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Retirement Budget
Old 01-01-2016, 01:27 PM   #1
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Retirement Budget

I'm starting to put together a retirement budget and wondered what you all thought:

Current expenses $38,096
Current expense - lunches $36,451
Current expense + Medicare cost(1250/yr) $37,701
- Social Security ($15,744/yr @62) $21,957
- FICA (7.75%- $4739) $17,218


The current expenses number I got by subtracting my yearly retirement savings from my gross salary so it covers everything from taxes to tooth paste.
I don't see a lot of change in expense when I retire but I've deducted the moderate expense of daily lunches while at work.
I've probably underestimated medical expenses. I read the average Joe pays around $104/month for Medicare but I know Medicare does not cover everything.
I subtract my estimated SS at age 62.
I subtract FICA tax as I will not be paying that after I retire.

Am I on the right track with this?
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Old 01-01-2016, 01:42 PM   #2
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That was one (of the many) approaches I used to test my retirement budget. Like you I took my gross income, subtracted out ss and Medicare taxes as well as subtracting out the retirement savings. This was a conservative estimate of what I needed since it was what I'd been living on. I added in health insurance since I'm still many years away from Medicare.
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Old 01-01-2016, 01:46 PM   #3
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Only you can determine if you're on the right track. Budgeting for health care is a must, so you're on the right track there.

Many retirees drive less and spend less on clothes. Some retirees spend more on travel, entertainment, hobbies, charities or other pursuits - but you're the only one who might predict that. Go through every current expenditure and make a judgement, and then think through what you will do every day in retirement and what if any new costs might be associated with those changes in activities. Some retirees relocate which can change living expenses significantly, lower or higher.

Best advice we got, and took to heart, was to reduce our spending to exactly what we expected to spend in retirement during the last few years working. Just to make sure our plans were realistic, fortunately we found we could live on what we planned before we actually needed to.
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Old 01-01-2016, 02:22 PM   #4
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i agree with Midpack, about spending. We LBOM, but spent $14K on travel last year. I also now fly for Angel Flight, and my aircraft rental last year costs were almost $8K.
However, between SS and small pensions our income was about $60K, so it did not have much of an impact on our budget.
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Old 01-01-2016, 02:40 PM   #5
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Quote:
Originally Posted by Red Corvette View Post
I'm starting to put together a retirement budget and wondered what you all thought:

Current expenses $38,096
Current expense - lunches $36,451
Current expense + Medicare cost(1250/yr) $37,701
- Social Security ($15,744/yr @62) $21,957
- FICA (7.75%- $4739) $17,218


The current expenses number I got by subtracting my yearly retirement savings from my gross salary so it covers everything from taxes to tooth paste.
I don't see a lot of change in expense when I retire but I've deducted the moderate expense of daily lunches while at work.
I've probably underestimated medical expenses. I read the average Joe pays around $104/month for Medicare but I know Medicare does not cover everything.
I subtract my estimated SS at age 62.
I subtract FICA tax as I will not be paying that after I retire.

Am I on the right track with this?
A couple tweaks to consider.

Taxes might be too high. You can get a good idea by taking your 2014 or 2015 tax return and stripping out the earnings since you'll no longer be working and making any other appropriate adjustments. Taxcaster is a good tool for doing this... or TurboTax if you want to be more precise.

Medicare part D? Medigap? or deductibles and copays?
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Old 01-01-2016, 04:35 PM   #6
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This is exactly what I did. I tracked my real spending (minus taxes) for about a couple decades before retirement. Post-retirement, I budgeted for everything from healthcare (Cobra currently) to vacations (which I didn't dare take the last few years before retirement because I was too afraid I wouldn't come back) to emergencies.

Some things I didn't count on: Slightly increased home energy costs because I'm home more, car insurance dropping about 40% because no more commuting. I also found I had overestimated taxes in retirement and underestimated SS, though I'm not complaining.
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Old 01-01-2016, 04:51 PM   #7
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That is one of the ways, among many, I backed into my numbers. I used TurboTax and deleted my W2 income to come up with my tax savings, assuming all other income/deductions stay the same.

If you recently paid off a mortgage in the past few years, factor that in too. You were at one time living fine paying the mortgage. I can purchase a week of vacation, so i deduct that.

My Roth/tIRA comes out of my after tax account, so I really do not count that.

My work commuting costs ($1200), lunches ($500), clothes ($4), are going to be less.


DescriptionAmount
Salary$117,820
-FICA($8,476)
-Health Care Sav($3,950)
Less Purch Vac($1,876)
Less 401K($24,000)
Less Roth IRA 
Tax Savings($25,000)
Sub Total$54,518
Mortgage Pmt($16,836)
  
  
Annual Total$37,682
Monthly Total$3,140
Salary Equiv %31.98%

As you can see, it doesn't take all that much to like decently after you leave a job. In my case, only 31.98% of my gross, not anywhere close to 85% that some recommend. You may have to add back in some healthcare, other income taxes, etc.
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Old 01-02-2016, 11:11 AM   #8
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OK so I take that expense number and run it in FIRECalc with my current $630k nest egg and I get a 100% success rate. Then I use the Bankrate calculator http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx

assuming 4% inflation and 5% return and it tells me only $451,160 is required which leaves me a $178,840 pad.

Am I still on the mark?
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Old 01-02-2016, 11:24 AM   #9
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Originally Posted by Red Corvette View Post
OK so I take that expense number and run it in FIRECalc with my current $630k nest egg and I get a 100% success rate. Then I use the Bankrate calculator http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx

assuming 4% inflation and 5% return and it tells me only $451,160 is required which leaves me a $178,840 pad.

Am I still on the mark?
I think it is a valuable exercise to run one's numbers though a number of calculators instead of relying on any one calculator (even our beloved FIRECalc). If all of them say you are doing OK, then that is helpful information. If any of them do not, to me that would be a red flag.
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Old 01-02-2016, 02:25 PM   #10
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Quote:
Originally Posted by Red Corvette View Post
OK so I take that expense number and run it in FIRECalc with my current $630k nest egg and I get a 100% success rate. Then I use the Bankrate calculator http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx

assuming 4% inflation and 5% return and it tells me only $451,160 is required which leaves me a $178,840 pad.

Am I still on the mark?
As long as history repeats itself - always the $64K question each of us has to decide for ourselves.
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Target AA: 60% equity funds / 35% bond funds / 5% cash
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Old 01-02-2016, 02:57 PM   #11
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It looks like you're retiring at 62. You'll need some medical insurance before Medicare starts at 65. ACA makes that easier. Your income will be under 4x the poverty level, so you should get a subsidy (assuming your assets are in tax-deferred accounts).

You can find premiums for Medicare Supplement insurance online, I'd look at those.

Don't forget long term care expenses. It appears you are single, so you may just be planning to fund LTC with normal cash flow plus proceeds from a house sale. That's fine, just be sure you have a plan.

This is a nice checklist of things to consider: Some Important Questions to Answer Before Asking - Can I Retire?
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Old 01-02-2016, 08:26 PM   #12
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Originally Posted by Red Corvette View Post
OK so I take that expense number and run it in FIRECalc with my current $630k nest egg and I get a 100% success rate. Then I use the Bankrate calculator http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx

assuming 4% inflation and 5% return and it tells me only $451,160 is required which leaves me a $178,840 pad.

Am I still on the mark?
For another data point, try running it through this (which many use) for a more conservative estimate, remembering it uses MC simulations (versus FIRECalc's historical data):

https://www.fidelity.com/calculators...uidance-center
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Old 01-04-2016, 05:53 AM   #13
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It looks like you're retiring at 62. You'll need some medical insurance before Medicare starts at 65. ACA makes that easier. Your income will be under 4x the poverty level, so you should get a subsidy (assuming your assets are in tax-deferred accounts).

You can find premiums for Medicare Supplement insurance online, I'd look at those.

Don't forget long term care expenses. It appears you are single, so you may just be planning to fund LTC with normal cash flow plus proceeds from a house sale. That's fine, just be sure you have a plan.

This is a nice checklist of things to consider: Some Important Questions to Answer Before Asking - Can I Retire?
I must admit I have not adequately considered medical issues so I thank you for bringing it up. I was looking into the supplemental insurance and turned up this article that suggests it might not be a good deal: Medicare Supplemental Policies: Do You Need One?*|*David Belk

On the other hand my mother has it and would not be without it.
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Retirement Budget
Old 01-04-2016, 09:51 AM   #14
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Retirement Budget

I tracked expenses in Quicken for several years to get an idea of our budget requirements. I'm retired and DH retires this May and we hope to sell our primary home that will eliminate all debts (no mortgage on retirement home).
I have a spreadsheet with our core expenses with a column that adds in the extras (travel, dining, recreation, maintenance, etc.).

I have the "bag lady syndrome" and tend to be more cautious about spending. DH has been cautious as well, but is leaning towards living a grander lifestyle after he retires.

We will see how it plays out :-0




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Old 01-05-2016, 12:53 PM   #15
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I must admit I have not adequately considered medical issues so I thank you for bringing it up. I was looking into the supplemental insurance and turned up this article that suggests it might not be a good deal: Medicare Supplemental Policies: Do You Need One?*|*David Belk

On the other hand my mother has it and would not be without it.
The medicare supplement insurance policies are usually in the $130-$200 "range", the $200/month that the article references is on the high end. It might be tough to add that to your budget but the thing is the "what if." You want something in place to cover the 20% co-insurance that you are responsible for if you end up having a big medical expense.

Another thing that in my opinion is really more important to consider is that when you first apply for a medicare supplement policy you have an "Open Enrollment" window where you cannot be denied approval for any reason. The window is 6 months starting on the first day of the first month that you are both 65 years old and enrolled in Medicare Part B. If you wait until you are outside of that window then the companies can require medical underwriting questions as part of your application and can deny you coverage or charge a higher monthly premium based on your health. Another option is a Medicare Advantage plan which is usually cheaper than a Supplement Plan but Advantage plans have limitations of in-network doctors and approved services. I am in medicare insurance so work with this info. daily.
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Old 01-05-2016, 08:21 PM   #16
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I forgot to mention -- don't forget to include that trip to Bowling Green in your plans.
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