensions annually and a million in cash, you are golden. Quit over thinking it.
Although the details of my/our situation were different, I was basically aiming for $100K in pre-tax income (pension plus draw from portfolio until SS eligibility, then pension plus SS and draw from portfolio only for luxuries.)

I found this was more than enough with kids out of college, no debt except for a small mortgage.
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Old 03-21-2013, 02:33 PM   #50
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Aida, I'm trying to understand. Are you suggesting that our desired spending would likely be LOWER or HIGHER vs starting from current income?

For example, using convenient rounded numbers: if a couple makes $200k and saves $50k, and other soon-to-vanish expenses like mortgage, college costs, etc. are another $50k, then aren't they SPENDING $100k (besides those vanishers)?

Yes, some expenses will go up and some down once in retirement. But as a starting point, what is the big difference in approaches?
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Old 03-23-2013, 11:36 AM   #51
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I didn't realize it at the time I was doing this because I just discovered it... but I guess I was kind of at least loosely following one of the Bogleheads wiki approaches of Single budget models - Current spending approach:
  1. Step 1: Determine your latest, annual pre-retirement spending
  2. Step 2: Subtract expenses that will be reduced at retirement
  3. Step 3: Add expenses that will increase at retirement
  4. Step 4: Result is your simple budget total spending
I do realize though that I also somehow need to expand upon #3 and account for sporadic large expenses (i.e. future car purchases, helping kids with weddings or home purchases, etc).

I will also continue reading about Dual Budget and other spending models. I guess I'm humbly suggesting that my spending estimate apparently wasn't completely out of whack; just not as detailed and perhaps not as accurate as it could have been.
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Old 03-23-2013, 01:59 PM   #52
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Step 1 is the key. It may not be the case for you, but for many people this number is a complete mystery. Like fair number of people on here, for years I have tracked all my spending on a spreadsheet (i.e -- every time I spend any money, I enter it in the spreadsheet), so that I know to a very high degree of precision what this number is now. Then I take my best guess as to additions and subtractions after retirement. Knowing exactly where each dollar is spent now makes these estimates more informed.
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Old 03-23-2013, 04:50 PM   #53
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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 [18]; Aon Consulting publishes its summary and extension of the findings as the Replacement Ratio Study™ [4]. 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.

Methodology
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.[24] [25] 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.[4]
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